<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 December 31, 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 22-2353604
- ------------------------------- ------------------------------------
(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 January 31, 1996
- ----- -------------------------------
Common Stock, par value $.001 3,164,022
<PAGE>
COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
These statements are unaudited.
ASSETS
------
December 31, 1995 March 31, 1995
----------------- --------------
Current assets:
Cash and cash equivalents $ 272,089 $ 750,719
Certificate of deposit 100,000 250,000
Accounts receivable, net of reserve of
$180,826 and $160,024 as of 3/31/1995
and 12/31/1995, respectively 1,076,061 907,615
Note receivable and accrued interest 51,431 63,767
Inventories 948,297 760,250
Prepaid expenses and other 104,766 102,125
----------- -----------
Total current assets 2,552,644 2,834,476
----------- -----------
Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 948,860 898,550
Less - accumulated depreciation (796,100) (734,647)
----------- -----------
Net property and equipment 152,760 163,903
----------- -----------
Other assets:
Purchased and capitalized software
and design 847,269 742,906
Less - accumulated amortization and
depreciation (637,309) (620,584)
----------- -----------
Total other assets 209,960 122,322
----------- -----------
TOTAL ASSETS $ 2,915,364 $ 3,120,701
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 433,474 $ 393,168
Accrued expenses 62,055 122,245
Customer deposits 35,468 48,003
----------- -----------
Total current liabilities 530,997 563,416
----------- -----------
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
12/31/1995 and 3/31/1995, respectively 3,165 3,160
Additional paid-in capital 5,315,970 5,313,325
Accumulated deficit (2,934,768) (2,759,200)
----------- -----------
Total shareholders' equity 2,384,367 2,557,285
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,915,364 $ 3,120,701
=========== ===========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
These statements are unaudited.
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1995 1994 1995 1994
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,210,752 $ 1,521,021 $ 3,792,419 $ 4,209,380
Costs and expenses
Cost of sales 795,203 938,953 2,540,072 2,629,862
Administrative 146,855 156,251 509,995 523,516
Research and
development 39,395 53,134 123,888 138,144
Sales and marketing 169,292 146,109 499,247 342,488
Customer support 71,222 89,066 236,606 265,088
Depreciation and
amortization 25,038 38,028 78,178 99,262
----------- ----------- ----------- -----------
1,247,005 1,421,541 3,987,986 3,998,360
----------- ----------- ----------- -----------
Income (loss)
from operations (36,253) 99,480 (195,567) 211,020
Interest income, net 3,871 5,216 19,999 14,896
----------- ----------- ----------- -----------
Income (loss)
before income taxes
and extraordinary credit (32,382) 104,696 (175,568) 225,916
Provision for income taxes -- 41,878 -- 90,366
----------- ----------- ----------- -----------
Income (loss) before
extraordinary credit (32,382) 62,818 (175,568) 135,550
Extraordinary credit,
reduction of income
taxes arising from
carryforward of prior
years' operating
losses -- 41,878 -- 90,366
----------- ----------- ----------- -----------
Net income (loss) $ (32,382) $ 104,696 $ (175,568) 225,916
============ =========== =========== ===========
Per share data:
Income (loss) before
extraordinary credit $ (.01) $ .02 $ (.06) $ .04
Extraordinary credit $ .00 $ .01 $ .00 $ .03
----------- ----------- ----------- ----------
Net income (loss) $ (.01) $ .03 $ (.06) $ .07
=========== =========== =========== ===========
Weighted average
shares outstanding 3,164,022 3,178,561 3,163,466 3,172,939
=========== =========== =========== ===========
</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.
<TABLE>
<CAPTION>
Nine months ended
December 31,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(175,568) $ 225,916
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities -
Depreciation and amortization 78,178 99,262
Provisions for losses on accounts
receivable 37,820 32,093
Provisions for losses on inventories 57,259 58,279
(Increase) decrease in -
Certificate of deposit 150,000 --
Accounts receivable (206,266) (250,901)
Note receivable 12,336 (13,813)
Inventories (245,306) (111,085)
Prepaid expenses and other (2,641) (27,673)
Increase (decrease) in -
Accounts payable 40,306 (47,627)
Accrued expenses (60,190) (15,051)
Customer deposits (12,535) 22,671
--------- ---------
Net cash provided by (used in)
operating activities (326,607) (27,929)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchases) of property and equipment:
Purchases of property and equipment (50,310) (75,695)
Purchases of software and capitalized
software and design (104,363) (70,004)
--------- ---------
Net cash provided by (used in)
investing activities (154,673) (145,699)
--------- ---------
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 38,395
--------- ---------
Net cash provided by (used in)
financing activities 2,650 38,395
--------- ---------
Net increase (decrease) in cash (478,630) (135,233)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 750,719 744,146
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 272,089 $ 608,913
========= =========
</TABLE>
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:
December 31, March 31,
1995 1995
------------ -----------
Raw materials $ 526,919 $ 652,510
Work-in-process 212,104 113,959
Finished goods 321,526 48,773
Reserve for excess and obsolete inventory ( 112,252) ( 54,992)
----------- -----------
$ 948,297 $ 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.
- 5 -
<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 nine month period ended December 31, 1994,
Sharp purchased the minimum monthly quantity. Accordingly, an accrued price
adjustment fee of $170,513 was recognized during the nine month period ended
December 31, 1994, based on the difference between 1,800 and the number of
terminals actually delivered during the nine 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 December 31, 1995, the Company had total current assets of
$2,552,644, including cash, cash equivalents and certificates of deposit of
$372,089, as compared to $2,834,476 of total current assets and $1,000,719 of
cash, cash equivalents and certificates of deposit as of March 31, 1995. The
Company had current liabilities of $530,997, resulting in a current ratio of 4.8
as of December 31, 1995, compared to $563,416 and 5.0, respectively, as of March
31, 1995.
