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 January 31, 1996
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
March 14, 1996.
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
January 31, 1996
I N D E X
PAGE
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-
January 31, 1996 and July 31, 1995. . . . . . . . . . .3
Consolidated Statements of Operations-
three and six months ended January 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Changes in
Stockholders' Equity - for the year ended
July 31, 1995 and six months ended
January 31, 1996. . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of
Cash Flows - six months
ended January 31, 1996 and 1995 . . . . . . . . . . . .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 4. Submission of Matters to Vote
of Security Holders. . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on form 8 - K . . . . . 13
Signatures. . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
January 31, 1996 July 31, 1995
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 524,735 $ 321,881
Accounts Receivable, Less Allowance
for Doubtful Accounts of
$75,985 at January 31, 1996 and
July 31, 1995 512,643 462,612
Inventories
Raw Materials 8,540 9,213
Work in Process 165,714 74,020
Finished Goods and Parts 480,608 739,809
Deferred tax asset, current 44,250 44,250
Prepaid Expenses and
other current assets 35,597 29,375
--------- ---------
Total Current Assets 1,772,088 1,681,160
PROPERTY, EQUIPMENT,
AND CAPITAL LEASES:
Property and Equipment 1,647,928 1,611,143
Capital Leases 113,979 113,979
--------- ---------
Total Property, Equipment and
Capital Leases 1,761,907 1,725,122
Less: Accumulated Depreciation and
Amortization 1,325,990 1,268,462
--------- ---------
Net Property, Equipment
and Capital Leases 435,917 456,660
--------- ---------
OTHER ASSETS:
Cost in Excess of Net Assets
of Companies Acquired, Net of
accumulated amortization of
$276,326 at January 31, 1996 and
$251,636 at July 31, 1995 137,562 162,252
Deferred tax asset, non-current 235,844 313,250
Other Assets 49,508 49,709
--------- --------
Total Other Assets 422,914 525,211
---------- ----------
Total Assets $2,630,919 $2,663,031
========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
-3-
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
January 31, 1996 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 28,606 26,757
Accounts payable 182,456 178,877
Accrued Expenses and Other Liabilities 87,524 151,096
Customer Deposits 126,073 199,490
----------- ----------
Total Current Liabilities 427,459 559,020
----------- ----------
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion 3,967 5,367
Obligations Under Capital Leases,
Less Current Portion 17,753 33,559
----------- ----------
Total Long-Term Liabilities 21,720 38,926
----------- ----------
EXCESS OF NET ASSETS OF ACQUIRED
COMPANIES OVER COST NET OF ACCUMULATED
AMORTIZATION of $466,731 at January 31,
1996 and $454,297 at July 31, 1995 19,400 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
January 31, 1996 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) (2,993,425) (3,109,535)
----------- ----------
2,212,908 2,083,820
Less: Treasury stock (12,872
shares at cost) (50,569) (50,569)
----------- ----------
Total Stockholders' Equity 2,162,339 2,033,251
----------- ----------
Total Liabilities and
Stockholders' Equity $2,630,918 $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 January 31 Six Months Ended Jan. 31
----------------------------- ------------------------
1996 1995 1996 1995
----------------------------- ------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $1,041,620 $1,003,230 $1,870,397 $1,996,286
COST OF SALES 457,032 519,561 878,559 973,771
---------- ---------- ----------- ----------
GROSS PROFIT 584,588 483,669 991,838 1,022,515
---------- ---------- ----------- ----------
OPERATING EXPENSES:
Selling and Administrative 305,907 384,289 604,475 716,013
Research and Development 98,836 99,868 194,634 161,723
---------- ---------- ---------- ----------
Total Operating Expenses 404,743 484,157 799,109 887,736
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 179,845 (488) 192,729 144,779
---------- ---------- ---------- ----------
NET OTHER INCOME 800 1,929 1,731 1,251
---------- ---------- ---------- ----------
Income before income taxes 180,645 1,441 194,460 146,030
---------- ---------- ---------- ----------
INCOME TAX EXPENSE 77,406 -- 78,350 40,000
---------- --------- ---------- ----------
Net Income $ 103,239 $ 1,441 116,110 106,030
========== ========= ========== ==========
Earnings per share of
Common Stock:
Net Income $ .02 $ -- $ .02 $ .02
========== ========= ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING: 5,094,507 5,080,879 5,086,442 5,041,539
---------- --------- --------- ----------
DIVIDENDS PER SHARE $ -0- $ -0- $ -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
Year ended July 31, 1995 Shares Amount Par Value (Deficit) Stock Total
- ------------------------ ---------- --------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
---------- --------- ---------- ------------ ----------- -----------
Six months ended January 31, 1996
- -----------------------------------
Issuance of Common Stock:
Exercise of Stock Options 26,500 133 12,845 -- -- 12,978
Net income for the six months ended
January 31, 1996 -- -- -- 116,110 -- 116,110
---------- --------- ----------- ------------ ----------- -----------
