<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, 1997.
[ ] 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 registered under
Section 12 (b) of the Act: None
Securities registered under
Section 12 (g) of the Act: Common Stock, par value $.001
(Title of class)
Nasdaq SmallCap 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, 1997 were $ 5,430,221.
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
June 24, 1997 is $ 1,174,212.
As of June 24, 1997, 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 1997 Annual
Meeting of Shareholders, to be filed on or before July 18, 1997 pursuant to
Regulation 14A, are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format: Yes No x
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Total number of pages of this report: 31
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Index to exhibits located at page: 11
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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 both sit-down and quick service
restaurants with transaction processing, in-store controls and management
information. The Company markets these products through a network of authorized
dealers in the U.S., Canada, France, Belgium, Germany, Portugal, Spain, Holland,
Ireland, U.A.E., 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
related to the resale activity of Comtrex point of sale products. As of June 20,
1997, the Company employed five 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 software and hardware systems,
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 remote transfer of information between central locations and the
Company's in-store point of sale 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. 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 27%, 37% and 40% of net sales in fiscal years 1997, 1996 and 1995,
respectively. The Sprint system is expected to be replaced during fiscal year
1998 by software versions of the Company's PCS-5000 open architecture product
line.
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. 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 45%, 63%
and 53% of net sales in fiscal years 1997, 1996 and 1995, respectively. The
SuperSprint system is expected to be replaced during fiscal year 1998 by
software versions of the Company's PCS-5000 open architecture product line.
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The Company began deliveries of a new point-of-sale product line,
PCS-5000 series, in October of 1996. The PCS-5000 consists of several software
modules, which provide point-of-sale and back-office reporting functionality,
and terminal products which are based on PC architecture, and generally
available local-area-network technology. The software for the PCS-5000 system is
sold separately, since it is designed to function on off-the-shelf computer
systems. The point-of-sale terminals include an active matrix, LCD touch entry
terminal, a touch entry color CRT and a keyboard and CRT terminal. The use of PC
architecture components has resulted in greater acceptance by larger accounts,
since the technology is generally available and not proprietary, while providing
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 point-of-sale terminals use a computer component
separate from the entry device. This allows the Company to separately sell the
unique entry devices, while providing the customer the flexibility of choosing
the computer. The Company's point-of-sale PC incorporates a built-in
uninterruptible power supply (UPS), which differentiates the PC from
commercially available computers. The software for the PCS-5000 addresses both
the sit-down dining and the quick service market segments. Hardware and software
sales of the PCS-5000 system accounted for 28% of net sales in fiscal year 1997,
with substantially all sales occurring in the second half of the fiscal year.
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
- --------- ----------- -------- -----------
<S> <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 1997, 1996, and 1995 fiscal
years, it expended approximately $294,842, $331,319, and $291,101, respectively,
(which amounts include capital expenditures of $163,584, $166,327, and $105,970,
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.
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 year 1995 did not
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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 the third contract year 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 1997, the Company's revenue stream was distributed
among the network of U.S. and international dealers and direct customers of the
Company's Atlanta District Office. The largest single customer of the Company
was its distributor in the U.K., Data Systems LTD. Sales to DSL were $635,844,
or 12% of net sales in fiscal year 1997. No other customer represented more than
10% of sales. Sales through the Atlanta District Office were $913,545, or 17% of
net sales for the fiscal year. Sharp Electronics Corporation was the largest
purchaser of the Company's products in fiscal year 1995, with purchases of
$2,356,849, or 41% of net sales. Sales to Sharp declined to $201,166, or 4% of
net sales, and less than $10,000, in fiscal years 1996 and 1997, respectively.
The Company recorded foreign sales of $1,839,011, representing 34% of
net sales, during fiscal year 1997 to dealers located primarily in Canada,
France, Holland, Australia, Belgium, Ireland, U.A.E., Germany, Portugal, and the
United Kingdom. Foreign sales were $1,814,425, representing 36% of net sales,
during fiscal year 1996, and $1,582,071, representing 28% of net sales, in
fiscal year 1995.
