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 March 31, 1998
Commission File Number 33-7693
___________________________________________________________________________
VERTEX COMPUTER CABLE & PRODUCTS, INC.
(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)
920 Conklin Street, 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 _ No ___X____
On December 1, 1998, 25,324,000 shares of common stock, $.10 par value were
outstanding.
Note: This is Page 1 of a document consisting of 17 pages.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets - March 31, 1998 and June 30, 1997................. 3
Statements of Operations - Nine Months Ended
March 31, 1998 and 1997......................................... 4
Statements of Operations - Three Months Ended
March 31, 1998 and 1997......................................... 5
Statements Changes in Stockholders' (Deficiency) for
the nine months ended Mar 31, 1998 and 1997..................... 6
Statements of Cash Flows - Nine Months Ended
March 31, 1998 and 1997......................................... 7
Notes to Condensed Consolidated Financial Statements............... 8-13
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 14-15
PART II- OTHER INFORMATION........................................... 16
SIGNATURES........................................................... 17
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
1998 1997
ASSETS ------------- -------------
CURRENT ASSETS:
Cash....................................... $ 55,955 $ 194,462
Accounts receivable, net of allowance
for doubtful accounts of $104,000 and
$241,000 as of March 31, 1998 and
June 30, 1997, respectively.............. 874,200 1,866,423
Inventories, net........................... 1,323,067 2,781,650
Prepaid expenses and other current
assets............................ ...... 138,158 98,437
------------ ------------
TOTAL CURRENT ASSETS....................... 2,391,380 4,940,972
PROPERTY, PLANT AND EQUIPMENT, net........... 550,817 565,279
DEFERRED CHARGES AND OTHER ASSETS............ 71,727 156,613
------------ ------------
TOTAL ASSETS................................. $ 3,013,924 $ 5,662,864
============ =============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current portion of long-term debt.......... $ 1,871,001 $ 2,280,433
Accounts payable and accrued expenses...... 1,704,356 1,324,721
Bankruptcy distributions payable........... 780,000 -
Due to affiliate........................... 283,000 183,000
------------ ------------
TOTAL CURRENT LIABILITIES ............... 4,638,357 3,788,154
LONG-TERM DEBT, NET OF CURRENT PORTION....... 69,658 28,520
LIABILITIES SUBJECT TO COMPROMISE............ - 6,191,880
SECURED SUBORDINATED DEBENTURES, net......... 2,148,598 2,182,347
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 at June 30, 1997.... - 1,110,661
Common stock, par value $.10 per share;
authorized 40,000,000 shares; issued
and outstanding 25,304,000 and 12,652,000
shares, respectively............. ....... 2,530,400 1,265,200
Paid-in capital............................ 9,361,887 9,416,226
Accumulated Deficit........................ (15,734,976) (18,320,053)
Cumulative foreign currency translation
adjustment............................... - (71)
------------- ------------
TOTAL STOCKHOLDERS' (DEFICIENCY) (3,842,689) (6,528,037)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIENCY)............................... $ 3,013,924 $ 5,662,864
============= ============
The accompanying notes are an integral part of these financial statements.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
March 31,
1998 1997
----------- -----------
Net sales.................................... $ 6,201,736 $18,394,919
Cost of goods sold........................... 5,974,861 15,459,331
----------- -----------
Gross profit................................. 226,875 2,935,588
Selling, general and administrative expenses. 2,273,312 5,530,378
Interest expense............................. 272,285 965,062
Other (income) expense....................... (43,972) 117,449
Loss on sale of corporate headquarters....... - 248,500
Chapter 11 Reorganization-related expenses... 268,140 278,285
------------ ------------
Loss before extraordinary items.............. $(2,542,890) $(4,204,086)
Extraordinary items:
Loss on early extinquishment of debt........ - (120,000)
Gain on discharge of Bankruptcy Debt........ 5,127,967 -
------------ -----------
Net income (loss)............................ 2,585,077 (4,324,086)
Dividends on preferred stock................. - 111,375
----------- ------------
Net income (loss) attributable to
common stock............................ $ 2,585,077 $(4,435,461)
=========== ============
Basic income (loss) per share
Loss before extraordinary item............... $ (.14) $ (.34)