Balances at January 31, 1996 5,107,379 $ 25,537 $5,180,796 $(2,993,425) $(50,569) $2,162,339
========== ========= =========== ============ =========== ===========
<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>
Six months Ended
January 31, 1996 January 31, 1995
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net Income $116,110 $106,030
Adjustments to reconcile Net Income ------- --------
to net cash provided by (used for)
operating activities:
Depreciation and amortization 67,185 35,960
Deferred costs -- (295,419)
Deferred taxes 77,406 4,000
(Increase) or Decrease in operating assets:
Accounts receivable (50,031) (70,100)
Inventories 168,180 (84,415)
Prepaid expenses and other
current assets (6,222) (18,900)
Increase or (Decrease) in operating
liabilities:
Accounts payable 3,579 52,457
Customer Deposits (73,417) --
Accrued expenses and other
liabilities (63,572) 12,337
--------- -------
Net adjustments to reconcile net
income of net cash provided by (used
for) operating activities: 123,108 (326,280)
Net Cash provided (used) by operating --------- ---------
activities 239,218 (220,250)
--------- ---------
Cash Flows from Investing Activities:
- -------------------------------------
(Additions to) property and equipment (36,785) (34,764)
--------- --------
Net cash used for investing activities (36,785) (34,764)
Cash Flows from Financing Activities:
- -------------------------------------
Payment of long term debt (1,400) (1,400)
Payment of capitalized lease obligation (13,957) (11,353)
Proceeds from issuance of common stock 12,978 442,579
-------- -------
Net Cash provided by financing activities 421 429,826
-------- -------
Net Increase in Cash 202,854 174,812
Cash at Beginning of Year 321,881 466,416
-------- -------
Cash at End of Period $524,735 $641,228
======== ========
<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 January 31, 1996, the Company had a deferred tax asset valuation
allowance of approximately $436,000 with a net deferred tax asset of
approximately $280,094, which was recorded in prior years relating to
the realization of the NOLs. As of January 31, 1996 the Company adjusted
the deferred tax asset by the income tax provision of $77,406.
In assessing the realizability of the $280,094 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 $280,094 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 January 31, 1996 compared with three months ended
January 31, 1995.
Overview
The Company experienced a 3.8% increase in operating revenues and
recorded net income of $103,239 for the quarter ended January 31, 1996,
compared to net income of $1,441 for the same period in 1995.
The increase in operating revenues is attributed to an increase in
demand for the bar code and software product lines coupled with a
decrease in demand for the weighing, card devices and label
generating systems product lines. The increase in net income
is due to an increase in the gross profit margin in addition to a
decrease in operating expenses.
Net Income
Net income increased $101,798 to $103,239 for the quarter ended
January 31, 1996 as compared to net income of $1,441 for the same
period in 1995. The increase in net income is primarily due to an
increase in the gross profit margin of approximately 8% to 56% in 1996
as compared to 48% in 1995. The increase in net income is also attributed
to a decrease in operating expenses of approximately $79,414 or 16% in
1996 as compared to the same period in 1995.
Operating Revenues
Operating Revenues increased $38,390 or 3.8% to $1,041,620 for the
quarter ended January 31, 1996, compared to $1,003,230 for the same
period in 1995. The increase in operating revenue is attributed to
an increase in demand for bar code and software product lines of
approximately $296,502 coupled with a decrease in demand of approximately
$258,112 in the weighing, card devices and label generating systems
product lines.
Cost of Sales
Cost of Sales decreased to 44% of revenues in the second quarter of
1996 compared to 52% for the same period in 1995. This decrease
is primarily due to improved product margins, and a change in sales
mix in which sales of higher margin products increased whereas sales
of lower margin products decreased.
Operating Expenses
Operating expenses decreased $79,414 or 16.4% to $404,783 for the
quarter ended January 31, 1996, as compared to $484,157 for the same
period in 1995. The decrease is comprised of a decrease of $78,382
20.4% in selling and administrative expenses and a decrease
of $1,032 or 1% in research and development expenses. The Company is
benefiting from its decisions last year in which it streamlined
its operations with the closing of its Ohio and Massachusetts facilities.
-9-
<PAGE>
The Company continues to expand its direct sales effort as well as
its reasearch and development efforts which will position the
Company for future growth.
Net Other Income
Net other income decreased $1,129 to $800 for the quarter ended
January 31, 1996 compared to other income of $1,929 for the same
period in 1995.
Income Tax Expense
The Company recorded an income tax provision of $77,406 for the
quarter ended January 31, 1996 as compared to no tax provision for
the same period in 1995. The income tax provision of $77,406 was offset
against the Company's deferred tax asset at January 31, 1996.
-10-
<PAGE>
Six Months Ended January 31, 1996 compared with six months ended
January 31, 1995.
