<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ x ] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required] for the fiscal year ended March 31, 1996.
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
Commission file number 0-13732
COMTREX SYSTEMS CORPORATION
(Name of small business issuer in its charter)
Delaware 22-2353604
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
102 Executive Drive, Moorestown, NJ 08057
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (609) 778-0090
Securities to be registered under
Section 12(b) of the Act: None
Securities to be registered under
Section 12(g) of the Act: Common Stock, par value $.001
(Title of class)
Nasdaq Small Cap Market
(Name of each exchange on which
registered)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
------
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
[ ]
Issuer's revenues for the fiscal year ended March 31, 1996 were $5,033,737.
Based on the closing bid price of the registrant's common stock, the aggregate
market value of the voting stock held by non-affiliates of the registrant as of
May 31, 1996 is $1,328,207.
As of June 14, 1996, there were outstanding 3,164,022 shares of the registrant's
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 1996 Annual
Meeting of Shareholders, to be filed on or before July 26, 1996 pursuant to
Regulation 14A, are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format: Yes No x
------- -------
Total number of pages of this report: 29
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Index to exhibits located at page: 11
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1
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PART I
Item 1. Business
INTRODUCTION
Comtrex Systems Corporation (the "Company") was incorporated in New
Jersey in April, 1981. At the Annual Meeting of Shareholders held November 28,
1988, the shareholders approved an Agreement and Plan of Merger, pursuant to
which the state of incorporation of the Company was changed to Delaware. In
February of 1989 the Company completed the statutory merger, whereby each share
of the outstanding common stock of the New Jersey corporation was exchanged for
one share of common stock of the Delaware corporation.
The Company designs, develops, assembles and markets electronic
terminals and computer software which provide target retailers with transaction
processing, in-store controls and management information. The Company markets
these products through a network of authorized dealers in Canada, France,
Belgium, Germany, Holland, Ireland, U.A.E., Turkey, the United Kingdom and
Australia. Between March of 1992 and February of 1995, the Company's products
were marketed in the United States by Sharp Electronics Corporation, under the
Sharp brand name, under an exclusive distribution agreement signed in December
of 1991. Under the agreement, the Company retained the ability to sell, on a
direct basis, to certain large, national accounts. The Agreement expired at the
end of February, 1995, and was not renewed. The Company began selling in the
United States through its own distribution organization in March of 1995.
On April 1, 1996, the Company acquired substantially all the assets of
AUBIS Hospitality Systems, Inc., an Atlanta, Georgia based company, which relate
to the resale activity of Comtrex point of sale products. As of June 14, 1996,
the Company employed eight individuals in its Atlanta District Office. The
personnel are engaged in the direct sale and service of the Company's products
in both the Atlanta metropolitan area and in the southeastern United States.
PRODUCTS
The Company's principal products are sophisticated terminals, developed
and manufactured by the Company, which combine traditional cash register
functions with the control and data gathering capabilities of a computerized
system. The Company develops, and licenses the use of, software programs which
provide enhanced reporting capabilities for its terminal systems and facilitate
local and remote polling of information transfer between computers and the
Company's terminal systems.
The Sprint terminal was first introduced in fiscal year 1986, and was
designed principally to be sold to quick service food outlets. Between March of
1992 and February of 1995, the product was sold in the United States by Sharp
Electronics Corporation as the Sharp 4400 series of terminals, and sold outside
the United States by authorized dealers for the Company. In March of 1995, the
Company began selling the product in the United States through its own
distribution organization. During fiscal years 1990 and 1991, the Sprint product
was redesigned, and a family of terminals was introduced, significantly
broadening the market potential for the product. The series was further
redesigned in conjunction with the marketing agreement signed with Sharp in the
third quarter of fiscal year 1992, and improvements in program functionality and
available memory were added in fiscal year 1993. Sprint terminals are typically
configured as elements in a communicating network of printers, video screens and
a modem connection to a regional headquarters computer. The Company also markets
several add-on software modules which provide enhanced reporting, inventory
control, labor reporting and a means to track and reward frequent customers of
fast food establishments. There are several versions of software for the Sprint
terminal designed for specific food service operators, and each of these can
additionally be tailored for a specific operation. The Sprint family of
terminals accounted for 37%, 40% and 31% of net sales in fiscal years 1996, 1995
and 1994, respectively.
The SuperSprint terminal was first introduced in fiscal year 1989, and
was designed principally to be sold to full service restaurants. Between March
of 1992 and February of 1995, the product was sold in the United States by Sharp
Electronics Corporation as the Sharp 4500 series of terminals, and sold outside
the United States by authorized dealers for the Company. In March of 1995, the
Company began selling the product in the United States through its own
distribution organization. During fiscal year 1991, the SuperSprint product line
was expanded with the introduction of a CRT based terminal. The series was
further redesigned in the third quarter of fiscal year 1992, in conjunction with
the marketing agreement with Sharp. During the latter half of fiscal year 1993,
the Company began hardware and software development to expand the product line
2
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with the introduction of a touch entry terminal. During the second quarter of
fiscal year 1994, the Company began initial deliveries of the touch entry
terminal, both to Sharp Electronics and to its international dealer
organization. During the third quarter of fiscal year 1995, the Company began
initial deliveries of a 14" color touch entry terminal to the Canadian and
International dealers. In March of 1995, the 14" color touch entry terminal
became available to the Company's distribution organization within the United
States. SuperSprint terminals are typically configured as elements in a
communicating network of printers and video screens. The Company also markets
several add-on software modules which provide enhanced reporting, inventory
control, labor reporting and an on-line interface to facilitate the handling of
delivery and take-out orders by tracking customers' addresses and most recent
orders. The SuperSprint family of terminals accounted for 63%, 53% and 60% of
net sales in fiscal years 1996, 1995 and 1994, respectively.
The Company will begin deliveries of a new point-of-sale product line
in June of 1996. The product line is based on PC architecture, and generally
available local-area-network technology. Included in the new product line is an
active matrix, LCD touch entry terminal, along with touch entry color CRT and a
keyboard and CRT terminal. The use of PC architecture components should result
in greater acceptance by larger accounts, since the technology is generally
available and not proprietary, as well as allow for greater processing
capabilities at a reduced manufacturing cost. The product line has been designed
to be continuously upgradeable, as PC technology continues to provide increased
capabilities at lower costs, through high volume manufacturing economies. The
new product line will address both the sit-down dining and the quick service
market segments.
MANUFACTURING AND TECHNOLOGY
The Company's manufacturing operations consist primarily of assembling
various components, parts, sub-assemblies, and assemblies which are purchased.
