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, 2003
[ ] 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
(Address of principal executive offices)
11791
(Zip Code)
516-364-9300
(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 May 6, 2003
Page 1 of 15
PART I.- FINANCIAL INFORMATION
Item 1- Financial Statements
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
2003 2002
---------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 259 $ 779
Accounts receivable - trade, less allowance for doubtful accounts 4,387 4,654
Inventories 3,275 3,363
Prepaid expenses and other current assets 424 329
--------- ---------
Total current assets 8,345 9,125
Property, plant and equipment, net 1,718 1,802
Goodwill, net 2,961 2,961
Other assets 222 340
--------- ---------
Total assets $ 13,246 $ 14,228
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Senior debt $ 25,145 $ 25,070
Subordinated notes 6,144 6,144
6% convertible subordinated debentures 385 385
Accounts payable 5,680 5,241
Accrued expenses 2,361 2,640
Accrued interest payable 2,870 2,639
Accrued commissions 607 566
Accrued deferred compensation 314 329
Income taxes payable 307 302
Short-term loans 7 8
--------- ---------
Total current liabilities 43,820 43,324
--------- ---------
Deferred compensation 867 839
--------- ---------
Total long-term liabilities 867 839
--------- ---------
Total liabilities 44,687 44,163
--------- ---------
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 and 10,003,224 shares at March 31, 2003 and December 31, 2002 100 100
Additional paid-in capital 76,059 76,059
Accumulated deficit (101,449) (100,023)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (4,213) (4,133)
--------- ---------
(29,503) (27,997)
Treasury stock, at cost (1,938) (1,938)
--------- ---------
Total stockholders' deficit (31,441) (29,935)
--------- ---------
Total liabilities and stockholders' deficit $ 13,246 $ 14,228
========= =========
See accompanying notes to consolidated financial statements.
Page 2 of 15
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations and Comprehensive (Loss)
(In thousands, except per share data)
Three Months Ended
March 31, March 31,
2003 2002
--------- ---------
Sales $ 4,374 $ 4,744
Cost of sales 3,381 3,866
------- -------
Gross profit 993 878
Selling, general and administrative expenses 1,556 1,868
Research and development expenses 572 759
------- -------
Total expenses 2,128 2,627
------- -------
Operating loss (1,135) (1,749)
Interest expense (307) (874)
Interest income 1 2
Other income (expense), net -- (3)
------- -------
Loss before income taxes (1,441) (2,624)
Income tax benefit (expense) 15 (13)
------- -------
Net loss $(1,426) $(2,637)
======= =======
Other comprehensive income (loss):
Foreign currency translation adjustments (80) 21
------- -------
Comprehensive loss $(1,506) $(2,616)
======= =======
Per share data:
Basic per share amounts:
Net loss per share of common stock $ (0.14) $ (0.26)
======= =======
Weighted average shares outstanding 9,972 9,972
======= =======
Diluted per share amounts:
Net loss per share of common stock $ (0.14) $ (0.26)
======= =======
Weighted average shares outstanding 9,972 9,972
======= =======
See accompanying notes to unaudited consolidated financial statements.
Page 3 of 15
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31, March 31,
2003 2002
--------- ---------
Cash flows from operating activities:
Net (loss) $(1,426) $(2,637)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 139 167
Amortization of debt discounts -- 2
Changes in operating assets and liabilities:
Accounts receivable 267 (566)
Inventories 88 810
Prepaid expenses and other current assets (95) (342)
Other assets 118 125
Accounts payable, accrued expenses and other liabilities 450 14
------- -------
Net cash used in operating activities (459) (2,427)
------- -------
Cash flows from investing activities:
Capital expenditures, net (62) (5)
------- -------
Net cash used in investing activities (62) (5)
------- -------
Cash flows from financing activities:
Proceeds from senior debt 75 1,681
Proceeds from exercised options and warrants -- 2
Repayments of short term loans (1) (1)
------- -------
Net cash provided by financing activities 74 1,682
------- -------
Effect of exchange rate changes on cash (73) 15
------- -------
Decrease in cash and cash equivalents (520) (735)
Cash and cash equivalents - beginning of the year 779 1,204
------- -------
Cash and cash equivalents - end of the period $ 259 $ 469
======= =======
Supplemental cash flow disclosure:
Cash paid for interest expense $ 1 $ 6
======= =======
Cash paid for income taxes $ 4 $ 27
======= =======
See accompanying notes to unaudited consolidated financial statements.