Extraordinary item........................... .28 (.01)
------------ ------------
Net income (loss)............................ $ .14 $ (.35)
============ ============
Weighted average number of common shares
outstanding - basic......................... 18,304,000 12,652,000
============ ============
The accompanying notes are an integral part of these financial statements.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1998 1997
------------ ------------
Net sales.................................... $ 2,203,461 $ 3,574,598
Cost of goods sold........................... 2,248,050 3,198,185
------------ ------------
Gross profit (loss) ......................... (44,589) 376,413
Selling, general and administrative expenses. 695,377 1,775,445
Interest expense............................. 101,517 251,812
Other income................................. - (3,104)
Chapter 11 Reorganization related expenses... 77,543 278,285
------------ -----------
Loss before extraordinary item............... (919,026) (1,926,025)
Extraordinary item
Gain on discharge of Bankruptcy Debt........ 5,127,967 -
----------- -----------
Net income (loss)............................ 4,208,941 (1,926,025)
Dividends on preferred stock................. - 37,125
Net income (loss) attributable to common
stock...................................... $ 4,208,941 $(1,963,150)
=========== ============
Basic income (loss) per share
Loss before extraordinary item............... $ (.04) $ (.16)
Extraordinary item........................... .20 -
------------ ------------
Net income (loss)............................ $ .16 $ (.16)
============ ============
Weighted average number of common shares
outstanding - basic......................... 25,304,000 12,652,000
============ ============
The accompanying notes are an integral part of these financial statements.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative Total
transla- stock
Preferred Common Accumu- tion holders'
Preferred stock Common stock Paid-in lated adjust- equity
shares amount Shares amount capital Deficit ment (deficiency)
________ _________ __________ __________ __________ ____________ __________ ____________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 12,375 $1,073,530 12,652,000 $1,265,200 $9,416,226 $(12,763,881) $(2,487) $(1,011,412)
Net Loss attributable to
common stock (4,435,461) (4,435,461)
Foreign Translation adjustment 8,998 8,998
Amortization of discount on 27,849
preferred stock 27,849
________ __________ __________ __________ __________ ____________ __________ ____________
Balance at March 31, 1997 12,375 $1,101,379 12,652,000 $1,265,200 $9,416,226 $(17,199,342) $ 6,511 $(5,410,026)
======== ========== ========== ========== ========== ============ ========== ============
Cumulative Total
transla- stock
Preferred Common Accumu- tion holders'
Preferred stock Common stock Paid-in lated adjust- equity
shares amount Shares amount capital Deficit ment (deficiency)
_________ _________ ___________ __________ __________ ____________ _________ ____________
Balance at July 1, 1997 12,375 $1,110,661 12,652,000 $1,265,200 $9,416,226 $(18,320,053) $ (71) $(6,528,037)
Net income attributable to
common stock 2,585,077 2,585,077
Foreign Translation adjustment 71 71
Cancellation of preferred stock
and conversion to common
stock per Plan (12,375) (1,110,661) 22,773,600 2,277,360 (1,166,699) -
Exchange of one share for five
shares of common stock
per Plan (10,121,600) (1,012,160) 1,012,160
Debt forgiveness by principal
stockholder, net of discount 100,200 100,200
_________ __________ ___________ __________ __________ ____________ _________ ____________
Balance at March 31, 1998 - - 25,304,000 $2,530,400 $9,361,887 $(15,734,976) $ - $(3,842,689)
========= ========== =========== ========== ========== ============= ========= ============
</TABLE>
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1998 1997
----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to common stock..... $2,585,077 $ (4,435,461)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.................. 218,279 526,048
Provision for losses on accounts receivable.... 15,000 245,000
Provision for slow-moving and obsolete
inventories.................................... 250,000 70,000
Loss on sale of corporate headquarters........... - 122,000
Gain on discharge of Bankruptcy debt............. (5,127,967) -
Change in operating assets and liabilities:
Decrease in accounts receivable................ 977,223 2,316,571
Decrease (increase) in inventories............. 1,208,583 (186,564)
(Increase) decrease in prepaid expenses and
other current assets......................... (39,721) 565,657
Decrease in other assets....................... 84,886 205,301
Increase in accounts payable and
accrued expenses............................. 95,792 3,026,056
------------ -----------
