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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, 1998.
[ ] 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)
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DELAWARE 22-2353604
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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 SMALL CAP MARKET
(Name of each exchange on which registered)
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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.
[x]
Issuer's revenues for the fiscal year ended March 31, 1998 were $6,382,948.
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
May 29, 1998 is $2,530,069. Shares of common stock held by each executive
officer and director of the registrant, and by each person who may be deemed to
be an affiliate of the registrant, have been excluded from this computation.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of June 19, 1998, there were outstanding 3,583,572 shares of the registrant's
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 1998 Annual
Meeting of Shareholders, to be filed on or before July 17, 1998 pursuant to
Regulation 14A, are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format: YES____ NO__x__
Total number of pages of this report: 84
Index to exhibits located at page: 15
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PART I
ITEM 1. BUSINESS
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The matters discussed in this Form 10-KSB that are
forward-looking statements are based on current management expectations that
involve a number of risks and uncertainties. Potential risks and uncertainties
include, without limitation, the impact of economic conditions generally and in
the intelligent point-of-sale terminal industry; dependence on the Company's
proprietary technology; the Company's ability to enhance its existing products
and develop and introduce new products which keep pace with technological
developments in the marketplace; market demand; and the risk of unavailability
of adequate capital or financing.
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 target retailers with transaction
processing, in-store controls and management information. The Company markets
these products through a network of authorized dealers in Canada, France,
Belgium, Germany, Portugal, 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 relate
to the resale activity of Comtrex point of sale products. As of June 19, 1998,
the Company employed six 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.
On October 2, 1997, the Company acquired all the issued and outstanding
capital stock of Data Systems Terminals Limited, ("DSTL") a corporation formed
and existing under the laws of England. DSTL was the former distributor of the
Comtrex product line in the United Kingdom. As a result of such acquisition,
DSTL became a wholly owned subsidiary of the Company, and formally changed its
corporate name to Comtrex Systems Corporation LTD ("Comtrex U.K."). As of June
19, 1998, Comtrex U.K. employed twenty five individuals. Comtrex U.K. operates
essentially autonomously, maintaining its own accounting systems, clerical and
administrative staff and sales and service departments. The subsidiary also
provides sales and service support for the Company's distribution network in
Europe.
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PRODUCTS
The Company's principal products are sophisticated terminals, 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
local and remote polling of information transfer between computers and the
Company's terminal systems.
The Company's 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. During fiscal years 1990 and 1991, the Sprint product
was redesigned, and a family of terminals was introduced, significantly
broadening the market potential for the product. The series was further
redesigned in conjunction with the marketing agreement signed with Sharp in the
third quarter of fiscal year 1992, and improvements in program functionality and
available memory were added in fiscal year 1993. 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 20%, 27% and 37% of net sales in fiscal years 1998, 1997
and 1996, respectively.
The Company's 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. During fiscal year 1991, the
SuperSprint product line was expanded with the introduction of a CRT based
terminal. The series was further redesigned in the third quarter of fiscal year
1992, in conjunction with the marketing agreement with Sharp. During the latter
half of fiscal year 1993, the Company began hardware and software development to
expand the product line with the introduction of a touch entry terminal. During
the second quarter of fiscal year 1994, the Company began initial deliveries of
the touch entry terminal, both to Sharp Electronics and to its international
dealer organization. During the third quarter of fiscal year 1995, the Company
began initial deliveries of a 14" color touch entry terminal to the Canadian and
International dealers. In March of 1995, the 14" color touch entry terminal
became available to the Company's distribution organization within the United
States. 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 14%, 45% and 63% of
net sales in fiscal years 1998, 1997 and 1996, respectively.
The Company began deliveries of a new point-of-sale product line,
PCS-5000 series, in October of 1996. The product line is based on PC
architecture, and generally available local-area-network technology. Included in
the new product line is an active matrix, LCD touch entry terminal, along with
touch entry color CRT and a keyboard and CRT terminal. The use of PC
architecture components should result in greater acceptance by larger accounts,
since the technology is generally available and not proprietary, as well as
allow for 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 new product line addresses the needs of both the
sit-down dining and the quick service market segments. The PCS-5000 series of
terminals accounted for 66% and 28% of net sales in fiscal years 1998 and 1997,
respectively.