Page 4 of 15
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, 2002. 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, 2002 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 2003 are not
necessarily indicative of results for the year. See Note 3.
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, 2003 December 31, 2002
-------------- -----------------
(in thousands)
Parts and components $1,688 $1,767
Work-in-process 385 208
Finished goods 1,202 1,388
------ ------
$3,275 $3,363
====== ======
Note 3: Senior and Subordinated Debt
On March 31, 2003, the Company's debt to its senior lender was
$25,145,000. Under prior amendments, the loan became due and payable on December
31, 2002. In March 2003, the senior lender agreed to an extension to May 15,
2003, and in May 2003, the senior lender granted a further extension to August
29, 2003. As a result, the entire balance of the Company's obligations to its
senior lender becomes due and payable on August 29, 2003. If the agreement is
not extended beyond August 29, 2003, 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, 2003, 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 $2,513,000, which represents interest from
July 2000 through March 31, 2003, and accrued interest on the 6% debentures was
$58,000. We are precluded by our senior lender from paying any principal or
interest on the subordinated debt.
Page 5 of 15
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, 2003 and
2002, pro forma loss is the same as the reported net 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; Operating Support Systems ("OSS") whose
products automate the testing, provisioning, maintenance and administration of
communication networks and the management of support personnel and equipment;
and Signal Processing ("Signal") whose products are used in data communication
devices that employ high frequency transformer technology.
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, 2002 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, 2003 March 31, 2002
-------------- --------------
Sales:
Line $2,161,000 $1,470,000
OSS 913,000 2,045,000
Signal 1,065,000 1,076,000
---------- ----------
$4,139,000 $4,591,000
========== ==========
Segment profit (loss):
Line $ 3,000 $ (661,000)
OSS (853,000) (279,000)
Signal 349,000 107,000
---------- ----------
$ (501,000) $ (833,000)
========== ==========
Page 6 of 15
The following table reconciles segment totals to consolidated totals:
Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Sales:
Total revenue for reportable segments $ 4,139,000 $ 4,591,000
Other revenue 235,000 153,000
----------- -----------
Consolidated total revenue $ 4,374,000 $ 4,744,000
=========== ===========
Operating loss:
Total segment loss for reportable segments $ (501,000) $ (833,000)
Corporate and unallocated (634,000) (916,000)
----------- -----------
Consolidated total operating loss $(1,135,000) $(1,749,000)
=========== ===========
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,
---------
2003 2002
---- ----
Sales 100% 100%
Cost of Sales 77% 82%
Gross Profit 23% 18%
Selling, general and administrative expenses 36% 39%
Research and development expenses 13% 16%
Operating loss (26%) (37%)
Interest expense - net (7%) (18%)
Other 0% 0%
Net (loss) (33%) (55%)
The Company's sales by product line for the periods ended March 31, 2003
and 2002 are as follows:
Three Months Ended March 31,
----------------------------
$(000)
2003 2002
---- ----
Line connection/protection equipment $2,161 49% $1,470 31%
OSS equipment 913 21% 2,045 43%
Signal Processing 1,065 24% 1,076 23%
Other 235 6% 153 3%
------------- -------------
$4,374 100% $4,744 100%
============= =============
Page 7 of 15
Overview
We operate in the telecommunications industry, and our customer-base
consists largely of government-owned and privately-owned telecommunications
companies. During the past three years, 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.
Our business is divided into three segments -- line connection and
protection equipment ("Line") which interconnect copper telephone lines to
switching equipment and provide fuse elements that protect telephone equipment
and personnel from electrical surges; Operating Support Systems ("OSS") which
automate the testing, provisioning, maintenance and administration of
communication networks and the management of support personnel and equipment;
and signal processing ("Signal") equipment which is used in data communication
devices that employ high frequency transformer technology.
Our business has been, and is continuing to be, affected by both the
worldwide slowdown in the telecommunications industry and the effects of our
financial condition. Because our OSS contracts are long-term contracts, our
financial condition raises concerns by our customers and potential customers
about both 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.
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 about break-even for the three
months ended March 31, 2003. We market Signal equipment principally for use in
defense and aerospace applications. The Signal division generated an operating
profit for the three months ended March 31, 2003. We recognize revenue from Line
and Signal products when the product is shipped.
Results of Operations
Our sales for the quarter ended March 31, 2003 were $4,374,000
representing a decrease of $370,000 (8%) compared to the quarter ended March 31,
2002 of $4,744,000. The overall decrease in sales primarily reflected reduced
sales of OSS products partially offset by increased sales from Line products .