Many of these are manufactured to the Company's design and specifications. The
component parts, sub-assemblies, and finished assemblies, whether purchased or
assembled by the Company, are subject to quality control testing by the Company.
The Company believes that alternative sources of supply for its components are
available and that the loss of its current sources for components and purchased
assemblies would not have a material adverse effect on the Company's business.
The Company cannot estimate the effect on costs of parts and assemblies if it
were required to use alternative sources, but it believes that such effect would
not materially affect the profit contribution of such products to the Company.
The Company holds all right, title and interest in two patents and has
other patents pending. The issued patents are listed below.
<TABLE>
<CAPTION>
PATENT NO. DATE ISSUED DURATION DESCRIPTION
- ---------- ----------- -------- -----------
<C> <C> <C> <C>
4,231,511 November 4, 1980 17 years Waiter/Table Control for Cash Registers
D.295,874 May 24, 1988 14 years Sprint Cash Register Housing
</TABLE>
The Company also has registered four (4) trademarks, none of which
expires prior to 1998. The Company designs its own printed circuit cards and
software for use in its products. While the technology used in the design and
manufacture of most of the Company's products is generally known and available
to others, the Company has taken and will continue to take steps to seek
protection for its designs, trade names and trademarks and the products and
software it has developed.
The Company estimates that during the 1996, 1995, and 1994 fiscal
years, it expended approximately $331,319, $291,101, and $269,836, respectively,
(which amounts include capital expenditures of $166,327, $105,970, and $106,008,
respectively) on engineering design and development of new products plus
improvements on existing products. The Company anticipates that it will continue
to incur research and development costs in connection with enhancements of its
current products and the development of new products. To supplement its own
personnel, the Company also utilizes outside design services for product
development.
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SALES, MARKETING AND DISTRIBUTION
In December of 1991, the Company signed an OEM Agreement with Sharp
Electronics Corporation. Under the Agreement, the Company developed and
manufactured products which were private labeled with the Sharp brand name, for
resale in the United States. The Agreement provided for the guaranteed delivery
by the Company to Sharp of 7,200 terminals over a three year period. During the
term of the Agreement, Sharp acquired distribution rights to all the Company's
point-of-sale products in the United States, exclusive of certain customers and
certain software products. The Company's OEM Agreement with Sharp called for
minimum yearly purchases by Sharp of 2,400 terminals, allowing a minimum monthly
quantity of 125 terminals. Purchases by Sharp, during fiscal years 1995 and
1994, did not meet the 200 terminal per month average level specified in the OEM
Agreement. As specified in the OEM Agreement, Sharp Electronics paid a price
adjustment fee to the Company based on the difference between 2,400 and the
number of terminals actually ordered during each of the second and third
contract years of the Agreement. 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.
During fiscal year 1996, the Company's revenue stream was distributed
among the network of U.S. and international dealers. There was no single dealer
who purchased product in excess of 10% of net sales. While Sharp Electronics
Corporation was the largest purchaser of the Company's products in fiscal years
1995 and 1994 with purchases of $2,356,849, or 41% of net sales, and $3,210,714,
or 55% of net sales, respectively, sales to Sharp during fiscal year 1996
declined to $201,166, or 4% of net sales. Sales to Restaurant Data Systems
(RDS), the Company's distributor in France, in fiscal year 1996, were $298,440,
accounting for 6% of net sales. Sales to RDS in fiscal years 1995 and 1994 were
$462,944, or 8% of net sales, and $501,596, or 9% of net sales, respectively.
The Company recorded foreign sales of $1,814,425, representing 36% of
net sales, during fiscal year 1996 to dealers located primarily in Canada,
France, Holland, Australia, Belgium, Ireland, U.A.E., Germany, Turkey and the
United Kingdom. Foreign sales were $1,582,071, representing 28% of net sales,
during fiscal year 1995, and $1,335,658, representing 23% of net sales, in
fiscal year 1994.
As of June 20, 1996, the Company's backlog was approximately $432,356
as compared with a backlog of $328,900 as of June 9, 1995. The Company
recognizes income when an order is shipped to the customer. Deposits, if any, on
orders are not recognized as income until such order is shipped to the customer.
Substantially all of the Company's backlog is expected to be filled within the
current fiscal year, and there is no seasonal or other material aspects relating
to the backlog.
The intelligent point-of-sale terminal industry is highly competitive.
The Company and its dealers and distributors compete with a number of
manufacturers. Many of these competitors have longer operating histories,
greater financial resources, more substantial manufacturing capabilities and
greater name recognition in the marketplace. Management believes that the key to
growth will be the ability of the Company to supply an extremely reliable
product, which is thoroughly tailored to the specific needs of the Company's
target foodservice segment of the retailing industry. In order to expand the
market share for Comtrex products in the United States, Canadian and
International marketplace, the Company has increased the sales and customer
support groups to both strengthen existing dealers and to solicit new dealers.
On April 1, 1996, the Company acquired substantially all the assets of
AUBIS Hospitality Systems, Inc. (AUBIS) which relate to the resale activity of
the Comtrex point of sale products. AUBIS, an Atlanta, Georgia based provider of
computerized information systems and network services for the foodservice and
other industries, was an authorized Comtrex dealer. In conjunction with the
acquisition of assets, the Company hired all of the employees of AUBIS who had
been involved in the sale, installation and service activities of the Comtrex
products. The Company opened a District Office and began direct sales and
servicing of its products in both the Atlanta metropolitan area and the
southeastern United States.
SERVICE AND WARRANTIES
The Company warrants its products to its dealers for a six month
period, including parts and labor, for repair or replacement at the Company's
corporate facility in Moorestown, New Jersey. The products of the Company which
are sold to customers by dealers are serviced on-site by dealer service
personnel. Certain international distributors are provided up to a one year
warranty, again on a repair or replacement basis at the Company's corporate
facility. Certain of the Company's customers have chosen to service their
equipment themselves and ship parts to the Company's facility for repair or
exchange.
4
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ENVIRONMENTAL MATTERS
The Company believes that it is in compliance with all applicable
environmental laws and does not anticipate that such compliance will have a
material effect on its future capital expenditures, earnings or competitive
position.
EMPLOYEES
As of June 14, 1996, the Company had 44 employees, all of whom were
employed on a full time basis. None of the Company's employees are represented
by a union and the Company believes that its employee relations are good.
Item 2. Properties
The Company currently leases and occupies approximately 19,000 square
feet of plant and office space in an industrial park in Moorestown, New Jersey.