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MANUFACTURING AND TECHNOLOGY
The Company's manufacturing operations consist primarily of assembling
various components, parts, sub-assemblies, and assemblies which are purchased by
the Company from third parties. 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 one patent. The
issued patent is listed below.
PATENT NO. DATE ISSUED DURATION DESCRIPTION
- - ---------- ----------- -------- -----------
D.295,874 May 24, 1988 14 years Sprint Cash Register Housing
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.
The Company believes its future success will depend upon its ability to
enhance its existing products and develop and introduce new products that keep
pace with technological developments in the marketplace and address the
increasingly sophisticated needs of its end-users. The Company intends to
continue to use its best efforts to expand its existing product offerings and to
introduce new products for the intelligent point-of-sale industry.
The Company has, in the past, released enhanced versions of its
software products at least once each year, although there can be no assurance
that this practice will continue. All of the Company's software products share
the same technological foundation, which makes the enhancement of the entire
product line more efficient. Software enhancements to a product are usually
driven by requests received from existing end-users or by interviews with
certain key end-users, technological developments and by competitive analysis.
The Company estimates that during the 1998, 1997, and 1996 fiscal
years, it expended approximately $242,601, $294,842, and $331,319, respectively,
(which amounts include capital expenditures of $48,917, $163,584, and $166,327,
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.
INTELLECTUAL PROPERTY RIGHTS
The Company's success is heavily dependent upon proprietary technology.
The Company relies primarily on a combination of copyright law, patents and
trade secret law to protect its proprietary rights to its technology. Due to the
rapid pace of technological innovation within the point-of-sale industry, the
Company's ability to establish and maintain a position of technological
leadership in the point-of-sale industry is more dependent upon the skills of
its development personnel than upon the legal protection afforded its existing
technology. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar or superior technology. Policing unauthorized use
of the Company's software is difficult, although the Company utilizes hardware
protection devices, which are included with licensed copies of the Company's
software products, which are intended to prevent the unauthorized execution of
the Company's software by unlicensed end-users. The Company is unable, however,
to determine the extent to which piracy of its software products exists, and
software piracy can be expected to be a persistent problem in the software
industry.
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In most cases, the Company distributes its software products under
"shrink-wrap" software license agreements which grant end-users licenses to the
Company's software products and which contain various provisions to protect the
Company's ownership of, and the confidentiality of, the underlying technology.
The Company also requires its employees and other parties with access to its
confidential information to execute agreements prohibiting the unauthorized use
or disclosure of the Company's technology. Despite these precautions, it may be
possible for a third party to misappropriate the Company's technology or to
independently develop similar technology. In addition, "shrink-wrap" licenses,
which are not signed by the end-user, may be unenforceable in certain
jurisdictions. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States.
The Company is not aware that any of its products infringes the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. The Company expects that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing, if required, may not be
available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
SALES, MARKETING AND DISTRIBUTION
During fiscal year 1998, the Company recorded foreign sales of
$4,021,723, representing 63% of net sales. Foreign sales were $1,846,275,
representing 34% of net sales, during fiscal year 1997, and $1,812,145,
representing 36% of net sales during fiscal year 1996. Included in foreign sales
during fiscal year 1998 are sales made to Data Systems Terminals LTD (DSTL)
prior to its acquisition effective October 1, 1997, as well as total sales by
the subsidiary company, Comtrex Systems Corporation LTD ("Comtrex U.K.")
subsequent to its acquisition, through the consolidation of the operations of
the subsidiary. Two customers of the Company and its subsidiary each accounted
for approximately 10% of consolidated net sales during fiscal year 1998; the
Company's distributor in France, Restaurant Data Systems (RDS) and the City
Centre Group, a customer of Comtrex U.K. Sales to DSTL were $635,844, or 12% of
net sales in fiscal year 1997, while sales to RDS represented approximately 3%
of net sales during fiscal year 1997. No other customer represented more than
10% of sales during fiscal year 1998.
