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, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.................to...................
Commission file number 1-8191
PORTA SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-2203988
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6851 Jericho Turnpike, Suite 170, Syosset, New York
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(Address of principal executive offices)
11791
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(Zip Code)
516-364-9300
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(Company's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 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 [ ]
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock (par value $0.01) 9,972,284 shares as of April 29, 2004
Page 1 of 16
PART I.- FINANCIAL INFORMATION
Item 1- Financial Statements
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
2004 2003
----------- -----------------
Assets (Unaudited)
------
Current assets:
Cash and cash equivalents $ 167 $ 469
Accounts receivable - trade, less allowance for doubtful accounts 6,061 3,898
Inventories 2,533 3,004
Prepaid expenses and other current assets 430 472
------------ ------------
Total current assets 9,191 7,843
Property, plant and equipment, net 1,394 1,466
Goodwill 2,961 2,961
Other assets 75 85
------------ ------------
Total assets $ 13,621 $ 12,355
============ ============
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Senior debt $ 25,472 $ 25,387
Subordinated notes 6,144 6,144
6% convertible subordinated debentures 385 385
Accounts payable 6,014 5,635
Accrued expenses 3,027 3,117
Accrued interest payable 3,823 3,563
Accrued commissions 243 284
Deferred compensation 58 58
Income taxes payable 70 95
------------ ------------
Total current liabilities 45,236 44,668
------------ ------------
Deferred compensation 909 925
------------ ------------
Total long-term liabilities 909 925
------------ ------------
Total liabilities 46,145 45,593
------------ ------------
Stockholders' deficit:
Preferred stock, no par value; authorized 1,000,000 shares, none issued -- --
Common stock, par value $.01; authorized 20,000,000 shares, issued
10,003,224 at March 31, 2004 and December 31, 2003 100 100
Additional paid-in capital 76,059 76,059
Accumulated deficit (102,552) (103,380)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (4,193) (4,079)
------------ ------------
(30,586) (31,300)
Treasury stock, at cost (1,938) (1,938)
------------ ------------
Total stockholders' deficit (32,524) (33,238)
------------ ------------
Total liabilities and stockholders' deficit $ 13,621 $ 12,355
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 2 of 16
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
Three Months Ended
March 31, March 31,
2004 2003
------------ ------------
Sales $ 8,100 $ 4,374
Cost of sales 4,970 3,381
------------ ------------
Gross profit 3,130 993
Selling, general and administrative expenses 1,466 1,556
Research and development expenses 513 572
------------ ------------
Total expenses 1,979 2,128
------------ ------------
Operating income (loss) 1,151 (1,135)
Interest expense (323) (307)
Interest income -- 1
------------ ------------
Income (loss) before income taxes 828 (1,441)
Income tax benefit -- 15
------------ ------------
Net income (loss) $ 828 $ (1,426)
============ ============
Other comprehensive income (loss):
Foreign currency translation adjustments (114) (80)
------------ ------------
Comprehensive income (loss) $ 714 $ (1,506)
============ ============
Per share data:
Basic per share amounts:
Income (loss) per share of common stock $ 0.08 $ (0.14)
============ ============
Weighted average shares outstanding 9,972 9,972
============ ============
Diluted per share amounts:
Income (loss) per share of common stock $ 0.08 $ (0.14)
============ ============
Weighted average shares outstanding 9,972 9,972
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 3 of 16
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31, March 31,
2004 2003
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 828 $ (1,426)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 95 139
Changes in operating assets and liabilities:
Accounts receivable (2,163) 267
Inventories 471 88
Prepaid expenses and other current assets 42 (95)
Other assets 10 118
Accounts payable, accrued expenses and other liabilities 467 450
------------ ------------
Net cash used in operating activities (250) (459)
------------ ------------
Cash flows from investing activities:
Capital expenditures, net (18) (62)
------------ ------------
Net cash used in investing activities (18) (62)
------------ ------------
Cash flows from financing activities:
Proceeds from senior debt 85 75
Repayments of short term loans -- (1)
------------ ------------
Net cash provided by financing activities 85 74
------------ ------------
Effect of exchange rate changes on cash (119) (73)
------------ ------------
Decrease in cash and cash equivalents (302) (520)
Cash and cash equivalents - beginning of the year 469 779
------------ ------------
Cash and cash equivalents - end of the period $ 167 $ 259
============ ============
Supplemental cash flow disclosure:
Cash paid for interest expense $ 1 $ 1
============ ============
Cash paid for income taxes $ 16 $ 4
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 4 of 16
PORTA SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Management's Responsibility For Interim Financial Statements
Including All Adjustments Necessary For Fair Presentation
Management acknowledges its responsibility for the preparation of the
accompanying interim consolidated financial statements which reflect all
adjustments, consisting of normal recurring adjustments, considered necessary in
its opinion for a fair statement of its consolidated financial position and the
results of its operations for the interim period presented. These consolidated
financial statements should be read in conjunction with the summary of
significant accounting policies and notes to consolidated financial statements
included in the Company's Form 10-K annual report for the year ended December
31, 2003. These financial statements have been prepared assuming that the
Company will continue as a going concern and, accordingly, do not include any
adjustments that might result from the outcome of the uncertainties described
within. The audit opinion included in the December 31, 2003 Form 10-K annual
report contained an explanatory paragraph regarding the Company's ability to
continue as a going concern. The factors which resulted in the explanatory
paragraph are continuing. Results for the first three months of 2004 are not
necessarily indicative of results for the year.