The Company reported net losses of $32,382 and $175,568, respectively for
the three month and nine month periods ended December 31, 1995. Operating
activities consumed $326,607 of cash during the first nine months of fiscal year
1996, as compared with cash consumption of $27,929 for the corresponding prior
year period. Cash and cash equivalents declined by $478,630 during the nine
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 nine 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 nine month period ended December
31, 1995 by $168,446, 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.
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 nine month period ended December 31, 1995 by $188,047, net of reserves.
However, inventories, net of reserves, decreased slightly the three month period
by $5,555 as a result 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 nine
months of fiscal year 1996. The Company expects to utilize its credit facility
from time to time for short term cash requirements. As of December 31, 1995, the
Company had no material commitments for capital expenditures.
- 8 -
<PAGE>
Results of Operation
Net sales during the third quarter of fiscal year 1996 decreased 20% to
$1,210,752, as compared with corresponding sales of $1,521,021 during the third
quarter of fiscal year 1995. Sales for the nine month period ended December 31,
1995 were $3,792,419, a 10% decrease from sales of $4,209,380 for the
corresponding period during fiscal year 1995.
The Company reported a net loss of $175,568 for the current nine month
period, or $.06 per share, as compared with net income of $225,916, or $.07 per
share, for the comparable prior year period. During the quarter ended December
31, 1995, the Company reported a net loss of $32,382, or $.01 per share, as
compared with net income of $104,696, or $.03 per share, for the third quarter
of the prior fiscal year.
Expenses, other than cost of sales, decreased from $482,588, or 32% of
sales, during the third quarter of fiscal year 1995, to $451,802, or 37% of
sales, during the most recent quarter. For the nine month period, such expenses
rose from $1,368,498, or 33% of sales, to $1,447,914, or 38% of sales for fiscal
years 1995 and 1996, respectively.
Cost of sales during the quarter and nine month period of fiscal year 1996
were 66% and 67% of net sales, respectively, as compared to 62% and 62% of net
sales, respectively, for the quarter and nine month period of the prior fiscal
year. During the quarter and nine 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.
Net sales during the quarter ended December 31, 1995 were negatively
impacted by several short term factors. Certain models of the Company's products
utilize full screen plasma display. Production problems experienced by the
Company's vendor delayed shipments of units utilizing this display into January
of 1996. In addition, the final in-house engineering release of a new touch
technology for the Company's color touch entry terminal delayed shipments of
these units into the fourth quarter of the fiscal year. These two factors
combined to reduce net sales by over 10% during the third quarter. The Company
is informed that the production problem with the plasma display has been
rectified, and is beginning to receive shipments. The first shipments of the
Company's color touch entry terminal using a new touch technology are being made
in the second week of February, 1996.
Policies and procedures aimed at reducing expenses, other than cost of
sales, resulted in the decrease of such expenses during the most recent quarter
when compared to the third quarter of the prior fiscal year. Cost of sales has
been negatively impacted by increased cost of materials during both the most
recent quarter and the nine month period. 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.
Since March 1, 1995, the Company has entered into contractual Dealer
Agreements with over eighty authorized Comtrex dealers in the U.S. For the three
year period prior to March of 1995, the Company's products were sold exclusively
through Sharp Electronics Corporation, on an OEM basis. The Company expected its
sales to be negatively impacted during 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.
- 9 -
<PAGE>
Results of Operation (Continued)
The Company believes that the current process in which it is engaged, 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 to not 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. While there
can be no assurances of any particular sales levels, the Company believes that
sales made through its own U.S. dealer network, in conjunction with the
Company's own direct sales efforts, will result in an increased level of net
sales in future quarters.
The Company began an advertising campaign in Nation's Restaurant News in
August of 1995, aimed at increasing name and brand awareness for the Company and
its products. The Company has commitments to carry this program through calendar
year 1996. In addition, the Company is continuing to conduct quarterly sales
seminars, on a regional basis, for its dealer network and to participate in both
local and national trade shows.
The Company expects to begin initial field testing of a new generation
product line during the fourth quarter of the current fiscal year. Based on open
architecture PC technology, this new generation has been in engineering design
over the past twelve months. Initial deliveries of the product will not begin
until fiscal year 1997, which begins in April of 1996. The product will be
initially aimed at full service restaurants, but will also have broad potential
for quick service restaurants.
As of January 31, 1996, the Company's backlog was approximately $325,000,
as compared with a corresponding backlog of approximately $726,000 as of January
20, 1995. 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: February 12, 1996 By: /s/
--------------------- ------------------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: February 12, 1996 By: /s/
--------------------- ------------------------------------
Jeffrey C. Rice
Chief Executive Officer
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 272,089
<SECURITIES> 100,000
<RECEIVABLES> 1,236,085
<ALLOWANCES> 160,024
<INVENTORY> 948,297
<CURRENT-ASSETS> 2,552,644
<PP&E> 948,860
<DEPRECIATION> 796,100
<TOTAL-ASSETS> 2,915,364
<CURRENT-LIABILITIES> 530,997
<BONDS> 0
3,165
0
<COMMON> 0
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 2,915,364
<SALES> 3,792,419
<TOTAL-REVENUES> 3,812,418
<CGS> 2,540,072
<TOTAL-COSTS> 3,987,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 37,820
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (175,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (175,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (175,568)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
