SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended December 31, 1996
Commission File Number 33-7693
___________________________________________________________________________
VTX ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
___________________________________________________________________________
Delaware 11-2816128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
61 Executive Boulevard, Farmingdale, New York 11735
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (516) 293-1610
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _______
On February 1, 1997, 12,652,000 shares of common stock, $.10 par value and
12,375 shares of redeemable, cumulative, convertible preferred stock, $100
stated value were outstanding.
Note: This is Page 1 of a document consisting of 17 pages.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets - December 31, 1996 and June 30, 1996.............. 3
Statements of Operations - Six Months Ended
December 31, 1996 and 1995...................................... 4
Statements of Operations - Three Months Ended
December 31, 1996 and 1995...................................... 5
Statements of Cash Flows - Six Months Ended
December 31, 1996 and 1995.................... .................. 6
Notes to Condensed Consolidated Financial Statements............... 7-13
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 14-15
PART II- OTHER INFORMATION........................................... 16
SIGNATURES........................................................... 17
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash....................................... $ 355,804 $ 73,230
Accounts receivable, net of allowance
for doubtful accounts of $277,000 and
$221,000 as of December 31, 1996 and
June 30, 1996, respectively.............. 5,365,288 5,734,965
Inventories, net......................... 4,235,941 3,293,924
Prepaid expenses and other current
assets............................ ...... 156,537 620,747
TOTAL CURRENT ASSETS....................... 10,113,570 9,722,866
PROPERTY, PLANT AND EQUIPMENT, net........... 728,755 3,006,709
DEFERRED CHARGES AND OTHER ASSETS............ 435,137 398,813
TOTAL ASSETS................................. $11,277,462 $13,128,388
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt.......... $ 5,258,942 $ 21,747
Accounts payable and accrued expenses...... 6,709,728 4,535,025
Preferred stock dividends payable.......... 160,875 86,625
TOTAL CURRENT LIABILITIES.................. 12,129,545 4,643,397
LONG-TERM DEBT..... .......................... 49,596 6,388,495
SECURED SUBORDINATED DEBENTURES, net......... 2,547,022 3,107,908
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Redeemable, Cumulative, Convertible Preferred
stock, stated value $100 per share,
authorized 5,000,000 shares, 12,375 issued
and outstanding, net..................... 1,092,097 1,073,530
Common stock, par value $.10 per share;
authorized 40,000,000 shares; issued
and outstanding 12,652,000 shares ....... 1,265,200 1,265,200
Paid-in capital.......................... 9,416,226 9,416,226
Accumulated Deficit...................... (15,236,190) (12,763,881)
Cumulative foreign currency translation
adjustment............................... 13,966 (2,487)
TOTAL STOCKHOLDERS' DEFICIENCY (3,448,701) (1,011,412)
TOTAL LIABILITIES AND STOCKHOLDERS'DEFICIENCY $11,277,462 $13,128,388
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
1996 1995
Net sales.................................... $14,820,319 $14,135,614
Cost of goods sold........................... 12,261,144 12,108,238
Gross profit................................. 2,559,175 2,027,376
Selling, general and administrative expenses. 3,874,932 3,816,931
Interest expense............................. 713,251 378,625
Other (income) expense....................... 120,551 (2,933)
Recapitalization related charge.............. - 297,767
Net loss before extraordinary item........... (2,149,559) (2,463,014)
Extraordinary loss on early extinguishment
of debt, net............................... 248,500 -
Net loss..................................... (2,398,059) (2,463,014)
Dividends on preferred stock................. 74,250 12,375
Net loss attributable to common stock........ $(2,472,309) $(2,475,389)
Share Information
Loss per share............................... $ (.20) $ (.20)
Weighted average number of common shares
outstanding................................. 12,652,000 12,652,000
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1996 1995
Net sales.................................... $ 7,076,388 $ 6,557,570
