SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 31, 2000
VERTEX INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
New Jersey 0-15066 22-2050350
----------------------------- ------------------------ -------------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S.Identification No.)
of Incorporation)
23 Carol Street
PO Box 996
Clifton, New Jersey 07014
---------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (973) 777-3500
--------------
</TABLE>
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, and other portions of its Form 8K as set forth in the pages attached
hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired
Data Control Systems, Inc. and DCS Capital Corp.
Report of Independent Auditors
Combined Balance Sheets as of November
30, 1999 and 1998
Combined Statements of Income for the
years ended November 30, 1999 and
1998
Combined Statements of Retained Earnings
for the years ended November 30,
1999 and 1998
Combined Statements of Cash Flows for the
years ended November 30, 1999 and
1998
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is filed as part of this
report:
Pro forma Consolidated Statement of Operations for the year ended
September 30, 1999 (unaudited)
Pro forma Consolidated Statement of Operations for the six months
ended March 31, 2000 (unaudited)
Notes to Pro forma Consolidated Financial Statements
(c) Exhibit
23.1 Consent of Withum, Smith & Brown
<PAGE>
DATA CONTROL SYSTEMS, INC. AND DCS CAPITAL CORP.
CONTENTS TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 1
Combined Balance Sheets
November 30, 1999 and 1998 2
Combined Statements of Income
For the Years Ended November 30, 1999 and 1998 3
Combined Statements of Retained Earnings
For the Years Ended November 30, 1999 and 1998 4
Combined Statements of Cash Flows
For the Years Ended November 30, 1999 and 1998 5
Notes to Combined Financial Statements 6-10
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders, Data Control Systems,
Inc. and DCS Capital Corp.:
We have audited the accompanying combined balance sheets of Data
Control Systems, Inc. and DCS Capital Corp. as of November 30,
1999 and 1998, and the related combined statements of income,
retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of Data Control Systems, Inc. and DCS Capital Corp. as
of November 30, 1999 and 1998, and the combined results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
WithumSmith+Brown
New Brunswick, New Jersey
May 19, 2000
1
<PAGE>
DATA CONTROL SYSTEMS, INC. AND DCS CAPITAL CORP.
COMBINED BALANCE SHEETS
NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Restated)
----------
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 512,863 $1,088,123
Accounts receivable, less allowance for doubtful accounts
of $8,450 in 1999 and $-0- in 1998 2,841,738 977,166
Inventory 764,081 802,386
Costs of uncompleted contracts in excess of billings 4,559 13,130
Deferred income taxes 20,700 12,000
Prepaid expenses and other current assets 3,320 1,130
---------- ----------
Total Current Assets 4,147,261 2,893,935
Property and Equipment, Net 34,426 50,268
Other Assets:
Cash surrender value of officers' life insurance 223,820 115,194
Security deposits 26,000 26,000
---------- ----------
Total Other Assets 249,820 141,194
---------- ----------
TOTAL ASSETS $4,431,507 $3,085,397
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 608,887 $ 729,651
Billings on uncompleted contracts in excess of costs 1,497,520 400,194
Sales taxes payable 11,760 9,772
Prepaid maintenance contracts 450,321 364,208
Income taxes payable 124,697 147,540
Accrued warranty costs 115,625 97,616
---------- ----------
Total Current Liabilities 2,808,810 1,748,981
Deferred Income Taxes 5,300 7,700
Related Party Loans Payable 8,062 10,627
Stockholders' Equity:
Common stock 5,000 5,000
Retained earnings 1,604,335 1,313,089
---------- ----------
Total Stockholders' Equity 1,609,335 1,318,089
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,431,507 $3,085,397
========== ==========
</TABLE>
The Notes to Combined Financial Statements are an integral part of these
statements.
2
<PAGE>
DATA CONTROL SYSTEMS, INC. AND DCS CAPITAL CORP.
