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 April 30, 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
June 14, 1996.
1
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
April 30, 1996
I N D E X
PAGE
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-
April 30, 1996 and July 31, 1995 .. . . . . . . . . . .3
Consolidated Statements of Operations-
three and nine months ended April 30, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Changes in
Stockholders' Equity - for the year ended
July 31, 1995 and nine months ended
April 30, 1996 . . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of
Cash Flows - nine months
ended April 30, 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 . . . . . . . . . . . . . . . . 10
Part II - Other Information
Item 6. Exhibits and Reports on form 8 - K . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . 15
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
April 30, 1996 July 31, 1995
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 523,656 $ 321,881
Accounts Receivable, Less Allowance
for Doubtful Accounts of
$75,985 at April 30, 1996 and
July 31, 1995 521,867 462,612
Inventories
Raw Materials 7,673 9,213
Work in Process 181,966 74,020
Finished Goods and Parts 493,524 739,809
Deferred tax asset, current 44,250 44,250
Prepaid Expenses and
other current assets 22,027 29,375
--------- ---------
Total Current Assets 1,794,963 1,681,160
PROPERTY, EQUIPMENT,
AND CAPITAL LEASES:
Property and Equipment 1,666,029 1,611,143
Capital Leases 113,979 113,979
--------- ---------
Total Property, Equipment and
Capital Leases 1,780,008 1,725,122
Less: Accumulated Depreciation and
Amortization 1,354,904 1,268,462
--------- ---------
Net Property, Equipment
and Capital Leases 425,104 456,660
--------- ---------
OTHER ASSETS:
Cost in Excess of Net Assets
of Companies Acquired, Net of
accumulated amortization of
$288,671 at April 30, 1996 and
$251,636 at July 31, 1995 125,217 162,252
Deferred tax asset, non-current 221,844 313,250
Other Assets 49,507 49,709
--------- --------
Total Other Assets 396,568 525,211
---------- ----------
Total Assets $2,616,635 $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>
April 30, 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 29,568 26,757
Accounts payable 155,772 178,877
Accrued Expenses and Other Liabilities 145,149 151,096
Customer Deposits 72,570 199,490
----------- ----------
Total Current Liabilities 405,859 559,020
----------- ----------
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion 3,267 5,367
Obligations Under Capital Leases,
Less Current Portion 10,911 33,559
----------- ----------
Total Long-Term Liabilities 14,178 38,926
----------- ----------
EXCESS OF NET ASSETS OF ACQUIRED
COMPANIES OVER COST NET OF ACCUMULATED
AMORTIZATION of $472,948 at April 30,
1996 and $454,297 at July 31, 1995 13,183 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
April 30, 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
Accumulated Deficit (2,972,349) (3,109,535)
----------- ----------
2,233,984 2,083,820
Less: Treasury stock (12,872
shares at cost) (50,569) (50,569)
----------- ----------
Total Stockholders' Equity 2,183,415 2,033,251
----------- ----------
Total Liabilities and
Stockholders' Equity $2,616,635 $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 April 30 Nine Months Ended April 30
----------------------------- ------------------------
1996 1995 1996 1995
----------------------------- ------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 859,424 $ 784,137 $2,729,821 $2,780,423
COST OF SALES 411,024 464,148 1,289,583 1,437,919
---------- ---------- ----------- ----------
GROSS PROFIT 448,400 319,989 1,440,238 1,342,509
---------- ---------- ----------- ----------
OPERATING EXPENSES:
Selling and Administrative 327,104 347,756 931,579 1,063,769
Research and Development 86,652 98,867 281,286 260,590
---------- ---------- ---------- ----------
Total Operating Expenses 413,756 446,623 1,212,865 1,324,359
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 34,644 (126,634) 227,373 18,145
---------- ---------- ---------- ----------
NET OTHER INCOME (EXPENSE) 1,311 (272) 3,042 979
---------- ---------- ---------- ----------
Income (Loss) before provsion
for income taxes 35,955 (129,906) 230,415 19,124
---------- ---------- ---------- ----------
PROVISION FOR INCOME TAXES 14,879 159 93,229 40,159
---------- --------- ---------- ----------
Net Income (Loss) $ 21,076 $(127,065) 137,186 (21,035)
========== ========= ========== ==========
Income (Loss) per share of
Common Stock:
Net Income (Loss) $ --- $ (.03) $ .03 $ --
========== ========= ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING: 5,094,507 5,080,879 5,089,091 5,054,652
---------- --------- --------- ----------
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
$.005 Par Value in excess Accumulated 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
---------- --------- ---------- ------------ ----------- -----------
Nine months ended April 31, 1996
- -----------------------------------
Issuance of Common Stock:
Exercise of Stock Options 26,500 133 12,845 -- -- 12,978
