<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
102 Executive Drive, Moorestown, NJ 08057-4224
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(609) 778-0090
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1997
- ----------------------------- -------------------------------
Common Stock, par value $.001 3,164,022
<PAGE>
COMTREX SYSTEMS CORPORATION
BALANCE SHEETS
These statements are unaudited.
<TABLE>
<CAPTION>
ASSETS
December 31, 1996 March 31, 1996
----------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 105,670 $ 218,166
Certificate of deposit 100,000 100,000
Accounts receivable, net of reserve of
$168,136 and $166,742 as of 12/31/1996
and 3/31/1996, respectively 959,230 1,084,254
Note receivable and accrued interest 16,640 51,936
Inventories 1,183,780 929,885
Prepaid expenses and other 96,285 91,029
----------- -----------
Total current assets 2,461,605 2,475,270
----------- -----------
Property and equipment:
Machinery, equipment, furniture
and leasehold improvements 1,051,604 958,268
Less - accumulated depreciation (883,514) (815,742)
----------- -----------
Net property and equipment 168,090 142,526
----------- -----------
Other assets:
Purchased and capitalized software
and design 1,000,615 894,393
Less - accumulated amortization and
depreciation (668,304) (643,395)
----------- -----------
Total other assets 332,311 250,998
----------- -----------
TOTAL ASSETS $ 2,962,006 $ 2,868,794
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 673,537 $ 431,581
Accrued expenses 109,337 85,587
Customer deposits 22,483 25,439
----------- -----------
Total current liabilities 805,357 542,607
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none outstanding -- --
Common stock, $.001 par value, 5,000,000
shares authorized, 3,164,022
issued and outstanding as of
12/31/1996 and 3/31/1996, respectively 3,165 3,165
Additional paid-in capital 5,315,970 5,315,970
Accumulated deficit (3,162,486) (2,992,948)
----------- -----------
Total shareholders' equity 2,156,649 2,326,187
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,962,006 $ 2,868,794
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
These statements are unaudited.
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,154,677 $ 1,210,752 $ 4,108,929 $ 3,792,419
Costs and expenses
Cost of sales 751,631 795,203 2,625,316 2,540,072
Administrative 138,903 146,855 495,172 509,995
Research and
development 43,959 39,395 106,724 123,888
Sales and marketing 160,694 169,292 597,034 499,247
Customer support 121,769 71,222 368,780 236,606
Depreciation and
amortization 35,168 25,038 92,681 78,178
----------- ----------- ----------- -----------
1,252,124 1,247,005 4,285,707 3,987,986
----------- ----------- ----------- -----------
Income (loss)
from operations (97,447) (36,253) (176,778) (195,567)
Interest income, net (193) 3,871 7,240 19,999
----------- ----------- ----------- -----------
Income (loss)
before income taxes
and extraordinary credit (97,640) (32,382) (169,538) (175,568)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Income (loss) before
extraordinary credit (97,640) (32,382) (169,538) (175,568)
Extraordinary credit,
reduction of income
taxes arising from
carryforward of prior
years' operating
losses -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ (97,640) $ (32,382) $ (169,538) $ (175,568)
=========== =========== =========== ===========
Per share data:
Income (loss) before
extraordinary credit $ (.03) $ (.01) $ (.05) $ (.06)
Extraordinary credit $ .00 $ .00 $ .00 $ .00
----------- ----------- ----------- -----------
Net income (loss) $ (.03) $ (.01) $ (.05) $ (.06)
=========== =========== =========== ===========
Weighted average
shares outstanding 3,164,726 3,164,022 3,168,370 3,163,466
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
COMTREX SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
These statements are unaudited.
<TABLE>
<CAPTION>
Nine months ended
December 31,
1996 1995
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(169,538) $(175,568)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities -
Depreciation and amortization 92,681 78,178
Provisions for losses on accounts
receivable 38,448 37,820
Provisions for losses on inventories 67,432 57,259
(Increase) decrease in -
Certificate of deposit -- 150,000
Accounts receivable 86,576 (206,266)
Note receivable 35,296 12,336
Inventories (321,327) (245,306)
Prepaid expenses and other (5,256) (2,641)
Increase (decrease) in -
Accounts payable 241,956 40,306
Accrued expenses 23,750 (60,190)
Customer deposits (2,956) (12,535)
--------- ---------
Net cash provided by (used in)
operating activities 87,062 (326,607)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchases) of property and equipment:
Purchases of property and equipment (93,336) (50,310)
Purchases of software and capitalized
software and design (106,222) (104,363)
--------- ---------
Net cash provided by (used in)
investing activities (199,558) (154,673)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit 100,000 --
Repayments under line of credit (100,000) --
Proceeds from issuing equity securities -- 2,650
--------- ---------
Net cash provided by (used in)
financing activities -- 2,650
--------- ---------
Net increase (decrease) in cash (112,496) (478,630)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 218,166 750,719
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 105,670 $ 272,089
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Interim financial reporting:
The accompanying financial statements should be read in conjunction
with the financial statements and notes included in the Company's latest Annual
Report on Form 10-KSB.