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Restated)
----------
1999 1998
---- ----
<S> <C> <C>
Sales - Net $8,865,193 $8,259,458
Cost of Sales 5,858,895 5,394,311
---------- ----------
Gross Profit 3,006,298 2,865,147
Selling, General and Administrative Expenses 2,156,792 2,131,260
---------- ----------
Income from Operations 849,506 733,887
Other Income:
Interest income 32,062 19,718
---------- ----------
Income Before Provision for Income Taxes 881,568 753,605
Provision for Income Taxes 147,141 207,810
---------- ----------
Net Income $ 734,427 $ 545,795
========== ==========
</TABLE>
The Notes to Combined Financial Statements are an integral part of these
statements.
3
<PAGE>
DATA CONTROL SYSTEMS, INC. AND DCS CAPITAL CORP.
COMBINED STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Restated)
----------
1999 1998
---- ----
<S> <C> <C>
Retained Earnings at Beginning of Year,
as Restated (See Note 2) $1,313,089 $1,121,173
Net Income 734,427 545,795
Distributions to Stockholders (443,181) (353,879)
---------- ----------
Retained Earnings at End of Year $1,604,335 $1,313,089
========== ==========
</TABLE>
The Notes to Combined Financial Statements are an integral part of these
statements.
4
<PAGE>
DATA CONTROL SYSTEMS, INC. AND DCS CAPITAL CORP.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Restated)
----------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 734,427 $ 545,795
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 19,354 27,063
Deferred income taxes (11,100) (7,400)
Change in:
Accounts receivable (1,864,572) 314,154
Inventory 38,305 (253,048)
Costs of uncompleted contracts in excess of billings 8,571 34,934
Prepaid expenses and other current assets (2,190) (303)
Accounts payable and accrued expenses (120,764) (150,193)
Customer deposits -- (220,920)
Billings on uncompleted contracts in excess of costs 1,097,326 (98,583)
Sales taxes payable 1,988 8,105
Prepaid maintenance contracts 86,113 54,493
Income taxes payable (22,843) 76,710
Accrued warranty costs 18,009 73,209
----------- ----------
Net Cash (Used In) Provided By Operating Activities (17,376) 404,016
Cash Flows From Investing Activities:
Purchase of property and equipment (3,512) (20,000)
Increase in cash surrender value of officers' life insurance (108,626) (40,516)
Increase in security deposits - (9,750)
----------- ----------
Net Cash Used In Investing Activities (112,138) (70,266)
Cash Flows From Financing Activities:
Change in related party loans payable (2,565) 10,627
Distributions to stockholders (443,181) (353,879)
----------- ----------
Net Cash Used In Financing Activities (445,746) (343,252)
----------- ----------
Net Decrease in Cash and Cash Equivalents (575,260) (9,502)
Cash and Cash Equivalents at Beginning of Year 1,088,123 1,097,625
----------- ----------
Cash and Cash Equivalents at End of Year $ 512,863 $1,088,123
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 174,712 $ 135,418
</TABLE>
The Notes to Combined Financial Statements are an integral part of these
statements.
5
<PAGE>
DATA CONTROL SYSTEMS, INC. AND DCS CAPITAL CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies followed by the Companies in the
preparation of the accompanying combined financial statements are
summarized as follows:
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Data
Control Systems, Inc., and its affiliate DCS Capital Corp. The
outstanding common stock of the Companies is owned by the same
stockholders, and while their financial statements have been
combined, the financial position and results of operations shown in
the accompanying combined financial statements do not represent those
of a single legal entity. All significant intercompany transactions
have been eliminated in combination.
NATURE OF BUSINESS OPERATIONS
Data Control Systems, Inc. (DCS) is engaged in the development and
sale of warehouse management systems. These systems allow the
warehouse picker to identify the items to be picked by viewing the
quantity on the light display associated with the inventory product.
Such information is transmitted electronically for each order
processed by the warehouse. DCS Capital Corp. (Capital) is a New
Jersey Corporation, which was incorporated on March 8, 1995. Capital
is a commissioned selling agent of DCS engaged primarily in the sales
of data processing systems to the end user.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in the bank, as
well as all short-term securities held for the primary purpose of
general liquidity. Such securities normally mature within three
months from the date of acquisition.