In May of 1993, the Company renewed its lease through September of 1997, and
increased the previous 17,000 square feet of space by acquiring an additional
2,000 square feet beginning in July of 1993. The Company's property is suitable
and adequate for the Company's operations, with sufficient productive capacity
to meet the Company's current needs, and projected needs over the coming fiscal
year. Should additional space be required to accommodate future growth, the
Company believes that additional space is available in the immediate vicinity of
its current location. In April of 1996, the Company leased approximately 1,800
square feet of primarily office space in an industrial park in the Powers Ferry
area of Atlanta, Georgia. The lease has a three year term, and the facility
serves as a District Office, engaging in the direct sale and service of the
Company's products.
Item 3. Legal Proceedings
Mass Cash Register, Inc. filed suit against the Company in the United
States District Court for the District of Massachusetts on or about April 21,
1993. The plaintiff is a Massachusetts-based distributor of cash registers,
which claimed that it had an agreement to work jointly with the Company to
market and sell the Company's Sprint system cash registers to certain third
party end-users. The plaintiff alleged that the Company breached that agreement
by establishing a direct relationship with such end-users. While the Complaint
filed by the plaintiff did not seek a specific amount of damages, the plaintiff
was seeking compensation for the value of its efforts in assisting the Company
and for the lost value of the business opportunity which, it claimed, it was
denied. During the fiscal year ended March 31, 1996, the Company settled
litigation. The Company is not involved in any material pending legal
proceedings which could have any material adverse effects on the Company's
business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1996.
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Special Item. Executive Officers of the Registrant
Name Age Position
- ---- --- --------
Jeffrey C. Rice 46 President and Chief Executive Officer
Charles Hardin 41 Vice President of Engineering
Anthony S. Maladra 31 Secretary
Lisa J. Mudrick 34 Treasurer and Chief Financial Officer
Jeffrey C. Rice has been President, Chief Executive Officer and a
Director of the Company since February 1, 1989. From May of 1985 through January
of 1989 he was a Director of American Business Computers Corporation, and served
as its President and Chief Executive Officer from May 1, 1985 through April 30,
1986 and as President of a wholly owned subsidiary, ABC/SEBRN TechCorp, from
November 1986 through January 1989. American Business Computers is a public
company which sells computerized equipment and systems to the foodservice
industry. From 1977 through January 1985, Mr. Rice served as President, Chief
Executive Officer and a Director of MICROS Systems, Inc., a public company which
supplies point-of-sale systems to the hospitality industry. Mr. Rice is a
graduate of the University of Virginia, with a Bachelor of Science degree in
Electrical Engineering.
Charles Hardin was promoted to Vice President of Engineering of the
Company in June 1995. Mr. Hardin has been an employee of the Company since its
founding in 1981. From 1979 to 1981, Mr. Hardin was a hardware and software
engineer for MKD Corporation, the predecessor corporation of Comtrex Systems.
Prior to 1979, Mr. Hardin worked as an electrical engineer for the Hazeltine
Corporation, where he had worked while attending college. Mr. Hardin is a
graduate of Northeastern University, with a Bachelor of Science degree in
Electrical Engineering.
Anthony S. Maladra has been Director of Operations of the Company since
November of 1990, and a member of the Board of Directors since August of 1992.
From November of 1990 to August of 1995, Mr. Maladra served as Treasurer and
since August of 1995 has served as corporate Secretary. Mr. Maladra has been a
full-time employee of the Company since 1986 and has served in various
capacities, including purchasing agent, manufacturing supervisor and dealer
sales manager, prior to assuming his present position. Mr. Maladra is a graduate
of Averett College, with a Bachelor of Science degree in Biology.
Lisa J. Mudrick has been Vice President of Finance and Administration
of the Company since February of 1994 and Treasurer since August of 1995. Ms.
Mudrick has been a full-time employee of the Company since September of 1989 and
served as Controller and Chief Accounting Officer until her appointment as Chief
Financial Officer, and as corporate Secretary from 1990 to August of 1995. From
1986 to 1989, Ms. Mudrick was General Accounting Supervisor of Avant-Garde
Computing, Inc., a public company which designs and sells systems to provide for
secure, computer network communications for the financial and brokerage
communities. Prior to her association with Avant-Garde, she held a position of
cost accountant with Sybron Chemicals from 1985 to 1986. Ms. Mudrick is a
graduate of the University of Dayton, with a Bachelor of Science degree in
Business Administration.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Bid and asked prices for the Company's common stock (symbol "COMX")
have been quoted on the Nasdaq Stock Market since July 1, 1985. Prior to May 11,
1988 the stock was traded on the Nasdaq National Market System and since that
time has been traded in the Nasdaq Small Cap Market. The table below shows the
range of closing bid prices for the period indicated as reported by Nasdaq. The
quotations reflect inter-dealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions.
Bid Prices
----------
Year Ended March 31, 1995 High Low
- ------------------------- ---- ---
4/1/1994 - 6/30/1994 2 5/8 3/4
7/1/1994 - 9/30/1994 2 1 1/2
10/1/1994 - 12/31/1994 1 5/8 3/4
1/1/1995 - 3/31/1995 1 3/4
Year Ended March 31, 1996 High Low
- ------------------------- ---- ---
4/1/1995 - 6/30/1995 1 1/8 13/16
7/1/1995 - 9/30/1995 1 1/4 3/4
10/1/1995 - 12/31/1995 1 11/16
1/1/1996 - 3/31/1996 15/16 3/8
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
Approximate Number
of Record Holders
Title of Class (as of June 14, 1996)
- -------------- ----------------------
Common Stock, $ .001 par value 400 (1)
(1) Included in the number of stockholders of record are shares held in
"nominee" or "street" name.
DIVIDENDS
The Company has never paid a dividend. Future dividend policy will be
determined by the Board of Directors based on the Company's earnings, financial
condition, capital requirements and other existing conditions. It is anticipated
that cash dividends will not be paid to holders of the common stock in the
foreseeable future.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY
As of March 31, 1996, the Company had current assets of $2,475,270,
including cash, cash equivalents, and certificates of deposit of $318,166, as
compared to $2,834,476 and $1,000,719, respectively, as of March 31, 1995. The
Company had current liabilities of $542,607 resulting in a current ratio of 4.6
as of March 31, 1996, compared to $563,416 and 5.0, respectively, as of March
31, 1995.
The Company reported a net loss from operations of $233,748 during
fiscal year 1996. The Company has net operating loss carryforwards of
approximately $3,230,000 for federal income tax purposes, which do not begin to
expire until 2004, and tax credit carryforwards of approximately $148,000.