Line equipment sales increased by $691,000 (47%) from $1,470,000 for the
March 2002 quarter to $2,161,000 for the March 2003 quarter. The increased sales
resulted from higher levels of sales to customers in the United Kingdom and
Mexico.
OSS sales decreased by $1,132,000 (55%) from $2,045,000 for the quarter
ended March 31, 2002 to $913,000 for the quarter ended March 31, 2003. The
decreased sales resulted from the inability to secure new orders resulting from
the slowdown in the telecommunications market and the effects of our financial
condition and from lower levels of contract completion during the current
quarter as compared to the same quarter last year.
Page 8 of 15
Signal processing revenue for the quarter ended March 31, 2003 compared to
2002 decreased by $11,000 (1%) from $1,076,000 to $1,065,000.
Gross margin for the March 2003 quarter was 23% compared to 18% for the
March 2002 quarter. This increase in gross margin is attributable to the
increased level of sales in the Line business which enabled us to better absorb
certain fixed expenses. Additionally, Signal margins benefited from improved
absorption as well.
Selling, general and administrative expenses decreased by $312,000 (17%)
from $1,868,000 in the March 2002 quarter to $1,556,000 in the March 2003
quarter. This decrease relates primarily to reduced salaries and benefits,
consulting services and commissions reflecting our current level of business.
Research and development expenses decreased by $187,000 (25%) from
$759,000 in the March 2002 quarter to $572,000 in the March 2003 quarter. This
decrease in research and development expenses results from our efforts to reduce
expenses primarily related to 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 loss of $1,135,000 for
the March 2003 quarter, as compared to an operating loss of $1,749,000 for the
March 2002 quarter.
Interest expense decreased by $567,000 (65%) from $874,000 in 2002 to
$307,000 in 2003. This decrease is attributable to our amended agreement with
our senior lender which provides that the old term loan, in the principal amount
of approximately $23,000,000, bears no interest commencing March 1, 2002 until
such time as the lender, in its sole discretion, resumes interest charges. The
senior lender has not resumed interest charges.
As the result of the foregoing, our net loss was $1,426,000, $0.14 per
share (basic and diluted), for the March 2003 quarter versus a net loss of
$2,637,000, $0.26 per share (basic and diluted), for the March 2002 quarter.
Our losses are continuing, and we cannot give any assurance that we will
be able to operate profitably in the future. As a result of the deterioration of
our operating revenue resulting from both market conditions and our financial
condition, we are evaluating various options, including the sale of one or more
of our divisions. If we are not successful, we may have no alternative but to
seek protection under the Bankruptcy Code.
Liquidity and Capital Resources
At March 31, 2003, we had cash and cash equivalents of $259,000 compared
with $779,000 at December 31, 2002. Our working capital deficit at March 31,
2003 was $35,475,000, compared to a working capital deficit of $34,199,000 at
December 31, 2002. The reduced level of cash on hand and inventory, and
increased levels of accrued interest, senior and subordinated debt, and accounts
payable, resulted in the increase in the working capital deficiency. During the
March 2003 quarter, the net cash used by us in operations was $459,000.
Page 9 of 15
As of March 31, 2003, our debt includes $25,145,000 of senior debt which
matures on August 29, 2003, $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.
The maturity date of the senior debt reflects an extension of the maturity of
our senior debt to August 29, 2003, which was granted on May 14, 2003. We were
unable to pay the principal or interest on any of our subordinated debt.
Interest on the subordinated notes was approximately $2,513,000, which
represents interest from July 2000 through March 31, 2003, and interest on the
6% debentures was $58,000. At March 31, 2003, 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.
If the senior lender does not extend the maturity date of our obligations,
which mature on August 29, 2003, and demands payment of all or a significant
portion of our obligations 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 not demand payment of all or a
significant portion of our obligations.
As a result of our continuing financial difficulties:
o we are having and we may continue to have difficulty performing our
obligations under our contracts, which could result in the
cancellation of contracts or the loss of future business and
penalties for non-performance;
o a number of our suppliers have refused to ship to us until we pay
all or a portion of the outstanding balance due to them, and other
suppliers ship to us only on a COD basis; and
o a number of creditors have engaged attorneys or collection agencies,
or commenced legal actions against us.
The creditors include five former senior executives who have deferred
compensation agreements with us. The total payments due under these agreements
are approximately $1.9 million, of which $146,000 was due at March 31, 2003 and
an additional $196,000 becomes due in 2003. The claimants commenced litigation
that has been adjourned pending settlement. We are in the latter stages of
settlement negotiations with these creditors.
