UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended October 31, 1995
Commission file Number 0-15066
Vertex Industries, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-2050350
(State of Incorporation) (I.R.S. Employer Identification No.)
23 Carol Street Clifton, New Jersey 07014
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (201) 777-3500
Indicated 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 X No
Common stock, par value $.005 per share: 5,094,507 shares outstanding as of
December 14, 1995.
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
October 31, 1995
I N D E X
PAGE
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-
October 31, 1995 and July 31, 1995. . . . . . . . . . .3
Consolidated Statements of Operations-
three months ended October 31, 1995
and 1994. . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Changes in
Stockholders' Equity - for the year ended
July 31, 1995 and three months ended
October 31, 1995. . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of
Cash Flows - three months
ended October 31, 1995 and 1994 . . . . . . . . . . . .7
Notes to Consolidated Financial Statements. . . . . . .8
Item 2. Management's Discussion and Analysis
of Consolidated Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . .9
Part II - Other Information
Item 6. Exhibits and Reports on form 8 - K . . . . . 11
Signatures. . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
October 31, 1995 July 31, 1995
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 520,958 $ 321,881
Accounts Receivable, Less Allowance
for Doubtful Accounts of
$75,985 at October 31, 1995 and
July 31, 1995 415,470 462,612
Inventories
Raw Materials 8,957 9,213
Work in Process 105,302 74,020
Finished Goods and Parts 654,604 739,809
Deferred tax asset, current 44,250 44,250
Prepaid Expenses and
other current assets 20,564 29,375
Total Current Assets 1,770,105 1,681,160
PROPERTY, EQUIPMENT,
AND CAPITAL LEASES:
Property and Equipment 1,636,257 1,611,143
Capital Leases 113,979 113,979
Total Property, Equipment and
Capital Leases 1,750,236 1,725,122
Less: Accumulated Depreciation and
Amortization 1,297,076 1,268,462
Net Property, Equipment
and Capital Leases 453,160 456,660
OTHER ASSETS:
Cost in Excess of Net Assets
of Companies Acquired, Net of
accumulated amortization of
$263,981 at October 31, 1995 and
$251,636 at July 31, 1995 149,907 162,252
Deferred tax asset, non-current 313,250 313,250
Other Assets 50,285 49,709
Total Other Assets 513,442 525,211
---------- ----------
Total Assets $2,736,707 $2,663,031
========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
October 31, 1995 July 31, 1995
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Long-Term debt, current portion $ 2,800 $ 2,800
Obligations under capital leases,
current portion 27,677 26,757
Accounts payable 226,236 178,877
Accrued Expenses and Other Liabilities 118,415 151,096
Customer Deposits 246,907 199,490
Total Current Liabilities 622,035 559,020
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion 4,667 5,367
Obligations Under Capital Leases,
Less Current Portion 25,288 33,559
Total Long-Term Liabilities 29,955 38,926
EXCESS OF NET ASSETS OF ACQUIRED
COMPANIES OVER COST NET OF ACCUMULATED
AMORTIZATION of $460,514 at
October 31, 1995 and $454,297 at
July 31, 1995 25,617 31,834
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.01
per share 2,000,000 shares
authorized; none issued
and outstanding -- --
Common Stock, par value $.005
per share, authorized 20,000,000
shares; issued 5,107,379 shares at
October 31, 1995 and 5,080,879
shares at July 31, 1995,
respectively 25,537 25,404
Capital in Excess of Par Value 5,180,796 5,167,951
Retained Earnings (Deficit) (3,096,664) (3,109,535)
2,109,669 2,083,820
Less: Treasury stock, 12,872
shares at cost (50,569) (50,569)
Total Stockholders' Equity 2,059,100 2,033,251
---------- ----------
Total Liabilities and
Stockholders' Equity $2,736,707 $2,663,031
========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
-4-
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended October 31
1995 1994
<S> <C> <C>
OPERATING REVENUES $ 828,777 $ 993,056
COST OF SALES 421,527 454,210
GROSS PROFIT 407,250 538,846
OPERATING EXPENSES:
Selling and Administrative 298,568 331,734
Research and Development 95,798 61,855
Total Operating Expenses 394,366 393,589
OPERATING INCOME 12,884 145,257
OTHER INCOME AND (EXPENSES):
Interest Income 2,217 2,814
Interest Expense (2,709) (5,567)
Miscellaneous Income 1,423 2,085
Net Other Income
and (Expenses) 931 (668)
INCOME BEFORE INCOME TAXES 13,815 144,589
INCOME TAX EXPENSE 944 40,000
---------- ---------
Net Income $ 12,871 $ 104,589
========== =========
Earnings per share of
Common Stock:
NET INCOME $ .0 $ .02
Weighted Average
Shares Outstanding 5,078,377 5,002,198
DIVIDENDS PER SHARE $ -0- $ -0-
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
-5-
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Unaudited)
<CAPTION>
COMMON STOCK CAPITAL RETAINED
