<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13732
COMTREX SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-235-604
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
102 Executive Drive, Moorestown, NJ 08057-4224
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(Address of principal executive offices) (Zip Code)
(609) 778-0090
Registrant's telephone number, including area code
Indicate 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 28, 1995
----- ----------------------------
Common Stock, par value $.001 3,164,022
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COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
These statements are unaudited.
<TABLE>
<CAPTION>
ASSETS
Current assets: June 30, 1995 March 31, 1995
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<S> <C> <C>
Cash and cash equivalents $ 186,149 $ 750,719
Certificate of deposit 250,000 250,000
Accounts receivable, net of reserve of
$180,826 and $166,566 as of 3/31/1995
and 6/30/1995, respectively 1,282,772 907,615
Note receivable and accrued interest 60,020 63,767
Inventories 1,129,220 760,250
Prepaid expenses and other 78,779 102,125
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Total current assets 2,986,940 2,834,476
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Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 941,746 898,550
Less - accumulated depreciation (755,889) (734,647)
------------ ------------
Net property and equipment 185,857 163,903
------------ ------------
Other assets:
Purchased and capitalized software
and design 772,194 742,906
Less - accumulated amortization and
depreciation (625,743) (620,584)
------------ ------------
Total other assets 146,451 122,322
------------ ------------
TOTAL ASSETS $ 3,319,248 $ 3,120,701
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 665,310 $ 393,168
Accrued expenses 109,672 122,245
Customer deposits 39,029 48,003
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Total current liabilities 814,011 563,416
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Shareholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none outstanding -- --
Common stock, $.001 par value, 5,000,000
shares authorized, 3,164,022 and
3,159,022 issued and outstanding as of
6/30/1995 and 3/31/1995, respectively 3,165 3,160
Additional paid-in capital 5,315,970 5,313,325
Accumulated deficit (2,813,898) (2,759,200)
------------ ------------
Total shareholders' equity 2,505,237 2,557,285
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LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,319,248 $ 3,120,701
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
These statements are unaudited.
Three months ended
June 30,
1995 1994
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Net sales $ 1,320,172 $ 1,431,675
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Costs and expenses
Cost of sales 877,050 900,925
Administrative 181,953 188,058
Research and
development 42,250 39,327
Sales and marketing 167,741 98,342
Customer support 86,010 91,388
Depreciation and
amortization 26,401 28,955
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1,381,405 1,346,995
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Income (loss) from operations (61,233) 84,680
Interest income, net 6,535 4,859
------------ ------------
Income (loss) before income taxes
and extraordinary credit (54,698) 89,539
Provision for income taxes -- 35,815
------------ ------------
Income (loss) before extraordinary credit (54,698) 53,724
Extraordinary credit, reduction
of income taxes arising from
carryforward of prior years'
operating losses -- 35,815
------------ ------------
Net income (loss) $ (54,698) $ 89,539
============ ============
Per share data:
Income (loss) before extraordinary credit $ (.02) $ .02
Extraordinary credit $ .00 $ .01
------------ ------------
Net income (loss) $ (.02) $ .03
============ ============
Weighted average
shares outstanding 3,167,678 3,150,575
------------ ------------
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
These statements are unaudited.
Three months ended
June 30,
1995 1994
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (54,698) $ 89,539
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities -
Depreciation and amortization 26,401 28,955
Provisions for losses on accounts
receivable 13,205 14,317
Provisions for losses on inventories 19,825 21,959
(Increase) decrease in -
Certificate of deposit -- --
Accounts receivable (388,362) (52,342)
Note receivable 3,747 (9,144)
Inventories (388,795) (266,370)
Prepaid expenses and other 23,346 (6,107)
Increase (decrease) in -
Accounts payable 272,142 169,333
Accrued expenses (12,573) (22,830)
Customer deposits (8,974) 10,192
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Net cash provided by (used in)
operating activities (494,736) (22,498)
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property and equipment -- --
Purchases of property and equipment (43,196) (11,798)
Purchases of software and capitalized
software and design (29,288) (33,355)
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Net cash provided by (used in)
investing activities (72,484) (45,153)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit -- --
Repayments under line of credit -- --
Proceeds from issuing equity securities 2,650 29,020
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Net cash provided by financing
activities 2,650 29,020
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Net increase (decrease) in cash (564,570) (38,631)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 750,719 744,146
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CASH AND CASH EQUIVALENTS, END OF PERIOD 186,149 705,515
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The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Interim financial reporting:
The accompanying financial statements should be read in conjunction
with the financial statements and notes included in the Company's latest Annual
Report on Form 10-KSB.