Cost of goods sold........................... 5,967,474 6,032,242
Gross profit................................. 1,108,914 525,328
Selling, general and administrative expenses. 1,943,785 1,898,508
Interest expense............................. 363,915 208,976
Other (income) expense....................... 123,673 (396)
Recapitalization related charge.............. - 297,767
Net loss before extraordinary item........... (1,322,459) (1,879,527)
Extraordinary loss on early extinguishment
of debt, net............................... 248,500 -
Net loss..................................... (1,570,959) (1,879,527)
Dividends on preferred stock................. 37,125 12,375
Net loss attributable to common stock........ $(1,608,084) $ (1,891,902)
Share Information
Loss per share............................... $ (.13) $ (.15)
Weighted average number of common shares
outstanding................................. 12,652,000 12,652,000
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common stock.............. $(2,472,309) $(2,475,389)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization................... 419,779 266,158
Deferred compensation amortization.............. - 98,433
Provision for losses on accounts receivable..... 80,000 25,000
Provision for slow moving and obsolete
inventories.................................... 70,000 225,000
Loss on sale of Corporate Headquarters.......... 122,000 -
Change in operating assets and liabilities:
Decrease in accounts receivable.................. 289,677 419,623
(Increase) decrease in inventories............... (1,012,017) 676,048
Decrease in prepaid expenses and other
current assets................................. 464,210 70,047
(Increase) in other assets....................... (67,262) (42,735)
Increase in accounts payable and
accrued expenses............................... 2,237,175 (269,353)
Net cash (used in) provided by operating
activities...................................... 131,253 (1,007,168)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (112,398) (59,566)
Proceeds from sale of Corporate Headquarters..... 2,086,502 - __
Net cash used in investing activities............ 1,974,104 (59,566)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements.................. 16,767,905 14,643,798
Debt repayments................................... (18,607,141) (16,201,483)
Proceeds from issuance of debentures, net......... - 1,025,875
Proceeds from issuance of preferred stock, net.... - 1,025,875
Proceeds from issuance of warrants................ - 371,250
Net cash provided by (used in) financing
activities...................................... (1,839,236) 865,315
Effect of exchange rate changes on cash............ 16,453 6,987
NET INCREASE (DECREASE) IN CASH.................... 282,574 (194,432)
CASH at beginning of period........................ 73,230 583,388
CASH at end of period.............................. $ 355,804 $ 388,956
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 528,432 $ 356,969
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of VTX Electronics Corp. and its wholly-owned subsidiaries (the
"Company"), Vertex Technologies, Inc., Vertex Data Systems, Inc. [inactive],
and its foreign subsidiary, Vertex Technologies UK, LTD. All significant
intercompany transactions and balances have been eliminated in consolidation.
The consolidated balance sheet as of December 31, 1996 and the related
consolidated statements of operations and cash flows for the three and six
months ended December 31, 1996 and 1995, have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at December 31,
1996 and for all periods presented have been made. Results oations that may be
expected for the year ending June 30, 1997.
As described in Note 8, the Company file petitions for relief under Chapter
11 of the federal bankruptcy laws in the United States Bankruptcy Court for
the Eastern District of New York.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
Certain amounts in the prior years' condensed consolidated financial
statements have been reclassified to conform to the current year presentation.
2. INVENTORIES
Inventory consists principally for products held for sale. The Company
regularly reviews its inventory for obsolete and slow-moving items which
includes reviews of inventory levels of certain product lines and an
evaluation of the inventory based on changes in technology and markets. As
of December 31, 1996 and June 30, 1996, the reserve was approximately
$641,000 and $520,000, respectively.