REVENUE RECOGNITION AND PRODUCT WARRANTY
Revenues from sales of products are recognized on the
completed-contract method. A contract is considered complete upon
installation of the system and acceptance by the customer. The
Company warrants products against defects in design, materials and
workmanship generally for one year. Provision for estimated future
costs relating to warranty obligations is recorded when the related
revenue is recognized.
The asset, "costs of uncompleted contracts in excess of billings,"
represents costs incurred in excess of amounts billed. The liability
"billings on uncompleted contracts in excess of costs," represents
amounts billed in excess of costs incurred.
PREPAID MAINTENANCE CONTRACTS
Revenue from service and maintenance contracts is recorded as earned
over the lives of the respective contracts, generally one year.
INVENTORY
Inventory consists of raw materials and is valued at the lower of
cost or market. Cost is being determined by the first-in, first-out
(FIFO) method.
6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated
depreciation. Depreciation for financial accounting purposes is
provided for on the straight-line method based on the following
estimated useful lives:
<TABLE>
<CAPTION>
Estimated
Description Life (Years)
----------- ------------
<S> <C>
Machinery and Equipment 5
Furniture and Fixtures 5
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Expenditures for betterments and major renewals are
capitalized and, therefore, are included in property and equipment.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to
operations as incurred. Statement of Financial Accounting Standard
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of
technological feasibility. Based on the Companies' product
development process, technological feasibility is established upon
completion of a working model. Development costs incurred by the
Companies between completion of the working model and the point at
which the product is ready for general release have been
insignificant. For the years ending September 30, 1999 and 1998, all
research and development costs have been expensed.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the
differences between financial and income tax reporting basis of
assets and liabilities based on enacted tax rates and laws. The
deferred income tax provision or benefit generally reflects the net
change in deferred income tax assets and liabilities during the year.
The current income tax provision reflects the tax consequences of
revenues and expenses currently taxable or deductible on the
Companies' various income tax returns for the year reported. The
primary deferred income tax items are the result of temporary
differences between financial and tax reporting in accumulated
depreciation, allowance for doubtful accounts and accrued expenses.
DCS Capital Corp. has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. In addition, Capital has
elected to be taxed as an "S-Corporation" for New Jersey income tax
purposes. Under those provisions, the stockholders are liable for
individual federal and state income taxes on Capital's taxable income
and Capital is liable for New Jersey income taxes at a reduced rate.
RETIREMENT PLAN
The Companies have a contributory thrift and savings plan for
salaried employees meeting certain service requirements, which
qualifies under Section 401(k) of the Internal Revenue Code.
Contributions to the plan are made at the discretion of management.
For the years ended November 30, 1999 and 1998, no contributions were
made.
7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CONCENTRATION OF CREDIT RISK
The Companies maintain cash balances at financial institutions in
excess of amounts insured by the Federal Deposit Insurance
Corporation. Management monitors the soundness of these institutions
and considers the Companies' risk negligible.
The Companies concentration of credit risk with respect to customer
receivables is largely dependent on its revenue mix which, as of
November 30, 1999 and 1998, was from customers in a variety of
industries. At November 30, 1999 and 1998, three and two customers
represented 46 and 39 percent of total receivables, respectively.
REVENUE FROM MAJOR CUSTOMER
For the years ended November 30, 1999 and 1998, revenue earned from
two customers amounted to 43 and 60 percent, respectively, of total
sales.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2 - RESTATEMENTS:
The accompanying financial statements as of and for the year ended
November 30, 1998 have been restated from previously issued reviewed
financial statements, primarily to correct errors in the opening
inventory as of November 30, 1997 and in the timing of when certain
revenues and expenses were recognized. The effect of the restatement
was to increase net income for 1998 by $106,539, net of income tax of
$78,133. Retained earnings at the beginning of 1998 have been
increased by $159,748 for the effects of the restatements on prior
years.
