<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, 1996
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)
<TABLE>
<S> <C>
Delaware 22-2353604
- -------------------------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification No.)
</TABLE>
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, 1996
- ----- -------------------------------
Common Stock, par value $.001 3,164,022
<PAGE>
COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
These statements are unaudited.
<TABLE>
<CAPTION>
ASSETS
Current assets: September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
Cash and cash equivalents $ 182,582 $ 218,166
Certificate of deposit 100,000 100,000
Accounts receivable, net of reserve of
$166,742 and $156,573 as of 3/31/1996
and 9/30/1996, respectively 1,101,451 1,084,254
Note receivable and accrued interest 22,636 51,936
Inventories 996,546 929,885
Prepaid expenses and other 92,512 91,029
----------- -----------
Total current assets 2,495,727 2,475,270
----------- -----------
Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 1,041,567 958,268
Less - accumulated depreciation (859,490) (815,742)
----------- -----------
Net property and equipment 182,077 142,526
----------- -----------
Other assets:
Purchased and capitalized software
and design 978,369 894,393
Less - accumulated amortization and
depreciation (657,160) (643,395)
----------- -----------
Total other assets 321,209 250,998
----------- -----------
TOTAL ASSETS $ 2,999,013 $ 2,868,794
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 583,615 $ 431,581
Accrued expenses 129,657 85,587
Customer deposits 31,452 25,439
----------- -----------
Total current liabilities 744,724 542,607
----------- -----------
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
issued and outstanding as of
9/30/1996 and 3/31/1996, respectively 3,165 3,165
Additional paid-in capital 5,315,970 5,315,970
Accumulated deficit (3,064,846) (2,992,948)
----------- -----------
Total shareholders' equity 2,254,289 2,326,187
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,999,013 $ 2,868,794
=========== ===========
</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,
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 1,468,396 $ 1,261,495 $ 2,954,252 $ 2,581,667
Costs and expenses
Cost of sales 966,645 867,819 1,873,685 1,744,869
Administrative 186,207 181,187 356,269 363,140
Research and
development 33,526 42,242 62,765 84,492
Sales and marketing 239,163 162,214 436,340 329,955
Customer support 138,474 79,374 247,011 165,384
Depreciation and
amortization 30,529 26,740 57,513 53,141
----------- ----------- ----------- ------------
1,594,544 1,359,576 3,033,583 2,740,981
----------- ----------- ----------- ------------
Loss from operations (126,148) (98,081) (79,331) (159,314)
Interest income, net 3,286 9,593 7,433 16,128
----------- ----------- ----------- ------------
Loss
before income taxes
and extraordinary credit (122,862) (88,488) (71,898) (143,186)
Provision for income taxes -- -- -- --
----------- ----------- ----------- ------------
Loss before
extraordinary credit (122,862) (88,488) (71,898) (143,186)
Extraordinary credit,
reduction of income
taxes arising from
carryforward of prior
years' operating
losses -- -- -- --
----------- ----------- ----------- ------------
Net loss $ (122,862) $ (88,488) $ (71,898) $ (143,186)
=========== =========== =========== ============
Per share data:
Loss before
extraordinary credit $ (.04) $ (.03) $ (.02) $ (.05)
Extraordinary credit .00 .00 .00 .00
---------- ---------- ---------- ------------
Net loss $ (.04) $ (.03) $ (.02) $ (.05)
=========== =========== =========== ============
Weighted average
shares outstanding 3,174,746 3,164,022 3,170,193 3,163,189
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
These statements are unaudited.