These interim financial statements reflect all adjustments, of a normal
and recurring nature, which are, in the opinion of management, necessary for a
fair statement of the results for the interim period(s) presented. The results
for the period(s) herein presented are not necessarily indicative of the results
for the entire fiscal year.
2. Inventories:
June 30, March 31,
1995 1995
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Raw materials $ 438,129 $ 652,510
Work-in-process 281,226 113,959
Finished goods 484,683 48,773
Reserve for excess and
obsolete inventory (74,818) (54,992)
----------- -----------
$ 1,129,220 $ 760,250
=========== ===========
3. Income taxes:
The consolidated statements of operations reflect a provision for
income taxes at the rate of 40 percent, which represents the federal statutory
rate of 34 percent plus an effective state tax rate of 6 percent. The provisions
for income taxes are offset by tax benefits arising from an extraordinary credit
from the utilization of prior years' operating losses.
The Company has net operating loss carryforwards of approximately
$3,000,000 for financial reporting and for federal income tax purposes, which
begin to expire in 2004. The Company has tax credit carryforwards for federal
income tax purposes of approximately $148,000. Net operating loss carryforwards
are also available for state income tax purposes.
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<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Accrued price adjustment fee:
In December of 1991 the Company entered into an OEM Agreement with
Sharp Electronics Corporation. The OEM Agreement called for minimum yearly
purchases by Sharp of 2,400 terminals, over a three year period ending in
February of 1995. The Agreement allowed a minimum monthly purchase quantity of
125 terminals. During each month of the quarter ended June 30, 1994, Sharp
purchased the minimum monthly quantity. Accordingly, an accrued price adjustment
fee of $56,140 was recognized during the three month period ending June 30,
1994, based on the difference between 600 and the number of terminals actually
delivered during the three month period. Purchases by Sharp during the contract
year ended February 28, 1995 did not meet the annual minimum, and Sharp paid a
price adjustment fee to the Company based on the difference between 2,400 and
the number of terminals actually ordered.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Liquidity and Capital Resources
As of June 30, 1995, the Company had total current assets of
$2,986,940, including cash, cash equivalents and certificates of deposits of
$436,149, as compared to $2,834,476 and $1,000,719, respectively, as of March
31, 1995. The Company had current liabilities of $814,011, resulting in a
current ratio of 3.7 as of June 30, 1995, compared to $563,416 and 5.0,
respectively, as of March 31, 1995.
The Company reported a net loss of $54,698 for the three months ended
June 30, 1995. Operating activities consumed $494,736 of cash during the first
three months of fiscal year 1996, as compared with cash consumption of $22,498
for the corresponding prior year period. Cash and cash equivalents declined by
$564,570 during the three month period of fiscal year 1996. Investing activities
consumed $72,484 of cash, as a result of purchased and capitalized software
development costs of the Company's new and enhanced back office software modules
coupled with the addition of demonstration equipment and an exhibit booth for
active participation in national and local trade shows. Financing activities
provided $2,650 of cash during the first quarter of the current fiscal year from
the exercise of stock options.
The OEM Agreement executed between the Company and Sharp Electronics
Corporation in December of 1991 provided for payment to the Company within 45
days by Sharp. Sharp's payments were typically received in advance of the 45 day
maximum term. This prompt payment by Sharp significantly improved the cash flow
of the Company when compared to the longer average collection period which the
Company experienced from its previous U.S. dealer network. The Agreement expired
at the end of February, 1995, and was not renewed. The Company began selling in
the United States in March of 1995 through a network of its own dealers. The
Company extends terms to its U.S. dealer network up to sixty days. The Company
projected that accounts receivable would increase during the 1996 fiscal year,
attributable to sales through a dealer network rather than on an OEM basis to
Sharp Electronics. As a result, accounts receivable increased during the quarter
ended June 30, 1995, by $375,157, net of reserves.
The Company's U.S. dealers typically place orders with the Company
based on their sales activities with end user customers, and do not maintain
significant inventory levels of the Company's products. In order to provide
prompt delivery of product to its U.S. dealer network, the Company will maintain
a higher level of finished goods inventory than was maintained during the three
year period of the Sharp OEM Agreement. The Company projected that inventory
levels would increase during the 1996 fiscal year. As a result, inventories
increased during the quarter ended June 30, 1995, by $368,970, net of reserves.