NOTE 3 - CONTRACT BILLING STATUS:
Information with respect to the billing status of uncompleted
contracts at November 30, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Contract costs incurred to date $ 1,509,050 $ 394,771
Less actual billings to date 3,002,011 781,835
----------- ---------
Total $(1,492,961) $(387,064)
=========== =========
Included in the accompanying balance sheets as follows:
Costs of uncompleted contracts in excess of billings $ 4,559 $ 13,130
Billings on uncompleted contracts in excess of costs (1,497,520) (400,194)
----------- ---------
$(1,492,961) $(387,064)
=========== =========
</TABLE>
8
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at November 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Machinery and Equipment $138,967 $135,454
Furniture and Fixtures 12,822 12,822
-------- --------
151,789 148,276
Less Accumulated Depreciation 117,363 98,008
-------- --------
Property and Equipment - Net $ 34,426 $ 50,268
======== ========
</TABLE>
Depreciation and amortization expense included as a charge to income
amounted to $19,354 and $27,063 for the years ended November 30, 1999
and 1998, respectively.
NOTE 5 - LINE OF CREDIT:
At November 30 1999, the Companies had an open line of credit with a
maximum available of $750,000. Interest on outstanding advances is at
3.15 percent above the 30-day commercial paper rate. The line has a
maturity date of July 31, 2000 and is guaranteed by the stockholders
and secured by all assets of the Companies. No amounts were due under
this line at November 30, 1999 and 1998.
The line of credit agreement requires the Companies to maintain a
certain level of tangible net worth.
NOTE 6 - INCOME TAXES:
The provision for (benefit from) income taxes consists of the
following for the years ended November 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current $158,241 $215,210
Deferred (11,100) (7,400)
-------- --------
Total $147,141 $207,810
======== ========
</TABLE>
Income taxes in 1999 and 1998 were different than the expected tax
determined by applying the statutory federal income tax rate to
income before provision for income taxes. The reasons for these
differences are primarily due to income allocated to the
S-Corporation, state income taxes, certain nondeductible expenses,
and the surtax exemption.
Deferred income taxes are summarized as follows at November 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred Income Tax Asset $20,700 $12,000
Valuation Allowance -- --
------- -------
Net Deferred Income Tax Assets 20,700 12,000
Deferred Income Tax Liabilities (5,300) (7,700)
------- -------
Net Deferred Income Tax Asset $15,400 $ 4,300
======= =======
</TABLE>
9
<PAGE>
NOTE 6 - INCOME TAXES (CONTINUED):
Reconciliation between the effective tax rate and the statutory tax
rates for the years ended November 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal Statutory Rate 34.0% 34.0%
State Taxes, net of Federal Benefit 3.5 6.2
S Corporation Election (25.4) (21.2)
Nondeductible expenses 4.6 8.5
----- -----
Effective Tax Rate 16.7% 27.5%
===== =====
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Companies were obligated to a stockholder for $8,062 and $10,627
in non-interest bearing advances at November 30, 1999 and 1998. No
formal repayment schedule exists.
NOTE 8 - COMMON STOCK:
As of November 30, 1999 and 1998, the common stock, consisted of the
following:
<TABLE>
<CAPTION>
Common Shares
--------------------------------------------
Par Issued and Common Stock
Entity Value Authorized Outstanding Amount
------ ----- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Data Control Systems, Inc. None 200 200 $ 1,000
DCS Capital Corp. None 2,500 2,500 4,000
--------
Total $ 5,000
========
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
The principal types of property leased by the Companies are office
and warehouse facilities, automobiles and equipment. The office and
warehouse facility lease, which expires in May 2003, includes
additional charges on a pro-rata percentage for real estate taxes,
repairs, insurance and other lease obligations. The office and
warehouse facility lease includes an option to renew for an
additional term of 30 months. Total rent expense, including pro-rata
charges, under all operating leases amounted to $178,792 and $168,295
for the years ended November 30, 1999 and 1998, respectively.
Total aggregate minimum rental and lease commitments under all
noncancelable leases with terms of one year or more ending after
November 30, 1999 amounted to:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $178,100
2001 161,000
2002 155,400
2003 76,800
--------
Total $571,300
========
</TABLE>
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED):
In March 2000, Vertex Interactive, Inc. acquired all of the
outstanding shares of Data Control Systems Common Stock and all of
the net assets of DCS Capital Corp.
10
<PAGE>
VERTEX INTERACTIVE, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OVERVIEW
In September 1999, Vertex Interactive Inc., formerly Vertex Industries, Inc.