Cash and cash equivalents decreased by $532,553 during fiscal year
1996, and certificates of deposit declined by $150,000. Operating activities
consumed $323,995 of cash, through the net loss of $233,748 and increases in
both accounts receivable and inventory. Software development costs, principally
those associated with the Company's new PC architecture product line, consumed
$151,489 of cash, and purchases of property and equipment consumed another
$59,719. The Company did not borrow under its line of credit during the fiscal
year.
The OEM Agreement executed between the Company and Sharp Electronics
Corporation in December of 1991 expired as of March 1, 1995. Sharp represented
41% of the Company's total sales during fiscal year 1995, while sales to Sharp
represented only 4% of total sales during fiscal year 1996. Since March 1 of
1995, the Company has entered into contractual Dealer Agreements with over
eighty authorized dealers in the U.S. 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 work in process and
finished goods inventory.
In its report on Form 10-KSB for the fiscal year ended March 31, 1995,
the Company indicated that it expected the combination of the increase in
accounts receivable and inventory to approximate $450,000. During fiscal year
1996, the combination of accounts receivable and inventory increased by
$465,763. With its distribution organization now established, the Company does
not expect a corresponding increase in either inventories or accounts receivable
in its next fiscal year.
On April 1, 1996, the Company acquired substantially all the assets of
AUBIS Hospitality Systems, Inc., an Atlanta, Georgia based company, which relate
to the resale activity of Comtrex point of sale products, and opened a District
Office. Based on the acquisition consideration paid to AUBIS, the asset purchase
was not a material transaction to the Company. The District Office sells the
Company's products directly to end-user customers, primarily restaurants and
quick service food outlets, in the metropolitan Atlanta area, as well as
throughout the southeastern United States. In addition, the office provides
training, installation and maintenance services, to end-user customers. The
Company does extend terms to its end-user customers. Direct sales to end-users
are generally accompanied by a down payment, and the terms extended are in line
with the terms extended by the Company to its dealers. Inventory for sale to
end-user customers will primarily be maintained at the Company's manufacturing
facility in New Jersey. The Company does not anticipate a significant increase
in working capital requirements in conjunction with its direct sales activities
through the District Office in Atlanta.
In August of 1995, the Company and NatWest Bank N.A. renewed an
existing line of credit agreement. The agreement provides for borrowings of up
to $750,000, (with a limitation depending on eligible receivables, as defined in
the agreement), and expires on July 31, 1996. Borrowings bear interest at the
bank's prime rate and are collateralized by substantially all assets of the
Company. While the Company currently anticipates a renewal of this line of
credit, there can be no assurances that the line of credit will be renewed, or
if it is renewed, that the Company will receive the same borrowing limit or
terms and conditions as the current line of credit. The Company did not borrow
under its line of credit during the fiscal year. Should the line of credit be
renewed, the Company would expect to utilize the credit facility from time to
time for short term cash requirements. Should the line of credit with NatWest
not be renewed, the Company would seek a line of credit with an alternative
financial institution. As of March 31, 1996, the Company had no material
commitments for capital expenditures. The Company believes that it has adequate
working capital to finance its projected operations for the coming fiscal year
in the event that it is unsuccessful in either renewing its existing line of
credit or obtaining a credit facility with an alternative financial institution.
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RESULTS OF OPERATIONS
Year Ended March 31, 1996 Compared to the Year Ended March 31, 1995
Net sales for the Company decreased 12% in fiscal year 1996, to
$5,033,737, when compared with net sales of $5,689,882 for fiscal year 1995.
Sales to Sharp Electronic Corporation declined from approximately $2,300,000, or
41% of net sales, in fiscal year 1995 to approximately $200,000, or 4% of net
sales, in fiscal year 1996. The Company reported a net loss of $233,748, or $.07
per share, for the fiscal year ended March 31, 1996, as compared with net income
of $238,427, or $.08 per share, for the prior fiscal year.
The Company's OEM Agreement with Sharp Electronics Corporation expired
March 1, 1995. Since then, the Company has entered into contractual Dealer
Agreements with over eighty authorized Comtrex dealers in the U.S., most of whom
had been selling the Company's products under the Sharp brand label during the
preceding three year period. Sales through the Company's dealer network in
fiscal year 1996 did not meet the expectation levels held by the Company's
management at the beginning of the fiscal year. When the OEM Agreement expired,
Sharp remained in possession of approximately 1,000 of the Company's terminals.
The Company believes that this inventory was substantially liquidated by Sharp,
through sales to dealers, during the Company's 1996 fiscal year. This inventory
liquidation was at pricing significantly lower than the Company's selling price
of new equipment to dealers. The Company believes that the majority of this
inventory has now been sold by the dealers, and installed in end-user locations.
However, the Company is aware that certain of its dealers still maintain a stock
of equipment purchased from Sharp. This process has negatively impacted sales by
the Company of new product.
Sales and marketing and customer support expenses increased 16%, from
$857,987 for fiscal year 1995, to $998,527 for fiscal year 1996. The sales and
marketing and customer support departments were combined during the fiscal year
in an effort to provide faster and more efficient support to the sales effort.
Administrative costs were reduced by 3%, from $708,687 to $684,242, despite a
significant increase in the number of transactions being processed.
Cost of sales increased during the most recent fiscal year, from 63% of
net sales, for fiscal year 1995, to 66% of net sales, for the most recent fiscal
year. Cost of sales had been favorably impacted during fiscal year 1995 by the
recognition of the price adjustment fee in connection with the Company's OEM
Agreement with Sharp Electronics.
Sales to the Canadian and international dealers increased from
$1,582,071, or 28% of net sales, in fiscal year 1995, to $1,814,425, or 36% of
net sales, in the current fiscal year.
The Company believes that the process which it began in fiscal year
1996, of building and training a Comtrex dealer organization dedicated to
systems for the foodservice market, is an investment in the future for market
penetration of Comtrex products. The decision not to renew the Sharp OEM
Agreement was part of a long term commitment to national advertising, working
effectively with a dealer organization on significant regional accounts, and
beginning direct sales and marketing activities to accounts which are national
in scope. The Company intends to continue the process of soliciting new dealers,
and continue the training process with its existing dealers, during fiscal year
1997.
While an active dealer organization is the cornerstone of future sales
in the U.S., the Company will consider opening additional District Offices in
areas where the market for the Company's products is strong, but current dealer
representation has been unsuccessful in generating significant sales.
The Company began an advertising campaign in Nation's Restaurant News
in August of 1995, aimed at increasing name and brand awareness for Comtrex
Systems and its products. The Company has commitments to carry this program
through fiscal year 1997. In addition, the Company has commitments to
participate in numerous national and regional trade shows.
Initial product deliveries of a new generation product line are
scheduled to begin in June of 1996. Based on open architecture PC technology,
this new generation has been in engineering design over the past twelve months.
