SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 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
Indicate by check mark whetherthe registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes x No
On February 10, 1999, 26,824,000 shares of common stock, $.10 par value were
outstanding.
Note: This is Page 1 of a document consisting of 12 pages.
VERTEX COMPUTER CABLE & PRODUCTS, INC.
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets - September 30, 1998 and June 30, 1998............. 3
Statements of Operations - Three Months Ended
September 30, 1998 and 1997..................................... 4
Statements of Cash Flows - Three Months Ended
September 30, 1998 and 1997..................................... 5
Notes to Condensed Consolidated Financial Statements............... 6-8
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 9-10
PART II- OTHER INFORMATION........................................... 11
SIGNATURES........................................................... 12
-2-
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1998 1998
------------- ------------
ASSETS
CURRENT ASSETS:
Cash....................................... $ 32,659 $ 38,680
Accounts receivable, net of allowance
for doubtful accounts of $64,000 and
$63,000 as of September 30, 1998 and
June 30, 1998, respectively.............. 813,472 1,222,400
Inventories, net........................... 1,042,695 1,031,322
Prepaid expenses and other current
assets............................ ...... 88,757 83,381
------------ ------------
TOTAL CURRENT ASSETS....................... 1,977,583 2,375,783
PROPERTY, PLANT AND EQUIPMENT, net........... 438,847 473,287
DEFERRED CHARGES AND OTHER ASSETS............ 36,290 40,947
------------ ------------
TOTAL ASSETS................................. $ 2,452,720 $ 2,890,017
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current portion of long-term debt.......... $ 2,141,192 $ 1,944,469
Accounts payable and accrued expenses...... 1,924,643 1,962,844
Bankruptcy distributions payable........... 780,000 780,000
Due to affiliate........................... 420,004 382,504
------------ ------------
TOTAL CURRENT LIABILITIES ............... 5,265,839 5,069,817
LONG-TERM DEBT, NET OF CURRENT PORTION....... 44,352 57,119
SECURED SUBORDINATED DEBENTURES, net......... 2,167,216 2,157,907
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.10 per share;
authorized 40,000,000 shares; issued
and outstanding 25,324,000 and 25,304,000
shares, respectively............. ....... 2,532,400 2,530,400
Paid-in capital............................ 9,386,887 9,386,887
Accumulated Deficit........................ (16,943,974) (16,312,113)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (5,024,687) (4,394,826)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)........................ $ 2,452,720 $ 2,890,017
============ ============
The accompanying notes are an integral part of these financial statements.
-3-
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1998 1997
------------ ------------
Net sales.................................... $ 1,654,509 $ 2,303,628
Cost of goods sold........................... 1,468,260 2,084,430
------------ ------------
Gross profit ................................ 186,249 219,198
Selling, general and administrative expenses. 706,160 724,318
Interest expense............................. 111,950 90,017
Chapter 11 Reorganization related expenses... - 41,451
------------- ------------
Net (loss) attributable to common stock...... $ (631,861) $ (636,588)
============= =============
Basic and diluted (loss) per share
Basis and diluted loss per share............. $ (.02) $ (.05)
============ ============
Weighted average number of common shares
outstanding - basic and diluted............. 25,304,000 2,530,400
============ ============
The accompanying notes are an integral part of these financial statements.
-4-
VERTEX COMPUTER CABLE & PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1998 1997
----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) attributable to common stock............ $ (631,861) $ (636,588)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization.................. 43,749 83,463
Stock issed as compensation.................... 2,000 -
Change in operating assets and liabilities:
Decrease in accounts receivable................ 408,928 589,341
(Increase) decrease in inventories............. (11,373) 530,102
(Increase) in prepaid expenses and other
current assets............................... (5,376) (46,624)
Decrease in other assets....................... 4,657 53,262
(Decrease) increase in accounts payable and
accrued expenses............................. (38,202) 14,453
------------ -----------
Net cash provided by (used in) operating
activities..................................... (227,478) 587,409
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ - (7,026)
------------ ------------
Net cash (used in) provided by investing
activities...................................... - (7,026)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt and loan agreements......... 1,955,485 2,060,085
Loan proceeds from affilate....................... 37,500 -
Debt repayments................................... (1,771,528) (2,726,057)
------------- -----------
Net cash provided by (used in) financing
activities....................................... 221,457 (665,972)
------------- -----------
Effect of exchange rate changes on cash............ - -
------------- -----------
NET (DECREASE) IN CASH............................. (6,021) (85,589)
CASH at beginning of period........................ 38,680 194,462
------------- -----------
CASH at end of period.............................. $ 32,659 $ 108,873
============= ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 54,433 $ 61,446
============= ============
The accompanying notes are an integral part of these financial statements.
