<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 September 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
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
102 Executive Drive, Moorestown, NJ 08057-4224
- ---------------------------------------- ----------
(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
-------- --------
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 October 31, 1995
- ----- -------------------------------
Common Stock, par value $.001 3,164,022
<PAGE>
COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
These statements are unaudited.
ASSETS
<TABLE>
<CAPTION>
Current assets: September 30, 1995 March 31, 1995
------------------ --------------
<S> <C> <C>
Cash and cash equivalents $ 205,818 $ 750,719
Certificate of deposit 100,000 250,000
Accounts receivable, net of reserve of
$180,826 and $178,157 as of 3/31/1995
and 9/30/1995, respectively 1,278,881 907,615
Note receivable and accrued interest 54,858 63,767
Inventories 953,852 760,250
Prepaid expenses and other 108,002 102,125
----------- -----------
Total current assets 2,701,411 2,834,476
----------- -----------
Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 936,759 898,550
Less - accumulated depreciation (776,971) (734,647)
----------- -----------
Net property and equipment 159,788 163,903
----------- -----------
Other assets:
Purchased and capitalized software
and design 816,773 742,906
Less - accumulated amortization and
depreciation (631,401) (620,584)
----------- -----------
Total other assets 185,372 122,322
----------- -----------
TOTAL ASSETS $ 3,046,571 $ 3,120,701
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 507,832 $ 393,168
Accrued expenses 85,326 122,245
Customer deposits 36,664 48,003
----------- -----------
Total current liabilities 629,822 563,416
----------- -----------
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
9/30/1995 and 3/31/1995, respectively 3,165 3,160
Additional paid-in capital 5,315,970 5,313,325
Accumulated deficit (2,902,386) (2,759,200)
----------- -----------
Total shareholders' equity 2,416,749 2,557,285
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,046,571 $ 3,120,701
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
These statements are unaudited.
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1995 1994 1995 1994
---------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,261,495 $ 1,256,683 $ 2,581,667 $ 2,688,358
Costs and expenses
Cost of sales 867,819 789,983 1,744,869 1,690,909
Administrative 181,187 179,207 363,140 367,265
Research and
development 42,242 45,683 84,492 85,010
Sales and marketing 162,214 98,038 329,955 196,379
Customer support 79,374 84,634 165,384 176,022
Depreciation and
amortization 26,740 32,279 53,141 61,234
----------- ----------- ----------- -----------
1,359,576 1,229,824 2,740,981 2,576,819
----------- ----------- ----------- -----------
Income (loss)
from operations (98,081) 26,859 (159,314) 111,539
Interest income, net 9,593 4,822 16,128 9,681
----------- ----------- ----------- -----------
Income (loss)
before income taxes
and extraordinary credit (88,488) 31,681 (143,186) 121,220
Provision for income taxes -- 12,672 -- 48,488
---------- ----------- ----------- -----------
Income (loss) before
extraordinary credit (88,488) 19,009 (143,186) 72,732
Extraordinary credit,
reduction of income
taxes arising from
carryforward of prior
years' operating
losses -- 12,672 -- 48,488
------------ ----------- ----------- -----------
Net income (loss) $ (88,488) $ 31,681 $ (143,186) $ 121,220
============ =========== ============ ===========
Per share data:
Income (loss) before
extraordinary credit $ (.03) $ .01 $ (.05) $ .02
Extraordinary credit .00 .00 .00 .02
----------- ----------- ----------- -----------
Net income (loss) $ (.03) $ .01 $ (.05) $ .04
=========== =========== ============ ===========
Weighted average
shares outstanding 3,164,022 3,181,310 3,163,189 3,170,128
=========== =========== =========== ===========
</TABLE>
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.