These interim financial statements reflect all adjustments, of a normal
and recurring nature, which are, in the opinion of management, necessary for a
fair statement of the results for the interim period(s) presented. The results
for the period(s) herein presented are not necessarily indicative of the results
for the entire fiscal year.
2. Inventories:
December 31, March 31,
1996 1996
----------- -----------
Raw materials $ 785,797 $ 827,393
Work-in-process 234,211 159,782
Finished goods 319,260 30,765
Reserve for excess and obsolete inventory ( 155,488) ( 88,055)
----------- -----------
$ 1,183,780 $ 929,885
=========== ===========
3. Income taxes:
The consolidated statements of operations reflect a provision for
income taxes at the rate of 40 percent, which represents the federal statutory
rate of 34 percent plus an effective state tax rate of 6 percent. The provisions
for income taxes are offset by tax benefits arising from an extraordinary credit
from the utilization of prior years' operating losses.
The Company has net operating loss carryforwards of approximately
$3,230,000 for financial reporting and for federal income tax purposes, which
begin to expire in 2004. The Company has tax credit carryforwards for federal
income tax purposes of approximately $148,000. Net operating loss carryforwards
are also available for state income tax purposes.
- 5 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Liquidity and Capital Resources
As of December 31, 1996, the Company had total current assets of
$2,461,605, including cash, cash equivalents and certificates of deposit of
$205,670, as compared to $2,475,270 of total current assets and $318,166 of
cash, cash equivalents and certificates of deposit as of March 31, 1996. The
Company had current liabilities of $805,357, resulting in a current ratio of 3.0
as of December 31, 1996, compared to $542,607 and 4.6, respectively, as of March
31, 1996.
The Company reported net losses of $97,640 and $169,538, respectively
for the three month and nine month periods ended December 31, 1996. Operating
activities provided $87,062 of cash during the first nine months of fiscal year
1997, as compared with cash consumption of $326,607 for the corresponding prior
year period. Cash and cash equivalents declined by $112,496 during the nine
month period of fiscal year 1997.
Accounts receivable declined during the nine month period ended
December 31, 1996 by $125,024, net of reserves. The receivables decline is
largely a result of reduced sales during the third quarter as compared to the
second quarter of the fiscal year. The Company extends terms to its U.S. dealer
network of up to sixty days, and terms of thirty to sixty days to its direct
customers. Inventories increased during the nine month period ended December 31,
1996 by $253,895, net of reserves.
The increase in inventories is the result of a combination of three
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 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.
Lastly, 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. Over the next six to nine
months, these products will gradually be replaced by software versions of the
PCS-5000, an open architecture platform. The Company believes that the reduction
in inventories associated with these product lines will be approximately
$250,000.
In conjunction with its introduction of its open architecture platform,
the Company has made the software for this product line available through its
dealer network as a separate product line. The Company believes that sales of
software only will become an increasingly significant portion of its sales.
- 6 -
<PAGE>
Liquidity and Capital Resources (continued)
This software aspect of the Company's business will allow a further
reduction in equipment inventory, with a consequent increase in gross margins.
The Company believes that the reduction in inventories for its open architecture
product line, as a result of providing its software as a separate product, will
be approximately $100,000.
The Company believes that its cash balance, together with its line of
credit, provides the Company with adequate liquidity to finance its projected
operations.
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 borrowed $100,000 under this credit facility during the
first nine month period, and repaid the amount. The Company expects to utilize
its credit facility from time to time for short term cash requirements. As of
December 31, 1996, the Company had no material commitments for capital
expenditures.