Note 2: Inventories
Inventories are stated at the lower of cost (on the average or first-in,
first-out methods) or market. The composition of inventories at the end of the
respective periods is as follows:
March 31, 2004 December 31, 2003
-------------- -----------------
(in thousands)
Parts and components $ 1,344 $ 1,673
Work-in-process 616 427
Finished goods 573 904
-------------- -----------------
$ 2,533 $ 3,004
============== =================
Note 3: Senior and Subordinated Debt
On March 31, 2004, the Company's debt to its senior lender was
$25,472,000. Under recent amendments, the loan becomes due and payable on June
30, 2004. If the agreement is not extended beyond June 30, 2004, and if the
senior lender demands payment of all or a significant portion of the loan when
due, the Company will not be able to continue in business and may seek
protection under the Bankruptcy Code.
As of March 31, 2004, the Company's short-term debt also included
$6,144,000 of subordinated debt that became due on July 3, 2001 and $385,000 of
6% debentures which became due on July 2, 2002. Accrued interest on the
subordinated notes was approximately $3,436,000, which represents interest from
July 2000 through March 31, 2004, and accrued interest on the 6% debentures was
$87,000. We are precluded by our senior lender from paying any principal or
interest on the subordinated debt.
Page 5 of 16
Note 4: Accounting for Stock Based Compensation
The Company applies the intrinsic value method as outlined in APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for stock options. Under the intrinsic value method, no
compensation expense is recognized if the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant. Accordingly, no compensation cost has been recognized. SFAS
No. 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net loss and net loss per common share
as if compensation cost for the Company's stock option programs had been
determined in accordance with the fair value method prescribed therein. Since
there was no stock-based compensation in the quarters ended March 31, 2004 and
2003, pro forma income/(loss) is the same as the reported net income/(loss).
Note 5: Segment Data
The Company has three reportable segments: Line Connection and Protection
Equipment ("Line") whose products interconnect copper telephone lines to
switching equipment and provide fuse elements that protect telephone equipment
and personnel from electrical surges; Signal Processing ("Signal") whose
products are used in data communication devices that employ high frequency
transformer technology, and Operating Support Systems ("OSS") whose products
automate the testing, provisioning, maintenance and administration of
communication networks and the management of support personnel and equipment.
The factors used to determine the above segments focused primarily on the
types of products and services provided, and the type of customer served. Each
of these segments is managed separately from the others, and management
evaluates segment performance based on operating income.
There has been no significant change from December 31, 2003 in the basis
of measurement of segment revenues and profit or loss, and no significant change
in the Company's assets.