Net income for the nine months ended
April 30, 1996 -- -- -- 137,186 -- 137,186
---------- --------- ----------- ------------ ----------- -----------
Balances at April 30, 1996 5,107,379 $ 25,537 $5,180,796 $(2,972,349) $(50,569) $2,183,415
========== ========= =========== ============ =========== ===========
<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>
Nine months Ended
April 30, 1996 April 30, 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income(loss) $137,186 $(21,035)
Adjustments to reconcile Net Income(loss) -------- ---------
to net cash provided by (used for)
operating activities:
Depreciation and amortization 104,826 69,392
Deferred costs -- (460,596)
Deferred taxes 91,406 --
(Increase) or Decrease in operating assets:
Accounts receivable, net (59,255) 3,014
Inventories 139,879 (94,586)
Prepaid expenses and other
current assets 7,348 21,040
Other Assets 202 --
Increase or (Decrease) in operating
liabilities:
Accounts payable (23,105) 28,083
Customer Deposits (126,920) --
Accrued expenses and other
liabilities (5,947) 10,896
--------- -------
Net adjustments to reconcile net
income of net cash provided by (used
for) operating activities: 128,434 (422,757)
Net cash provided by (used for) operating --------- ---------
activities 265,620 (443,792)
--------- ---------
Cash Flows from Investing Activities:
(Additions to) property and equipment (54,886) (43,101)
--------- --------
Net cash used for investing activities (54,886) (43,101)
Cash Flows from Financing Activities:
Payment of long term debt (2,100) (2,100)
Payment of capitalized lease obligation (19,837) (17,314)
Proceeds from issuance of common stock 12,978 442,579
-------- -------
Net cash provided by (used for)
financing activities (8,959) 423,165
-------- -------
Net Increase (Decrease) in Cash 201,775 (63,728)
Cash at Beginning of Year 321,881 466,416
-------- -------
Cash at End of Period $523,656 $402,688
======== ========
<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 April 30, 1996, the Company had a deferred tax asset valuation
allowance of approximately $436,000 with a net deferred tax asset of
approximately $266,094, which was recorded in prior years relating to
the realization of the NOLs. As of April 30, 1996 the Company adjusted
the deferred tax asset by the income tax provision of $14,879.
In assessing the realizability of the $266,094 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 $266,094 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>
3. Accounting for Stock-Based Compensation
In October 1995, The Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation", which is
effective in the Company's 1997 fiscal year with earlier adaption encouraged.
The statement encourages entities to adopt the fair value-based method of
accounting for employee stock options, as opposed to the method which measures
compensation cost for those plans using the intrinsic value-based accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company has decided not to adopt the recognition provisions of SFAS
No. 123.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three months ended April 30, 1996 compared with three months ended
April 30, 1995.
Overview
The Company experienced a 9.6% increase in operating revenues and
recorded net income of $21,076 for the quarter ended April 30, 1996,
compared to a net loss of $127,065 for the same period in 1995.
The increase in operating revenues is attributed to an increase in
demand for the weighing, software and label generating systems (LGS)
product lines coupled with a decrease in demand for the bar code and card
devices 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 $148,141 to $21,076 for the quarter ended
April 30, 1996 as compared to a net loss of $127,065 for the same
period in 1995. The increase in net income is primarily due to an
increase in the gross profit margin of approximately 11% to 52% for the
quarter ended April 30. 1996 as compared to 41% for the same period in 1995.
The increase in net income is also attributed to a decrease in operating
expenses of approximately $32,867 or 7% in 1996 as compared to the same period
in 1995.
Operating Revenues
Operating Revenues increased $75,287 or 9.6% to $859,424 for the
quarter ended April 30, 1996, compared to $784,137 for the same
period in 1995. The increase in operating revenue is attributed to
an increase in demand for software, weighing and LGS product lines of
approximately $320,920 coupled with a decrease in demand of approximately
$248,679 in the bar code and card devices product lines.
Cost of Sales
Cost of Sales decreased to 48% of revenues in the second quarter of
1996 compared to 59% 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 $32,867 or 7.3% to $413,756 for the
quarter ended April 30, 1996, as compared to $446,623 for the same
period in 1995. The decrease is comprised of a decrease of $20,652
5.9% in selling and administrative expenses and a decrease
of $12,215 or 12.3% in research and development expenses. The Company is
benefiting from decisions made last year in which it streamlined
its operations with the closing of its Ohio and Massachusetts facilities.
