PARAMUS, N.J., Aug. 5, 2003 (PRIMEZONE) --
Revenues Impacted By Sales of Non-Core Assets
Difficult Trading Environment Continued Throughout 2002
$19 Million Non-Cash Charge Against Remaining Goodwill Taken in Q4
Vertex Interactive, Inc. (Pink Sheets:VETX), a provider of supply chain execution solutions, today announced operating results for the fiscal year ended September 30, 2002.
Commenting on the company's performance Nicholas Toms, CEO, said, "In light of recent economic conditions, our extremely limited financial resources, and our assessment of the markets for our various products in the current climate, following a previously announced top-to-bottom review of our business, we took aggressive actions to stem losses with the sale or shutdown of non-core businesses, and in certain cases, to raise some cash from the sale of non-core assets, for our continued survival. The goal was therefore to create a company focused exclusively on delivering an industry-leading suite of enterprise level software solutions that generate the kind of rapid, visible high return on investment that our customers are demanding. Thus, while our sequential performance showed a decline reflecting, among other things, the impact of the asset sales or shutdowns, we have organized our operations with a single overriding goal: to devote our resources to our enterprise software strategy. As a result, businesses which did not support this business focus (including substantially all of our operations in Europe) were sold or closed during the year. As mentioned above, this resulted in a reduction in our revenues for the fiscal year, but in so doing provided some of the cash resources we needed for survival while also exiting largely unprofitable lower margin businesses. During our fiscal Q4 we made further progress in containing our expense levels and making important strides in enhancing and commercializing our high-margin software applications. Since then, we have redesigned our model to deliver higher operating leverage."
Full Year Financial Results
For the fiscal year ended September 30, 2002, Vertex reported revenues of $36.1 million, a decrease of $23 million, or 39% down from the fiscal year ended September 30, 2001. Revenues for the full year were negatively impacted by the sale or disposition of various lower margin, non-core businesses, and further affected by continued economic weakness both in the United States and in Europe.
Vertex reported a net loss of $44.8 million, or ($1.26) per share, compared with a net loss of $123 million, or ($3.95) per share in the fiscal year ended September 30, 2001. During the fourth quarter we recorded a non-cash charge of $19 million, or ($0.53) per share for the year, in connection with our assessment of acquisition-related goodwill. Excluding depreciation and amortization of intangibles, the goodwill write-down and in-process R&D write-offs, we reported an adjusted net loss per share of ($0.69), compared with ($0.81) in the prior year.
Gross profit for the full year decreased by $9.25 million to $12.2 million, or 43% compared to the same period last year, to a gross profit rate of 34%, compared with 36.4% the prior year.
Selling, general and administrative expense decreased $12 million, or 35%, to $22.5 million, compared to $34.5 million in the prior year. This decrease in SG&A was primarily attributable to cost cutting and the disposal of non-core assets occurring throughout the period. The full benefits generated from our expense savings initiatives did not begin to significantly impact our results until late in the second half of the fiscal year.
Research & development expenses declined $2.9 million, or 41%, to $4.2 million, compared to $7.0 million last year. The decrease in R&D primarily reflects the reduced scale of operations during the year and the focus principally on enterprise software products. Thus R&D as a percentage of revenue declined slightly to 11.6%, compared to 11.9% in the previous period.
We reported an operating loss for the full year of $35.8 million, compared with an operating loss of $118.1 million in the prior year.
Assessment of Goodwill
As of September 30, 2002 we performed an assessment of the carrying values of our goodwill recorded in connection with all of our acquisitions. This assessment was initiated as the sharp downturn in capital spending in the Company's major markets continued to negatively impact our core businesses, resulting in substantially lower than expected revenues, additional operating losses and a concomitant shortfall in working capital. Significantly lower valuations for companies within our industry were commonplace and our stock price declined precipitously. At September 30, 2002, our market capitalization had dropped to approximately $2 million, while our net book value (pre goodwill write off) was negative $7 million.
Based upon these indications, the belief that the decline in market conditions within our industry was significant and permanent, and the consideration of all other available evidence, the Company determined that an impairment of goodwill existed at September 30, 2002 and we recorded a $19 million write-down of the remaining goodwill.
Balance Sheet
We reported $74,000 in cash and cash equivalents at September 30, 2002.
At September 30, 2002 our net accounts receivable were $936,000, compared with $11.2 million at the end of last fiscal year. Our Days Sales Outstanding at year end was at 50 days, a significant improvement compared with the 68 days at September 30, 2001.