December 31, June 30,
1996 1996
Raw Materials $ 40,363 $ 77,011
Work in Process 150,376 33,555
Finished Goods 4,045,202 3,183,358
Inventories, net $4,235,941 $3,293,924
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, June 30,
1996 1996
Revolving asset-based loan (a).............. $ 5,249,551 $5,097,664
First mortgage loan, net of imputed
interest (b)............................... - 1,029,053
Second mortgage loan (b).................... - 250,000
Capitalized lease obligations (c)........... 58,987 33,525
5,308,538 6,410,242
Less current portion of long-term debt...... 5,258,942 21,747
$ 49,596 $6,388,495
a. On February 10, 1995, the Company entered into an amended and restated
revolving credit agreement with a lending institution. Such agreement
provided for a revolving credit facility with maximum available of
$10,000,000 and expires on December 31, 1997. Under the terms of the credit
facility, the Company is required to pay interest at prime plus 2 3/4%
(11.0% at June 30, 1996) and a commitment fee of 1/2% per annum on the daily
unused portion of the credit. The agreement also provides for termination
fees as a result of default or early termination of .5% of the maximum credit
if such termination occurs before December 31, 1997, respectively. In
connection with this financing amendment, the Company incurred in fiscal 1995
costs approximating $80,000, which have been accounted for as deferred charges
and are being amortized through December 31, 1997. Under the terms of the
(constituting those amounts outstanding 90 days or less) and 50% of eligible
accounts receivable outstanding between 91 and 120 days, and 40% of regular
inventories and 20% of slow moving inventory. As of December 31, 1996, and
June 30, 1996, the Company had $5,094,000 and $5,431,000 availability under
the eligibility terms of the facility, of which $5,390,000 and $5,098,000 was
outstanding on such dates, respectively. On December 31, 1996, the Company was
advanced an additional $296,00 in excess of amounts available under this credit
facility. This loan is collateralized by substantially all of the assets of
the Company not otherwise collateralized. In connection with its revolving
credit facility, the Company is subject to restrictive covenants which impose
certain limitations with respect to the Company's incurrence of indebtedness,
capital expenditures, creation or recurrence of liens, declaration or payment
of dividends or other distributions, mergers, consolidations and sales or
purchases of substantial assets. In general, the Company is not allowed to
incur further indebtedness or create additional liens on its assets except
for unsecured current liabilities incurred in the ordinary course of business
or liabilities incurred in the ordinary course of business secured by purchase
money security interest not to exceed an aggregate of $750,000. The Company
is not allowed to make loans or investments or provide guarantees or to prepay
indebtedness. The Company is prohibited from paying dividends on common stock
and may not enter into a merger, consolidation or sale of all or substantially
all of its assets. Additionally, the Company is required to maintain
consolidated net worth, amended on March 15, 1996, to include subordinated
debentures, of not less than $750,000 and to maintain consolidated working
capital, defined as current assets less current liabilities and debt
outstanding under the credit facility, of not less than a negative $1.5
million. As of December 31, 1996, the Company is currently in default of the
latter covenant.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
b. The first mortgage loan is with a group of lenders, and is payable over
five years in monthly installments of $15,980, inclusive of principal and
interest at 14%, commencing May 1, 1994, with a final installment of
principal of $1,033,183 payable on April 1, 1999 and collateralized by a
first mortgage lien on the Company's corporate headquarters. In connection
with such loan, the Company issued to one of the lenders 250,000 common
stock purchase warrants exercisable on or before March 31, 2001 at an exercise
price of $.50 per share, which was subsequently reduced to $.125 per share. A
portion of the proceeds of the loan has been allocated to the warrants based on
the Company's Board of Directors' assessment of their fair value at the time
of issuance ($.70 per share). For financial statement purposes, the fair value
ascribed to the warrants of $175,781 has been deducted from the proceeds of the
mortgage loan as additional interest expense and is being amortized over the
term of the mortgage to yield an effective interest rate of approximately 20%
per annum.
The second mortgage loan is with substantially the same group of lenders,
and is payable over five years in monthly installments of $3,630, inclusive
of principal and interest at 14.875%, commencing August 1, 1996, with a
final installment of principal of $204,206 payable on July 1, 2001 and
collateralized by a second mortgage lien on the Company's corporate
headquarters. In connection with such loan, the Company issued 1,250,000
common stock purchase warrants, which are exercisable beginning April 1, 1999
through March 31, 2009 at an exercise price of $.125 per share.