("Vertex")acquired all of the stock of International Aktiengesellschaft
Identcode-Systeme ("ICS") and Portable Software Solutions Limited, Portable
Software Solutions (Maintenance) Limited and Trend Investments Limited,
collectively Portable Software Solutions Group ("PSS"). The Vertex consolidated
financial statements included in the Transition Report on Form 10K for the
period ended September 30, 1999 assume the PSS and ICS acquisitions closed
effective September 30, 1999. Vertex has accounted for each of the acquisitions
using the purchase method of accounting in accordance with APB No. 16 and
accordingly, the Vertex financial statements include the results of operations
from October 1, 1999 for PSS and ICS. The Vertex consolidated balance sheet at
September 30, 1999 reflects the purchase prices of PSS and ICS allocated to the
assets and liabilities acquired based on their estimated fair market values.
Effective March 1, 2000, Vertex acquired all of the outstanding capital stock of
Data Control Systems, a provider of pick to light warehouse management systems
located in New Jersey, and all of the net assets of its commonly owned sister
company -DCS Capital Corp. (Capital and together "DCS"), and accordingly, the
Vertex financial statements for the six months ended March 31, 2000 include the
combined results of operations for DCS from March 1, 2000.
In addition, Vertex changed its year-end from July 31 to September 30, effective
October 1, 1999.
PRO FORMA FINANCIAL STATEMENTS
The accompanying Vertex unaudited pro forma consolidated statement of operations
for the year ended September 30, 1999 gives effect to the acquisitions of ICS,
PSS and DCS and the financing thereof, as if all such transactions had occurred
at the beginning of the fiscal year (October 1, 1998). In addition, the proforma
statement of operations includes the results of operations for Vertex Industries
for the fiscal year ended September 30, 1999 (not previously presented).
The accompanying Vertex unaudited pro forma consolidated statement of operations
for the six months ended March 31, 2000 gives effect to the acquisition of DCS
and the financing thereof, as if such transaction had occurred at the beginning
of the fiscal year (October 1, 1999).
<PAGE>
The pro forma consolidated financial statements are based upon certain
assumptions and estimates, which are subject to change. These statements are not
necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of the expected results in the
future. The pro forma consolidated financial statements should be read in
conjunction with Vertex's historical consolidated financial statements and the
related notes.
<PAGE>
VERTEX INTERACTIVE, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
VERTEX ICS / PSS DCS PROFORMA
INDUSTRIES PSS ICS DCS PROFORMA PROFORMA CONSOLIDATED
9/30/99 9/30/99 9/30/99 11/30/99 ADJUSTMENTS ADJUSTMENTS VERTEX
------- ------- ------- -------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $6,437,052 $9,886,421 $19,280,863 $8,865,193 $ - $ - $44,469,529
COST OF SALES 3,595,122 3,683,101 12,232,071 5,858,895 - 25,369,189
---------- ---------- ----------- --------- --------- --------- -----------
GROSS MARGIN 2,841,930 6,203,320 7,048,792 3,006,298 - - 19,100,340
OPERATING EXPENSES:
Selling and administrative 1,834,058 5,107,271 7,632,715 1,970,910 (105,154) C 16,439,800
Research and development 860,806 - - 185,882 1,046,688
---------- ---------- ----------- --------- --------- --------- -----------
Total operating expenses 2,694,864 5,107,271 7,632,715 2,156,792 (105,154) - 17,486,488
---------- ---------- ----------- --------- --------- --------- -----------
OPERATING INCOME 147,066 1,096,049 (583,923) 849,506 105,154 - 1,613,852
OTHER INCOME (EXPENSE):
Interest income 61,781 59,644 1,171 32,062 154,658
Interest expense (5,195) (36,471) (187,568) - (93,463) B (322,697)
Amortization of goodwill (741,294) A (612,570) A (1,353,864)
---------- ---------- ----------- --------- --------- --------- -----------
Total other income (expense) 56,586 23,173 (186,397) 32,062 (834,757) (612,570) (1,521,903)
---------- ---------- ----------- --------- --------- --------- -----------
INCOME (LOSS) BEFORE TAXES 203,652 1,119,222 (770,320) 881,568 (729,603) (612,570) 91,949
INCOME TAX PROVISION 447,000 170,878 4,465 147,141 - 251,086 D 1,020,570
---------- ---------- ----------- --------- --------- --------- ----------
NET INCOME (LOSS) $(243,348) $ 948,344 $ (774,785) $ 734,427 $(729,603) $(863,656) $ (928,621)
========== ========== =========== ========= ========= ========= ==========
LOSS PER SHARE OF COMMON STOCK:
Basic $ (0.05) $ (0.05)
========== ==========
Fully Diluted $ (0.05) $ (0.05)
========== ==========
AVERAGE SHARES OUTSTANDING:
Basic 5,206,009 11,657,142 2,012,000 18,875,151
========== ========== ========= ============
Fully Diluted 5,206,009 11,657,142 2,012,000 18,875,151
========== ========== ========= ============
</TABLE>
See notes to proforma consolidated financial statements.