-5-
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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 September 30, 1998 and
the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for the three months ended
September 30, 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
September 30, 1998 and for all periods presented have been made. Results
of operations for the three months ended September 30, 1998 are not
necessarily indicative of results of operations that may be expected for
the year ending June 30, 1999. 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, 1998.
On January 10, 1997 the Company filed petitions for relief under Chapter 11
of the federal bankruptcy laws. The Company operated as a debtor-in-possession
through January 12, 1998.
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 September 30, 1998 and June 30, 1998,
the reserve was approximately $704,000 and $825,000, respectively.
September 30, June 30,
1998 1998
------------- ------------
Raw Materials $ 62,855 $ 72,893
Work in Process 26,707 14,042
Finished Goods 953,133 944,387
------------- ------------
Inventories, net $1,042,695 $1,031,322
============= ============
-6-
VERTEX COMPUTER CABLE & PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT
Long-term debt consists of the following: September 30, June 30,
1998 1998
------------ -----------
Revolving asset-based loan (a).............. $ 2,091,465 $1,895,616
Capitalized lease obligations (b)........... 94,079 105,972
----------- -----------
2,185,544 2,001,588
Less current portion of long-term debt...... 2,141,192 1,944,469
----------- -----------
$ 44,352 $ 57,119
=========== ===========
a. On July 28, 1998 the Company refinanced the revolving credit financing
agreement with a financial institution. The new agreement provides for
a maximum borrowing of $3,000,000 through July 31, 2000. Borrowings, at the
lenders' discretion, are limited to 85% of eligible accounts receivable
(constituting receivables outstanding 90 days or less), 50% of eligible
accounts receivable outstanding between 91 and 120 days, 40% of eligible
inventories and the lesser of $700,000 or 10% of slow moving inventory, as
defined. Under the terms of the refinancing, the Company is required to pay
interest at prime plus 2 1/2% but not less than $15,000 per month in minimum
charges and an initial commitment fee of 1.25% and 1% per annum for
the second year. The interest rate shall increase or decrease
by one quarter of one percent (1/4 of 1%) per annum for each increase or
decrease, respectfully of one-quarter of one percent in the prime rate,
however that no decrease shall decrease the rate to less than the prime rate
plus 2.50% and the minimum prime rate will be 6%. Borrowing under the
agreement is all collateralized by all assets of the Company. In connection
with the revolving credit financing agreement, an affiliate has placed
$1,268,000 in escrow on behalf of the Company as additional collateral under
the agreement. The Company is required to maintain tangible net worth,
(deficiency) of not more than $(750,000) and a Working Capital (deficiency)
of not more than $(500,000), as defined. Subsequent to the refinancing, the
Company is in violation of such covenants. The Company is currently seeking
to renegotiate the affected covenents with the lender, however no assurance
can be given as to whether the Company will be able to successfully amend the
covenants or receive a waiver from the creditor.
4. SUBSEQUENT EVENTS
On October 20, 1998, the Company entered into a Purchase and Sale of Assets
agreement (the "Sale Agreement") whereby the Company sold certain assets,
principally inventory and fixed assets, of its Maryland facility to an unrelated
party for $200,000. In connectionto the Sale Agreement, the Company agreed to
sublease the aforementioned facility to the purchaser under the terms of the
Company's lease, subject to cancellation with thirty days notice to the Company.
Upon notice of cancellation, the purchaser shall bear fifty percent (50%) of the
net loss, if any, resulting from the vacancy of the building. Further, in
connection with the Sale Agreement, the Company agreed to 1) grant the purchaser
the use of the "Vertex" name through April 30, 1999 and 2) grant non-compete
arrangements, as defined. Subsequent to October 20, 1998 the purchaser
cancelled the sublease and the Company is currently pursuing a new sublease
tenant.
-7-
On December 17, 1998, the Company entered into an agreement with DataWorld
Solutions, Inc. ("DataWorld"), a distributor of connectivity products,
DataWorld's principal shareholders, Daniel McPhee and Christopher Francis, TW
Cable, LLC. and Edward Goodstein, the Company's then Chairman and principal
shareholder. Pursuant to the agreement, (i) Vertex acquired all the
outstanding shares of DataWorld in exchange for the issuance of 1,500,000
shares of the Company's common stock (ii) TW forgave approximately $2,300,000
in principal face amount of secured subordinated debt and all accrued interest
relating thereto, (iii) TW forgave $280,000 of indebtedness, contributed
$400,000 cash and arranged for approximately $400,000 of TW funds held in escrow
for the benefit of Vertex's creditors to be released to such creditors as
payment on behalf of Vertex in exchange for Convertible Preferred Stock having
a stated value of $100 per share, and (iv) Messrs. McPhee and Francis
purchased 17,000,000 shares of the Company's common stock from TW for $200,000.