On December 20, 1996, the first and second mortgage loans were satisfied
using the proceeds from the sale of the Company's headquarters in
Farmingdale, NY. In addition, a portion of the remaining proceeds were used
to retire approximately $750,000 of the secured subordinated debentures, as
described in Note 4. Accordingly, the Company recorded an extraordinary loss
totaling $248,500 related to the early extinguishment of the mortgages and
secured subordinated debt. The extraordinary loss consists primarily of the
write-off of the associated debt discount and deferred debt costs, prepayment
penalties, and other costs associated with the retirement of debt. There was no
tax benefit recognized for the extraordinary item because it increased net loss
for the period.
c. The Company leases its telephone system under agreements accounted for as
capital leases. The obligation for the telephone system requires the Company
to make monthly payments of $1,963 through December 1997.
The following is a summary of the aggregate annual maturities of long-term
debt (excluding the secured subordinated debentures, as described in Note 4):
December 31: Total
1997 $ 5,294,047
1998 20,940
1999 10,000
2000 -
2001 -
Thereafter -
$ 5,325,457
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. SECURED SUBORDINATED DEBENTURES, PREFERRED STOCK AND WARRANTS ISSUED
Under a Capitalization Agreement (the "Agreement") signed on December 1,1995,
the Company received $2,475,000 from an unaffiliated investor group ("new
investors")in exchange for Secured Subordinated Debentures (the "debentures")
with a principal amount of $1,237,500, 12,375 shares of Senior Redeemable
Cumulative Convertible Preferred Stock ("preferred stock")with a stated value
of $100 per share and warrants to purchase 19,800,000 shares of common stock
of the Company.
The debentures are due on June 19, 2001 and accrue interest at an annual rate
of 2% over the published prime rate of interest (10.25% at June 30, 1996),
payable quarterly over the life of the bonds. Such bonds are secured by all
of the assets of the Company, however, subordinate to the secured debt under
the revolving asset based loan and the mortgage loans described in Note 3.
The preferred stock is redeemable on December 1, 2000 for $1,237,500 in cash
or common stock, based upon the lower of 70% of the fair market value of the
underlying common stock on such date or $.25 per common share, at the option
of the Company. The preferred shareholders are entitled to receive dividends
quarterly at an annual fixed rate of 12%, the effect of which is cumulative
to the extent the Company does not make such quarterly payment on the
prescribed basis. Since June 1, 1996 and through December 1, 2000, each
preferred share may be converted into common stock of the Company at a
conversion rate of $.25 per share (400 common shares for each preferred share
converted). Each share of preferred stock contains 1,500 votes or voting rights
all matters being voted on by the shareholders of the Company other than the
election of directors. Additionally, the holders of the preferred stock,
voting as a class, shall in each year elect seventy-five percent of the members
of the Board of Directors of the Company. Effective December 1, 1995 and
pursuant to the Agreement, the existing Board of Directors ("former directors")
resigned in favor of a new Board of Directors ("new directors").
The warrants to purchase common stock of the Company issued under the
Agreement to the new investors are currently exercisable at $.125 per common
share and have a term commencing June 1, 1996 and expiring December 1, 2000
for 4,950,000 of the warrants and an additional term commencing April 1, 1999
and expiring March 31, 2009 for the remaining 14,850,000 warrants. In
connection with these issuances, the Company recorded a discount on the bonds
payable of $185,625 and a discount on preferred stock of $185,625, representing
the estimated relative fair market value of the warrants on the date of such
issuance as determined by teh Company, which will be recognized as interest
expense and preferred stock dividends, respectively, on a straight line basis
over the 60 month term of the Agreement.
Expenses of approximately $104,000 relating to various legal, accounting,
consulting and other fees were incurred in connection with the Agreement,
$52,000 of which has been attributed to the issuance of the bonds, which has
been recorded as a deferred charge and is being amortized over the 60 month
term on a straight line basis, and $52,000 of which has been attributed to
the issuance of he preferred stock, which has been recorded as a direct
reduciton to the equity received by the Company.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 21, 1996, and June 19, 1996, the Company received an additional
$1,237,500 and $1,290,000, respectively, from the new investors and certain
additional individual and institutional investors, in exchange for additional
Secured Subordinated Debentures for a principal amount of $1,237,500 and
$1,290,000 and warrants to purchase 24,750,000 and 25,800,000 shares of
common stock of the Company, respectively.