Three Months Ended
March 31, 2004 March 31, 2003
-------------- --------------
Sales:
Line $ 5,972,000 $ 2,161,000
Signal 1,303,000 1,065,000
OSS 811,000 913,000
------------ ----------------
$ 8,086,000 $ 4,139,000
============ ===============
Segment profit (loss):
Line $ 1,636,000 $ 3,000
Signal 455,000 349,000
OSS (298,000) (853,000)
------------ ---------------
$ 1,793,000 $ (501,000)
============ ===============
Page 6 of 16
The following table reconciles segment totals to consolidated totals:
Three Months Ended
March 31, 2004 March 31, 2003
-------------- ---------------
Sales:
Total revenue for reportable segments $ 8,086,000 $ 4,139,000
Other revenue 14,000 235,000
------------ ---------------
Consolidated total revenue $ 8,100,000 $ 4,374,000
============ ===============
Operating Profit (loss):
Total segment profit (loss) for
reportable segments $ 1,793,000 $ (501,000)
Corporate and unallocated (642,000) (634,000)
------------ ---------------
Consolidated total operating profit (loss) $ 1,151,000 $ (1,135,000)
============ ===============
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's consolidated statements of operations for the periods
indicated below, shown as a percentage of sales, are as follows:
Three Months Ended
March 31,
2004 2003
---- -----
Sales 100% 100%
Cost of Sales 61% 77%
Gross Profit 39% 23%
Selling, general and administrative expenses 18% 36%
Research and development expenses 6% 13%
Operating income(loss) 14% (26%)
Interest expense - net (4%) (7%)
Net income (loss) 10% (33%)
The Company's sales by product line for the periods ended March 31, 2004
and 2003 are as follows:
Three Months Ended March 31,
$(000)
2004 2003
---- ----
Line connection/protection equipment $ 5,972 74% $ 2,161 49%
Signal Processing 1,303 16% 1,065 24%
OSS equipment 811 10% 913 21%
Other 14 0% 235 6%
--------------- ---------------
$ 8,100 100% $ 4,374 100%
=============== ===============
Page 7 of 16
Overview
We operate in the telecommunications industry, and our customer base
consists largely of government-owned and privately-owned telecommunications
companies. During the recent past, the telecommunications industry has been
affected by a worldwide slowdown, and many, if not most, telecommunications
companies have scaled back plans for expansion, which has resulted in a
significant drop in the requirements for products including products such as
those sold by the Company. The improvement shown in the results of operations
for the quarter ended March 31, 2004 results from an increase in sales of our
Line products to British Telecommunications. This improvement in the quarter is
not necessarily indicative of future results, and our ability to continue to
operate profitably is dependent upon continued purchases by this customer or our
developing new customers. We anticipate a lower level of sales to British
Telecommunications, for the second quarter, based upon current and projected
order rates.
Our business is divided into three segments -- line connection and
protection equipment ("Line") which interconnects copper telephone lines to
switching equipment and provides fuse elements that protect telephone equipment
and personnel from electrical surges; signal processing ("Signal") equipment
which is used in data communication devices that employ high frequency
transformer technology: and Operating Support Systems ("OSS") which automate the
testing, provisioning, maintenance and administration of communication networks
and the management of support personnel and equipment.
Because our OSS contracts are long-term contracts, our customers and
potential customers have raised concerns about our financial condition and our
ability to perform our obligations under our contracts, as well as to provide
ongoing services. We recognize revenue from OSS contracts on a
percentage-of-completion basis primarily measured by the attainment of
milestones. We recognize anticipated losses, if any, in the period in which they
are identified. We are continuing to sustain operating losses from the OSS
division. As a result, during 2003 we further scaled back our OSS operations,
and we now perform maintenance services for existing customers and we market our
products in selected markets. Even with the reduced scale of OSS operations, we
are continuing to incur an operating loss in this division. If we are not able
to generate profits from these operations, we may discontinue our OSS
operations.
Our Line equipment is designed to connect copper-wired telecommunications
networks and to protect telecommunications equipment from voltage surges. We
market this equipment to telephone operating companies in the United States and
foreign countries. Our Line division operated at a profit for the three months
ended March 31, 2004 as a result of increased sales to British
Telecommunications. We market Signal equipment principally for use in defense
and aerospace applications. The Signal division generated a modest operating
profit for the three months ended March 31, 2004 and the comparable period of
2003. We recognize revenue from Line and Signal products when the product is
shipped.
Our obligations to our senior lender mature on June 30, 2004. The senior
lender has expressed concern as to whether our business is or can be either
viable or saleable in the context of its ability to realize any meaningful
percentage of our debt to it. Although the senior lender has during the past
years, extended the maturity date from time to time as we approached an
expiration date, we cannot give any assurance that the senior lender will extend
the loan beyond June 30, 2004 or that if an extension is granted, that the
extension will not be the final extension which the senior lender grants to us.