Net cash provided by operating activities........ 267,152 2,454,608
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (137,365) (80,769)
Proceeds from sale of headquarters, net......... - 2,086,502
------------ -----------
Net cash (used in) provided by investing
activities...................................... (137,365) 2,005,733
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt and loan agreements.......... 6,733,483 20,016,070
Loan proceeds from affiliate....................... 100,000 -
Debt repayments.................................... (7,101,777) (24,173,053)
------------- ------------
Net cash (used in) financing activities............. (268,294) (4,156,983)
------------- ------------
Effect of exchange rate changes on cash............. - 8,998
------------- ------------
NET (DECREASE) INCREASE IN CASH..................... (138,507) 312,356
CASH at beginning of period......................... 194,462 73,230
------------- ------------
CASH at end of period............................... $ 55,955 $ 385,586
============= ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 230,514 $ 812,448
============ ============
The accompanying notes are an integral part of these financial statements.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION & PETITION FOR RELIEF UNDER CHAPTER 11
Vertex Computer Cable & Products, Inc., operates primarily in one
business segment - assembly and distribution of electronic wire, cable
and related products used primarily for data communication and
distribution. The principal market for the Company's products is in
the United States.
The condensed consolidated balance sheet as of March 31, 1998 and the
related consolidated statements of operations, changes in stockholders'
deficiency and cash flows for the three and nine months ended March 31,
1998 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 consolidated financial
position, results of operations and changes in cash flows at March 31,
1998 and for all periods presented have been made. Results of operations
for the three and nine months ended March 31, 1998 are not necessarily
indicative of results of operations that may be expected for the year
ending June 30, 1998. 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,
1997.
On January 10, 1997, the Company 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. As a result
of the Chapter 11 proceedings, the Company petitioned to liquidate or
settle liabilities for amounts other than those reflected in the
accompanying consolidated financial statements.
The June 30, 1997 balance sheet, in which the Company was operating as
a Debtor-in-Possession ("DIP"), includes the classification of
"liabilities subject to compromise" (see Note 2).
2. PLAN OF REORGANIZATION
On October 30, 1997, the Company's second amended plan of
reorganization and disclosure statement (the "Plan") was confirmed
by the United States Bankruptcy Courts in Westbury, New York. The
confirmed Plan became effective on January 12, 1998 concurrent with
the Company's consummation of exit financing.
The Plan called for unsecured creditors with claims greater than
$1,000 ("Class 7") to receive 13.5% of their claim in quarterly
installments over the next twelve months and future distributions
based on cash flow (as defined) over the next five years. Unsecured
creditors with claims less than $1,000 ("Class 6") will receive a
distribution of 20% of their claim. The initial distribution payments
and certain other administrative claims are guaranteed by TW
Communication Corp. Under the Plan, the Company's wholly-owned
subsidiary, Vertex Technologies, Inc., merged into the Company, and
the Company changed its name to Vertex Computer
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PLAN OF REORGANIZATION (CONTINUED)
Cable & Products, Inc. Under the Plan, 25.3 million of the Company's
40 million authorized shares of common stock were issued and
outstanding. Effective December 29, 1997, each five shares of the
Company's common stock outstanding were exchanged for one share of the
surviving entity. As a result, holders of the Company's currently
outstanding 12,652,000 common stock shares received 2,530,400 post-
reorganization shares. Further, the preferred shareholders exchanged
such outstanding preferred stock and forgave accrued dividends for
22,773,600 common stock shares, representing 90% of the post-
reorganization outstanding common stock.
Under the Plan, secured subordinated debenture holders (Class 5
debenture claims) were paid 13.5% of accrued interest and the terms of
the subordinated debentures were modified to include; 1) an extension
of the maturity and payment of the subordinated debentures to January
12, 2005 and 2) reduction of the interest rate to 8%. All other rights
pursuant to the subordinated debentures were cancelled.