The product will initially be aimed at full service restaurants, but will also
have broad appeal for quick service outlets.
As of June 20, 1996, the Company's backlog was approximately $432,356
as compared with a backlog of $328,900 on June 9, 1995. The Company expects that
substantially all of its current backlog will be shipped within the next 90
days.
9
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Year Ended March 31, 1995 Compared to the Year Ended March 31, 1994
Net sales for the Company decreased 3% in fiscal year 1995, to
$5,689,882, when compared with net sales of $5,851,917 for fiscal year 1994.
Sales to Sharp Electronic Corporation declined from approximately $3,200,000, or
55% of net sales, in fiscal year 1994 to approximately $2,300,000, or 41% of net
sales, in fiscal year 1995. This decline in net sales to Sharp was offset by
growth in sales to U.S. dealers, to international distributors and to Dunkin'
Donuts franchisees. The Company reported net income of $238,427, or $.08 per
share, for the fiscal year ended March 31, 1995, as compared with a net income
of $459,654, or $.15 per share, for the prior fiscal year.
Sales and marketing, customer support and administrative expenses
increased 11%, from $1,405,531 for fiscal year 1994, to $1,566,674 for fiscal
year 1995. The increase in sales and marketing, customer support and
administrative expenses was primarily the result of the Company's expansion and
reorganization process of both its sales and customer support capabilities.
Cost of sales declined during fiscal year 1995, from $3,747,140, or 64%
of net sales, for fiscal year 1994, to $3,589,779, or 63% of net sales. Cost of
sales was favorably impacted by the recognition of the price adjustment fee in
connection with the Company's OEM Agreement with Sharp Electronics.
Sales to the Canadian and international dealers increased from
$1,335,658, or 23% of net sales, in fiscal year 1994, to $1,582,071, or 28% of
net sales, in fiscal year 1995. Sales of equipment, software and support to
Dunkin' Donuts franchisees increased by 29% to $467,489 during fiscal year 1995
over sales of $363,196 during fiscal year 1994.
As of June 9, 1995, the Company's backlog was approximately $328,900 as
compared with a backlog of $725,761 on June 8, 1994.
Item 7. Financial Statements
See Item 13 (a) in Part III of this Report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
10
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16 (a) of the Exchange Act
Information regarding the Directors of the Company is incorporated
herein by reference from the Company's definitive Proxy Statement for its 1996
Annual Meeting of Shareholders. For information concerning the executive
officers, see "Executive Officers of the Registrant" in Part I of this Report.
Item 10. Executive Compensation
Incorporated herein by reference from the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders.
Item 12. Certain Relationships and Related Transactions
Incorporated herein by reference from the Company's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements (included in this report):
Independent Auditors' Report
Balance Sheets at March 31, 1996 and 1995
Statements of Operations for the years ended March 31, 1996, 1995 and
1994
Statements of Shareholders' Equity for the years ended March 31, 1996,
1995 and 1994
Statements of Cash Flow for the years ended March 31, 1996, 1995 and
1994
Notes to Financial Statements
(a)2. Financial Statement Schedules (included in this report):
VIII. Valuation and Qualifying Accounts for the years ended
March 31, 1996, 1995 and 1994
All schedules, other than those listed above, have been omitted because
the information required therein is not applicable, or is furnished in the
financial statements or notes thereto.
(a)3. Exhibits Filed Pursuant to Item 601 of Regulation S-K:
3.1 *(3) Certificate of Incorporation of the Company
3.2 *(4) By-Laws, as amended, of the Company
10.1 *(3) Agreement and Plan of Merger of the Company and Comtrex
Systems Corporation, a New Jersey Corporation
10.2 *(2) 1985 Employee Incentive Stock Option Plan of the Company
10.3 *(2) 1985 Non-Qualified Stock Option Plan of the Company
10.4 *(7) 1992 Non-Qualified Stock Option Plan of the Company
11
<PAGE>
10.5 *(6) OEM Agreement between the Company and Sharp Electronics
Corporation dated as of December 16, 1991
10.6 *(8) Asset Purchase Agreement between Inscerco Mfg. Inc. and the
Company dated as of August 21, 1992
10.7 *(9) 1995 Employee Incentive Stock Option Plan of the Company
24.1 *(1) Consent of Drucker, Math & Whitman, P.C.
25 *(1) Powers of Attorney
- ------------
*(1) Filed herewith.
*(2) Incorporated by reference from the Company's registration statement on
Form S-18. (File No. 2-97898-NY).
*(3) Incorporated by reference to exhibits to the Company's definitive proxy
statement filed with the Securities and Exchange Commission on October
26, 1988.
*(4) Incorporated by reference to exhibits to the Company's Form 8-K filed
with the Securities and Exchange Commission on May 16, 1989.
*(5) Incorporated by reference from the Company's Form 10-K filed with the
Securities and Exchange Commission on June 30, 1989.
*(6) Incorporated by reference to exhibits to the Company's Form 8-K filed
with the Securities and Exchange Commission on December 19, 1991.
*(7) Incorporated by reference to exhibits to the Company's definitive proxy
statement filed with the Securities and Exchange Commission on July 16,
1992.
*(8) Incorporated by reference to exhibits to the Company's Form 8-K filed
with the Securities and Exchange Commission on September 4, 1992.
*(9) Incorporated by reference to exhibits to the Company's definitive proxy
statement filed with the Securities and Exchange Commission on July 13,
1995.
b. Reports on Form 8-K
During the fourth quarter of the year ended March 31, 1996, no current
reports on Form 8-K were filed with the Securities and Exchange Commission.
Note: The financial statement schedules and the exhibits included in the
Company's Form 10-KSB for the fiscal year ended March 31, 1996 as filed
with the Securities and Exchange Commission have not been included in
the printed copy of this report to be mailed to the Company's
shareholders. Those materials can be obtained by writing to: Investor
Relations, Comtrex Systems Corporation, 102 Executive Drive,
Moorestown, NJ 08057.
12
<PAGE>
Independent Auditors' Report
Board of Directors
Comtrex Systems Corporation
Moorestown, New Jersey
We have audited the accompanying balance sheets of Comtrex Systems Corporation
(a Delaware corporation) as of March 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three year period ended March 31, 1996. These financial statements
are the responsibility of the Company's 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 audits 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 financial position of Comtrex Systems Corporation as
of March 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three year period ended March 31, 1996 in
conformity with generally accepted accounting principles.
In connection with our audit of the financial statements referred to above, we
audited the financial statement schedule for the years ended March 31, 1996,
1995 and 1994 listed under Item 13(a) 2. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
stated therein, when considered in relation to the financial statements taken as
a whole.