Sales through the Atlanta District Office during fiscal year 1998 were
$460,981, or 7% of net sales. During fiscal year 1997, sales through the Atlanta
office were $913,545, or 17% of net sales. A customer preference for open
architecture systems, when compared with the Company's proprietary Sprint
product line, began to gradually impair sales in the Atlanta District Office
beginning in the middle of fiscal year 1997. As a result of product development
specifically for the quick service industry, with the Company's open
architecture PCS-5000 series, the Atlanta office began to successfully secure
several new customers in the third and fourth quarters of fiscal year 1998, and
also began a program to upgrade and implement new store installations with
existing customers. The Company anticipates an increase in sales in the Atlanta
office during fiscal year 1999, and is currently expanding its personnel in the
office. For further discussion on the operations of the Atlanta District Office,
refer to the Results of Operation section under Item 6 of this Form 10-KSB.
During fiscal year 1998, the balance of the Company's net sales were distributed
among the network of U.S. dealers, and there was no single dealer who purchased
product in excess of 10% of net sales.
As of June 19, 1998, the Company's consolidated backlog was
approximately $1,053,670, as compared with a backlog of $295,000 as of June 20,
1997. 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
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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.
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.
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 19, 1998, Comtrex had 35 employees in the United States, all
of whom were employed on a full time basis. Comtrex Systems Corporation LTD, the
Company's wholly owned subsidiary in the United Kingdom, employed an additional
25 full-time employees. None of the employees of the Company or of its wholly
owned subsidiary are represented by a union and the Company believes that its
employee relations are good.
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. The Company anticipates the need to expand the facilities for its
Atlanta District Office during fiscal year 1999, should the current upward trend
in sales through this office continue. The Company believes that additional
space will be made available through its current landlord, on similar terms and
conditions to those currently prevailing, in the immediate vicinity of its
current location.
The Company's subsidiary in the U.K., Comtrex Systems Corporation LTD,
currently owns and occupies approximately 4,740 square feet of office and
warehouse space in a two story commercial office complex in Horley, England
(located near Gatwick Airport). The building's ground floor serves as the
warehouse for shipping, receiving and service activities. The building's first
floor provides adequate office and conference space for the sales, support and
administrative groups of the subsidiary. The land and building are covered under
a mortgage, with a term that extends through 2016.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings which, if
adversely determined to the Company, could have a material adverse effects on
the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of its security
holders during the fourth quarter of fiscal year 1998.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- - ---- --- --------
Jeffrey C. Rice 48 President and Chief Executive Officer
Steven D. Roberts 36 Managing Director, Comtrex U.K.
Brian C. Moseley 51 Vice President of Engineering
Lisa J. Mudrick 36 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.
Steven D. Roberts has been Managing Director of Comtrex Systems
Corporation LTD, the Company's U.K. subsidiary, since its acquisition in October
of 1997, and has served on the Company's Board of Directors since November of
1997. He had served as Managing Director of the acquired company, Data Systems
Terminals LTD (DSTL), since 1990, and had been an employee of DSTL since 1984.
From 1985 to 1987, Mr. Roberts served as President of Electronic Cash Registers,
Inc. in Cincinnati, Ohio. ECR was a wholly owned subsidiary of DSTL, engaged in
the distribution of point-of-sale systems for dry cleaning establishments in the
United States.
Brian C. Moseley was promoted to Vice President of Engineering of the
Company in August of 1997. Mr. Moseley has been an employee of the Company since
1985, and has been actively involved in both hardware and software design, in
addition to project management. Prior to his association with Comtrex, he worked
as a Project Engineer for Management Information Concepts. Mr. Moseley is a
graduate of Old Dominion University.
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 in 1994, 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 Small Cap Market. The table below shows the
high and low 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, 1997 High Low
- - ------------------------- ---- ---
4/1/1996 - 6/30/1996 1 1/2
7/1/1996 - 9/30/1996 15/16 1/2
10/1/1996 - 12/31/1996 13/16 1/2
1/1/1997 - 3/31/1997 13/16 13/32
Year Ended March 31, 1998 High Low
- - ------------------------- ---- ---
4/1/1997 - 6/30/1997 3/4 5/16
7/1/1997 - 9/30/1997 1 1/16 9/16
10/1/1997 - 12/31/1997 1 1/16 11/16
1/1/1998 - 3/31/1998 1 1/4 3/4
RECENT SALES OF UNREGISTERED SECURITIES
The following unregistered securities were issued by the Company on
October 2, 1997 to the former shareholders of DSTL in connection with the
acquisition by the Company of all the outstanding capital stock of DSTL:
a) 400,000 restricted shares of the Common Stock of the Company, par
value $.001 per share, were delivered by the Company to Steven
Roberts (the "Shares"). These shares of the Company's Common Stock
are not transferrable by Steven Roberts on or before October 2,
1999.