The debentures are substantially identical and pari passu with the debentures
issued on December 1, 1995. Accordingly, such debentures are due on June 19,
2001 and accrue interest at an annual rate of 2% over the published prime
rate of interest, payable quarterly over the life of the debentures. Such
debentures are secured by all of the assets of the Company, however,
subordinate to the secured debt under the revolving asset based loan and the
mortgage loans as described in Note 3.
The warrants to purchase 50,550,000 shares of common stock of the Company are
exercisable at $.125 per common share and have a term commencing April 1,
1999 and expiring on March 31, 2009. In addition, the exercise price for the
19,800,000 warrants issued in connection with the December 1, 1995 agreement
was reduced from $.25 to $.125 per share in connection with the March
financing. The exercise of these warrants is contingent upon the
authorization, by the shareholders, of additional authorized common stock. In
connection with this issuance, the Company recorded a discount on the secured
subordinated debentures of $247,500 and $258,000 in March and June 1996,
respectively, which represents the estimated fair market value of teh warrants
on the date of such issuance as determined by the Company, which will be
recognized as interest expense on a straight line basis over the 60 month term
of the agreement.
Expenses of approximately $25,000 and $174,000 in March and June 1996,
respectively, relating to various legal, accounting and other fees incurred
in connection with the financing have been recorded as a deferred charge and
are being amortized over the 60 month term on a straight line basis.
On December 20, 1996, the Company paid pro-rata to all subordinated debenture
holders, the sum of $750,000 with the proceeds received from the closing of
the sale of the Farmingdale, New York facility. The Company recorded an
extraordinary loss related to the early extinguishment. See Notes 3b and 6.
5. SALE OF CORPORATE HEADQUARTERS
On December 20, 1996, the Company sold its 45,000 square foot corporate
headquarters in Farmingdale, NY to an unaffiliated third party. The Company
used proceeds of approximately $2,332,000 to retire the first and second
mortgages and a portion of the secured subordinated debentures, as described
in Notes 3 and 4.
The Company recognized a loss of approximately $122,000 on the sale of the
headquarters. The losses included in other (income) expense for the three
month and six month periods ended December 31, 1996, in the accompanying
statements of operations.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
a. Employment Agreements
On March 31, 1994, the Company entered into an employment agreement with its
then president which required total annual minimum compensation of $200,000
through March 1997 plus an annual bonus based on a percentage of specified
levels of achieved net profits. Effective December 1, 1995, this agreement
was terminated in connection with his resignation and the obligation was
settled for $134,000, charged to fiscal 1996 operations and is payable
monthly through March 1997 (see Note 8).
On January 1, 1996, the Company entered into employment agreements with two
of its newly appointed executive officers. The terms of these agreements
extend through December 31, 1997 and provide for monthly compensation
payments of $11,250 each (see Note 8).
b. Management Agreement
On January 1, 1996, the Company entered into a management agreement with a
consulting firm whereby the Company has retained one of the consulting firm's
principals to function as its Chairman of the Board and Chief Executive
Officer. The term of this agreement extends through December 31, 2000 and
requires monthly management fees of $12,000, provided however, that the
Company does not hire a president or chief operating officer during that
period of time. To the extent that a president or chief operating officer
during that period of time. To the extent that a president or chief operating
officer is hired by the Company, the management fee will be reduced to $5,000
per month for any remaining term of the agreement.
c. Leases
The Company's minimum annual lease commitments under noncancellable operating
leases for premises at December 31, 1996 are as follows:
December 31:
1997 182,724
1998 154,604
1999 77,685
2000 25,656
$ 440,669
Rent expense, including related real estate taxes and other operating
charges, was approximately $333,664 and $305,488 for the six months ended
December 31, 1996 and 1995, respectively.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
d. Litigation
An action was commenced in the New York State Supreme Court, County of
Nassau, by CPI Aerostructures, Inc.("CPI"), alleging that the Company had
wrongfully failed to consummate a proposed merger transaction. The plaintiff
is seeking "break-up" fee damages in the amount of $400,000. The Company has
served an answer and counterclaim, denying any wrongdoing and alleging that
CPI misled the Company by failing to adequately disclose material losses.