We are seeking to address our need for liquidity by exploring
alternatives, including the possible sale of one or more of our divisions. If we
sell a division, we anticipate that a substantial portion 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. During 2002, we took additional steps to
reduce overhead and headcount. We will continue to look to reduce costs while we
seek additional business from new and existing customers; however, unless we are
able to significantly increase our revenue, it may be necessary for us to seek
protection under the Bankruptcy Code.
Page 10 of 15
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, 2002 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. For the three months ended March 31, 2003 and 2002, the
currency translation adjustment was not significant in relation to our total
revenue.
Item 4. Controls and Procedures
Our chief executive officer and chief financial officer have supervised
and participated in an evaluation of the effectiveness of our disclosure
controls and procedures as of a date within 90 days of the date of this report,
and based on their evaluations, they believe that our disclosure controls and
procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934,
as amended) are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. As a result of the evaluation,
there were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
Page 11 of 15
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
99.1 Certificate of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certificate of Chief Financial Officer pursuant to Section 906
of the Sarbanes- Oxley Act of 2002.
(b) Reports on Form 8-K
On March 31, 2003 the Company reported its results of operations for
the year ended December 31, 2002.
Page 12 of 15
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 14, 2003 By /s/ William V. Carney
--------------------------------
William V. Carney
Chairman of the Board
and Chief Executive Officer
Dated May 14, 2003 By /s/ Edward B. Kornfeld
--------------------------------
Edward B. Kornfeld
Senior Vice President
and Chief Financial Officer
Page 13 of 15
William V. Carney does hereby certify that he is the duly elected and incumbent
chief executive officer of Porta Systems Corp (the "issuer") and he does hereby
certify, with respect to the issuer's Form 10-Q for the quarter ended March 31,
2003 (the "report") as follows:
1. He has reviewed the report;
2. Based on his knowledge, the report does not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the report;
3. Based on his knowledge, the financial statements, and other financial
information included in the report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in the report;
4. He and the other certifying officer are responsible for establishing and
maintaining disclosure controls and procedures, as defined in Rule
13a-14(c) of the Securities Exchange Act of 1934, as amended, for the
issuer and have:
i. Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its
consolidated subsidiaries, is made known to them by others within
those entities, particularly during the period in which the periodic
reports are being prepared;
ii. Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
the report (the "Evaluation Date"); and
iii. Presented in the report their conclusions about the effectiveness of
the disclosure controls and procedures based on the required
evaluation as of the Evaluation Date
5. He and the other certifying officer have disclosed to the issuer's
auditors and to the audit committee of the board of directors (or persons
fulfilling the equivalent function):
i. All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to
record, process, summarize and report financial data and have
identified for the issuer's auditors any material weaknesses in
internal controls; and
ii. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal
controls; and
6. He and the other certifying officer have indicated in the report whether
or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to
the date of their most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
By /s/ William V. Carney
----------------------------
William V. Carney
Chief Executive Officer
Page 14 of 15
Edward B. Kornfeld does hereby certify that he is the duly elected and incumbent
chief financial officer of Porta Systems Corp. (the "issuer") and he does hereby
certify, with respect to the issuer's Form 10-Q for the quarter ended March 31,
2003 (the "report") as follows:
1. He has reviewed the report;
2. Based on his knowledge, the report does not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the report;
3. Based on his knowledge, the financial statements, and other financial
information included in the report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in the report;
4. He and the other certifying officer are responsible for establishing and
maintaining disclosure controls and procedures, as defined in Rule
13a-14(c) of the Securities Exchange Act of 1934, as amended, for the
issuer and have:
i. Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its
consolidated subsidiaries, is made known to them by others within
those entities, particularly during the period in which the periodic
reports are being prepared;
ii. Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
the report (the "Evaluation Date"); and
iii. Presented in the report their conclusions about the effectiveness of
the disclosure controls and procedures based on the required
evaluation as of the Evaluation Date
5. He and the other certifying officer have disclosed to the issuer's
auditors and to the audit committee of the board of directors (or persons
fulfilling the equivalent function):
i. All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to
record, process, summarize and report financial data and have
identified for the issuer's auditors any material weaknesses in
internal controls; and
ii. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal
controls; and
6. He and the other certifying officer have indicated in the report whether
or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to
the date of their most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
By /s/ Edward B. Kornfeld
------------------------------
Edward B. Kornfeld
Chief Financial Officer
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