b) A Subordinated Convertible Debenture, in the original principal
amount of $300,000 (the "Debenture"), was delivered by the Company
to Norman Roberts and Shirley Roberts. The Debenture accrues
interest at the rate of eight percent (8%) per annum, which is
payable monthly. No principal is payable pursuant to the terms of
the Debenture for the first three (3) years following its
delivery. The Debenture is convertible into shares of the
Company's Common Stock (in blocks of 20,000 shares), at any time
on or before October 1, 2000, at the rate of $1.00 per share. The
Company may prepay all amounts outstanding under the Debenture at
any time on or before October 2, 2000 if (i) the shares of the
Company's Common Stock have closed at $1.50, or higher, for each
trading day for a thirty (30) day period, and (ii) the Company has
provided the holders of the Debenture with at least sixty (60)
days prior written notice of the prepayment. Any principal
outstanding on the Debenture on October 2, 2000 shall be repaid by
the Company in twelve (12) equal quarterly installments,
commencing January 1, 2001. The Company anticipates that internal
funds will be utilized to make all interest and principal payments
due under the Debenture.
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c) A Promissory note, in the original principal amount of $65,000
(the "Note"), was delivered by the Company to Norman Roberts and
Shirley Roberts. The Note bears interest at the rate of six
percent (6%) per annum. The outstanding principal balance of the
Note, and all interest accrued thereon, is repayable in twelve
(12) equal monthly installments, commencing on November 1, 1997.
The Company anticipates that internal funds will be utilized to
make such payments due under the Note.
The Shares, the Note and the Debenture (collectively the "DSTL
Securities") were issued by the Company in reliance upon the exemption from
regulation provided for in Regulation S promulgated under the Securities Act of
1933, as amended. No offer of the DSTL Securities to Norman, Shirley or Steven
Roberts was made in the United States; at the time of delivery of the DSTL
Securities, neither Norman, Shirley nor Steven Roberts was a resident of the
United States; and each recipient of the DSTL Securities represented and
warranted to the Company that they were not engaged in any "direct selling
efforts" or "distribution" with respect to any of the DSTL Securities.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
Approximate Number
of Record Holders
Title of Class (as of June 19, 1998)
- - -------------- ----------------------
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 contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The matters discussed in this Form 10-KSB that are
forward-looking statements are based on current management expectations that
involve a number of risks and uncertainties. Potential risks and uncertainties
include, without limitation, the impact of economic conditions generally and in
the intelligent point-of-sale terminal industry; dependence on the Company's
proprietary technology; the Company's ability to enhance its existing products
and develop and introduce new products which keep pace with technological
developments in the marketplace; market demand; and the risk of unavailability
of adequate capital or financing.
LIQUIDITY
As of March 31, 1998, the Company had current assets of $3,311,888,
including cash, cash equivalents and certificates of deposit of $313,617, as
compared to $2,457,890 and $242,886, respectively, as of March 31, 1997. The
Company had current liabilities of $1,441,530 resulting in a current ratio of
2.3 as of March 31, 1998, compared to $706,041 and 3.5, respectively, as of
March 31, 1997.
The Company reported net income of $241,339 during fiscal year 1998.
The Company has net operating loss carryforwards of approximately $3,100,000 for
federal income tax purposes, which do not begin to expire until 2004, and tax
credit carryforwards of approximately $148,000.
As outlined in Note 2 to the Notes to Financial Statements, on October
2, 1997, the Company acquired all the issued and outstanding capital stock of
Data Systems Terminals Limited ("DSTL"), a corporation formed and existing under
the laws of England. The acquisition of DSTL involved no immediate cash outlay
other than professional fees. As a consequence, differences as of March 31, 1998
and March 31, 1997, between accounts on the Consolidated Balance Sheets do not
involve cash outlay to the extent they are the result of merely consolidating
the Balance Sheet accounts of the parent and the subsidiary as of March 31,
1998. The Company's Consolidated Statements of Cash Flow have been prepared to
properly reflect changes in the parent company's accounts between April 1, 1997
and March 31, 1998, and changes in the accounts of the Company's wholly owned
subsidiary, (formerly DSTL) Comtrex Systems Corporation LTD ("Comtrex U.K."),
between October 1, 1997 and March 31, 1998. The following analysis, therefore,
relates to the changes in the Company's Consolidated Balance Sheet accounts on a
cash flow basis.