Six months ended
September 30,
1996 1995
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (71,898) $ (143,186)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities -
Depreciation and amortization 57,513 53,141
Provisions for losses on accounts
receivable 26,884 25,820
Provisions for losses on inventories 50,000 39,253
(Increase) decrease in -
Certificate of deposit - 150,000
Accounts receivable (44,081) (397,086)
Note receivable 29,300 8,909
Inventories (116,661) (232,855)
Prepaid expenses and other (1,483) (5,877)
Increase (decrease) in -
Accounts payable 152,034 114,664
Accrued expenses 44,070 (36,919)
Customer deposits 6,013 (11,339)
------------ -----------
Net cash provided by (used in)
operating activities 131,691 (435,475)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchases) of property and equipment:
Purchases of property and equipment (83,299) (38,209)
Purchases of software and capitalized
software and design (83,976) (73,867)
------------ -----------
Net cash provided by (used in)
investing activities (167,275) (112,076)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit - -
Repayments under line of credit - -
Proceeds from issuing equity securities - 2,650
----------- -----------
Net cash provided by (used in)
financing activities - 2,650
----------- -----------
Net increase (decrease) in cash (35,584) (544,901)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 218,166 750,719
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 182,582 $ 205,818
=========== ===========
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,
1996 1996
----------- -----------
Raw materials $ 559,119 $ 827,393
Work-in-process 310,225 159,782
Finished goods 265,258 30,765
Reserve for excess and
obsolete inventory ( 138,056) ( 88,055)
----------- -----------
$ 996,546 $ 929,885
=========== ===========
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
$3,230,000 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.
- 5 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Liquidity and Capital Resources
As of September 30, 1996, the Company had total current assets of
$2,495,727, including cash, cash equivalents and certificates of deposits of
$282,582, as compared to $2,475,270 and $318,166, respectively, as of March 31,
1996. The Company had current liabilities of $744,724, resulting in a current
ratio of 3.4 as of September 30, 1996, compared to $542,607 and 4.6,
respectively, as of March 31, 1996.
The Company reported net losses of $122,862 and $71,898, respectively
for the three month and six month periods ended September 30, 1996. Operating
activities generated $131,691 of cash during the first six months of fiscal
1997, as compared with cash consumption of $435,475 for the corresponding prior
year period. Cash and cash equivalents declined by $35,584 during the six month
period of fiscal year 1997. Investing activities consumed $167,275 of cash, both
as a result of purchased and capitalized software development costs and the
purchase of the assets of AUBIS Hospitality Systems.
Inventories, net of reserve, increased by $66,661 during the six month
period, from $929,885 as of March 31, 1996 to $996,546 as of September 30, 1996.
Inventories, net of reserve, decreased by $142,024 during the three month period
ended September 30, 1996. This decrease is primarily the result of initial
customer order shipments of our new product, PCS-5000. While first shipments of
demonstration equipment were made in late June, shipments for installation
orders were not made until late August. Accounts receivables, net of reserves,
rose by $17,197 during the six month period while decreasing by $15,012 during
the three month period ended September 30, 1996.
On April 1, 1996, the Company acquired substantially all the assets of
AUBIS Hospitality Systems, Inc., an Atlanta, Georgia based company, which
related to the resale activity of Comtrex point of sale products. The Company
opened a District Office in Atlanta, to sell products directly to end-user
customers, primarily restaurants and quick service food outlets, in both the
metropolitan Atlanta area and throughout the southeastern United States. While
the Company does extend terms to its end-user customers, direct sales are
generally accompanied by a down payment. The terms extended to direct customers
are in line with the terms extended by the Company to its dealers. Inventory for
the sale to end-users will primarily be maintained at the Company's
manufacturing facility in New Jersey, although inventory for service of direct
customers will be maintained in the Atlanta District Office. The Company does
not expect any appreciable increase in either accounts receivable or inventories
in conjunction with its direct sales efforts, other than through increases in
sales through the Atlanta District Office.
The Company believes that its cash balance, together with its line of
credit, provides the Company with adequate liquidity to finance the increases in
accounts receivable and inventories.
In July of 1996, the Company and Fleet Bank (formerly Nat West Bank
N.A.) renewed an existing line of credit agreement, and extended the facility
through July of 1997. The agreement provides for borrowings of up
- 6 -
<PAGE>
Liquidity and Capital Resources (continued)
to $750,000, with a limitation depending on eligible receivables, as defined in
the agreement. Borrowings bear interest at the bank's prime rate and are
collateralized by substantially all assets of the Company.
The Company did not borrow under this credit facility during the first
six month period. The Company has borrowed under this credit facility subsequent
to September 30, 1996 and expects to utilize its credit facility from time to
time for short term cash requirements. As of September 30, 1996, the Company had
no material commitments for capital expenditures.