Key Highlights
Although the Company was principally focused on its survival, set forth below are certain achievements made over the past 18 months.
Organization
During the year the Company exited all non-core businesses to focus on its enterprise level order fulfillment solutions and products which are now under a single brand of XeQute Solutions, Inc, a wholly owned subsidiary. We also sold our DynaSys planning unit in France to Midmark Capital for $6,000,000, paid for by the surrender of Senior Notes held by them for a profit in excess of $4,000,000.
Management
We were fortunate to attract Frank Grayeski as COO of XeQute Solutions in December 2002, a superb manager who has continued aggressively to cut costs, and help us realize our goals.
Financing
In October 2002, the Company entered into an agreement with Charles Street Securities to raise on a "best efforts" basis $3.8 million jointly with MidMark Capital directly into XeQute to minimize dilution in view of the Company's current low stock price. This transaction is on hold at this time.
Sales Wins
Since the end of the War in Iraq, the Company has secured some significant contract wins including, among others, $600,000 of new orders from Advanced Distribution Systems, a leading third party logistics provider, and follow on contracts with IBM China aggregating approximately $300,000.
Geographic Results
Our North American operations accounted for approximately 43% of total revenue in the year, compared with 51% last year.
Outlook
The much talked about turnaround in the second half of the year, expected in each of the last two years, may actually occur in 2003. Encouraging signs include the recent contract wins, mentioned above from ADS and IBM, among others, both of which had been expected for over a year, as well as a marked pick up in sale pipeline activity. Management is thus cautiously optimistic that the operating environment in North America is showing modest signs of turning the corner and is pleased about recent successes achieved with its enterprise software suite of products.
Nevertheless, it remains essential for the Company to raise at least $4 million for its XeQute unit as well as an additional $4 million to cleanup the remaining balance sheet issues at the Vertex level. No assurances can be given that this can be achieved or if achieved, achieved in amounts large enough or a manner timely enough to sustain the business.
Safe Harbor
Certain statements contained herein may be forward-looking in nature and are therefore subject to risks and uncertainties that could cause actual results to differ materially. The Company's acquisition and disposal history, history of operating losses, current expense levels compared with its sales, and the state of development of its product portfolio, coupled with the overall economic and competitive operating environments pose a number of risks investors should take into consideration in connection with assessing our financial and operating results. A more detailed discussion of these and other important risk factors can be found in the documents filed with the Securities and Exchange Commission on forms 10-K and 10-Q. Towards the end of each fiscal quarter, Vertex Interactive will have a 'Quiet Period' when Vertex Interactive and its representatives will not comment concerning previously published financial expectations, and we disclaim any obligation to update during the Quiet Period. The public should not rely on previously published expectations during the Quiet Period. Investors should not expect that these forward-looking statements will be updated or supplemented as a result of changing circumstances or otherwise, and Vertex Interactive disavows and disclaims any obligation to do so.
About Vertex Interactive
Vertex Interactive is a provider of supply chain management technology. Vertex offers a comprehensive range of software systems and tools, from point solutions, to integrated end-to-end hardware and software solutions, for enterprise wide and collaborative supply chain optimization.