Liabilities Subject to Compromise (see Note 3) were eliminated on
January 12, 1998, the effective date and reported as an extraordinary
item on the statements of operations for the three and nine months
ended March 31, 1998.
3. LIABILITIES SUBJECT TO COMPROMISE
The Company's liabilities subject to compromise through December 31,
1997 were recorded at the amounts which had been allowed by the
Bankruptcy Court rather than the amounts which were actually settled
under the Plan of Reorganization on the effective date.
On January 12, 1998, the Company recorded the discharge of bankruptcy
debt and recorded a gain of $5,127,967, paid claims aggregating
approximately $53,000 and recorded a liability for bankruptcy
distributions of $780,000, which was originally payable over twelve
months. Subsequent to January 12, 1998, the unsecured creditors agreed
to delay the initial payment until November 15, 1998 in exchange for a
guarantee in the form of cash escrow payment by the Company's
principal stockholder, TW Cable, LLC. ("TW").
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. 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 March 31, 1998 and June 30, 1997, the
reserve was approximately $825,000 and $575,000, respectively.
March 31, June 30,
1998 1997
----------- -----------
Raw Materials $ 62,961 $ 80,142
Work in Process 17,481 46,885
Finished Goods 1,242,625 2,654,623
----------- -----------
Inventories, net $1,323,067 $2,781,650
=========== ===========
5. LONG-TERM DEBT
Long-term debt consists of the following: March 31, June 30,
1998 1997
----------- -----------
Revolving asset-based loan (a).............. $ 1,822,999 $2,253,774
Capitalized lease obligations (b)........... 117,660 55,179
----------- -----------
1,940,659 2,308,953
Less current portion of long-term debt...... 1,871,001 2,280,433
----------- -----------
$ 69,658 $ 28,520
=========== ===========
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 a maximum available line of
$10,000,000 through December 31, 1997.
As a result of the Company filing for Chapter 11 on January 10, 1997, the
Company entered into a court-approved DIP Financing agreement with such
lending institution. Under the terms of the DIP Financing agreement, the
Company is required to pay interest at prime plus 2 3/4% 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.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT - (CONTINUED)
Under the terms of the post-effective date Financing agreement with the
same financial institution, of which the maximum borrowings and interest
rate are the same, borrowings are limited to 75% of eligible accounts
receivable (constituting those amounts outstanding 90 days or less) and 50%
of eligible accounts receivable outstanding between 91 and 120 days, and
24% of regular inventories and 20% of slow moving inventory. As of March
31, 1998, the Company had $1,895,000 availability under the eligibility
terms of the facility, of which $1,858,000 was outstanding on such date.
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, 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 March 31, 1998, the Company
was in default of certain covenants of the aforementioned agreement.
b. On July 28, 1998 the Company refinanced the aforementioned financing
agreement with a financial institution. The new agreement provides for
a maximum borrowing of $3,000,000 through May 31, 2001. Total borrowings
are limited to 85% of eligible accounts receivable (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 10% of slow moving inventory. Under the terms of the July
28, 1998 refinancing, the Company is required to pay interest at prime
plus 2 1/2% and an initial commitment fee of 1.25% and 1% per annum for
the second and third year. Additionally, the Company is required to
maintain Tangible net worth, (the aggregate amount of all assets, less
intangible assets, of the Company less the aggregate amount of all
liabilities of the Company excluding subordinated liabilities to Lender)
not less than $(750,000) and Working Capital of not less than $(500,000).
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT - (CONTINUED)
c. The Company leases certain warehouse and manufacturing equipment accounted
for as capital leases. The obligation for the warehouse equipment
requires the Company to make monthly payments of $1,240 through May 2000.
During the nine month period the Company leased certain manufacturing
equipment totaling approximately $111,000 that requires the Company to
make monthly payments of approximately $3,107 through August 2000.
