<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, 1997
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 identification No.)
incorporation or organization)
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 August 11, 1997
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Common Stock, par value $.001 3,164,022
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COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
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These statements are unaudited.
ASSETS
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Current assets: June 30, 1997 March 31, 1997
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Cash and cash equivalents $ 209,253 $ 142,886
Certificate of deposit 100,000 100,000
Accounts receivable, net of reserve of
$176,823 and $186,710 as of 6/30/1997
and 3/31/1997, respectively 1,183,726 1,040,374
Notes and other receivables 16,340 16,640
Inventories 906,016 1,084,238
Prepaid expenses and other 77,486 73,752
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Total current assets 2,492,821 2,457,890
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Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 1,054,078 1,052,817
Less - accumulated depreciation (920,300) (905,268)
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Net property and equipment 133,778 147,549
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Other assets:
Purchased and capitalized software
and design 1,031,442 1,031,442
Less - accumulated amortization and
depreciation (708,988) (693,670)
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Total other assets 322,454 337,772
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TOTAL ASSETS $ 2,949,053 $ 2,943,211
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 418,672 $ 581,687
Note payable, bank 160,000 -
Accrued expenses 69,919 102,306
Customer deposits 17,881 22,048
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Total current liabilities 666,472 706,041
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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
6/30/1997 and 3/31/1997 3,165 3,165
Additional paid-in capital 5,315,970 5,315,970
Accumulated deficit (3,036,554) (3,081,965)
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Total shareholders' equity 2,282,581 2,237,170
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LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,949,053 $ 2,943,211
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The accompanying notes are an integral part of these financial statements.
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COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
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These statements are unaudited.
Three months ended
June 30,
1997 1996
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Net sales $ 1,254,592 $ 1,485,856
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Costs and expenses
Cost of sales 777,270 907,040
Administrative 162,042 170,062
Research and
development 46,325 29,239
Sales and marketing 133,457 197,177
Customer support 58,550 108,537
Depreciation and
amortization 30,350 26,984
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1,207,994 1,439,039
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Income from operations 46,598 46,817
Interest income, net (1,187) 4,147
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Income before income taxes
and extraordinary credit 45,411 50,964
Provision for income taxes (18,165) (20,386)
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Income before extraordinary credit 27,246 30,578
Extraordinary credit, reduction
of income taxes arising from
carryforward of prior years'
operating losses 18,165 20,386
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Net income $ 45,411 $ 50,964
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Per share data:
Income before extraordinary credit $ .01 $ .01
Extraordinary credit $ - $ .01
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Net income $ .01 $ .02
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Weighted average
shares outstanding 3,164,022 3,171,523
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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.
Three months ended
June 30,
1997 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 45,411 $ 50,964
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities -
Depreciation and amortization 30,350 26,984
Provisions for losses on accounts
receivable 12,613 12,200
Provisions for losses on inventories 8,500 33,000
(Increase) decrease in -
Certificate of deposit - -
Accounts receivable (155,965) (44,409)
Note receivable 300 16,987
Inventories 169,722 (241,685)
Prepaid expenses and other (3,734) 3,305
Increase (decrease) in -
Accounts payable (163,015) 276,608
Accrued expenses (32,387) 19,774
Customer deposits (4,167) 20,449
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Net cash provided by (used in)
operating activities (92,372) 174,177
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CASH FLOWS FROM INVESTING ACTIVITIES
Sale of property and equipment - -
Purchases of property and equipment (1,261) (60,370)
Purchases of software and capitalized
software and design - (54,179)
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Net cash provided by (used in)
investing activities (1,261) (114,549)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit 160,000 -
Repayments under line of credit - -
Proceeds from issuing equity securities - -
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Net cash provided by financing
activities 160,000 -
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Net increase (decrease) in cash 66,367 59,628
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 142,886 218,166
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 209,253 $ 277,794
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The accompanying notes are an integral part of these financial statements.
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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,
1997 1997
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Raw materials $ 497,749 $ 1,037,167
Work-in-process 401,657 128,141
Finished goods 190,807 108,127
Reserve for excess and
obsolete inventory (184,197) (189,197)
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$ 906,016 $ 1,084,238
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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
$3,260,000 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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Liquidity
As of June 30, 1997, the Company had total current assets of
$2,492,821, including cash, cash equivalents and certificates of deposits of
$309,253, as compared to $2,457,890 and $242,886, respectively, as of March 31,
1997. The Company had current liabilities of $666,472, resulting in a current
ratio of 3.7 as of June 30, 1997, compared to $706,041 and 3.5, respectively, as
of March 31, 1997.
The Company reported net income of $45,411 for the three months ended
June 30, 1997. The Company has net operating loss carryforwards of approximately
$3,260,000 for federal income tax purposes, which do not begin to expire until
2004, and tax credit carryforwards of approximately $148,000.
Operating activities consumed $92,372 of cash during the first three
months of fiscal year 1998, as compared with cash generation of $174,177 for the
corresponding prior year period. Cash and cash equivalents increased by $66,367
during the three month period of fiscal year 1998.