Results of Operation
Net sales during the second quarter of fiscal year 1997 increased 16%
to $1,468,396, as compared with corresponding sales of $1,261,495 during the
second quarter of fiscal year 1996. Sales for the six month period ended
September 30, 1996 were $2,954,252, an increase of 14% over sales of $2,581,667
for the corresponding period during fiscal year 1996.
The Company reported a net loss of $122,862, or $.04 per share, for the
quarter ended September 30, 1996, resulting in a net loss for the current six
month period of $71,898, or $.02 per share. For the second quarter and first six
month period of the prior fiscal year, the company reported losses of $88,488,
or $.03 per share, and $143,186, or $.05 per share, respectively.
The loss for the most recent quarter is a result of increased cost of
sales through the Company's dealer and distributor channels, increased sales and
marketing expenses associated with new product promotion and increased customer
support expenses.
Cost of sales for the second quarter of fiscal year 1997 represented
66% of net sales, compared with 69% of net sales during the second quarter of
the prior fiscal year. The year-to-year comparisons do not take into account the
positive impact on cost of sales from the Company's direct sales office in
Atlanta, opened April 1, 1996. Included in second quarter sales for fiscal year
1997 are approximately $250,000 of sales through the Company's Atlanta District
Office, where cost of sales are significantly lower than sales through the
Company's dealer channel.
Cost of sales during the first quarter of the current fiscal year
represented 61% of net sales, as compared to the 66% for the quarter ended
September 30, 1996. During the most recent quarter, the Company introduced its
new open architecture product line. Gross margins on this product series are
somewhat lower than on the Company's proprietary product lines. In addition,
promotional discounts associated both with initial sales and the sale of
demonstration equipment for this product line contributed to a reduced gross
margin through dealer and distributor channels.
Sales, marketing and customer support expenses during the second
quarter and first six month period of fiscal year 1997 were $377,637, or 26% of
net sales, and $683,351, or 23% of sales, respectively. The comparable numbers
for the prior fiscal year were $241,588, or 19% of sales, and $495,339, also 19%
of sales. Such expenses are a higher percentage of net sales through the
Company's direct sales office, which partially accounts for the increase. Sales,
marketing and customer support
- 7 -
<PAGE>
Results of Operation (continued)
expenses during the first quarter of fiscal year 1997 were $305,714, or 21% of
net sales.
During the second quarter, the Company participated in several regional
trade shows, aggressively pursued regional and national accounts, continued its
advertising campaign in Nation's Restaurant News, and began a support program
aimed at increasing the effectiveness of its larger dealers through on-site
training. These activities are the primary contributors to increase in overall
sales, marketing and customer support expenses during the second quarter of
fiscal year 1997.
Initial installations of the Company's new PCS-5000 product line are
complete. A continuation of national advertising, trade show participation and
national account solicitation is planned in conjunction with the new product
roll out. Sales, marketing and customer support expenses will continue at their
current levels through the third quarter of the current fiscal year.
As of October 31, 1996, the Company's backlog was approximately
$292,000, as compared with a corresponding backlog of approximately $140,000 as
of October 31, 1995. The Company'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. Sales by the
Company's District Office are generally placed one or more months before actual
delivery and installation. The Company expects that substantially all of its
current backlog will be shipped within the next 90 days.
- 8 -
<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 18, 1996 By: /s/ Lisa J. Mudrick
--------------------- ---------------------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: November 18, 1996 By: /s/ Jeffrey C. Rice
--------------------- ---------------------------------------
Jeffrey C. Rice
Chief Executive Officer
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 182,582
<SECURITIES> 100,000
<RECEIVABLES> 1,258,024
<ALLOWANCES> 156,573
<INVENTORY> 996,546
<CURRENT-ASSETS> 2,495,727
<PP&E> 1,041,567
<DEPRECIATION> 859,490
<TOTAL-ASSETS> 2,999,013
<CURRENT-LIABILITIES> 744,724
<BONDS> 0
0
0
<COMMON> 3,165
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 2,999,013
<SALES> 2,954,252
<TOTAL-REVENUES> 2,961,685
<CGS> 1,873,685
<TOTAL-COSTS> 3,033,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,884
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (71,898)
<INCOME-TAX> 0
<INCOME-CONTINUING> (71,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,898)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