$.005 Par Value in excess Earnings Treasury
Shares Amount Par Value (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
Year ended July 31, 1995
- ------------------------
Balances at July 31, 1994 4,844,837 $24,224 $4,726,687 $(1,890,196) $(45,169) $2,815,546
Issuance of Common Stock:
Consideration for CTSI assets 236,042 1,180 441,339 --- --- 442,579
2,872 shares of parent common
stock acquired by subsidiary --- --- --- --- (5,400) (5,400)
Overpayment on stock options refunded --- --- (135) --- --- (135)
Net (loss) for the year ended
July 31, 1995 --- --- --- (1,219,339) --- (1,219,339)
---------- --------- ---------- ------------ ----------- -----------
Balance at July 31, 1995 5,080,879 $25,404 $5,167,951 $(3,109,535) $(50,569) $2,033,251
---------- --------- ---------- ------------ ----------- -----------
Three months ended October 31, 1995
- -----------------------------------
Issuance of Common Stock:
Exercise of Stock Options 26,500 133 12,845 --- --- 12,978
Net income for the three months ended
October 31, 1995 --- --- --- 12,871 --- 12,871
---------- --------- ----------- ------------ ----------- -----------
Balances at October 31, 1995 5,107,379 $ 25,537 $5,180,796 $(3,096,664) $(50,569) $2,059,100
---------- --------- ----------- ------------ ----------- -----------
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-6-
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended October 31, 1995 Three Months Ended October 31, 1994
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net Income $12,871 $104,589
Adjustments to reconcile Net Income ------- --------
to net cash provided by (used for)
operating activities:
Depreciation and amortization 34,166 23,436
Deferred costs -- (404,877)
Deferred taxes -- 4,000
(Increase) or Decrease in operating
assets:
Accounts receivable 47,142 103,072
Inventories 54,179 (32,081)
Prepaid expenses and other
current assets 8,811 (4,281)
Increase or (Decrease) in operating
liabilities:
Accounts payable 47,359 79,258
Customer Deposits 47,417 --
Accrued expenses and other
liabilities (32,681) 73,742
--------- -------
Net adjustments to reconcile net
income of net cash provided by (used
for) operating activities: 206,393 (157,731)
Net Cash provided (used) by operating --------- ---------
activities: 219,264 (53,142)
--------- ---------
Cash Flows from Investing Activities:
- -------------------------------------
(Additions to) property and equipment (25,114) (27,916)
--------- --------
Net cash used for investing activities (25,114) (27,916)
Cash Flows from Financing Activities:
- -------------------------------------
Payment of long term debt (700) (700)
Payment of capitalized lease obligations (7,351) (5,493)
Proceeds from issuance of common stock 12,978 442,579
-------- -------
Net Cash provided by financing activities 4,927 436,296
-------- -------
Net Increase in Cash 199,077 355,238
Cash at Beginning of Year 321,881 466,416
-------- -------
Cash at End of Period $520,958 $821,654
________ ________
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-7-
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q, and
therefore, do not include all information and footnotes necessary for
a fair presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. Reference should be made to the annual financial
statements including the footnotes thereto, included in the Vertex
Industries, Inc. and subsidiaries (the "Company") Annual Report on
Form 10-K for the year ended July 31, 1995. In the opinion of
management, the accompanying unaudited interim financial statements
contain all material adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial condition, the
results of operations and cash flows of the Company and its
consolidated subsidiaries for the interim periods. Operating results
for interim periods are not necessarily indicative of the results that
may be expected for the entire year.
2. Income Taxes
At July 31, 1995, the Company had net operating loss ("NOLs")
carryforwards available to offset future taxable income of
approximately $4.3 million and $3.6 million for federal and state tax
purposes, respectively. Realization of the future tax benefits
associated with the NOLs is dependent on the Company's ability to
generate taxable income within the carryforward period and the periods
in which net temporary differences reverse. Future levels of
operating income and taxable income are dependent upon general
economic conditions, competitive pressures on sales and margins and
other factors beyond the Company's control. Accordingly, no assurance
can be given that sufficient taxable income will be generated for
utilization of all of the NOLs and reversals of temporary differences.
As of October 31, 1995, the Company had a deferred tax asset valuation
allowance of approximately $436,000 with a net deferred tax asset of
approximately $357,500, which was recorded in prior years relating to
the realization of the NOLs. As of October 31, 1995 the Company has
not adjusted the deferred tax asset valuation allowance.