As of June 20, 1997, the Company's backlog was approximately $295,000
as compared with a backlog of $432,356 as of June 20, 1996. 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.
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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 20, 1997, the Company had 35 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.
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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 January of 1997, the Company renewed its lease through August of 1998. 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 the
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 1997.
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Special Item. Executive Officers of the Registrant
Name Age Position
- ---- --- --------
Jeffrey C. Rice 47 President and Chief Executive Officer
Charles Hardin 42 Vice President of Engineering
Lisa J. Mudrick 35 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.
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 SmallCap 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, 1996 High Low
- ------------------------- ---- ---
04/1/1995 - 06/30/1995 1 1/8 13/16
07/1/1995 - 09/30/1995 1 1/4 3/4
10/1/1995 - 12/31/1995 1 11/16
01/1/1996 - 03/31/1996 15/16 3/8
Year Ended March 31, 1997 High Low
- ------------------------- ---- ---
04/1/1996 - 06/30/1996 1 1/2
07/1/1996 - 09/30/1996 15/16 1/2
10/1/1996 - 12/31/1996 13/16 1/2
01/1/1997 - 03/31/1997 13/16 13/32
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
Approximate Number
of Record Holders
Title of Class (as of June 20, 1997)
- -------------- ----------------------
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
This Form 10-KSB discusses primarily historical information. Statements included
in this Form 10-KSB, to the extent they are forward looking, are based on
current management expectations that involve a number of uncertainties and
risks. Potential risks and uncertainties include, without limitation, the impact
of economic conditions generally; the competitive nature of the intelligent
point-of-sale terminal industry; the Company's ability to enhance its existing
products and develop and introduce new products which keep pace with
technological developments in the marketplace; and market demand.
LIQUIDITY
As of March 31, 1997, the Company had current assets of $2,457,890,
including cash, cash equivalents, and certificates of deposit of $242,886, as
compared to $2,475,270 and $318,166, respectively, as of March 31, 1996. The
Company had current liabilities of $706,041 resulting in a current ratio of 3.5
as of March 31, 1997, compared to $542,607 and 4.6, respectively, as of March
31, 1996.
The Company reported a net loss from operations of $89,017 during
fiscal year 1997. The Company has net operating loss carryforwards of
approximately $3,300,000 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 $75,280 during fiscal year 1997.
Operating activities generated $156,318 of cash, primarily through the reduction
in outstanding accounts receivables and the increase in accounts payable levels.
Software development costs, principally those associated with the Company's new
open architecture product line, consumed $137,049 of cash, and purchases of
property and equipment consumed another $94,549. The Company borrowed under its
line of credit during the fiscal year for short term cash requirements and all
borrowings were repaid by the end of the same quarter.
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 approximately 4% and less than 1% of total sales during fiscal years
1996 and 1997, respectively. 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.
Inventory levels increased $274,585 during fiscal year 1997. The
increase in inventory levels is the result of a combination of factors. The
Company's direct sales office in Atlanta carries finished goods inventory in
excess of the amount required for the distribution activities of the Company to
its dealer network. This inventory is for demonstration purposes, service
support, to assure equipment is available for prompt delivery to direct
customers and equipment staging associated with customer installations.
Inventories associated with the Company's new product line, the PCS-5000, are in
addition to the inventory associated with the Company's Sprint and SuperSprint
product lines. A decline in the on-going sales rate of the Company's mature
product lines led to a short term increase in inventories associated with these
products.
The Company is in the process of reducing its inventories associated
with both its Sprint and SuperSprint product lines. During fiscal year 1998,
these products will gradually be replaced by software versions of the PCS-5000,
an open architecture platform. The Company anticipates reduction in inventories
associated with these product lines.
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.
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In August of 1996, the Company and Fleet 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, 1997. 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 borrowed under its line of credit during the fiscal year
for short term cash requirements and all borrowings were repaid. 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 Fleet Bank not be renewed, the Company would seek a line of credit with an
alternative financial institution.
As of March 31, 1997, 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.