VERTEX INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Sept. 30, Sept. 30,
2002 2001
--------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 74,016 $1,411,222
Accounts receivable, less allowance for doubtful
accounts of $929,030 and $380,568 at
September 30, 2002 and 2001 936,246 11,224,533
Inventories, net 941,357 5,065,214
Prepaid expenses and other current assets 263,260 1,521,730
--------- ----------
Total current assets 2,214,879 19,222,699
PROPERTY, EQUIPMENT, AND CAPITAL LEASES
Property and equipment 1,387,620 6,283,848
Capital leases -- 350,168
--------- ----------
Total property, equipment and capital leases 1,387,620 6,634,016
Less: Accumulated depreciation and
amortization (1,200,546) (2,270,097)
--------- ----------
Net property, equipment and capital leases 187,074 4,363,919
OTHER ASSETS:
Goodwill -- 24,627,785
Other intangible assets, net of amortization
of $1,007,088 at September 30, 2001 -- 3,721,802
Capitalized software, net of amortization of
$115,756 and $24,426 at September 30,
2002 and 2001 231,513 420,554
Other assets 166,965 1,082,524
--------- ----------
Total other assets 398,478 29,852,665
--------- ----------
Total assets $2,800,431 $53,439,283
========= ==========
VERTEX INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, September 30,
2002 2001
----------- -----------
CURRENT LIABILITIES:
Current portion of obligations
under capital leases $ -- $ 163,425
Bank credit lines -- 1,824,528
Senior credit facility 145,736 --
Notes payable 1,602,500 2,677,517
Notes payable - related parties 2,588,900 --
Convertible notes payable - related parties 1,814,324 359,375
Mortgage notes payable current portion -- 75,793
Accounts payable 4,429,065 8,432,386
Liabilities associated with
subsidiaries in liquidation 7,263,694 --
Payroll and related benefits accrual 2,074,902 4,916,639
Litigation related accruals 4,122,123 3,856,948
Other accrued expenses and liabilities 3,933,725 5,700,965
Advances from customers 343,547 612,077
Deferred revenue 1,317,440 5,739,843
----------- -----------
Total current liabilities 29,635,956 34,359,496
LONG-TERM LIABILITIES:
Obligations under capital leases -- 106,201
Mortgage notes payable -- 1,392,858
Convertible notes payable - related parties -- 5,500,000
Other long term liabilities -- 130,201
----------- -----------
Total long-term liabilities -- 7,129,260
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Series A preferred stock, par value $.01
per share; 2,000,000 shares authorized,
1,356,852 issued and outstanding
($10,000,000 aggregate liquidation
preference) 13,569 13,569
Series B preferred stock, par value $0.01
per share; 1,000 shares authorized, 1,000
issued and outstanding ($1,000,000
aggregate liquidation preference) 10 --
Series C preferred stock, par value $0.01
per share; 10,000 shares authorized, 997
issued and outstanding ($997,000 aggregate
liquidation preference) 10 --
Common stock, par value $.005 per share;
75,000,000 shares authorized; 37,201,978
and 34,909,506 shares issued at
September 30, 2002 and 2001, respectively 186,011 174,548
Additional paid-in capital 154,979,295 149,321,766
Deferred compensation -- (180,557)
Accumulated deficit (180,681,702) (135,907,323)
Accumulated other comprehensive loss (1,265,478) (1,426,307)
----------- -----------
(26,768,285) 11,995,696
Less: Treasury stock, 87,712 and
40,055 shares (at cost) (67,240) (45,169)
----------- -----------
Total stockholders' equity (deficit) (26,835,525) 11,950,527
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 2,800,431 $53,439,283
=========== ===========
VERTEX INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30,
2002 2001 2000
------------ ------------ -----------
REVENUES $36,135,217 $59,087,470 $47,769,311
COST OF SALES 23,894,594 37,586,253 32,562,140
------------ ------------ -----------
GROSS PROFIT 12,240,623 21,501,217 15,207,171
------------ ------------ -----------
OPERATING EXPENSES:
Selling and administrative 22,503,288 34,510,749 13,407,440
Research and development 4,179,553 7,039,014 1,230,511
Depreciation and amortization
of intangibles 1,237,162 15,791,510 1,594,152
Provision for termination of
leases 1,102,984 300,000
In-process R&D write-off and
merger related expenses -- 3,600,000 7,737,000
Impairment of goodwill and
other intangible assets 18,973,832 78,364,560 --
------------ ------------ -----------
Total operating expenses 47,996,819 139,605,833 23,969,103
------------ ------------ -----------
OPERATING LOSS (35,756,196) (118,104,616) (8,761,932)
OTHER INCOME AND (EXPENSES):
Interest income 93,967 141,358 311,103
Interest expense (2,875,396) (1,035,140) (470,867)
Provision for litigation (2,653,891) (3,100,000) --
Loss on sale or liquidation
of non-core assets (3,080,656) -- --
Other (367,364) (703,228) (113,470)
------------ ------------ -----------
Net other income (expense) (8,883,340) (4,697,010) (273,234)
------------ ------------ -----------
LOSS BEFORE INCOME TAXES (44,639,536) (122,801,626) (9,035,166)
Income Tax Provision 134,843 150,476 377,258
------------ ------------ -----------
NET LOSS ($44,774,379)($122,952,102) ($9,412,424)
============ ============ ===========
Net loss per share of
Common Stock:
Basic and diluted ($1.26) ($3.95) ($.46)
Weighted Average Number of
Shares Outstanding:
Basic and diluted 35,649,274 31,128,185 20,598,502
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