If the senior lender does not extend the maturity date of our obligations and
demands payment of all or a significant portion of our obligations due to the
senior lender, we will not be able to continue in business and we may seek
protection under the Bankruptcy Code. We cannot assure you that our senior
lender will
Page 8 of 16
not demand payment of all or a significant portion of our obligations or that we
will not seek protection under the Bankruptcy Code in anticipation of a decision
by the senior lender to demand payment.
Results of Operations
Our sales for the quarter ended March 31, 2004 were $8,100,000,
representing an increase of $3,726,000 (85%) compared to the quarter ended March
31, 2003 of $4,374,000. As discussed above, the increased sales level resulted
primarily from increased sales of Line products to British Telecommunications
that commenced in the third quarter of 2003 as a result of an increase by
British Telecommunications in the availability of DSL lines in the United
Kingdom, and to a significantly lesser extent from a modest increase in sales of
our Signal products.
Line equipment sales increased by $3,811,000 (176%) from $2,161,000 for
the March 2003 quarter to $5,972,000 for the March 2004 quarter, reflecting the
increased sales to British Telecommunications.
Signal processing revenue for the quarter ended March 31, 2004 compared to
2003 increased by $238,000 (22%) from $1,065,000 to $1,303,000. This increase
resulted from our ability to ship orders from backlog on a more timely basis
than in the comparable period of 2003.
OSS sales decreased by $102,000 (11%) from $913,000 for the quarter ended
March 31, 2003 to $811,000 for the quarter ended March 31, 2004. The decreased
sales resulted from a lower level of new contracts resulting from the slowdown
in the telecommunications market and the reduction in the scope of our OSS
operations.
Gross margin for the March 2004 quarter was 39% compared to 23% for the
March 2003 quarter. This increase is the result of better absorption of
manufacturing overhead created by the increase in our Line business and reduced
OSS costs.
Selling, general and administrative expenses decreased by $90,000 (6%)
from $1,556,000 in the March 2003 quarter to $1,466,000 in the March 2004
quarter. This decrease relates primarily to reduced consulting services and
commissions reflecting our current level of business.
Research and development expenses decreased by $59,000 (10%) from $572,000
in the March 2003 quarter to $513,000 in the March 2004 quarter. This decrease
results primarily from our reduction in product development for our OSS
business, consistent with the reduction in the OSS business. Our inability to
fund research and development could adversely affect our ability to offer
products based on developing technologies, which could affect our ability to
sell product in future years.
As a result of the foregoing, we had an operating income of $1,151,000 for
the March 2004 quarter, as compared to an operating loss of $1,135,000 for the
March 2003 quarter.
Pursuant to our agreement with our senior lender, we have not paid or
accrued interest on $22,600,000 of senior debt since March 2002. As a result,
our statements of operations do not reflect any interest charges on this portion
of our senior debt for 2003 or 2004. The senior lender has the right at any time
to require us to pay interest; however, our obligation to pay interest will not
require us to pay interest on such senior debt for periods prior to the date the
senior lender requires us to commence interest payments. We continue to accrue
interest on obligations to our senior lender which were incurred subsequent to
March 2002. Interest expense increased by $16,000 (5%) from $307,000 in 2003 to
Page 9 of 16
$323,000 in 2004. The increase represents accrued interest on loan principal of
$2,225,000 to our senior lender which was incurred subsequent to March 2002.
As the result of the foregoing, we generated net income of $828,000, $.08
per share (basic and diluted), for the March 2004 quarter versus a net loss of
$1,426,000, $0.14 per share (basic and diluted), for the March 2003 quarter.
Liquidity and Capital Resources
At March 31, 2004, we had cash and cash equivalents of $167,000 compared
with $469,000 at December 31, 2003. Our working capital deficit at March 31,
2004 was $36,045,000, compared to a working capital deficit of $36,825,000 at
December 31, 2003, a reduction of $780,000 in our working capital deficit. This
improvement is the result of our improved operating results for the quarter
ended March 31, 2004. We used $250,000 of cash in our operations during the
March 2004 quarter.
As of March 31, 2004, our debt includes $25,472,000 of senior debt which
matures on June 30, 2004, $6,144,000 of subordinated debt that became due on
July 3, 2001, and $385,000 of 6% debentures which became due on July 2, 2002. We
were unable to pay the interest payment on the subordinated notes of
approximately $3,436,000 that represents interest from July 2000 through March
2004, or the interest on the subordinated debentures of approximately $87,000.