The following is a summary of the aggregate annual maturities of long-term
debt (excluding the secured subordinated debentures, as described in Note
7):
March 31, Total
------------ -------------
1999 $ 1,871,001
2000 52,164
2001 17,494
------------
$ 1,940,659
============
6. COMMITMENTS
a. Leases
The Company's minimum annual lease commitments under noncancellable
operating leases for premises at March 31, 1998 are as follows:
March 31:
1999 320,461
2000 195,069
2001 198,006
----------
$ 713,536
==========
Rent expense, including related real estate taxes and other operating
charges, was approximately $268,489 and $534,117 for the nine months
ended March 31, 1998 and 1997, respectively.
7. SECURED SUBORDINATED DEBENTURES
Pursuant to an Exchange Offer, effective as of January 12, 1998,
between TW, whose owner is the Company's Chairman, Chief Executive
Officer, principal stockholder and subordinated debenture holder, and
holders of another $400,000 debentures, TW purchased all except $92,633
debentures for cash and stock held by TW. The terms of all outstanding
subordinated debentures were modified, pursuant to the Plan (see Note
2) to an interest rate of 8% per annum, payable semi-annually with the
principal due on January 12, 2005.
The subordinated debentures remain secured by all of the Company's
assets subordinated to all current and future institutional loan
facilities. In addition, payments on account of the subordinated
debentures shall be subordinated to future cash distributions based on
cash flows to the unsecured (Class 7) creditors under the Plan.
On January 12, 1998, TW forgave $115,000, exclusive of the related debt
discount of $14,800, of the $2,423,000 in debentures held. The
forgiveness was accounted for as a capital contribution with as an
adjustment to Paid-in-Capital.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. DUE TO AFFILIATE
As of March 31, 1998, amounts due to the affiliate, TW are non-interest
bearing.
9. EXTRAORDINARY ITEM
In connection with the discharge of bankruptcy debt on January 12, 1998,
the Company recognized an extraordinary gain, net of tax, of $5,127,967.
This item is excluded from taxable income pursuant to the internal
revenue code bankruptcy provisions. The Company's net operating loss
carryover has been reduced by the amount of the debt discharged.
10. EARNINGS (LOSS) PER SHARE
In the third quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share,"
which requires public companies to present basic earnings per share and,
if applicable, diluted earnings per share. In accordance with SFAS No.
128, all comparative periods have been restated, if applicable. Basic
earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock.
Diluted earnings per share are based on the weighted average number of
common and potential common shares outstanding. The calculation takes
into account the shares that may be issued upon exercise of stock
options, reduced by the shares that may be repurchased with the funds
received from the exercise, based on the average price during the period.
The Company had no potential common shares outstanding at March 31, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended March 31, 1998 and 1997
- -----------------------------------------
Net sales for the nine months ended March 31, 1998 decreased $12,193,000
or 66.3% to $6,202,000 compared to $18,395,000 for the nine months ended
March 31, 1997. The decrease is a result of the Company focusing on
manufacturing sales only since filing Chapter 11 on January 10, 1997 (Note
1). The prior year nine months includes distribution sales of
approximately $10,199,000.
Gross profit for the nine months ended March 31, 1998 decreased $2,709,000
or 92.3% to $227,000 from $2,936,000 for the nine months ended March 31,
1997. Gross profit as a percentage of sales was 3.7% for the nine months
ended March 31, 1998 compared to 16.0% for the nine months ended March 31,
1997. The decrease in gross profit is due to the decrease in sales. A
provision of $250,000 for slow-moving and obsolete inventory is included
for the nine months ended March 31, 1998.
Selling, general and administrative expenses decreased $3,257,000 or 59%
to $2,273,000 for the nine months ended March 31, 1998 from $5,530,000 for
the nine months ended March 31, 1997 due to the Company decreasing
payrolls and other expenses after the Chapter 11 filing (see Note 1).
Interest expense, including dividends on preferred stock, decreased
$693,000 or 71.8% to $272,000 for the nine months ended March 31, 1998
from $965,000 for the nine months ended March 31, 1997. This reduction is
due to the reduced borrowing levels of the Company's credit facility and
non-existence of bond discount and preferred stock dividends. The nine
month ending March 31, 1997 included bond discount amortization of
approximately $252,000 and accrued preferred stock dividends of $111,000.