Six months ended
September 30,
1995 1994
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(143,186) $ 121,220
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities -
Depreciation and amortization 53,141 61,234
Provisions for losses on accounts
receivable 25,820 26,883
Provisions for losses on inventories 39,253 40,695
(Increase) decrease in -
Certificate of deposit 150,000 --
Accounts receivable (397,086) 139,651
Note receivable 8,909 (15,491)
Inventories (232,855) (235,840)
Prepaid expenses and other (5,877) (15,073)
Increase (decrease) in -
Accounts payable 114,664 (47,750)
Accrued expenses (36,919) (59,698)
Customer deposits (11,339) 13,869
--------- ---------
Net cash provided by (used in)
operating activities (435,475) 29,700
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchases) of property and equipment:
Purchases of property and equipment (38,209) (44,831)
Purchases of software and capitalized
software and design (73,867) (58,519)
--------- ---------
Net cash provided by (used in)
investing activities (112,076) (103,350)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit -- 75,000
Repayments under line of credit -- (75,000)
Proceeds from issuing equity securities 2,650 29,020
--------- ---------
Net cash provided by (used in)
financing activities 2,650 29,020
--------- ---------
Net increase (decrease) in cash (544,901) (44,630)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 750,719 744,146
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 205,818 $ 699,516
========= =========
The accompanying notes are an integral part of these financial statements.
- 4 -
<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:
September 30, March 31,
1995 1995
--------- --------
Raw materials $559,385 $652,510
Work-in-process 163,652 113,959
Finished goods 325,060 48,773
Reserve for excess and obsolete inventory (94,245) (54,992)
-------- --------
$953,852 $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 six month period ended September 30,
1994, Sharp purchased the minimum monthly quantity. Accordingly, an accrued
price adjustment fee of $113,250 was recognized during the six month period
ending September 30, 1994, based on the difference between 1,200 and the number
of terminals actually delivered during the six 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.
- 6 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Liquidity and Capital Resources
As of September 30, 1995, the Company had total current assets of
$2,701,411, including cash, cash equivalents and certificates of deposits of
$305,818, as compared to $2,834,476 and $1,000,719, respectively, as of March
31, 1995. The Company had current liabilities of $629,822, resulting in a
current ratio of 4.3 as of September 30, 1995, compared to $563,416 and 5.0,
respectively, as of March 31, 1995.
The Company reported net losses of $88,488 and $143,186, respectively
for the three month and six month periods ended September 30, 1995. Operating
activities consumed $435,475 of cash during the first six months of fiscal 1996,
as compared with cash generation of $29,700 for the corresponding prior year
period. Cash and cash equivalents declined by $544,901 during the six month
period of fiscal year 1996.
The OEM Agreement executed between the Company and Sharp Electronics
Corporation in December of 1991 expired as of March 1, 1995. Sharp represented
45% and 41% of the Company's total sales for the first six months of fiscal year
1995 and for the full 1995 fiscal year, respectively. Since March 1 of 1995, the
Company has entered into contractual Dealer Agreements with over eighty
authorized dealers in the U.S., and Sharp has not represented a significant
portion of the Company's sales. During the term of the OEM Agreement, Sharp
placed orders for delivery three months in advance, and payments were typically
received within thirty days of shipment. The establishment of a dealer sales
organization in the U.S. has required that the Company carry an increased level
of accounts receivable and stock greater levels of finished goods inventory.
Accounts receivable increased during the six month period ended
September 30, 1995 by $371,266, net of reserves. The Company extends terms to
its U.S. dealer network of up to sixty days. The Company had 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
Corporation. In addition, almost half of the sales for the second quarter of
fiscal year 1996 were recorded in the month of September, causing receivables
levels to rise sharply as of September 30, 1995.
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. The Company projected
that inventory levels would increase during the 1996 fiscal year. Inventories
increased during the six month period ended September 30, 1995 by $193,602, net
of reserves. However, inventories, net of reserves, decreased during the three
month period by $175,368. This reduction is a result both of the significant
sales during the month of September, 1995, and of improved production scheduling
by the Company.
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 inventory.
- 7 -
<PAGE>
Liquidity and Capital Resources (continued)
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 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. In June of 1995, the credit facility with NatWest was
renewed, increased and extended through July of 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
six months of fiscal year 1996. The Company expects to utilize its credit
facility from time to time for short term cash requirements. As of September 30,
1995, the Company had no material commitments for capital expenditures.
