Porta Systems Corp. Reports Results for the Quarter and Nine Months Ended September 30, 2008

  
    
  
  
    
      Porta Systems Corp. (OTCBB:PORT) today reported an operating loss for 
      the quarter ended September 30, 2008 of $497,000 compared to operating 
      income of $132,000 for the quarter ended September 30, 2007. The Company 
      recorded a loss from continuing operations of $709,000, $0.10 per share 
      (basic and diluted), before the extraordinary gain, for the quarter 
      ended September 30, 2008, compared to the loss from continuing 
      operations of $425,000, $0.47 per share (basic and diluted), for the 
      quarter ended September 30, 2007. An extraordinary gain on the 
      implementation of trouble debt restructuring of $17,645,000, $2.54 per 
      share (basic) and $2.53 per share (diluted) was recorded in the quarter 
      ended September 30, 2008. There were no extraordinary items in the same 
      period of 2007. After the effect of the extraordinary gain, the Company 
      reported a net income of $16,936,000, $2.44 per share (basic) and $2.43 
      per share (diluted), for the three months ended September 30, 2008.
    
    
      The Company reported an operating loss for the nine months ended 
      September 30, 2008 of $235,000 compared to operating income of 
      $1,056,000 for the nine months ended September 30, 2007. The Company 
      recorded a loss from continuing operations of $1,655,000, $0.57 per 
      share (basic) and $0.54 per share (diluted), before extraordinary gain, 
      for the nine months ended September 30, 2008 compared to a loss from 
      continuing operations before discontinued operations of $531,000, $0.59 
      per share (basic and diluted), for the nine months ended September 30, 
      2007. An extraordinary gain on the implementation of trouble debt 
      restructuring of $17,645,000, $6.05 per share (basic) and $5.79 per 
      share (diluted) was recorded in the nine months ended September 30, 
      2008. There were no extraordinary items in the same period of 2007. 
      During the nine months ended September 30, 2007, the Company completely 
      discontinued the operation of its OSS business and wrote off all 
      remaining OSS assets and incurred losses related to the discontinued OSS 
      operation of $521,000, $0.57 per share (basic and diluted). There was no 
      loss from discontinued operations for the nine months ended September 
      30, 2008. After the effect of the extraordinary gain, the Company 
      reported a net income of $15,990,000, $5.48 per share (basic) and $5.25 
      per share (diluted), for the nine months ended September 30, 2008.
    
    
      Sales were $6,305,000 for the quarter ended September 30, 2008 versus 
      $6,651,000 for the quarter ended September 30, 2007, a decrease of 
      approximately $346,000 (5%). Connection/Protection sales were $5,145,000 
      for the quarter ended September 30, 2008 versus $5,594,000 for the 
      quarter ended September 30, 2007, a decrease of $449,000 (8%). 
      Substantially all of the decrease in sales for the quarter is the result 
      of a decline in orders from British Telecommunications and its systems 
      integrators for connector products that was partially offset by 
      increased sales of protection modules. Signal Processing sales for the 
      quarter ended September 30, 2008 were $1,160,000 versus $1,057,000 for 
      the quarter ended September 30, 2007, an increase of $103,000 (10%).
    
    
      Sales were $19,527,000 for the nine months ended September 30, 2008 
      versus $21,922,000 for the nine months ended September 30, 2007, a 
      decrease of approximately $2,395,000 (11%). Connection/Protection sales 
      were $15,992,000 for the nine months ended September 30, 2008 versus 
      $18,228,000 for the nine months ended September 30, 2007, a decrease of 
      $2,236,000 (12%). Substantially all of the decrease in sales for the 
      nine months is the result of a decline in orders from British 
      Telecommunications and its systems integrators for connector products 
      that was partially offset by increased sales of protection modules. 
      Signal Processing sales for the nine months ended September 30, 2008 
      were $3,535,000 versus $3,694,000 for the nine months ended September 
      30, 2007, a decrease of $159,000 (4%).
    