Results of Operation
Net sales during the third quarter of fiscal year 1997 decreased
slightly, to $1,154,677, as compared with corresponding sales of $1,210,752
during the third quarter of fiscal year 1996. Sales for the nine month period
ended December 31, 1996 were $4,108,929, an 8% increase from sales of $3,792,419
for the corresponding period during fiscal year 1996.
The Company reported a net loss of $169,538 for the current nine month
period, or $.05 per share, as compared with a net loss of $175,568, or $.06 per
share, for the comparable prior year period. During the quarter ended December
31, 1996, the Company reported a net loss of $97,640, or $.03 per share, as
compared with a net loss of $32,383, or $.01 per share, for the third quarter of
the prior fiscal year.
Expenses, other than cost of sales, increased from $451,802, or 37% of
sales, during the third quarter of fiscal year 1996, to $500,493, or 43% of
sales, during the most recent quarter. For the nine month period, such expenses
rose from $1,447,914, or 38% of sales, to $1,660,391, or 40% of sales for fiscal
years 1996 and 1997, respectively.
Cost of sales during the quarter and nine month period of fiscal year
1997 were 65% and 64% of net sales, respectively, as compared to 66% and 67% of
net sales, respectively, for the quarter and nine month period of the prior
fiscal year.
- 7 -
<PAGE>
Results of Operation (continued)
During the third quarter, sales of the Company's Sprint and SuperSprint
product line declined significantly. The Company believes that this is a result
of both the introduction of its new product line, the PCS-5000, and the
competitive environment of other open architecture product lines. As a result,
the Company is beginning a gradual reduction in its inventories associated with
its mature product lines and increasing the emphasis of software development
with open architecture platforms. The Company will be replacing the
functionality of its existing quick service product line, the Sprint, with
enhancements in the open architecture software.
The Company is placing increased development and marketing emphasis on
software products aimed at open architecture platforms. The sales tools
associated with software products decrease the travel requirement for regional
sales representatives. In addition, the support tools available for remote
diagnostics will allow the Company to provide a higher quality of technical
support with a reduced requirement for on-site services. The Company is in the
process of restructuring both its sales and support organizations to provide
improved dealer support, at a lower cost to the Company.
During the third quarter, the Company initiated reductions in force in
its production department and in its field sales organization. These reductions
were made both to bring expenses in line with sales, and in anticipation of the
transition to an increased focus on software sales.
The Company was informed by NCR during the third quarter that its
software had been selected for implementation at a number of bases in the far
East. Initial installations will be made in the first quarter of fiscal year
1998. As a result of this selection, the Company will be making its new software
for open architecture platforms available in the U.S., to the NCR dealer
organization, on the NCR 7450 open architecture platform. The Company believes
that this marketing effort will increase the visibility of both the Company and
its software set, and act to stimulate sales of its own open architecture
product series.
The Company is actively involved in exploring distribution, joint
marketing and software partner relationships with third party software
suppliers. Such discussions are in the preliminary phases, and involve the
addition of complementary product offerings which will enhance the Company's
position as a supplier of software solutions which operate on industry standard,
open architecture platforms.
As of January 31, 1997, the Company's backlog was approximately
$229,000, as compared with a corresponding backlog of approximately $325,000 as
of January 31, 1996. The Company expects that substantially all of its current
backlog will be shipped within the next 90 days.
- 8 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMTREX SYSTEMS CORPORATION
(Registrant)
Date: February 18, 1997 By: /s/ Lisa J. Mudrick
--------------------- -------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
Date: February 18, 1997 By: /s/ Jeffrey C. Rice
--------------------- -------------------------
Jeffrey C. Rice
Chief Executive Officer
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 105,670
<SECURITIES> 100,000
<RECEIVABLES> 1,127,366
<ALLOWANCES> 168,136
<INVENTORY> 1,183,780
<CURRENT-ASSETS> 2,461,605
<PP&E> 1,051,604
<DEPRECIATION> 883,514
<TOTAL-ASSETS> 2,962,006
<CURRENT-LIABILITIES> 805,357
<BONDS> 0
0
0
<COMMON> 3,165
<OTHER-SE> 5,315,970
<TOTAL-LIABILITY-AND-EQUITY> 2,962,006
<SALES> 4,108,929
<TOTAL-REVENUES> 4,116,169
<CGS> 2,625,316
<TOTAL-COSTS> 4,285,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38,448
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (169,538)
<INCOME-TAX> 0
<INCOME-CONTINUING> (169,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,538)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