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
June 11, 1996
13
<PAGE>
COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
------------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 218,166 $ 750,719
Certificate of deposit 100,000 250,000
Accounts receivable, net of reserve
of $166,742 in 1996 and $180,826 in 1995 1,084,254 907,615
Notes and other receivables 51,936 63,767
Inventories 929,885 760,250
Prepaid expenses and other 91,029 102,125
----------- -----------
Total current assets 2,475,270 2,834,476
----------- -----------
Property and equipment:
Machinery and equipment 687,315 642,560
Office furniture and equipment 262,785 247,822
Leasehold improvements 8,168 8,168
----------- -----------
958,268 898,550
Less accumulated depreciation ( 815,742) ( 734,647)
----------- -----------
Net property and equipment 142,526 163,903
----------- -----------
Other assets, software development costs,
net of amortization 250,998 122,322
----------- -----------
$ 2,868,794 $ 3,120,701
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 431,581 $ 393,168
Accrued expenses:
Payroll 58,400 89,556
Payroll taxes -- 2,327
Other 52,626 78,365
----------- -----------
Total current liabilities 542,607 563,416
----------- -----------
Commitments and contingency
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 shares issued
and outstanding in 1996 and 1995, respectively 3,165 3,160
Additional paid-in capital 5,315,970 5,313,325
Accumulated deficit ( 2,992,948) ( 2,759,200)
----------- -----------
Total shareholders' equity 2,326,187 2,557,285
----------- -----------
$ 2,868,794 $ 3,120,701
=========== ===========
</TABLE>
See notes to financial statements.
14
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 5,033,737 $ 5,689,882 $ 5,851,917
----------- ----------- -----------
Costs, expenses, and other:
Cost of sales 3,339,337 3,589,779 3,747,140
Administrative 684,242 708,687 642,062
Research and development 164,992 185,130 163,829
Sales and marketing 678,530 499,875 385,663
Customer support 319,997 358,112 377,806
Depreciation and amortization 103,909 131,589 84,059
Interest income, net ( 23,522) ( 21,717) ( 8,296)
------------- ----------- -----------
5,267,485 5,451,455 5,392,263
------------ ----------- -----------
Income (loss) before income
taxes and extraordinary credit ( 233,748) 238,427 459,654
Provision for income taxes -- 96,000 184,000
------------ ----------- -----------
Income (loss) before
extraordinary credit ( 233,748) 142,427 275,654
Extraordinary credit, reduction of income taxes
arising from carryforward of prior years'
operating losses -- 96,000 184,000
------------ ----------- -----------
Net income (loss) ($ 233,748) $ 238,427 $ 459,654
============ =========== ===========
Earnings (loss) per common and
common equivalent share:
Income (loss) before extraordinary credit $ (.07) $ .05 $ .09
Extraordinary credit -- .03 .06
------------ ----------- -----------
$ (.07) $ .08 $ .15
============ =========== ===========
Weighted average shares outstanding,
including common stock equivalents 3,163,814 3,170,243 3,138,043
============ =========== ===========
</TABLE>
See notes to financial statements.
15
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional Total
Shares paid-in Accumulated shareholders'
issued Amount capital deficit equity
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993 3,062,522 $ 3,063 $5,256,267 ($3,457,281) $1,802,049
Issuance of common stock,
exercise of options 28,000 28 18,732 -- 18,760
Net income -- -- -- 459,654 459,654
---------- ----------- ---------- ---------- ----------
Balance, March 31, 1994 3,090,522 3,091 5,274,999 ( 2,997,627) 2,280,463
Issuance of common stock,
exercise of options 68,500 69 38,326 -- 38,395
Net income -- -- -- 238,427 238,427
---------- ----------- ---------- ---------- ----------
Balance, March 31, 1995 3,159,022 3,160 5,313,325 ( 2,759,200) 2,557,285
Issuance of common stock,
exercise of options 5,000 5 2,645 -- 2,650
Net loss -- -- -- (233,748) (233,748)
---------- ----------- ---------- ---------- -----------
Balance, March 31, 1996 3,164,022 $ 3,165 $5,315,970 ($2,992,948) ($2,326,187)
========== =========== ========== ========== ==========
</TABLE>
See notes to financial statements.
16
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 233,748) $ 238,427 $ 459,654
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 103,909 127,138 84,059
Provision for losses on accounts receivable 44,780 19,809 70,205
Provision for losses on inventories 75,609 52,800 114,767
Changes in assets and liabilities:
Certificate of deposit 150,000 ( 250,000) --
Accounts receivable ( 220,519) 185,486 ( 320,479)
Notes and other receivables 11,831 ( 21,745) ( 25,222)
Inventories ( 245,244) ( 160,457) 167,359
Prepaid expenses and other 11,096 ( 27,855) 7,518
Accounts payable 38,413 ( 19,067) 21,492
Accrued expenses ( 60,122) 30,663 ( 32,329)
------------ ------------- -------------
Net cash provided (used) by operating activities ( 323,995) 175,199 547,024
------------ ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment ( 59,719) ( 107,426) ( 54,445)
Software development costs ( 151,489) ( 99,595) ( 104,894)
------------- ------------- -------------
Net cash used in investing activities ( 211,208) ( 207,021) ( 159,339)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit -- 75,000 375,000
Repayments under line of credit -- ( 75,000) ( 375,000)
Proceeds from issuing equity securities 2,650 38,395 18,760
------------ ------------- -------------
Net cash provided by financing activities 2,650 38,395 18,760
------------ ------------- -------------
Net increase (decrease) in cash (532,553) 6,573 406,445
Cash and cash equivalents, beginning of year 750,719 744,146 337,701
------------ ------------- -------------
Cash and cash equivalents, end of year $ 218,166 $ 750,719 $ 744,146
============ ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ -- $ 317 $ 1,351
============ ============ =============
</TABLE>
See notes to financial statements.
17
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of business:
Comtrex Systems Corporation ("Company") is a Delaware corporation. The
Company designs, develops, assembles and markets electronic terminals and
computer software which provide retailers with transaction processing, in-store
controls and management information. In December, 1991, the Company entered into
a three year agreement granting Sharp Electronics Corporation exclusive United
States distribution rights. This agreement expired at the end of February, 1995,
and was not renewed. In March of 1995, the Company began selling in the United
States through its own distribution organization.
Inventories:
Inventories include the cost of materials, labor and overhead and are
valued at the lower of cost (first-in, first-out) or market.