Chapter 11 Reorganization related expense for the nine months ended March
31, 1998 of $268,000 decreased $10,000 from the prior year period. Such
expense includes fees for legal, accounting, financing and consulting
services, as well as court fee and printing expenses.
Results of Operations
Quarter Ended March 31, 1998 and 1997
- --------------------------------------
Net sales for the quarter ended March 31, 1998 decreased $1,371,000 or
38.3% to $2,203,000 compared to $3,575,000 for the quarter ended March 31,
1997. The decrease is a result of the Company focusing on manufacturing
sales only since filing Chapter 11 (Note 1). The prior year quarter
includes distribution sales of approximately $1,845,000.
Gross profit for the quarter ended March 31, 1998 decreased $421,000 or
112.0% to $(45,000) from $376,000 for the quarter ended March 31, 1997. A
provision of $200,000 for slow-moving and obsolete inventory is included
for the three months ended March 31, 1998. Gross profit as a percentage
of sales excluding the above provision was 7.0% for the quarter ended
March 31, 1998 compared to 10.5% for the quarter ended March 31, 1997.
The decrease in gross profit, excluding the provision for slow-moving and
obsolete inventory, is due to the decrease in sales.
Selling, general and administrative expenses decreased $1,080,000 or 61%
to $695,000 for the quarter ended March 31, 1998 from $1,775,000 for the
quarter ended March 31, 1997 due to the Company decreasing payrolls and
other expenses after the Chapter 11 filing (see Note 1).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended March 31, 1998 and 1997
(continued)
- --------------------------------------
Interest expense, including dividends on preferred stock, decreased
$187,000 or 64.7% to $102,000 for the quarter ended March 31, 1998 from
$289,000 for the quarter ended March 31, 1997. This reduction is due to
the reduced borrowing levels of the Company's credit facility. The quarter
ending March 31, 1997 included bond discount amortization of approximately
$35,000 and accrued dividends of $37,000.
Chapter 11 Reorganization related expense for the three months ended March
31, 1998 of $78,000 decreased $201,000 from the prior year period. Such
expense includes fees for legal, accounting, financing and consulting
services, as well as court fee and printing expenses.
Liquidity and Financial Condition
As of March 31, 1998
- ----------------------------------
Current assets have decreased $2,550,000 or 51.6% to $2,391,000 at March
31, 1998 from $4,941,000 at June 30, 1997. This decrease resulted
primarily from a decrease in accounts receivable (decreased sales),
inventory and cash, as well as an addition to the provision for slow-
moving and obsolete inventory of $250,000. The Company had net working
capital deficiency of $2,247,000 at March 31, 1998. As compared to
$1,153,000 in working capital, exclusive of liabilities subject to
compromise, at June 30, 1997. This increase in deficiency of $3,400,000 is
due to the recording of liabilities in the amount of $780,000 which
related to the bankruptcy and decrease in accounts receivable and
inventory, due to reduced sales. Total borrowings outstanding were
$4,089,000 at March 31, 1998 as compared to $4,491,000 at June 30, 1997.
The decrease was mainly due to the Company reducing the amount outstanding
under the Company's revolving credit facility by approximately $431,000.
Offset by an increase in capitalized lease obligations of approximately
$62,000.
On January 12, 1998, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with it's current lender (see Note 5
b). The Loan Agreement replaced the court approved DIP financing and
extended the Company's credit facility for a 90 day period through April
12, 1998, which was extended through July 28, 1998 (see Note 5b) at such time a
new financing agreement was executed. The terms of the Loan Agreement are
similar to its prior loan except for a reduction to 75% on advances of
eligible accounts receivables and a reduction to 24% on advances of
eligible inventory. As part of the Loan Agreement, TW provided
additional cash collateral of $500,000 in order for the Company to fund
the Plan.
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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.
Vertex Computer Cable & Products, Inc.
By: /s/ Daniel McPhee
Chief Executive Officer
By: /s/ Nicholas T. Hutzel
V.P. & Controller
Dated: December 22, 1998
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