    
      The overall gross margin from continuing operations was 17% for the 
      quarter ended September 30, 2008, compared to 31% for the quarter ended 
      September 30, 2007. Gross margin for the nine months ended September 30, 
      2008 was 24% compared to 31% for the nine months ended September 30, 
      2007. The decrease for the quarter and nine months is primarily related 
      to excess capacity in our Mexico facility due to lower production levels 
      as compared to the same quarter and nine months of 2007, principally 
      resulting from the decrease in sales to British Telecommunications and 
      its systems integrators. Gross margins were further adversely affected 
      by the reduction of the value of the UK pound and Mexican peso vs. the 
      US dollar, as many of our sales are made in pounds and pesos.
    
    
      Operating expenses for the quarter and nine months ended September 30, 
      2008 decreased by $393,000 (20%) and $744,000 (13%), respectively, from 
      the same period in 2007. The decrease relates primarily to a decrease in 
      selling expenses due to a reduction in advertising expenses, consultants 
      and research and development expense, and a decrease in general and 
      administrative costs related to our debt restructuring.
    
    
      Interest expense, net of interest and other income, decreased for the 
      three and nine months ending September 30, 2008 from the same period in 
      2007 by $342,000 and $162,000, respectively. As a result of the 
      implementation of the troubled debt restructure (as defined under 
      Statement of Financial Accounting Standard No. 15- Accounting by Debtors 
      and Creditors for Troubled Debt Restructuring), interest on the senior 
      and subordinated debt through the term of the debt instruments has been 
      added to the value of the debt on the balance sheet and thereby will no 
      longer flow through our statement of operations. Interest on our debt 
      prior to the restructuring on July 31, 2008 was not accrued on the 
      entire amount of the senior debt of $24,973,000 under the terms of our 
      agreement with the holder of our senior debt. The decreases of $162,000 
      and $342,000 for the nine months and three months, respectively, are 
      primarily related to the restructuring of our senior and subordinated 
      debt.
    
    
      Our Connection/Protection business had a net loss from operations before 
      allocations of corporate expenses of $260,000 for the third quarter of 
      2008 compared to a net operating income before allocations of corporate 
      expenses of $637,000 in the comparable period of 2007, and net operating 
      income before allocations of corporate expenses of $637,000 for the nine 
      months ended September 30, 2008, as compared to $2,383,000 for the same 
      period in 2007. The results are due to a significant decline in sales to 
      British Telecommunications as well as a decrease in the margin generated 
      from these sales. Our Signal segment generated net income from 
      operations before allocations of corporate expenses of $220,000 in the 
      third quarter of 2008 and $724,000 for the nine months ended September 
      30, 2008 compared to $235,000 and $933,000 in the comparable period in 
      2007.
    
    
      On July 31, 2008, the Company amended its certificate of incorporation 
      to effect a one-for-11.11 reverse split pursuant to which each share of 
      common stock was converted into 0.0900090009 share of common stock. The 
      financial statements give retroactive effect to the reverse split.
    
    
      The reverse split was a necessary condition for the implementation of 
      our debt restructuring plan which took place as of July 31, 2008. The 
      restructuring eliminated principal and interest on approximately 
      $25,076,000 of debt, and resulted in an extraordinary gain of 
      $17,645,000 (net of related costs) which was recognized in the third 
      quarter 2008. As part of the restructuring, after giving effect to the 
      Reverse Split, the Company issued or reserved 8,546,449 shares of the 
      Company’s common stock to creditors as partial 
      consideration for their substantial debt reduction. In addition, key 
      members of Porta’s management team received an 
      aggregate of 603,277 shares of common stock. The Company notes that no 
      stock options have been granted to employees for many years. As a result 
      of the issuance of more than fifty (50%) percent of the Company’s 
      common stock to new stockholders, the Company’s 
      ability to use its remaining net operating loss carry forwards will be 
      severely curtailed in accordance with Section 382 of the Internal 
      Revenue Code.
    