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<PAGE>
Liquidity and Capital Resources (continued)
The Company believes that its cash balance, together with its line of
credit, provides the Company with adequate liquidity to finance the increases in
accounts receivable and inventories.
In March of 1994, the Company terminated its prior financing
relationship and entered into a credit facility with National Westminster Bank
NJ (NatWest). The arrangement with NatWest provided for a secured line of credit
of up to $500,000, at an interest rate of prime, and was collateralized by
substantially all assets of the Company. On June 30, 1995, the credit facility
with NatWest was renewed, increased and extended through July, 1996. The new
arrangement provides for a secured line of credit of up to $750,000, at an
interest rate of prime and is collateralized by substantially all assets of the
Company.
The Company did not borrow under this credit facility during the first
quarter. The Company expects to utilize its credit facility from time to time
for short term cash requirements. As of June 30, 1995, the Company had no
material commitments for capital expenditures.
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<PAGE>
Results of Operation
Net sales during the first quarter of fiscal year 1996 decreased 8% to
$1,320,172, as compared with corresponding sales of $1,431,675 during the first
quarter of fiscal year 1995. A net loss of $54,698, or $.02 per share, compared
with net income of $89,539, or $.03 per share, reported for the comparable prior
year period.
Between March of 1992 and February of 1995, the Company's products were
sold in the U.S. under the terms of an exclusive OEM Agreement with Sharp
Electronics. The OEM Agreement expired on February 28, 1995 and was not renewed.
In March of 1995, the Company began selling its full product line of terminals
and software through its own distribution organization of authorized dealers.
Since March 1, 1995, the Company has entered into contractual Dealer
Agreements with over eighty authorized Comtrex dealers in the U.S., most of whom
have been selling the Company's products under the Sharp brand label during the
past three years. The Company intends to increase the number of its authorized
dealers during fiscal year 1996. The Company expected its sales to be negatively
impacted for the first half of the current fiscal year, as the transition from
OEM sales to Sharp to sales through a U.S. dealer network occurred. While there
can be no assurances of any particular sales levels, the Company believes that
after a transitional period, sales made through its U.S. network of authorized
dealers, in conjunction with the Company's own direct marketing efforts, will
replace sales under the OEM Agreement.
Sales and marketing, customer support and administrative expenses
increased from $417,115, or 29% of sales, for the first quarter of fiscal year
1995 to $477,954, or 36% of sales, during the most recent quarter. Between
October of 1994 and April of 1995, the Company hired four Regional Sales
Managers, who actively assist the existing U.S. dealers in their sales efforts
to end users and solicit new dealers for the Company's products.
Cost of sales during the three months ended June 30, 1995 represented
66% of net sales, as compared to 63% of net sales for the comparable period last
fiscal year. During the prior year's first quarter, cost of sales was favorably
impacted by the recognition of a price adjustment fee in connection with the
Company's OEM Agreement with Sharp Electronics Corporation.
As of July 31, 1995, the Company's backlog was approximately $110,453,
as compared with a corresponding backlog of approximately $707,000 as of July,
29, 1994. As stated earlier, the Company's U.S. dealers typically place orders
with the Company based on their sales activities with end user customers, and do
not maintain significant inventory levels of the Company's products. In order to
provide prompt delivery of product to its U.S. dealer network, the Company
increased its level of finished goods inventory from $48,773 as of March 31,
1995 to $484,683 as of June 30, 1995. The Company generally fills dealer orders
within three working days of receipt of order. The Company expects that
substantially all of its current backlog will be shipped within the next 90
days.
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<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.
COMTREX SYSTEMS CORPORATION
(Registrant)
Date: August 11, 1995 By: /s/
------------------- -----------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: August 11, 1995 By: /s/
------------------- -----------------------------
Jeffrey C. Rice
Chief Executive Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 186,149
<SECURITIES> 250,000
<RECEIVABLES> 1,342,792
<ALLOWANCES> 166,566
<INVENTORY> 1,129,220
<CURRENT-ASSETS> 2,986,940
<PP&E> 941,746
<DEPRECIATION> 755,889
<TOTAL-ASSETS> 3,319,248
<CURRENT-LIABILITIES> 814,011
<BONDS> 0
<COMMON> 3,165
0
0
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 3,319,248
<SALES> 1,320,172
<TOTAL-REVENUES> 1,326,707
<CGS> 877,050
<TOTAL-COSTS> 1,381,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,205
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,698)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,698)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