In assessing the realizability of the $357,500 net deferred tax
asset, the Company has considered numerous factors, including its
future operating plans and its recent history of operating losses.
Management believes that the $357,500 net deferred tax asset
represents a reasonable conservative estimate of the future
utilization of the NOLs and the Company will continue to evaluate the
likelihood of future profits and the necessity of future adjustments
to the deferred tax asset valuation allowance.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three months ended October 31, 1995 compared with three months ended
October 31, 1994.
Overview
The Company experienced a 17% decrease in operating revenues and
recorded net income of $12,871 for the quarter ended October 31, 1995,
compared to net income of $104,589 for the same period in fiscal 1995.
The decrease in sales is primarily due to a decrease in demand for the
weighing equipment and label generating systems product lines coupled
with an increase in demand for the bar code and software product
lines. The Company's decision to increase staff in the direct
marketing area while still supporting distributor and VAR sales has
led to pilot system contracts which have been announced in this
quarter. This effort will continue to expand in future months.
Net Income
The Company recorded net income of $12,871 for the quarter ended
October 31, 1995 as compared to net income of $104,589 for the same
period last year. The decrease in net income is attributed to a
decrease in operating revenues of approximately $164,279 or 17% in
fiscal 1996 as compared to 1995 in addition to a decrease of 5% in
gross margin in fiscal 1996 as compared to 1995. Operating expenses
remained basically the same for both periods
Operating Revenues
Operating Revenues decreased $164,279 or 17% to $828,777 for the
quarter ended October 31, 1995, compared to $993,056 for the same
period last year. The decrease in operating revenue is attributed to
a decrease in demand for weighing equipment and label generating
systems of approximately $261,000 coupled with an increase in sales in
the bar code and software product lines of approximately $92,000. The
Company continues to focus its resources on the bar code and software
product lines.
Cost of Sales
Cost of Sales increased to 51% of revenues for the first quarter of
fiscal 1996 compared to 46% for the same period in 1995. The increase
is primarily due to a decrease in sales activity which caused other
product lines to absorb additional factory overhead which decreases
product margins and the overall gross profit.
Operating Expenses
Operating expenses remained fairly consistant for the first quarter of
1996 compared to the same period in 1995. Selling and administrative
expenses decreased $33,166 or approximately 10%. This is due to the
Company's continuing efforts to monitor and control expenses in this
area. Research and development expenses increased $33,943 or 55% to
$95,798. The increase is due to the Company's ever expanding research
-9-
<PAGE>
and development efforts in the software area. The Company will
continue its focus in this product area which will position the
Company for future growth.
Other Income and Expenses
Net other income and expenses were income of $931 for the quarter
ended October 31, 1995 compared to an expense of $668 for last year.
Liquidity and Capital Resources
At October 31, 1995 the Company had $520,958 in cash compared to
$321,881 at July 31, 1995. Working Capital and the current ratio were
$1,148,070 and 2.85 to 1 at October 31, 1995 versus $1,122,140 and
3.01 to 1 at July 31, 1995. Net cash provided by operating activities
was $219,264 in the first three months of fiscal 1996.
Capital expenditures were approximately $25,114 and $27,916 for
the three month periods ended October 31, 1995 and 1994, respectively.
The Company believes that cash and working capital are at
sufficient levels to support the needs of the Company for the near
future. However, if product demand increases significantly, there may
be a need for additional working capital.
-10-
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
Part II - Other Information
Item 6. Exhibits and Reports on Form 8 - K
(a) None
(b) There have been no reports filed
on form 8 - K for the quarter ended
October 31, 1995
-11-
<PAGE>
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 INDUSTRIES, INC.
Registrant
By S/ James Q. Maloy
_________________________
James Q. Maloy,
Chairman of the Board,
(Chief Executive Officer)
By S/ Ronald C. Byer
_________________________
Ronald C. Byer
President, Treasurer,
(Chief Financial Officer)
December 14, 1995
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 520,958
<SECURITIES> 0
<RECEIVABLES> 491,455
<ALLOWANCES> (75,985)
<INVENTORY> 768,863
<CURRENT-ASSETS> 1,770,105
<PP&E> 1,750,236
<DEPRECIATION> (1,297,076)
<TOTAL-ASSETS> 2,736,707
<CURRENT-LIABILITIES> 622,035
<BONDS> 29,955
<COMMON> 25,537
0
0
<OTHER-SE> 2,033,563
<TOTAL-LIABILITY-AND-EQUITY> 2,736,707
<SALES> 828,777
<TOTAL-REVENUES> 828,777
<CGS> 421,527
<TOTAL-COSTS> 801,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,709
<INCOME-PRETAX> 13,815
<INCOME-TAX> 944
<INCOME-CONTINUING> 12,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,871
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