The case is in its early stages, however management believes the Company has a
meritorious defense and will vigorously defend the action.
7. TERMINATION OF INTENT TO MERGE WITH ELCAN TECHNOLOGIES, INC.
On October 3, 1996, the Company signed a letter of intent to purchase the net
assets of Elcan Technologies, Inc. ("Elcan") through the issuance of a
combination of cumulative convertible preferred stock, and other debt and
equity securities. On December 24, 1996, the Company terminated the letter
of intent.
8. SUBSEQUENT EVENTS - PETITION FOR RELIEF UNDER CHAPTER 11
On January 10, 1997, the Company (the "Debtor") filed petitions for relief
under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Eastern District of New York. Under Chapter 11,
certain claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-possession. Additional
claims (liabilities subject to compromise) may arise subsequent to the filing
date resulting from rejection of executory contracts, including leases, and from
the determination by the courts (or agreed to by parties in interest) of allowed
claims for contingecies and other disputed amounts. Claims secured against the
Debtor's assets ("secured claims") also are stayed, although the holders of such
claims have the right to move the court for relief from the stay. Secured
claims are secured primarily by liens on the Debtor's property, plany and
equipment, accounts receivables and inventories.
The debtor received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including employee wages.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended December 31, 1996 and 1995
Net sales for the six months ended December 31, 1996 increased $684,000 or 5%
to $14,820,000 compared to $14,136,000 for the six months ended December 31,
1995. Value added distribution sales decreased approximately $724,000 or 8%
to $8,354,000, for the six months ended December 31, 1996 from $9,078,000 for
the six months ended December 31, 1995. Sales of manufactured cable
assemblies increased approximately $1,408,000 or 28% to $6,466,000 for the
six months ended December 31, 1996 from $5,058,000 for the six months ended
December 31, 1995. The increase in sales is attributable to a re-established
sales force and the return of certain key customers.
Gross profit for the six months ended December 31, 1996 increased $532,000 or
26% to $2,559,000 from $2,027,000 for the six months ended December 31, 1995.
Gross profit as a percentage of sales was 17.3% for the six months ended
December 31, 1996 compared to 14.3% for the six months ended December 31,
1995. The increase in gross profit margin is partially due to a $225,000
provision for slow moving and obsolete inventories recorded during the six
months ended December 31, 1995 and also attributable to sales focus on marginal
projects.
Selling, general and administrative expenses increased $58,000 to $3,875,000
for the six months ended December 31, 1996 from $3,817,000 for the six months
ended December 31, 1995 due to the increase in sales.
Interest expense, including dividends on preferred stock, increased $397,000
or 102% to $788,000 for the six months ended December 31, 1996 from $391,000
for the six months ended December 31, 1995. The increase was due to the
subordinated debentures and preferred stock outstanding during the six months
ended December 31, 1996 which were not respectively outstanding during the
six months ended December 31, 1995.
Other (income) expense consists primarily of the loss recorded on the sale of
the Company's headquarters of approximately $122,000.
Results of Operations
Quarter Ended December 31, 1996 and 1995
Net sales for the quarter ended December 31, 1996 increased $518,000 or 8% to
$7,076,000 compared to $6,558,000 for the quarter ended December 31, 1995.