<PAGE>
VERTEX INTERACTIVE, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
VERTEX PROFORMA
INTERACTIVE DCS DCS CONSOLIDATED
6 MONTHS ENDED 5 MONTHS ENDED PROFORMA 6 MONTHS ENDED
3/31/00 2/29/200 ADJUSTMENTS 3/31/00
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $17,799,047 $6,163,512 $ - $23,962,559
COST OF SALES 12,766,422 3,796,625 16,563,047
----------- ---------- ---------- -----------
GROSS MARGIN 5,032,625 2,366,887 - 7,399,512
OPERATING EXPENSES:
Selling and administrative 4,490,085 1,022,189 5,512,274
Research and development 578,987 91,500 670,487
----------- ---------- ---------- -----------
Total operating expenses 5,069,072 1,113,689 - 6,182,761
----------- ---------- ---------- -----------
OPERATING INCOME (LOSS) (36,447) 1,253,198 - 1,216,751
OTHER INCOME (EXPENSE):
Interest income 66,881 11,019 77,900
Interest expense (273,162) - (273,162)
Amortization of goodwill (414,437) (255,235) A (669,672)
----------- ---------- ---------- -----------
Total other income (expense) (620,718) 11,019 (255,235) (864,934)
----------- ---------- ---------- -----------
INCOME (LOSS) BEFORE TAXES (657,165) 1,264,217 (255,235) 351,817
INCOME TAX PROVISION 129,891 405,251 (167,282) E 367,860
----------- ---------- ---------- -----------
NET INCOME (LOSS) $ (787,056) $ 858,966 $ (87,953) $ (16,043)
=========== ========== ========== ===========
LOSS PER SHARE OF COMMON STOCK:
Basic $ (0.05) $ (0.00)
=========== ===========
Fully Diluted $ (0.05) $ (0.00)
=========== ===========
AVERAGE SHARES OUTSTANDING:
Basic 17,019,702 2,012,000 19,031,702
=========== ========= ==========
Fully Diluted 17,019,702 2,012,000 19,031,702
=========== ========= ==========
</TABLE>
See notes to proforma consolidated financial statements
<PAGE>
VERTEX INTERACTIVE, INC.
NOTES TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
1. Background
Until the acquisitions of ICS and PSS on September 22, 1999 and September
27, 1999, Vertex sold and distributed bar code scanners, printers, data
collection terminals, software, automated card devices and precision
weighing equipment to customers primarily within the United States. Vertex
has also provided systems integration for turnkey automated data collection
solutions in real-time systems and warehouse management systems. In
addition, through the Netweave license agreement, Vertex has sold the
Netweave middleware product. Through the acquisition of ICS and PSS, Vertex
is now also a provider of integrated high-end wireless data capture
solutions to industrial users and handheld terminal solutions to mobile
workers, substantially in Germany, the United Kingdom and Ireland. A Form
8K Filing was made in September, 1999 and amended in December 1999 to
present the audited financial statements of ICS and PSS and to present pro
forma financial statements.