Property and equipment:
Property and equipment are stated at cost. Maintenance and repairs are
expensed, while betterments are capitalized. When an asset is disposed of, the
related costs and accumulated depreciation are removed from the accounts, and
any gain or loss is charged to operations.
Software revenue recognition:
Revenue is recognized from sales of software when the program is
shipped.
Depreciation:
Depreciation is computed by both straight-line and accelerated methods
over the useful lives of the assets which are three to seven years.
Software development costs and amortization:
Software development costs consist primarily of salaries incurred to
develop and enhance software applications used in the Company's products.
Amortization is provided on a product-by-product basis using the faster of the
straight-line method over the estimated useful life of the software or based
upon units of sale. Amortization begins when the software is available for
general release to customers. Amortization expense was $16,310, $52,085, and
$32,362 for the years ended March 31, 1996, 1995 and 1994, respectively.
Income (loss) per share:
Income (loss) per common share is based on the weighted average number
of common shares and common share equivalents outstanding during each period.
Fully diluted income per share is not presented as the effect would be
anti-dilutive. In 1996, common share equivalents were not considered in the
calculation of loss per share as the effect would be anti-dilutive.
Cash equivalents:
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
18
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued):
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and temporary cash
investments and accounts receivable.
The Company places its cash and temporary cash investments with high
quality financial institutions. The Company has not incurred losses related to
these financial instruments. Accounts receivable are primarily from distributors
of the Company's equipment and consist of domestic and foreign entities. The
Company minimizes credit risk by obtaining bank and trade references, and
primarily for foreign customers, by obtaining advance deposits or letters of
credit. The Company reviews its accounts receivable monthly and provides
allowances for potential uncollectible accounts. See Note 4.
2. 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 the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORIES:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $ 827,393 $ 652,510
Work-in-process 159,782 113,959
Finished goods 30,765 48,773
Reserve for excess and obsolete inventory ( 88,055) ( 54,992)
---------- ----------
$ 929,885 $ 760,250
========== ==========
</TABLE>
4. SIGNIFICANT CUSTOMERS:
Two customers accounted for a substantial portion of sales and
receivables:
<TABLE>
<CAPTION>
% of Sales % of Receivables
Fiscal Year Ended March 31, as of March 31,
------------------------------------------ ---------------------------
1996 1995 1994 1996 1995
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Customer "A" 6% 8% 9% 43% 41%
Customer "B" 4% 41% 55% -- 3%
</TABLE>
The Company sells its products internationally. Foreign sales were
36%, 28% and 23% in 1996, 1995 and 1994, respectively. Customer "A" is a
foreign corporation.
19
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
5. STOCK OPTION PLANS:
1985 employee incentive stock option plan:
During 1985, the Company adopted an employee incentive stock option
plan. During 1989, the plan was amended to increase the total number of shares
to 400,000. The plan provides for the granting of options to officers and other
key employees. The option price must equal at least 100% of the market price on
the date of grant and the options expire not later than the tenth anniversary
from the date of grant. Through March 31, 1993, 183,000 options were exercised.
Following is a summary of activity:
<TABLE>
<CAPTION>
Outstanding Options
Available -----------------------------------------------
for Grant Number Price Range Total
-------- -------- ------------------- -------
<S> <C> <C> <C> <C>
Balance, March 31, 1993 123,000 94,000 $ .47 - $1.06 $58,980
Granted ( 15,000) 15,000 .84 12,600
Exercised -- ( 8,000) .47 ( 3,760)
-------- -------- ------------------- -------
Balance, March 31, 1994 108,000 101,000 .47 - 1.06 67,820
Granted ( 25,000) 25,000 .81 20,250
Forfeited 5,000 ( 5,000) .47 ( 2,350)
Exercised -- ( 56,000) .47 - .53 ( 29,020)
-------- -------- ------------------- -------
Balance, March 31, 1995 88,000 65,000 .53 - 1.06 56,700
Forfeited 10,000 ( 10,000) .81 - .84 ( 8,250)
Expiration of plan ( 98,000) -- - --
Exercised -- ( 5,000) .53 ( 2,650)
-------- -------- ------------------- -------
Balance, March 31, 1996 -- 50,000 $ .81 - $1.06 $45,800
======== ======== =================== =======
</TABLE>
1992 Nonqualified stock option plan:
This plan was instituted in fiscal year 1993, and provides for options
for 150,000 shares. Under this plan, options are exercisable at any time for a
period of five years from date of grant. Outstanding options at March 31, 1996
expire in 1997 and through 2000. Following is a summary of activity:
<TABLE>
<CAPTION>
Outstanding Options
Available -----------------------------------------------
for Grant Number Price Range Total
-------- -------- ------------------- -------
<S> <C> <C> <C> <C>
Balance, March 31, 1993 123,000 27,000 $ .88 - $1.50 $33,060
Granted ( 12,000) 12,000 .88 10,560
-------- -------- ------------------- -------
Balance, March 31, 1994 111,000 39,000 .88 - 1.50 43,620
Granted ( 12,000) 12,000 1.75 21,000
-------- -------- ------------------- -------
Balance, March 31, 1995 99,000 51,000 .88 - 1.75 64,620
Granted ( 12,000) 12,000 .81 9,720
-------- -------- ------------------- -------
Balance, March 31, 1996 87,000 63,000 $ .81 - $1.75 $74,340
======== ======== =================== =======
</TABLE>
20
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
5. STOCK OPTION PLANS (continued):
1985 Nonqualified stock option plan:
All options under this Plan expired in 1994.
1995 employee incentive stock option plan:
During fiscal year 1996, the Company adopted an employee incentive stock
option plan. The plan provides for the granting of up to 250,000 options to
officers and other key employees. The option price must equal at least 100% of
the market price on the date of grant. The options expire not later than the
tenth anniversary from the date of grant.
<TABLE>
<CAPTION>
Outstanding Options
Available -----------------------------------------------
for Grant Number Price Range Total
-------- -------- ------------------- -------
<S> <C> <C> <C> <C>
Approval of plan 250,000 - -- --
Granted ( 53,000) 53,000 .63 $33,390
-------- -------- ------------------- -------
Balance, March 31, 1996 197,000 53,000 .63 $33,390
======== ======== =================== =======
</TABLE>
6. ACCRUED PRICE ADJUSTMENT FEE:
The agreement with Sharp Electronics Corporation ("Sharp") (see Note 1)
provided for minimum purchase quantities by Sharp. During fiscal years 1995 and
1994, Sharp did not purchase sufficient quantities to cover their commitment.
The Company billed Sharp, and Sharp paid, $207,000 and $74,000 in fiscal years
1995 and 1994, respectively, which amounts are included in net sales.
