<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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)
Delaware 22-2353604
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
102 Executive Drive, Moorestown, NJ 08057-4224
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(Address of principal executive offices) (Zip Code)
(609) 778-0090
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 26, 1996
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Common Stock, par value $.001 3,164,022
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<PAGE>
COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
These statements are unaudited.
ASSETS
<TABLE>
<CAPTION>
Current assets: June 30, 1996 March 31, 1996
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<S> <C> <C>
Cash and cash equivalents $ 277,794 $ 218,166
Certificate of deposit 100,000 100,000
Accounts receivable, net of reserve of
$166,742 and $141,037 as of 3/31/1996
and 6/30/1996, respectively 1,116,463 1,084,254
Note receivable and accrued interest 34,949 51,936
Inventories 1,138,570 929,885
Prepaid expenses and other 87,724 91,029
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Total current assets 2,755,500 2,475,270
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Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 1,018,638 958,268
Less - accumulated depreciation (836,406) (815,742)
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Net property and equipment 182,232 142,526
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Other assets:
Purchased and capitalized software
and design 948,572 894,393
Less - accumulated amortization and
depreciation (649,715) (643,395)
----------- -----------
Total other assets 298,857 250,998
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TOTAL ASSETS $ 3,236,589 $ 2,868,794
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 708,189 $ 431,581
Accrued expenses 105,361 85,587
Customer deposits 45,888 25,439
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Total current liabilities 859,438 542,607
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Shareholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none outstanding -- --
Common stock, $.001 par value, 5,000,000
shares authorized, 3,164,022
issued and outstanding as of
6/30/1996 and 3/31/1996 3,165 3,165
Additional paid-in capital 5,315,970 5,315,970
Accumulated deficit (2,941,984) (2,992,948)
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Total shareholders' equity 2,377,151 2,326,187
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LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,236,589 $ 2,868,794
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
These statements are unaudited.
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
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<S> <C> <C>
Net sales $ 1,485,856 $ 1,320,172
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Costs and expenses
Cost of sales 907,040 877,050
Administrative 170,062 181,953
Research and
development 29,239 42,250
Sales and marketing 197,177 167,741
Customer support 108,537 86,010
Depreciation and
amortization 26,984 26,401
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1,439,039 1,381,405
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Income (loss) from operations 46,817 (61,233)
Interest income, net 4,147 6,535
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Income (loss) before income taxes
Provision for income taxes (20,386) --
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Income (loss) before extraordinary credit 30,578 (54,698)
Extraordinary credit, reduction
of income taxes arising from
carryforward of prior years'
operating losses 20,386 --
----------- -----------
Net income (loss) $ 50,964 $ (54,698)
=========== ===========
Per share data:
Income (loss) before extraordinary credit $ .01 $ (.02)
Extraordinary credit $ .01 $ .00
----------- -----------
Net income (loss) $ .02 $ (.02)
=========== ===========
Weighted average
shares outstanding 3,171,523 3,167,678
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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COMTREX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
These statements are unaudited.
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 50,964 $ (54,698)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities -
Depreciation and amortization 26,984 26,401
Provisions for losses on accounts
receivable 12,200 13,205
Provisions for losses on inventories 33,000 19,825
(Increase) decrease in -
Certificate of deposit -- --
Accounts receivable (44,409) (388,362)
Note receivable 16,987 3,747
Inventories (241,685) (388,795)
Prepaid expenses and other 3,305 23,346
Increase (decrease) in -
Accounts payable 276,608 272,142
Accrued expenses 19,774 (12,573)
Customer deposits 20,449 (8,974)
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Net cash provided by (used in)
operating activities 174,177 (494,736)
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property and equipment -- --
Purchases of property and equipment (60,370) (43,196)
Purchases of software and capitalized
software and design (54,179) (29,288)
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Net cash provided by (used in)
investing activities (114,549) (72,484)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit -- --
Repayments under line of credit -- --
Proceeds from issuing equity securities -- 2,650
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Net cash provided by financing
activities -- 2,650
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Net increase (decrease) in cash 59,628 (564,570)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 218,166 750,719
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CASH AND CASH EQUIVALENTS, END OF PERIOD 277,794 186,149
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Interim financial reporting:
The accompanying financial statements should be read in conjunction
with the financial statements and notes included in the Company's latest Annual
Report on Form 10-KSB.
These interim financial statements reflect all adjustments, of a normal
and recurring nature, which are, in the opinion of management, necessary for a
fair statement of the results for the interim period(s) presented. The results
for the period(s) herein presented are not necessarily indicative of the results
for the entire fiscal year.