RESULTS OF OPERATIONS
Year Ended March 31, 1997 Compared to the Year Ended March 31, 1996
Net sales for the Company increased 8% in fiscal year 1997, to
$5,430,221, when compared with net sales of $5,033,737 for fiscal year 1996. The
Company reported a net loss of $89,017, or $.03 per share, for the fiscal year
ended March 31, 1997, as compared with a net loss of $233,748, or $.07 per
share, for the prior fiscal year.
Sales and marketing and customer support expenses increased 21%, from
$998,527 for fiscal year 1996, to $1,207,915 for fiscal year 1997. This increase
is primarily attributable to the Company's District Office in Atlanta, where
substantially all expenses are related to sales and support. Net sales in the
Atlanta District Office, which opened in April of 1996, were $913,545.
Administrative costs were reduced slightly, from $684,242 to $681,859, despite
increased administrative activities associated with a District office.
Cost of sales decreased during the most recent fiscal year, from 66% of
net sales, for fiscal year 1996, to 62% of net sales, for the most recent fiscal
year. Cost of sales were favorably impacted by the operation of the Atlanta
District Office, since sales are made directly to end users, at higher margins
than sales to a dealer or distribution channel.
Sales to the Canadian and international dealers increased from
$1,814,425 during fiscal year 1996, or 36% of net sales, to $1,839,011, or 34%
of sales, in the current fiscal year. A decline in sales to the Company's French
distributor of approximately $165,000 was offset by a similar increase in sales
to the Company's U.K. distributor. The Company's French distributor, RDS,
introduced the new PCS-5000 product in France during the most recent fiscal
year, primarily to a quick service restaurant customer base. Based on sales to
France during the fourth quarter of the 1997 fiscal year, sales in the upcoming
1998 fiscal year should approach, or exceed, the level of the 1996 fiscal year.
The Company believes that the process which it began in fiscal year
1996, of building and training a Comtrex sales organization dedicated to systems
for the foodservice market, is an investment in the future for market
penetration of Comtrex products. The decision made at that time, 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 local
accounts, and beginning direct sales and marketing activities to accounts which
are regional or national in scope. Sales to Sharp peaked in the 1994 fiscal year
at $3,210,714, and declined to $2,356,849, then $201,166 for fiscal years 1995
and 1996, respectively, and were less than $10,000 during the most recent fiscal
year. The Company intends to continue the process of expanding both its dealer
and direct sales base in the U.S. during fiscal year 1998.
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.
Initial product deliveries of a new generation product line began in
October of 1996. Based on open architecture PC technology, this new generation,
the PCS-5000 series, represented approximately 28% of net sales for the 1997
fiscal year. The product has been successfully installed in both full service
and quick service restaurants. The software for the PCS-5000 is sold separately,
and is designed to operate successfully on off-the-shelf computers. The
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Company believes that this product series will effectively replace both the
Sprint and SuperSprint product lines during fiscal year 1998. By fiscal year
1999, the Company intends to be in a delivery position on a totally Windows
based system, using NT as the back-office operating system. The PCS-5000 series
will continue as a separate, lower end, product line.
As of June 20, 1997, the Company's backlog was approximately $295,000
as compared with a backlog of $432,356 on June 20, 1996. The Company expects
that substantially all of its current backlog will be shipped within the next
ninety (90) days.
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. The Company subsequently 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.
Sales and marketing and customer support expenses increased 16%, from
$857,987 for fiscal year 1995, to $998,527 for fiscal year 1996. 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 fiscal year 1996, from 63% of net sales,
for fiscal year 1995, to 66% of net sales. 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 fiscal year 1996.
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.
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 1997
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 1997 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 1997 Annual Meeting of Shareholders.
