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, 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: 5,100,107 shares outstanding as of
December 12, 1996.
<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
FORM 10-Q
October 31, 1996
I N D E X
PAGE
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-
October 31, 1996 and July 31, 1996. . . . . . . . . . .3
Consolidated Statements of Income
three months ended October 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Changes in
Stockholders' Equity - for the year ended
July 31, 1996 and three months ended
October 31, 1996. . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of
Cash Flows - three months
ended October 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 . . . . . . . . . . . . . . . . 10
Part II - Other Information
Item 6. Exhibits and Reports on form 8 - K . . . . . 12
Signatures. . . . . . . . . . . . . . . . . . . . . . 13
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
October 31, 1995 July 31, 1995
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 403,152 $ 394,344
Accounts Receivable, Less Allowance
for Doubtful Accounts of
$75,985 at October 31, 1996 and
July 31, 1996 539,987 608,164
Notes and other receivables 326,024 170,755
Inventories 609,255 693,179
Prepaid Expenses and
other current assets 78,185 13,885
------- -------
Total Current Assets 1,956,603 1,880,327
--------- ---------
PROPERTY, EQUIPMENT,
AND CAPITAL LEASES:
Property and Equipment 1,729,677 1,725,502
Capital Leases 141,757 141,757
--------- ---------
Total Property, Equipment and
Capital Leases 1,871,434 1,867,259
Less: Accumulated Depreciation and
Amortization (1,428,816) (1,393,102)
----------- -----------
Net Property, Equipment
and Capital Leases 442,619 474,157
----------- -----------
OTHER ASSETS:
Cost in Excess of Net Assets
of Companies Acquired, Net of
accumulated amortization of
$313,361 at October 31, 1996 and
$301,016 at July 31, 1996 100,527 112,872
Deferred tax asset 150,900 195,000
Other Assets 53,704 53,500
----------- -----------
Total Other Assets 305,131 361,372
----------- -----------
Total Assets $2,704,353 $2,715,856
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these
balance sheets.
</TABLE>
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<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
October 31, 1996 July 31, 1996
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Long-Term debt, current portion $ 2,800 $ 2,800
Current portion of obligations
under capital leases 29,378 32,849
Accounts payable 163,131 169,632
Accrued Expenses and Other Liabilities 110,000 99,237
Customer Deposits 16,500 86,120
---------- ----------
Total Current Liabilities 321,809 390,638
---------- ----------
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion 1,867 2,567
Obligations Under Capital Leases,
Net of Current Portion 26,498 30,308
----------- ----------
Total Long-Term Liabilities 28,365 32,875
----------- ----------
EXCESS OF NET ASSETS OF ACQUIRED
COMPANIES OVER COST NET OF ACCUMULATED
AMORTIZATION of $485,382 at
October 31, 1996 and $479,165 at
July 31, 1996 749 6,966
----------- ----------
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 5,112,979
shares at October 31, 1996 and 5,108,979
shares at July 31, 1996, respectively 25,565 25,545
Capital in Excess of Par Value 5,184,088 5,182,188
Accumulated Deficit (2,805,654) (2,871,787)
------------ -----------
2,403,999 2,335,946
Less: Treasury stock, 12,872 shares at cost (50,569) (50,569)
------------- -----------
Total Stockholders' Equity 2,353,430 2,285,377
------------- -----------
Total Liabilities and Stockholders' Equity $2,704,353 $2,715,856
============= ===========
<FN>
The accompanying notes to consolidated financial statements are an integral part of
these balance sheets.
</TABLE>
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<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended October 31
1996 1995
<S> <C> <C>
OPERATING REVENUES $1,005,014 $ 828,777
COST OF SALES 498,748 421,527
----------- ---------
GROSS PROFIT 506,266 407,250
----------- ---------
OPERATING EXPENSES:
Selling and Administrative 300,621 298,568
Research and Development 111,854 95,798
----------- ----------
Total Operating Expenses 412,475 394,366
----------- ----------
OPERATING INCOME 93,791 12,884
----------- ----------
OTHER INCOME AND (EXPENSES):
Interest Income 15,081 2,217
Interest Expense (1,707) (2,709)
Other 3,068 1,423
------------ ----------
Net Other Income 16,442 931
INCOME BEFORE INCOME TAXES 110,233 13,815
------------ ----------
INCOME TAX PROVISION 44,100 944
---------- ---------
Net Income $ 66,133 $ 12,871
========== =========
Net Income per share of
Common Stock $ .01 $ .00
========== ==========
Weighted Average Number of
Shares Outstanding 5,389,424 5,078,377
========== ==========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these
financial statements.