2. Inventories:
June 30, March 31,
1996 1996
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Raw materials $ 701,184 $ 827,393
Work-in-process 210,988 159,782
Finished goods 347,454 30,765
Reserve for excess and
obsolete inventory (121,056) (88,055)
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$1,138,570 $ 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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Liquidity and Capital Resources
As of June 30, 1996, the Company had total current assets of
$2,755,500, including cash, cash equivalents and certificates of deposits of
$377,794, as compared to $2,475,270 and $318,166, respectively, as of March 31,
1996. The Company had current liabilities of $859,438, resulting in a current
ratio of 3.2 as of June 30, 1996, compared to $542,607 and 4.6, respectively, as
of March 31, 1996.
The Company reported net income of $50,964 for the three months ended
June 30, 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.
Operating activities generated $174,177 of cash during the first three
months of fiscal year 1997, as compared with cash consumption of $494,736 for
the corresponding prior year period. Cash and cash equivalents increased by
$59,628 during the three month period of fiscal year 1997. Investing activities
consumed $114,549 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 reserves, increased by $208,685 during the quarter,
from $929,885 as of March 31, 1996 to $1,138,570 as of June 30, 1996. This
increase is due primarily to initial stocking of parts for the PCS-5000 series
in anticipation of product release. First shipments of demonstration equipment
were made late in June. Accounts receivable, net of reserves, rose by $32,209
during the first quarter as a result of increased sales over the fourth quarter
of the preceding fiscal year.
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
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.
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<PAGE>
Liquidity and Capital Resources (continued)
The Company believes that its cash balance, together with its line of
credit, provides the Company with adequate liquidity to finance the increases in
accounts receivable and inventories.
In 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 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
quarter. The Company expects to utilize its credit facility from time to time
for short term cash requirements. As of June 30, 1996, the Company had no
material commitments for capital expenditures.
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<PAGE>
Results of Operation
Net sales during the first quarter of fiscal year 1997 increased 13% to
$1,485,856, as compared with corresponding sales of $1,320,172 during the first
quarter of fiscal year 1996. Net income for the quarter of $50,964, or $.02 per
share, compares favorably against the loss of $54,698, or $.02 per share,
reported for the comparable prior year period.
The Company's products are distributed in the United States through a
network of approximately eighty authorized dealers. The Company does not intend
to increase the number of its authorized dealers during fiscal year 1997, but
rather to increase training and support programs for its existing dealers, and
to seek alternative representation in areas where sales penetration of the
Company's products is negligible.
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 and opened a
District Office. Sales through the District Office were approximately 20% of the
Company's total revenues during the first quarter of fiscal year 1997. The
Company will consider opening additional District Offices, as an alternative to
seeking a new dealer relationship, in areas where current dealer representation
has been unsuccessful in generating significant sales.
Sales, marketing and customer support expenses increased from $253,751,
or 19% of sales, for the first quarter of fiscal year 1996 to $305,714, or 21%
of sales, during the most recent quarter. Substantially all of the operating
expense of the Company's District Office is allocated to sales, marketing and
customer support. Administrative expense declined to $170,062 during the most
recent quarter, from $181,953 for the first quarter of fiscal year 1996.
Cost of sales during the three months ended June 30, 1996 represented
61% of net sales, as compared to 66% of net sales for the comparable period last
fiscal year. The Company realizes significantly higher gross margins on its
direct sales to end-users than on sales to its dealers. Offsetting this higher
gross margin are the fixed operating expenses of a direct sales office.
As of July 26, 1996, the Company's backlog was approximately $310,857,
as compared with a corresponding backlog of approximately $110,453 as of July
31, 1995. As stated earlier, the Company's U.S. dealers typically place orders
with the Company based on their sales activities with end user customers, and do
not maintain significant inventory levels of the Company's products. 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMTREX SYSTEMS CORPORATION
(Registrant)
Date: August 13, 1996 By: /s/ Lisa J. Mudrick
------------------- -------------------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: August 13, 1996 By: /s/ Jeffrey C. Rice
------------------- --------------------------------------
Jeffrey C. Rice
Chief Executive Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 277,794
<SECURITIES> 100,000
<RECEIVABLES> 1,292,449
<ALLOWANCES> 141,037
<INVENTORY> 1,138,570
<CURRENT-ASSETS> 2,755,500
<PP&E> 1,018,638
<DEPRECIATION> 836,406
<TOTAL-ASSETS> 3,236,589
<CURRENT-LIABILITIES> 859,438
<BONDS> 0
<COMMON> 3,165
0
0
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 3,236,589
<SALES> 1,485,856
<TOTAL-REVENUES> 1,490,003
<CGS> 907,040
<TOTAL-COSTS> 1,439,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,200
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 50,964
<INCOME-TAX> (20,386)
<INCOME-CONTINUING> 30,578
<DISCONTINUED> 0
<EXTRAORDINARY> 20,386
<CHANGES> 0
<NET-INCOME> 50,964
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