Item 12. Certain Relationships and Related Transactions
Incorporated herein by reference from the Company's definitive Proxy
Statement for its 1997 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, 1997 and 1996
Statements of Operations for the years ended March 31, 1997, 1996 and
1995
Statements of Shareholders' Equity for the years ended March 31,
1997, 1996 and 1995
Statements of Cash Flow for the years ended March 31, 1997, 1996 and
1995
Notes to Financial Statements
(a)2. Financial Statement Schedules (included in this report):
VIII. Valuation and Qualifying Accounts for the years ended
March 31, 1997, 1996 and 1995
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:
3.2 *(3) By-Laws, as amended, of the Company
10.1 *(2) 1985 Employee Incentive Stock Option Plan of the Company
10.2 *(2) 1985 Non-Qualified Stock Option Plan of the Company
10.3 *(4) 1992 Non-Qualified Stock Option Plan of the Company
10.4 *(5) 1995 Employee Incentive Stock Option Plan of the Company
23 *(1) Consent of Drucker, Math & Whitman, P.C.
24 *(1) Powers of Attorney
11
<PAGE>
27 *(1) Financial Data Schedule
- --------------------
*(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 Form 8-K filed
with the Securities and Exchange Commission on May 16, 1989.
*(4) Incorporated by reference to exhibits to the Company's definitive proxy
statement filed with the Securities and Exchange Commission on July 16,
1992.
*(5) 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, 1997, 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, 1997 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, 1997 and 1996, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three year period ended March 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three year period ended March 31, 1997 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, 1997,
1996 and 1995 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 17, 1997
13
<PAGE>
COMTREX SYSTEMS CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEETS
ASSETS
March 31,
------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 142,886 $ 218,166
Certificate of deposit 100,000 100,000
Accounts receivable, net of reserve
of $186,710 in 1997 and $166,742 in 1996 1,040,374 1,084,254
Notes and other receivables 16,640 51,936
Inventories 1,084,238 929,885
Prepaid expenses and other 73,752 91,029
----------- -----------
Total current assets 2,457,890 2,475,270
----------- -----------
Property and equipment:
Machinery and equipment 750,743 687,315
Office furniture and equipment 293,906 262,785
Leasehold improvements 8,168 8,168
----------- -----------
1,052,817 958,268
Less accumulated depreciation (905,268) (815,742)
----------- -----------
Net property and equipment 147,549 142,526
----------- -----------
Other assets, software development costs,
net of amortization 337,772 250,998
----------- -----------
$ 2,943,211 $ 2,868,794
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 581,687 $ 431,581
Accrued expenses:
Payroll 60,506 58,400
Other 63,848 52,626
----------- -----------
Total current liabilities 706,041 542,607
----------- -----------
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 shares issued
and outstanding 3,165 3,165
Additional paid-in capital 5,315,970 5,315,970
Accumulated deficit (3,081,965) (2,992,948)
----------- -----------
Total shareholders' equity 2,237,170 2,326,187
----------- -----------
$ 2,943,211 $ 2,868,794
=========== ===========
</TABLE>
See notes to financial statements.
14
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 5,430,221 $ 5,033,737 $ 5,689,882
----------- ----------- -----------
Costs, expenses, and other:
Cost of sales 3,366,509 3,339,337 3,589,779
Administrative 681,859 684,242 708,687
Research and development 131,258 164,992 185,130
Sales and marketing 744,075 678,530 499,875
Customer support 463,840 319,997 358,112
Depreciation and amortization 139,801 103,909 131,589
Interest income, net (8,104) (23,522) (21,717)
----------- ----------- -----------
5,519,238 5,267,485 5,451,455
----------- ----------- -----------
Income (loss) before income
taxes and extraordinary credit (89,017) (233,748) 238,427
Provision for income taxes - - 96,000
----------- ----------- -----------
Income (loss) before
extraordinary credit (89,017) (233,748) 142,427
Extraordinary credit, reduction of income
taxes arising from carryforward of prior
years' operating losses - - 96,000
----------- ----------- -----------
Net income (loss) ($89,017) ($233,748) $ 238,427
=========== =========== ===========
Earnings (loss) per common and
common equivalent share:
Income (loss) before extraordinary credit $ (.03) $ (.07) $ .05
Extraordinary credit - - .03
------------ ----------- -----------
$ (.03) $ (.07) $ .08
============ =========== ===========
Weighted average shares outstanding,
including common stock equivalents 3,164,022 3,163,814 3,170,243
============ =========== ===========
</TABLE>
See notes to financial statements.