</TABLE>
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<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Unaudited)
<CAPTION>
COMMON STOCK CAPITAL
$.005 Par Value in excess Accumulated Treasury
Shares Amount Par Value Deficit Stock Total
<S> <C> <C> <C> <C> <C> <C>
Year ended July 31, 1996
- ------------------------
Balances at July 31, 1995 5,080,979 $24,404 $5,167,951 $(3,109,535) $(50,659) $2,033,251
Exercise of Stock Options 28,100 141 14,237 --- --- 14,378
Net income for the year ended
July 31, 1996 --- --- --- 237,748 --- 237,748
---------- --------- ---------- ------------ ----------- -----------
Balance at July 31, 1996 5,108,979 $25,545 $5,182,188 $(2,871,787) $(50,569) $2,285,377
========== ========= ========== ============ =========== ===========
Three months ended October 31, 1996
- -----------------------------------
Exercise of Stock Options 4,000 20 1,900 --- --- 1,920
Net income for the three months ended
October 31, 1996 --- --- --- 66,133 --- 66,133
---------- --------- ----------- ------------ ----------- -----------
Balances at October 31, 1996 5,112,979 $ 25,565 $5,184,088 $(2,805,654) $(50,569) $2,353,430
========== ========= =========== ============ =========== ===========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
</TABLE>
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<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION> Three Months Ended
October 31, 1996 October 31, 1995
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net Income $ 66,133 $ 12,871
Adjustments to reconcile Net Income ------- --------
to net cash provided by operating activities:
Depreciation and amortization 41,842 34,166
Deferred taxes 44,100 --
(Increase) or Decrease in operating assets:
Accounts receivable 68,177 47,142
Inventories 83,924 54,179
Notes and other receivables (155,269) --
Prepaid expenses and other
current assets (64,300) 8,811
Increase or (Decrease) in operating
liabilities:
Accounts payable (6,501) 47,359
Customer Deposits (69,620) 47,417
Accrued expenses and other
liabilities 10,763 (32,681)
--------- ----------
Net adjustments to reconcile net income to
net cash provided by operating activities: (46,884) 206,393
--------- ----------
Net Cash provided by operating activities: 19,249 219,264
--------- ----------
Cash Flows from Investing Activities:
- -------------------------------------
Additions to property and equipment (4,175) (25,114)
Increase in other assets (204) --
---------- ----------
Net cash used for investing activities (4,379) (25,114)
---------- ----------
Cash Flows from Financing Activities:
- -------------------------------------
Payment of long term debt (700) (700)
Payment of capitalized lease obligations (7,282) (7,351)
Proceeds from issuance of common stock 1,920 12,978
--------- ---------
Net Cash provided by (used for) financing activities (6,062) 4,927
--------- ---------
Net Increase in Cash 8,808 199,077
Cash and Cash Equivalents at Beginning of Year 394,344 321,881
--------- ---------
Cash and Cash Equivalents at End of Period $403,152 $520,958
========= =========
<FN>
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>
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<PAGE>
VERTEX INDUSTRIES, INC. AND SUBSIDIARY
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 subsidiary (the "Company") Annual Report on
Form 10-K for the year ended July 31, 1996. 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 subsidiary 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, 1996, the Company had net operating loss ("NOLs")
carryforwards available to offset future taxable income of
approximately $3.8 million and $3.4 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, 1996, the Company had a deferred tax asset valuation
allowance of approximately $1.5 million with a net deferred tax asset of
approximately $150,900, which was recorded in prior years relating to
the realization of the NOLs. As of October 31, 1996 the Company has
not adjusted the deferred tax asset valuation allowance.