7. INCOME TAXES:
The 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 an extraordinary credit which arises from the utilization of prior
years' operating losses.
The Company has net operating loss carryforwards of approximately
$3,230,000 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.
8. COMMITMENTS AND CONTINGENCY:
The Company leases certain property under operating leases which expire
in September, 1997. Rent expense was approximately $141,000, $145,000 and
$144,000 for the years ended March 31, 1996, 1995 and 1994, respectively. Rental
commitments under noncancelable operating leases are as follows: 1997, $119,000;
1998, $50,000.
In August, 1995, the Company and a bank renewed an existing line of
credit agreement. The agreement provides for borrowings of up to $750,000, (with
a limitation depending on eligible receivables, as defined in the agreement),
and expires on July 31, 1996. Borrowings bear interest at the bank's prime rate,
and are collateralized by substantially all assets of the Company.
On July 1, 1994, the Company established a 401(k) plan ("Plan").
Substantially all employees may participate. The Company matches 25% of each
participating employee's contribution, with a maximum Company contribution of 1
1/2% of the employee's earnings. The Company's contribution to the Plan were
$14,967 and $12,357 in the fiscal years ending March 31, 1996 and 1995,
respectively.
21
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
9. NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board has issued Financial Accounting
Standard No. 123 "Accounting for Sock-Based Compensation" ("FAS 123"), FAS 123
requires an entity to adopt either a fair value based method of accounting for
stock-based compensation or to continue to measure compensation cost as
prescribed by the previously issued APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Entities electing to remain with the accounting
prescribed by APB 25 must present pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied. The accounting requirements of FAS 123 are effective for transactions
entered into in the Company's fiscal year beginning April 1, 1996. The
disclosure requirements of FAS 123 are effective for financial statements for
the Company's fiscal year beginning April 1, 1996. The pro forma disclosures
required if the Company elects to continue to account for compensation cost as
prescribed by APB 25 must include the effects of all awards granted in the
company's fiscal year beginning April 1, 1995. The Company's election under FAS
123 has not been determined and the effect of adoption of FAS 123 on the
Company's financial statements has not been determined.
22
<PAGE>
COMTREX SYSTEMS CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column C Column D Column E
- -------------- ------------ ------------ ------------ ------------- ------------
Charged Charged Balance
Balance at to costs to at
beginning and other end of
Description of period expenses accounts Deductions period
- -------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1994:
Reserve for bad debts $ 106,885 $ 70,205 $ - ($ 12,031)(1) $ 165,059
============= ============== ============== ============ =============
Reserve for excess and
obsolete inventory $ 86,167 $ 114,767 $ - ($ 115,487)(1) $ 85,447
============= ============== ============== ============ =============
Year ended March 31, 1995:
Reserve for bad debts $ 165,059 $ 19,809 $ - ($ 4,042)(1) $ 180,826
============= ============== ============== ============ =============
Reserve for excess and
obsolete inventory $ 85,447 $ 52,800 $ - ($ 83,255)(1) $ 54,992
============= ============= ============== ============ =============
Year ended March 31, 1996:
Reserve for bad debts $ 180,826 $ 44,780 $ - ($ 58,864)(1) $ 166,742
============= ============== ============== ============ =============
Reserve for excess and
obsolete inventory $ 54,992 $ 75,609 $ - ($ 42,546)(1) $ 88,055
============= ============== ============== ============ =============
</TABLE>
(1) Write-offs against reserve
23
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8, bearing Registration No. 33-32994, and the Registration on Form S-3,
bearing Registration No. 33-38529, and the Registration Statement on Form S-8,
bearing Registration No. 33-93560, of our report, dated June 11, 1996, appearing
on page 13 of this Annual Report on Form 10-KSB, on the financial statements of
Comtrex Systems Corporation appearing on pages 14 to 23 of this Annual Report on
Form 10-KSB for the year ended March 31, 1996.
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
June 21, 1996
24
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1996
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact
and agent, with full power of substitution and revocation, for him and in his
name, place and stead, in any and all capacities to sign Comtrex Systems
Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 1996,
and to file the same with all exhibits thereto, and any amendments thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
/s/ June 27, 1996
- ----------------------------- ------------------------------
Sidney Dworkin Date
25
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1996
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact
and agent, with full power of substitution and revocation, for him and in his
name, place and stead, in any and all capacities to sign Comtrex Systems
Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 1996,
and to file the same with all exhibits thereto, and any amendments thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
/s/ June 27, 1996
- ------------------------------- --------------------------------
Larry Irwin Date
26
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1996
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact
and agent, with full power of substitution and revocation, for him and in his
name, place and stead, in any and all capacities to sign Comtrex Systems
Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 1996,
and to file the same with all exhibits thereto, and any amendments thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
/s/ June 27, 1996
- -------------------------------- --------------------------------
William A. Landman Date
27
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1996
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact
and agent, with full power of substitution and revocation, for him and in his
name, place and stead, in any and all capacities to sign Comtrex Systems
Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 1996,
and to file the same with all exhibits thereto, and any amendments thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
/s/ June 27, 1996
- --------------------------------- -------------------------------
Nathan Lipson Date
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: June 27, 1996 By: /s/
-------------------------------------
Jeffrey C. Rice, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ President, Director and June 27, 1996
- ------------------------------------ Principal Executive Officer
Jeffrey C. Rice
/s/ Principal Financial and June 27, 1996
- ------------------------------------ Accounting Officer
Lisa J. Mudrick
/s/ Director June 27, 1996
- ------------------------------------
Anthony S. Maladra
* Director June 27, 1996
- ------------------------------------
Sidney Dworkin
* Director June 27, 1996
- ------------------------------------
Larry Irwin
* Director June 27, 1996
- ------------------------------------
William A. Landman
Director June 27, 1996
- ------------------------------------
Alan G. Schwartz
* Director June 27, 1996
- ------------------------------------
Nathan Lipson
* By /s/
--------------------------------
Jeffrey C. Rice
Attorney-in-Fact
29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 218,166
<SECURITIES> 100,000
<RECEIVABLES> 1,250,996
<ALLOWANCES> 166,742
<INVENTORY> 929,885
<CURRENT-ASSETS> 2,475,270
<PP&E> 958,268
<DEPRECIATION> 815,742
<TOTAL-ASSETS> 2,868,794
<CURRENT-LIABILITIES> 542,607
<BONDS> 0
0
0
<COMMON> 3,165
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 2,868,794
<SALES> 5,033,737
<TOTAL-REVENUES> 5,057,259
<CGS> 3,339,337
<TOTAL-COSTS> 5,291,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44,780
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (233,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> (233,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233,748)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