-10-
<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 (Expense)
Net other income (expense) decreased $1,039 to $1,311 for the quarter ended
April 30, 1996 compared to net other expense of $272 for the same
period in 1995.
Provision for Income Taxes
The Company recorded an income tax provision of $14,879 for the
quarter ended April 30, 1996 as compared to no tax provision for
the same period in 1995. The income tax provision of $14,000 was offset
against the Company's deferred tax asset at April 30, 1996.
-11-
<PAGE>
Nine Months ended April 30, 1996 compared with nine months ended
April 30, 1995.
Overview
The Company's operating revenues decreased approximately 2% and net
income increased to $137,186 for the nine months ended April 30, 1996 as
compared to a net loss of $21,035 for the same period in 1995. The decrease
in operating revenues is due to a decrease in demand for the weighing, card
devices and bar code product lines coupled with an increase in the software
and label generating systems 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 $158,221 to $137,186 for the nine months ended
April 30, 1996, compared to a net loss of $21,035 for the same
period in 1995. The increase in net income is attributed to an
increase in the gross profit margin to 52% for 1996 compared to
48% in 1995. The increase is also due to a decrease in operating
expenses of $111,494 or 8% for the nine months ended April 30, 1996
compared to the same period in 1995.
Operating Revenues
Operating revenues decreased 2% to $2,729,821 for the nine
months ended April 30, 1996 compared to $2,780,423 in the same
period last year. The decrease is due to a decrease in demand of
approximately $407,675 in the weighing, card devices and bar code product
lines coupled with an increase in the software and LGS product lines of
$357,070.
Cost of Sales
Cost of Sales decreased to 48% of revenues for the nine months
ended April 30, 1996, compared to 52% for the same period in 1995.
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 sales continue to increase
correspondingly the gross profit margins should continue to improve.
-12-
<PAGE>
Operating Expenses
Operating expenses decreased 10% or $111,494 to $1,212,865 for the nine
month ended April 30, 1996 compared to $1,324,359 for the same period
in 1995. The decrease is comprised of a decrease of $132,190 or 12%
in selling and administrative expenses and an increase of $20,696 or
8% 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 (Expense)
Net other income increased $2,063 to $3,042 for the nine months ended
April 30, 1996, compared to net other income of $979 for the same
period in 1995.
Provision for Income Taxes
The Company recorded an income tax provision of $93,229 for the
nine months ended April 30, 1996 as compared to $40,159 for the
same period in 1995. See footnote two on page 8 for additional
information on income taxes.
Liquidity and Capital Resources
At April 30, 1996 the Company had $523,656 in cash compared
to $321,881 at July 31, 1995. Working Capital and the current
ratio were $1,389,104 and 4.42 to 1 at April 30, 1996 versus
$1,122,140 and 3.01 to 1 at July 31, 1995. Net cash provided by
operating activities was $265,620 in the first nine months of 1996.
Capital expenditures were approximately $54,886 and $43,101 for
the nine month periods ended April 30, 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 $265,620 of cash provided by operating activities for the first
nine months of 1996 was primarily generated by net income of $137,186
and a decrease in inventory of $139,879 due to the Company's shift
in product mix and its in-stock position.
-13-
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARIES
Part II - Other Information
Item 6. Exhibits and Reports on Form 8 - K
(a) None
(b) The Company filed a report on form 8-K on April 8, 1996
regarding a change in the Company's Independant Public
Accountants from Sax, Macy Fromm & Co. P.C. to Arthur
Andersen LLP.
-14-
<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
June 14, 1996
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-30-1996
<CASH> 523,656
<SECURITIES> 0
<RECEIVABLES> 597,852
<ALLOWANCES> 75,985
<INVENTORY> 683,163
<CURRENT-ASSETS> 1,794,963
<PP&E> 1,780,008
<DEPRECIATION> 1,354,904
<TOTAL-ASSETS> 2,616,635
<CURRENT-LIABILITIES> 405,859
<BONDS> 14,178
0
0
<COMMON> 25,537
<OTHER-SE> 2,157,878
<TOTAL-LIABILITY-AND-EQUITY> 2,616,635
<SALES> 2,729,821
<TOTAL-REVENUES> 2,729,821
<CGS> 1,289,583
<TOTAL-COSTS> 2,502,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 230,415
<INCOME-TAX> 93,229
<INCOME-CONTINUING> 137,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,186
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