15
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<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, 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
Net loss - - - (89,017) (89,017)
----------- ----------- ------------ ------------- -------------
Balance, March 31, 1997 3,164,022 $ 3,165 $5,315,970 ($3,081,965) $2,237,170
=========== =========== ========== ============= =============
</TABLE>
See notes to financial statements
16
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($89,017) ($233,748) $ 238,427
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 139,801 103,909 127,138
Provision for losses on accounts receivable 51,664 44,780 19,809
Provision for losses on inventories 120,232 75,609 52,800
Changes in assets and liabilities:
Certificate of deposit - 150,000 (250,000)
Accounts receivable (7,784) (220,519) 185,486
Notes and other receivables 35,296 11,831 (21,745)
Inventories (274,585) (245,244) (160,457)
Prepaid expenses and other 17,277 11,096 (27,855)
Accounts payable 150,106 38,413 (19,067)
Accrued expenses 13,328 (60,122) 30,663
------------ ------------- -------------
Net cash provided (used) by
operating activities 156,318 (323,995) 175,199
------------ ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (94,549) (59,719) (107,426)
Software development costs (137,049) (151,489) (99,595)
------------ ------------- --------------
Net cash used in investing activities (231,598) (211,208) (207,021)
------------ ------------- -------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit 265,000 - 75,000
Repayments under line of credit (265,000) - (75,000)
Proceeds from issuing equity securities - 2,650 38,395
------------ ------------- --------------
Net cash provided by financing activities - 2,650 38,395
------------ ------------- --------------
Net increase (decrease) in cash (75,280) (532,553) 6,573
Cash and cash equivalents, beginning of year 218,166 750,719 744,146
------------- ------------- -------------
Cash and cash equivalents, end of year $ 142,886 $ 218,166 $ 750,719
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 3,954 $ - $ 317
============= ============= =============
</TABLE>
See notes to financial statements.
17
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
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. In April 1996, the Company
acquired the operations of a distributor in Atlanta, Georgia and engaged in the
direct sale and service of its products in both the Atlanta metropolitan area
and in the southeast United States.
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 $33,103, $16,310, and
$52,085 for the years ended March 31, 1997, 1996 and 1995, 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 1997 and 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, 1997, 1996 AND 1995
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 receivables 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>
1997 1996
-------------- -----------
<S> <C> <C>
Raw materials $1,037,167 $ 827,393
Work-in-process 128,141 159,782
Finished goods 108,127 30,765
Reserve for excess and obsolete inventory (189,197) (88,055)
------------ ------------
$1,084,238 $ 929,885
========== ==========
</TABLE>
4. SIGNIFICANT CUSTOMERS:
Three 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,
------------------------------------------ ----------------------------
1997 1996 1995 1997 1996
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Customer "A" 3% 6% 8% 39% 43%
Customer "B" - 4% 41% - -
Customer "C" 12% 7% 3% 16% 8%
</TABLE>
The Company sells its products internationally. Foreign sales were
34%, 36% and 28% in 1997, 1996 and 1995, respectively. Customers "A" and "C"
are foreign corporations.
19
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
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. The options have a weighted average remaining contract
life of 2.3 years, 2.4 years, and 3.3 years at March 31, 1997, 1996, and 1995,
respectively. Through March 31, 1994, 191,000 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, 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
Forfeited - (35,000) .81 - 1.06 (33,500)
Balance, March 31, 1997 - 15,000 $ .81 - $ .84 $ 12,300
============ ============= ======================= ===========
</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. The options have a weighted average
remaining contract life of 2.5 years, 2.5 years, and 3.1 years at March 31,
1997, 1996, and 1995, respectively.