Value added distribution sales decreased approximately $111,000 or 3% to
$3,869,000, for the quarter ended December 31, 1996 from $3,980,000 for the
quarter ended December 31, 1995. Sales of manufactured cable assemblies
increased approximately $629,000 or 24% to $3,207,000 for the quarter ended
December 31, 1996 from $2,578,000 for the quarter ended December 31, 1995. The
increase in sales is attributable to a re-established sales force and the return
of certain key customers.
Gross profit for the quarter ended December 31, 1996 increased $584,000 or
111% to $1,109,000 from $525,000 for the quarter ended December 31, 1995.
Gross profit as a percentage of sales was 15.7% for the quarter ended
December 31, 1996 compared to 8.0% for the quarter ended December 31, 1995.
The increase in gross profit margin is partially due to a $225,000 provision
recorded for slow moving and obsolete inventory during the quarter ended
December 31, 1995 and also attributable to sales focus on marginal projects.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, general and administrative expenses increased $45,000 to $1,944,000
for the quarter ended December 31, 1996 from $1,899,000 for the quarter ended
December 31, 1995 due to the increase in sales.
Interest expense, including dividends on preferred stock, increased $180,000
or 81% to $401,000 for the quarter ended December 31, 1996 from $221,000 for
the quarter ended December 31, 1995. The increase was due to the subordinated
debentures and preferred stock outstanding during the quarter ended December 31,
1996 which were not respectively outstanding during the quarter ended December
31, 1995.
Other expense (income) consists primarily of the loss recorded on the sale of
the Company's headquarters of approximately $122,000.
Liquidity and Financial Condition
As of December 31, 1996
Current assets have increased $391,000 to $10,114,000 at December 31, 1996
from $9,723,000 at June 30, 1996. This increase resulted primarily from an
increase in the company's cash and inventory offset by a decrease in accounts
receivable and prepaid expenses and other current assets. The Company has net
working capital of ($2,016,000) at December 31, 1996 as compared to
$5,079,000 at June 30, 1996 due to the reclassification of the Company's
revolving asset based loan to current portion of long term debt. Total
borrowings outstanding were $7,855,560 at December 31, 1996 as compared to
$9,518,150 at June 30, 1996. The decrease was due primarily to the Company
satisfying certain mortgages of approximately $1,276,000 on the Company's
headquarters in Farmingdale, NY, which was sold (see Note 5). In addition,
$750,000 was prepaid to the subordinated debenture holders using the remaining
proceeds from the sale of teh Company's headquarters. Offsetting the above
reduction is an increase in the amount outstanding under the Company's
revolving credit facility of approximately $152,000.
On January 10, 1997, the Company (the "Debtor") filed petitions for relief
under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Eastern District of New York. Under Chapter 11,
certain claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-possession. Additional
claims (liabilities subject to compromise) may arise subsequent to the filing
date resulting from refection of executory contracts, including leases, and from
the determination by the courts (or agreed to by parties in interest) of allowed
claims for contingencies and other disputed amounts. Claims secured against
the Debtor's assets ("secured claims") also are stayed, although the holders of
such claims have the right to move the court for relief from the stay. Secured
claims are secured primarily by liens on the Debtor's property, plant and
equipment, accounts receivables and inventories.
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
An action was commenced in the New York State Supreme Court, County of
Nassau, by CPI Aerostructures, Inc.("CPI"), alleging that VTX Electronics
Corp. had wrongfully failed to consummate a proposed merger transaction. The
plaintiff is seeking "break-up" fee damages in the amount of $400,000. VTX
has served an answer and counterclaim, denying any wrongdoing and alleging
that CPI misled VTX by failing to adequately disclose material losses. The
case is in its very early stages, however management believes VTX has a
meritorious defense and will vigorously defend the action.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A Form 8-K was filed on January 15, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VTX ELECTRONICS CORP.
By:
Albert Wroth
Chief Executive Officer
By:
Nicholas T. Hutzel
Chief Financial Officer
Dated: February 14, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VTX ELECTRONICS CORP.
By: /s/ Albert Roth
Chief Executive Officer
By: /s/ Nicholas T. Hutzel
Chief Financial Officer
Dated: February 14, 1997
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