In assessing the realizability of the $150,900 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 $150,900 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. 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. However, the disclosure
requirements of SFAS No. 123 will be adopted during the 1997 fiscal year.
-9-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
Results of Operations
Three months ended October 31, 1996 compared with three months ended
October 31, 1995.
Overview
The Company experienced a 21% increase in operating revenues and
recorded net income of $66,133 for the quarter ended October 31, 1996,
compared to net income of $12,871 for the same period last year. The
increase in operating revenues is primarily due to an increase in
demand for the weighing equipment, label generating systems and bar
code product lines offset by a decrease in demand for the card
devices and software product lines. The Company's decision to
increase staff in the direct marketing and technical areas while still
supporting distributor and VAR sales has led to pilot system
contracts.
Net Income
The Company recorded net income of $66,133 for the quarter ended
October 31, 1996 as compared to net income of $12,871 for the same
period last year. The increase in net income is attributed to an
increase in operating revenues of approximately $176,237 or 21% in
addition to an increase of 1.3% in gross margin percentage in fiscal
1997 as compared to last year. Operating expenses increased $18,109 or
4.6% for the three months ended October 31, 1996 compared to the same
period last year.
Operating Revenues
Operating Revenues increased $176,237 or 21% to $1,005,014 for the
quarter ended October 31, 1996, compared to $828,777 for the same
period last year. The increase in operating revenue is attributed to
an increase in demand for weighing equipment, label generating systems
and bar code product lines of approximately $281,000 offset by a
decrease in sales in the card devices and software product lines of
approximately $105,000. The Company continues to focus its resources
on the bar code and software product lines.
Cost of Sales
Cost of Sales decreased to 49.6% of revenues for the first quarter of
fiscal 1997 compared to 50.9% for the same period last year. The
slight increase is primarily due to an increase in sales activity
which, decreased the unabsorbed factory overhead and increases the
product margins and the overall gross profit.
-10-
<PAGE>
Operating Expenses
Operating expenses increased $18,109 or 4.6% for the first quarter of
fiscal 1997 compared to the same period in 1996. Selling and
administrative expenses increased $2,053. Research and development
expenses increased $16,056 or 17% to $111,854. The increase is due to
the Company's ever expanding research 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 was $16,442 for the quarter ended October 31, 1996
compared to $931 for last year. The increase of $15,511 is primarily
due to interest income which was generated from the Company's notes
and other receivables from NetWeave Corporation.
Liquidity and Capital Resources
At October 31, 1996 the Company had $403,152 in cash and cash
equivalents compared to $394,344 at July 31, 1996. Working Capital
and the current ratio were $1,634,794 and 6.08 to 1 at October 31,
1996 versus $1,122,140 and 3.01 to 1 at July 31, 1996. Net cash
provided by operating activities was $19,249 in the first three months
of fiscal 1997.
Capital expenditures were approximately $4,175 and $25,114 for
the three month periods ended October 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. However, if product demand increases significantly, there may
be a need for additional working capital.
-11-
<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, 1996
-12-
<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/ Robert T. McLaughlin
Robert T. McLaughlin
Chief Financial Officer, Treasurer
December 12, 1996
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 403,152
<SECURITIES> 0
<RECEIVABLES> 941,996
<ALLOWANCES> 75,985
<INVENTORY> 609,255
<CURRENT-ASSETS> 1,956,603
<PP&E> 1,871,434
<DEPRECIATION> 1,428,816
<TOTAL-ASSETS> 2,704,353
<CURRENT-LIABILITIES> 321,809
<BONDS> 4,667
0
0
<COMMON> 25,565
<OTHER-SE> 2,327,865
<TOTAL-LIABILITY-AND-EQUITY> 2,704,353
<SALES> 1,005,014
<TOTAL-REVENUES> 1,005,014
<CGS> 498,748
<TOTAL-COSTS> 498,748
<OTHER-EXPENSES> 412,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,707
<INCOME-PRETAX> 110,233
<INCOME-TAX> 44,100
<INCOME-CONTINUING> 66,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,133
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