We have been notified by the trustee of 6% debentures that the non-payment of
the principal and interest caused an event of default. At March 31, 2004, we did
not have sufficient resources to pay either the senior lender or the
subordinated lenders; it is unlikely that we can generate such cash from our
operations, and our senior lender has precluded us from making any payments on
the subordinated debt.
Our financial condition and stock price effectively preclude us from
raising funds through the issuance of debt or equity securities, we have no
other source of funds other than operations, and our operations are generating a
negative cash flow. We have in the past sought to raise funds through the sale
of one or more of our divisions, but our efforts to date have been unsuccessful.
We also do not have any prospects of obtaining an alternate senior lender to
replace our present lender.
Although we have scaled back our OSS operations, we are having, and may
continue to have, difficulty performing our obligations under our OSS contracts,
which could result in the cancellation of contracts or the loss of future
business and penalties for non-performance. Furthermore, one creditor has
engaged a collection agency, and a vendor has commenced arbitration proceedings
against us alleging breach of contract.
We have sought to address our need for liquidity by exploring
alternatives, including the possible sale of one or more of our divisions.
During 2002 and 2003 we were engaged in discussions with respect to the possible
sale of our divisions; however, those negotiations were terminated without
reaching an agreement, and we may not be able to sell those divisions on
acceptable, if any, terms. We will continue to consider the sale of one or more
of our divisions; however, if we sell a division, we anticipate that a
substantial portion, if not all, of the net proceeds will be paid to our senior
lender and we will not receive any significant amount of working capital from
such a sale. Furthermore, if we only sell one division, we may be unable to
reduce overhead sufficiently to enable us to operate profitably.
During 2002 and 2003, we have taken steps to reduce overhead and headcount
by relocating the executive, sales/marketing, accounting and research and
development departments to less expensive
Page 10 of 16
offices in Syosset, NY and further reduced the OSS personnel as part of the
scaling-down effort. We will continue to look to reduce costs while we seek
additional business from new and existing customers.
Because of our present stock price, we cannot raise funds through the sale
of our equity securities, and our financial condition prevents us from issuing
debt securities. In the event that we are unable to extend our debt obligations
and sell one or more of our divisions, we cannot assure you that we will be able
to continue in operations. Furthermore, even though we generated net income for
the quarter ended March 31, 2004, our ability to operate profitably in the
future is dependent upon the continuation of orders from British
Telecommunications or the development of new business, and we cannot assure you
that we will be able to do so.
Forward Looking Statements
Statements contained in this Form 10-Q include forward-looking statements
that are subject to risks and uncertainties. In particular, statements in this
Form 10-Q that state the Company's intentions, beliefs, expectations,
strategies, predictions or any other statements relating to our future
activities or other future events or conditions are "forward-looking
statements." Forward-looking statements are subject to risks, uncertainties and
other factors, including, but not limited to, those identified under "Risk
Factors," in our Form 10-K for the year ended December 31, 2003 and those
described in "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" in our Form 10-K and this Form 10-Q, and those described
in any other filings by us with the Securities and Exchange Commission, as well
as general economic conditions and economic conditions affecting the
telecommunications industry, any one or more of which could cause actual results
to differ materially from those stated in such statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Although we conduct operations outside of the United States, most of our
contracts and sales are dollar denominated. A portion of the revenue from our
United Kingdom operations and the majority of our United Kingdom expenses are
denominated in Sterling. Any Sterling-denominated receipts are promptly
converted into United States dollars. We do not engage in any hedging or other
currency transactions.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, our Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures. Based on their evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that our
disclosure controls and procedures are effective in alerting them to material
information that is required to be included in the reports that we file or
submit under the Securities Exchange Act of 1934.
Page 11 of 16
Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting
that occurred during the fiscal quarter covered by this quarterly report that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
See Note 3 of Notes to Unaudited Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for information concerning
defaults on our subordinated debt.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certificate of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certificate of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
On April 1, 2004 the Company reported its results of operations for
the year ended December 31, 2003.
Page 12 of 16
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.
PORTA SYSTEMS CORP.
Dated May 12, 2004 By /s/William V. Carney
---------------------------
William V. Carney
Chairman of the Board
and Chief Executive Officer
Dated May 12, 2004 By /s/Edward B. Kornfeld
----------------------------------
Edward B. Kornfeld
President, Chief Operating Officer
and Chief Financial Officer
Page 13 of 16