    
      In November 2008, the Company borrowed additional senior debt of 
      $425,000 from our senior debt holder. As of November 11, 2008, the 
      Company had a principal outstanding balance of $1,311,000 (excluding 
      accreted interest) on the Working Capital Note. The Company replaced the 
      old Working Capital Note with a new Working Capital Note in the amount 
      of $1,747,012 (including accrued interest). Interest on the additional 
      $425,000 advance will be expensed as incurred at a rate equal to the six 
      month Libor rate plus 10%. Principal and interest is payable January 
      2009 through June 2009 with each monthly payment being equal to 25% of 
      the gross receipts received from sales generated in the United Kingdom. 
      The remaining principal balance of the note and accrued interest is due 
      on June 30, 2009. The new Working Capital Note is collateralized by all 
      of the assets of the Company which also secure the existing senior debt.
    
    
      The present economic climate has made credit more difficult to obtain 
      and is resulting in decreases in purchases for capital goods, such as 
      our products. As a result, the current economic slowdown may seriously 
      affect our business to the extent that our customers reduce or defer 
      their purchases. If we are not able to develop new business and if our 
      customers reduce or defer the purchase of our products, we may be unable 
      to continue in business and it may be necessary for us to seek 
      protection under the Bankruptcy Code.
    
    
      Porta Systems Corp. designs, manufactures, markets and supports 
      communication equipment used in telecommunications, video and data 
      networks worldwide.
    
    
      Statements in this press release may be “forward-looking 
      statements” within the meaning of the Private 
      Securities Litigation Reform Act of 1995. These statements are based on 
      current expectations, estimates and projections about the Company’s 
      business based, in part, on assumptions made by management. These 
      statements are not guarantees of future performance and involve risks, 
      uncertainties and assumptions that are difficult to predict. Therefore, 
      actual outcomes and results may, and probably will, differ materially 
      from what is expressed or forecasted in such forward-looking statements 
      due to numerous factors, including those described above and those risks 
      discussed from time to time in the Company’s 
      filings with the Securities and Exchange Commission filings, including 
      the Risk Factors included in the Form 10-K for the year ended December 
      31, 2007 and the Management’s Discussion and 
      Analysis of Financial Conditions and Results of Operations in the Form 
      10-K for the year ended December 31, 2007 and the Form 10-Q for the 
      quarters ended March 31, and June 30, 2008. In addition, general 
      industry and market conditions and growth rates, and general economic 
      conditions could affect such statements. Any forward-looking statements 
      speak only as of the date on which they are made, and the Company does 
      not undertake any obligation to update any forward-looking statement to 
      reflect events or circumstances after the date of this release.
    
    
      
        
          Porta Systems Corp. and Subsidiaries
        
      
      
        
          Unaudited Condensed Consolidated Statement of Operations
        
      
      
        
          Quarter and Nine Months ended September 30,
        
      
      
        
          (in thousands except per share amounts)
        
      
      
        
           
        
      
      
        
        
        
           
        
        
          Quarter ended September 30,
        
        
           
        
        
          Nine Months ended September 30,
        
      
      
        
        
        
        
        
          2008
        
        
           
        
        
          2007
        
        
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $
        
        
          6,305
        
        
           
        
        
        
        
          $
        
        
          6,651
        
        
           
        
        
        
        
          $
        
        
          19,527
        
        
           
        
        
        
        
          $
        
        
          21,922
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Gross profit
        
        
        
        
        
        
          1,066
        
        
        
        
        
        
        
        
          2,088
        
        
        
        
        
        
        
        
          4,748
        
        
        
        
        
        
        
        
          6,783
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Total operating expenses
        
        
        
        
           
        
        
          1,563
        
        
           
        
        
        
        
           
        
        
          1,956
        
        
           
        
        
        
        
           
        
        
          4,983
        
        
           
        
        
        
        
           
        
        
          5,727
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Operating income (loss)
        
        
        
        
        
        
          (497
        
        
          )
        
        
        
        
        
        
          132
        
        
        
        
        
        
        
        
          (235
        
        
          )
        
        
        
        
        
        
          1,056
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest expense, net of interest and other income
        
        
        
        
           
        
        
          (196
        
        
          )
        
        
        
        
           
        
        
          (538
        
        
          )
        
        
        
        
           
        
        
          (1,367
        
        
          )
        
        
        
        
           
        
        
          (1,529
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Loss before income taxes
        