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, 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
Granted (32,000) 32,000 .59 - .63 19,680
----------- ------------- ---------------------- -----------
Balance, March 31, 1997 55,000 95,000 $ .59 - $ 1.75 $ 94,020
=========== ============= ====================== ==========
</TABLE>
20
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
5. STOCK OPTION PLANS (continued):
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 have a weighted average
remaining contract life of 4.3 years and 5.0 years, at March 31, 1997 and 1996,
respectively. Following is a summary of activity:
<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
Granted (15,000) 15,000 .63 9,450
Forfeited 35,000 (35,000) .63 (22,050)
------------ ------------- ---------------------- ------------
Balance, March 31, 1997 217,000 33,000 $ .63 $ 20,790
============ ============== ====================== ============
</TABLE>
Accounting for stock based compensation:
For the year ending March 31, 1997, the Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation ("SFAS 123")." Accordingly, no
compensation cost has been recognized for the stock option plans.
Had compensation cost for the Company's stock option plans been
recognized based on the fair value at the grant date for awards consistent with
the provisions of SFAS 123, the Company's net loss and loss per share would not
have changed significantly.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants; expected volatility of 28% and a risk-free interest
rate of 6.0%.
6. ACCRUED PRICE ADJUSTMENT FEE:
The agreement with Sharp Electronics Corporation ("Sharp") (see Note 1)
provided for minimum purchase quantities by Sharp. During the fiscal year ended
1995, Sharp did not purchase sufficient quantities to cover their commitment.
The Company billed Sharp, and Sharp paid $207,000 in fiscal year end 1995, which
is 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
$3,300,000 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 April, 1999. Rent expense was approximately $160,000, $141,000 and $145,000
for the years ended March 31, 1997, 1996 and 1995, respectively. Rental
commitments under noncancelable operating leases for the years ending March 31,
are as follows: 1998, $137,000; 1999, $69,000.
21
<PAGE>
In August, 1996, 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, 1997. 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 contributions to the Plan were
$14,230, $14,967 and $12,357 in the fiscal years ending March 31, 1997, 1996 and
1995, respectively.
22
<PAGE>
COMTREX SYSTEMS CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<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, 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
=============== ============== ============== ============== =============
Year ended March 31, 1997:
Reserve for bad debts $ 166,742 $ 51,664 $ - ($ 31,696)(1) $ 186,710
============= ============== ============== ============== =============
Reserve for excess and
obsolete inventory $ 88,055 $ 120,232 $ - ($ 19,090)(1) $ 189,197
=============== ============== ============== ============== =============
</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 17, 1997, 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, 1997.
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
June 17, 1997
24
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1997
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, 1997,
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 25, 1997
- ---------------------------------- --------------------------------
Sidney Dworkin Date
25
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1997
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, 1997,
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 25, 1997
- ---------------------------- -------------------------------
Larry Irwin Date
26
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1997
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, 1997,
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 25, 1997
- ----------------------------------- ---------------------------
William A. Landman Date
27
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1997
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, 1997,
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 25, 1997
- ------------------------------ --------------------------------
Nathan Lipson Date
28
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1997
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, 1997,
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 25, 1997
- --------------------------------- ---------------------------
Alan G. Schwartz Date
29
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1997
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, 1997,
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 25, 1997
- ------------------------------- --------------------------
Anthony S. Maladra Date
30
<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 25, 1997 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.
Signature Title Date
- --------- ----- ----
/s/ President, Director and June 25, 1997
- ------------------------- Principal Executive Officer
Jeffrey C. Rice
/s/ Principal Financial and June 25, 1997
- ------------------------- Accounting Officer
Lisa J. Mudrick
* Director June 25, 1997
- -------------------------
Anthony S. Maladra
* Director June 25, 1997
- -------------------------
Sidney Dworkin
* Director June 25, 1997
- -------------------------
Larry Irwin
* Director June 25, 1997
- -------------------------
William A. Landman
Director June 25, 1997
- -------------------------
Alan G. Schwartz
* Director June 25, 1997
- -------------------------
Nathan Lipson
* By /s/
- -------------------------
Jeffrey C. Rice
Attorney-in-Fact
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<PERIOD-TYPE> YEAR
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