Effective March 1, 2000, Vertex acquired all of the outstanding capital
stock of Data Control Systems, a provider of pick to light warehouse
management systems located in New Jersey, and the net assets of its
commonly owned sister company - Capital (together "DCS"). Capital was an
S-Corporation under the Internal Revenue Service code. Vertex paid the
shareholders $14,250,000 in cash (10% of which is held in escrow). The
purchase price is subject to a working capital adjustment payable
approximately 60 days after closing.
2. Historical financial statements
The historical data in these pro forma consolidated financial statements
are derived from the accounting records of Vertex, ICS, PSS and DCS. The
historical financial data presented in the proforma consolidated statements
of operations for the year ended September 30, 1999 represent the results
of operations of (i) Vertex, ICS and PSS for the year ended September 30,
1999 and (ii) DCS for its fiscal year ended November 30, 1999. The
historical financial data presented in the proforma consolidated statement
of operations for the six months ended March 31, 2000 represent the results
of operations of (i) Vertex for the six months ended March 31, 2000 (which
includes ICS and PSS for the six months ended March 31, 2000 and DCS for
the period from March 1, 2000 to March 31, 2000), as previously reported
and (ii) DCS for the five months ended February 29, 2000.
<PAGE>
3. The acquisitions
(a)The aggregate consideration paid by Vertex for ICS and PSS, including
transactions costs, was approximately $18.1 million. Based on management's
preliminary analysis, it is estimated that the purchase price was in excess
of the fair market value of ICS and PSS net assets acquired as summarized
below:
<TABLE>
<S> <C>
ICS purchase price $ 6,754,818
PSS purchase price 10,087,300
Transaction costs 1,274,434
-----------
18,116,552
Fair Market value of ICS and PSS
net assets acquired
2,293,976
-----------
Purchase price in excess of net
tangible assets acquired
$15,822,576
===========
</TABLE>
(b) The aggregate consideration paid by Vertex for DCS, including
transactions costs, was approximately $14.7 million. Based on management's
preliminary analysis, it is estimated that the purchase price was in excess
of the fair market value of net assets acquired as summarized below:
<TABLE>
<S> <C>
DCS purchase price $14,430,000
Transaction costs 305,000
-----------
14,735,000
Fair market value of DCS net
assets acquired
1,620,756
-----------
Purchase price in excess of
net tangible assets acquired $13,114,244
===========
</TABLE>
4. Pro forma adjustments
Statements of operations:
A) Record the amortization of the excess of cost over the fair value of
net assets acquired using an estimated useful life of 25 years.
B) Record interest related to mortgage on building acquired.
C) Record reversal of operating lease expense for the building net of
depreciation expense on the building acquired.
D) Record additional income tax provision to reflect the incremental tax
provision resulting from the loss of the S-Corporation benefit.
E) Record adjustment to income tax provision to reflect federal benefit
of consolidated U.S. tax return, net of increase resulting from the
loss of the S-Corporation benefit.
<PAGE>
5. Earnings per share
Earnings (loss) per share is calculated by dividing the net income (loss)
by the weighted average outstanding shares during the period. The weighted
average shares outstanding during the period are calculated as follows:
a) For the year ended September 30, 1999
<TABLE>
<CAPTION>
Basic and Fully
Diluted
-----------------
<S> <C>
Average shares outstanding for fiscal year ended September 30, 1999
5,206,009
Issued in connection with the PSS acquisition 1,207,500
Issued to Edwardstone and MidMark Capital 10,449,642
Assumed number of private placement
shares sold to fund DCS acquisition 2,012,000
----------
Pro forma average shares outstanding 18,875,151
==========
</TABLE>
b) For six months ended March 31, 2000
<TABLE>
<CAPTION>
Basic and Fully
Diluted
---------------
<S> <C>
Average shares outstanding per Vertex's March 31, 2000 financial statements
17,019,702
Assumed number of private placement
shares sold to fund DCS acquisition 2,012,000
-----------
Pro forma average shares outstanding 19,031,702
===========
</TABLE>
c) The basic and fully diluted shares outstanding are the same because
the inclusion of additional shares outstanding on a fully diluted basis
would be anti dilutive (i.e. decrease the net loss per share).
<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 INTERACTIVE, INC.
Registrant
/s/ Ronald C. Byer
Name: Ronald C. Byer
Title:President/Treasurer
June 14, 2000