        
        
        
        
        
          (693
        
        
          )
        
        
        
        
        
        
          (406
        
        
          )
        
        
        
        
        
        
          (1,602
        
        
          )
        
        
        
        
        
        
          (473
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Income tax expense
        
        
        
        
           
        
        
          (16
        
        
          )
        
        
        
        
           
        
        
          (19
        
        
          )
        
        
        
        
           
        
        
          (53
        
        
          )
        
        
        
        
           
        
        
          (58
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Loss from continuing operations before extraordinary gain and 
            discontinued operations
          
        
        
        
        
        
        
          (709
        
        
          )
        
        
        
        
        
        
          (425
        
        
          )
        
        
        
        
        
        
          (1,655
        
        
          )
        
        
        
        
        
        
          (531
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Discontinued operations:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Loss from discontinued operations
        
        
        
        
           
        
        
          ---
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
        
        
        
           
        
        
          (521
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Extraordinary gain on troubled debt
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Restructure (net of zero tax)
        
        
        
        
           
        
        
          17,645
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
        
        
        
           
        
        
          17,645
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net Income (Loss)
        
        
        
        
          $
        
        
          16,936
        
        
           
        
        
        
        
          $
        
        
          (425
        
        
          )
        
        
        
        
          $
        
        
          15,990
        
        
           
        
        
        
        
          $
        
        
          (1,052
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Per share data:
          
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Basic per share amounts (giving 
            effect to the reverse split):
          
        
      
      
        
          Continuing operations
        
        
        
        
          $
        
        
          (0.10
        
        
          )
        
        
        
        
          $
        
        
          (0.47
        
        
          )
        
        
        
        
          $
        
        
          (0.57
        
        
          )
        
        
        
        
          $
        
        
          (0.59
        
        
          )
        
      
      
        
          Discontinued operations
        
        
        
        
        
        
          ---
        
        
        
        
        
        
        
        
          ---
        
        
        
        
        
        
        
        
          ---
        
        
        
        
        
        
        
        
          (0.57
        
        
          )
        
      
      
        
          Extraordinary item
        
        
        
        
           
        
        
          2.54
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
        
        
        
           
        
        
          6.05
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net Income (Loss) per share:
        
        
        
        
          $
        
        
          2.44
        
        
           
        
        
        
        
          $
        
        
          (0.47
        
        
          )
        
        
        
        
          $
        
        
          5.48
        
        
           
        
        
        
        
          $
        
        
          (1.16
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares outstanding
        
        
        
        
           
        
        
          6,937
        
        
           
        
        
        
        
           
        
        
          905
        
        
           
        
        
        
        
           
        
        
          2,916
        
        
           
        
        
        
        
           
        
        
          905
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Diluted per share amounts (giving 
            effect to the reverse split):
          
        
      
      
        
          Continuing operations
        
        
        
        
          $
        
        
          (0.10
        
        
          )
        
        
        
        
          $
        
        
          (0.47
        
        
          )
        
        
        
        
          $
        
        
          (0.54
        
        
          )
        
        
        
        
          $
        
        
          (0.59
        
        
          )
        
      
      
        
          Discontinued operations
        
        
        
        
        
        
          ---
        
        
        
        
        
        
        
        
          ---
        
        
        
        
        
        
        
        
          ---
        
        
        
        
        
        
        
        
          (0.57
        
        
          )
        
      
      
        
          Extraordinary item
        
        
        
        
           
        
        
          2.53
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
        
        
        
           
        
        
          5.79
        
        
           
        
        
        
        
           
        
        
          ---
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income (loss) per share:
        
        
        
        
          $
        
        
          2.43
        
        
           
        
        
        
        
          $
        
        
          (0.47
        
        
          )
        
        
        
        
          $
        
        
          5.25
        
        
           
        
        
        
        
          $
        
        
          (1.16
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares outstanding
        
        
        
        
           
        
        
          6,966
        
        
           
        
        
        
        
           
        
        
          905
        
        
           
        
        
        
        
           
        
        
          3,043
        
        
           
        
        
        
        
           
        
        
          905