Overview
The Company's operating revenues decreased approximately 6% and net
income increased approximately 9.5% to $116,110 for the six months
ended January 31, 1996 as compared to the same period in 1995. The
decrease in operating revenues is due to a decrease in demand for
the weighing, card devices and label generating systems product lines
coupled with an increase in the bar code and software product lines.
The increase in net income is attributed to improved gross profit
margin and a decrease in operating expenses.
Net Income
Net Income increased $10,080 to $116,110 for the six months ended
January 31, 1996, compared to net income of $106,030 for the same
period in 1995. The increase in net income is attributed to an
increase in the gross profit margin to 53% for 1996 compared to
51% in 1995. The increase is also due to a decrease in operating
expenses of $88,627 or 10% for the six months ended January 31,
1996 compared to the same period in 1995.
Operating Revenues
Operating revenues decreased 6% to $1,870,397 for the six
months ended January 31, 1996 compared to $1,996,286 in the same
period last year. The decrease is due to a decrease in demand of
approximately $515,630 in the weighing and label generating systems
product lines coupled with an increase in the bar code and software
product lines of $338,158.
Cost of Sales
Cost of Sales decreased to 47% of revenues for the six months
ended January 31, 1996, compared to 49% for the same period in 1995.
-11-
<PAGE>
The decrease is due to improved gross profit margins in addition to
a shift in sales mix from the lower margin products to the higher
margin products. As the Company's software and bar code sales
continue to increase correspondingly the gross profit margins should
continue to improve.
Operating Expenses
Operating expenses decreased 10% or $88,627 to $779,109 for the six
month ended January 31, 1996 compared to $887,736 in the same period
in 1995. The decrease is comprised of a decrease of $111,538 or 16%
in selling and administrative expenses and an increase of $32,911 or
20% in research and development expenses. The Company continues to
streamline its operation and reduce administrative costs. The Company
increased its direct selling efforts as systems integrators (while
still supporting its Distributor and VAR channels) in an effort to
produce an improved revenue stream. The Company continues to increase
its research and development on its BridgeNet software products.
Net Other Income
Net other income increased $480 to $1,731 for the six months ended
January 31, 1996, compared to other income of $1,251 for the same
period in 1995.
Income Tax Expense
The Company recorded an income tax provision of $78,350 for the
six months ended January 31, 1996 as compared to $40,000 for the
same period in 1995. See footnote two on page 8 for additional
information on income taxes.
Liquidity and Capital Resources
At January 31, 1996 the Company had $524,735 in cash compared
to $321,881 at July 31, 1995. Working Capital and the current
ratio were $1,344,629 and 4.15 to 1 at January 31, 1996 versus
$1,122,140 and 3.01 to 1 at July 31, 1995. Net cash provided by
operating activities was $239,218 in the first six months of 1996.
Capital expenditures were approximately $36,800 and $34,800 for
the six month periods ended January 31, 1996 and 1995, respectively.
The Company believes that cash and working capital are at sufficient
levels to support the needs of the Company for the near future.
The $239,218 of cash provided by operating activities for the first
six months of 1996 was primarily generated by net income of $116,110
and a decrease in inventory of $168,180 due to the Company's shift
in product mix and its in-stock position.
-12-
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
Part II - Other Information
Item 4. Submission of matters to a Vote of Security Holders
(a) The Company held an Annual Meeting of Stockholders
on January 17, 1996.
(b) The names of each Director elected at the Annual
Meeting are as follows:
James Q. Maloy
Ronald C. Byer
Irwin Dorros
Wilbur Highleyman
George Powch
The above directors were elected for a one year term.
FOR AGAINST ABSTAIN
--- ------- -------
4,232,198 2,000 70,815
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
January 31, 1996
-13-
<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/ Ronald C. Byer
_____________________________
Ronald C. Byer
Chief Executive Officer, President
By S/ Robert T. McLaughlin
_____________________________
Robert T. McLaughlin
Chief Financial Officer, Treasurer
March 14, 1996
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<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
0
0
<COMMON> 25,537
<OTHER-SE> 2,033,563
<TOTAL-LIABILITY-AND-EQUITY> 2,736,707
<SALES> 828,777
<TOTAL-REVENUES> 828,777
<CGS> 421,527
<TOTAL-COSTS> 814,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 524,735
<SECURITIES> 0
<RECEIVABLES> 588,628
<ALLOWANCES> 75,985
<INVENTORY> 654,862
<CURRENT-ASSETS> 1,772,088
<PP&E> 1,761,907
<DEPRECIATION> 1,325,990
<TOTAL-ASSETS> 2,630,919
<CURRENT-LIABILITIES> 427,459
<BONDS> 21,720
0
0
<COMMON> 25,537
<OTHER-SE> 2,136,802
<TOTAL-LIABILITY-AND-EQUITY> 2,630,918
<SALES> 1,870,397
<TOTAL-REVENUES> 1,870,397
<CGS> 878,559
<TOTAL-COSTS> 1,675,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 194,460
<INCOME-TAX> 78,350
<INCOME-CONTINUING> 116,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,110
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