Inventories, net of reserves, decreased by $178,222 during the quarter,
from $1,084,238 as of March 31, 1997 to $906,016 as of June 30, 1997. This
decrease is due primarily to the planned, gradual phase-out of the Company's
SuperSprint product line, which is being replaced by the open architecture
PCS/5000 product series. The PCS/5000 is configured principally with completed
circuit boards and assemblies which are generally available, often with
off-the-shelf delivery available to the Company. The Company is able to maintain
a lower level of raw material, component inventory than is required with a
proprietary product series, such as SuperSprint, while maintaining the same
delivery time, at comparable sales levels. Corresponding to the decrease in
inventories, and offsetting the cash provided by operating activities, was a
reduction in accounts payable of $163,015 during the quarter, from $581,687 as
of March 31, 1997 to $418,672 as of June 30, 1997.
Accounts receivable, net of reserves, rose by $143,352 during the first
quarter, principally as a result of significant shipments during the last month
of the quarter. The Company borrowed $160,000 under its line of credit during
the quarter, which amount was outstanding as of June 30, 1997.
Investing activities consumed a negligible $1,261 of cash during the
three months ended June 30, 1997, when compared with the first quarter of fiscal
year 1997. During the first quarter of the prior fiscal year, both the
development expense of the PCS/5000 and the purchase of the assets of AUBIS
Hospitality Systems resulted in the consumption of $114,549 for investing
activities through increases in property and equipment and purchased and
capitalized software and design.
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<PAGE>
Liquidity (continued)
In July of 1997, the Company and Fleet Bank N.A. extended an existing
line of credit agreement through October 31, 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 expects this line of credit to be renewed through July of 1998,
during the month of August, 1997. As stated earlier, the Company borrowed 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, 1997, the Company had no material commitments for
capital expenditures. The Company believes that its cash balance, together with
its line of credit, provides the Company with adequate liquidity to finance its
projected operations for the current fiscal year.
Results of Operations
Net sales during the first quarter of fiscal year 1998 decreased 16% to
$1,254,592, as compared with corresponding sales of $1,485,856 during the first
quarter of fiscal year 1997. Net income for the quarter declined only slightly,
from $50,964, or $.02 per share, to $45,411, or $.01 per share, for the three
month periods ended June 30, 1996 and June 30,1997, respectively.
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 represented approximately 20%
of the Company's sales during the first quarter of fiscal year 1997, and
included significant sales to a single customer related to preparation of
concession areas for the Olympic Games held in Atlanta during the summer of
1996.
Sales, marketing and customer support expenses decreased from $305,714,
or 21% of sales, for the first quarter of fiscal year 1997 to $192,007, or 15%
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. The customer support expenses associated with the Atlanta
office were significantly higher during the first quarter of the previous fiscal
year, both as a result of start-up training expenses for new employees, and the
installation and training activities associated with a single large customer.
Also contributing to the substantial reduction in sales and marketing expenses
was a reduction in the number of field sales personnel from five, during the
first quarter of fiscal year 1997, to three, during the most recent quarter.
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Results of Operations (continued)
Administrative expense declined slightly during the most recent
quarter, from $170,062 during the first quarter of fiscal year 1997, to $162,042
for the first quarter of the current fiscal year.
Cost of sales during the three months ended June 30, 1997 represented
62% of net sales, as compared to 61% 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. Sales through the
Atlanta District Office represented approximately 20% of sales during the prior
fiscal year's first quarter, but were less than 10% during the most recent
quarter. Direct sales, other than through the Atlanta District Office, as well
as increased sales of software resulted in the relative stability of cost of
sales when comparing the two quarters.
During the first quarter of fiscal year 1998, the Company retained
Dominion Group Limited, an investment banking company with offices in
Philadelphia, Sarasota and London, to act as its exclusive financial advisor.
The Company is undergoing a strategic planning process in conjunction with its
financial advisors, and exploring various alternatives for future growth,
including partnerships and acquisitions.
As of July 31, 1997, the Company's backlog was approximately $292,631,
as compared with a corresponding backlog of approximately $310,857 as of July
26, 1996. As stated earlier, the Company's dealers and distributors 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. Orders for equipment sales through the Company's District Office are
generally placed by end user customers approximately one month before actual
delivery and installation. The Company expects that substantially all of its
current backlog will be shipped within the next 90 days.
Forward Looking Statements
This Form 10-Q discusses primarily historical information. Statements
included in this Form 10-Q, 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.
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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, 1997 By: /s/ Lisa J. Mudrick
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Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: August 13, 1997 By: /s/ Jeffrey C. Rice
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Jeffrey C. Rice
Chief Executive Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 209,253
<SECURITIES> 100,000
<RECEIVABLES> 1,360,549
<ALLOWANCES> 176,823
<INVENTORY> 906,016
<CURRENT-ASSETS> 2,492,821
<PP&E> 1,054,078
<DEPRECIATION> 920,300
<TOTAL-ASSETS> 2,949,053
<CURRENT-LIABILITIES> 666,472
<BONDS> 0
3,165
0
<COMMON> 0
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 2,949,053
<SALES> 1,254,592
<TOTAL-REVENUES> 1,253,405
<CGS> 777,270
<TOTAL-COSTS> 1,207,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,613
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45,411
<INCOME-TAX> (18,165)
<INCOME-CONTINUING> 27,246
<DISCONTINUED> 0
<EXTRAORDINARY> 18,165
<CHANGES> 0
<NET-INCOME> 45,411
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