Results of Operation
Net sales during the second quarter of fiscal year 1996 increased
slightly to $1,261,495, as compared with corresponding sales of $1,256,683
during the second quarter of fiscal year 1995. Sales for the six month period
ended September 30, 1995 were $2,581,667, a decline of 4% from sales of
$2,688,358 for the corresponding period during fiscal year 1995.
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 Corporation. 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, peripherals 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. When the OEM Agreement with Sharp
expired, the Company believes that Sharp maintained an inventory of the
Company's products in excess of six months of sales at Sharp's prior rate of
sales. The Company believes that a significant portion of this inventory has
been sold since March 1 of 1995, and that the impact of Sharp's inventory
liquidation on the Company's own sales efforts will be lessened during the
second half of fiscal year 1996. While there can be no assurances of any
particular sales levels, the Company believes that sales made through its own
U.S. network of dealers, in conjunction with the Company's own direct sales and
marketing efforts, will replace sales under the OEM Agreement.
The Company reported a net loss of $143,186 for the current six month
period, or $.05 per share, as compared with net income of $121,220, or $.04 per
share, for the comparable prior year period. During the quarter ended September
30, 1995, the Company reported a net loss of $88,488, or $.03 per share, as
compared with net income of $31,681, or $0.01 per share, for the second quarter
of fiscal year 1995.
- 8 -
<PAGE>
Results of Operation (continued)
Expenses, other than cost of sales, increased from $439,841, or 35% of
sales, during the second quarter of fiscal year 1995, to $491,757, or 39% of
sales, during the most recent quarter. For the six month period, such expenses
rose from $885,910, or 33% of sales, to $996,112, or 39% of sales for fiscal
1995 and 1996, respectively.
The Company has begun an advertising campaign in Nation's Restaurant
News, aimed at increasing name and brand awareness for the Company and its
products. The Company participated in several trade shows during the first six
months of fiscal year 1996, including the National Restaurant Association Show,
the Western Restaurant Show and MUFSO. In addition, the Company began conducting
a series of regional training seminars for its dealer network. Such sales and
marketing expenses will continue in the future, as the Company builds a sales
and distribution organization focused on Comtrex products and services.
Cost of sales during the second quarter and first six month period of
fiscal year 1996 were 69% and 68% of net sales, respectively, as compared to 63%
and 63% of net sales, respectively, for the comparable quarter and six month
period of the prior fiscal year. During the second quarter and first six month
period of fiscal year 1995, 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.
The ability of the Company to accurately forecast sales, through the
three month lead time previously required by the Sharp OEM Agreement, allowed
the Company to enter into several favorable purchasing agreements. Cost of sales
has been negatively impacted by increased cost of materials during the most
recent quarter and six month period. The Company's U.S. dealers typically place
orders based upon their sales to end user customers. The result is a reduced
ability to accurately forecast sales on a month to month basis, and a
requirement to carry an increased level of finished goods inventory. The Company
is working closely with its suppliers to maintain its favorable purchasing
agreements, while at the same time, maintaining a balanced level of inventories.
As of October 31, 1995, the Company's backlog was approximately
$140,000, as compared with a corresponding backlog of approximately $678,000 as
of October 28, 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 dealer network,
the Company increased its level of finished goods inventory from $48,773 as of
March 31, 1995 to $325,060 as of September 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: November 13, 1995 By: /s/ Lisa J. Mudrick
--------------------- --------------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: November 13, 1995 By: /s/ Jeffrey C. Rice
--------------------- ------------------------------------
Jeffrey C. Rice
Chief Executive Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 205,818
<SECURITIES> 100,000
<RECEIVABLES> 1,333,739
<ALLOWANCES> 178,157
<INVENTORY> 953,852
<CURRENT-ASSETS> 2,701,411
<PP&E> 936,759
<DEPRECIATION> 776,971
<TOTAL-ASSETS> 3,046,571
<CURRENT-LIABILITIES> 629,822
<BONDS> 0
<COMMON> 3,165
0
0
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 3,046,571
<SALES> 2,581,667
<TOTAL-REVENUES> 2,597,795
<CGS> 1,744,869
<TOTAL-COSTS> 2,740,981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,820
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (143,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> (143,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,186)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