As a result of the above, Messrs. McPhee and Francis collectively own
approximately 69% of the Company's common stock and effective December 18, 1998
Messrs. McPhee and Francis became the Company's Chief Executive Officer and
Chief Operating Officer, respectively.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ----------------------
Quarter Ended September 30, 1998 and 1997
- -----------------------------------------
Net sales for the quarter ended September 30, 1998 decreased $649,000 or
28.2% to $1,655,000 compared to $2,304,000 for the quarter ended September
30, 1998. The decrease is primarily a result of the Company's inability
to purchase product, due to the Company's lack of working capital and
available financing.
Gross profit for the quarter ended September 30, 1998 decreased $33,000 or
15.1% to $186,000 from $219,000 for the quarter ended September 30, 1997.
Gross profit as a percentage was 11.2% for the quarter ended September 30,
1998 compared to 9.5% for the quarter ended September 30, 1997. The
decrease in gross profit is due to the decrease in sales and underutilization
of manufacturing facilities.
Selling, general and administrative expenses decreased $18,000 or 2.5% to
$706,000 for the quarter ended September 30, 1998 from $724,000 for the
quarter ended September 30, 1997.
Interest expense increased $22,000 or 24.4% to $112,000 for the quarter
ended September 30, 1998 from $90,000 for the quarter ended September 30,
1997. This increase is due to the increased borrowing levels of the
Company's credit facility.
Liquidity and Financial Condition
- ---------------------------------
As of September 30, 1998
- ------------------------
Current assets have decreased $398,000 or 16.8% to $1,978,000 at September
30, 1998 from $2,376,000 at June 30, 1998. This decrease resulted
primarily from a decrease in accounts receivable attributed to the lower sales.
The Company had net working capital deficiency of $3,288,000 at September 30,
1998, as compared to a net working capital deficiency of $2,694,000 at June
30, 1998. This increase in the deficiency of $594,000 is primarily due to the
cash used in operations and the loss incurred. Total borrowings outstanding
were $4,352,000 at September 30, 1998 as compared to $4,159,000 at June 30,
1998. The increase was mainly due to the Company increasing the amount
outstanding under the Company's revolving credit facility by approximately
$195,000.
The Company's continuing existence as a going concern is dependent on its
ability to obtain profitable operations, generate sufficient cash-flow to meet
its obligations on a timely basis, comply with the terms and covenants of its
financing agreement (which is currently in default) and to obtain additional
financing as may be required. As described in Note 4, (1) on October 20, 1998,
complete the sale of certain assets relating to an underutilized facility to
reduce costs, and (2) on December 17, 1998, completed a business combination
which provided additional working capital and new management team with industry
and distribution experience.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
- ---------------------------------
As of September 30, 1998 - Continued
- ------------------------------------
Currently, new management is exploring opportunities to further reduce operating
costs and to obtain additional sources of working capital. However, there can
be no assurances that new management will be successful in further reducing
operating costs or obtaining additional sources of working capital and that the
Company will be able to raise such additional financing to fund ongoing
operating shortfalls or complete other plans.
YEAR 2000
The Year 2000 issue is the result of computer programs which were written using
two digits rather than four to define the applicable year. For example, date-
sensitive software may recognize a date using "00" as the Year 1900 rather than
the Year 2000. Such misrecognition could result in system failures, or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
The Company has evaluated its programs to prepare computer systems and
applications for the Year 2000. The Company will need to modify or replace its
internal systems by acquiring a Year 2000 compliant system by the end of fiscal
1999. The Company expects to incur internal staff costs as well as consulting
and other expenses related to the enhancements necessary to complete the systems
for the Year 2000. Management believes that the estimated costs to modify or
replace such applications will not be material to the Company.
In addition, the Company has inquired with its major suppliers, including
insight about their progress in indentifying and addressing problems related to
the Year 2000. The Company is currently unable to determine the extent to which
the Year 2000 issues will affect its suppliers, or the extent to which it would
be vulnerable to the suppliers' failure to remediate any of their Year 2000
problems. Although no assurance can be given, the Company believes that Year
2000 problems will not be significant.
-10-
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
See Note 3 (a) to the condensed financial statements
Item 4. Submission of Matters to a Vote of Security Holders
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
-11-
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: February 17, 1999
-12-
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