Cash and cash equivalents increased by $170,731 during fiscal year
1998. Operating activities generated $442,438 of cash, primarily through the net
income, a reduction in inventories, expensed depreciation and amortization, and
the conversion to cash and cash equivalence of certificates of deposit.
On a cash flow basis, inventories decreased during fiscal year 1998 by
$208,615, net of reserves. This decrease is due primarily to the planned,
gradual phase-out of the Company's Sprint and SuperSprint product lines, which
are 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 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 the Sprint
and SuperSprint, while maintaining the same delivery schedule, at comparable
sales levels. Consolidated inventories declined even though the Atlanta district
office and Comtrex U.K. maintain levels of finished good products necessary to
fulfill immediate installation and service requirements.
On a cash flow basis, accounts receivable increased during the 1998
fiscal year by $245,819, net of reserves, which was partially offset by a
reduction in accounts payable, on a cash flow basis, of $32,771. The receivables
increase is largely a result of increased sales realized through the
consolidation of sales with Comtrex U.K. The Company extends terms to its U.S.
dealer network of up to sixty days, terms of thirty to sixty days to its direct
customers through the Atlanta district office and terms of thirty to ninety days
through Comtrex U.K.
10
<PAGE>
LIQUIDITY (continued)
During the 1998 fiscal year, depreciation and amortization contributed
$157,716 to cash provided by operating activities. Investing activities consumed
$230,556 of cash during fiscal year, including capitalized software development
expenses of $37,538. Investing expenses also included $82,604 in professional
expenses associated with the acquisition of Comtrex U.K., and, on a cash flow
basis, the cash overdraft of the subsidiary of $81,582, as of the date of
acquisition.
Financing activities consumed $41,151 of cash during the fiscal year
ended March 31, 1998. The Company borrowed, and repaid, $300,000 under its line
of credit. Payments in the amounts of $32,500 and $16,592 were made against the
Promissory Note issued in conjunction with the acquisition of the U.K.
subsidiary and the mortgage note against the U.K. land and building,
respectively. A positive impact on financing activities was the exercise of
options, which generated $7,941 in cash.
In October of 1997, the Company and Fleet Bank N.A. extended an
existing line of credit agreement through July of 1998. 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.
In March of 1998, the Company's wholly owned subsidiary in the U.K.,
Comtrex Systems Corporation LTD, entered into a line of credit agreement with
Barclays Bank PLC. The agreement calls for borrowings of up to (pound)150,000,
and expires on March 30, 1999. Borrowings bear interest at the rate of three
percent in excess of the bank's base rate and are collateralized by
substantially all assets of the subsidiary. The parent Company is not a
guarantor on this line of credit.
In June of 1998, the Company and PNC Bank N.A. entered into a $700,000
credit facility which expires on July 31, 1999. The agreement provides for
borrowings of up to $650,000, and for the issuance by the bank of up to $50,000
of Irrevocable Letters of Credit. Borrowings bear interest at the bank's prime
rate and are collateralized by substantially all assets of the Company. This
line of credit replaced the credit facility with Fleet Bank N.A. The new
facility with PNC Bank N.A. contains no provisions limiting the borrowings
amount depending on eligible receivables, such as were contained in the
agreement with Fleet Bank N.A.
The Company believes that its cash balance, together with its lines of
credit, provides the Company with adequate liquidity to finance its projected
operations.
The Company borrowed a total of $300,000 under its previous line of
credit at various times during the fiscal year for short term cash requirements
and all borrowings were repaid. The Company would expect to utilize the credit
facility with PNC Bank N.A. from time to time for short term cash requirements.
As of March 31, 1998, 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.
11
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1998 COMPARED TO THE YEAR ENDED MARCH 31, 1997
Net sales for the Company increased 18% in fiscal year 1998, to
$6,382,948, when compared with net sales of $5,430,221 for fiscal year 1997. The
Company reported net income of $241,399, or $.07 per share, for the fiscal year
ended March 31, 1998, as compared with a net loss of $89,017, or $.03 per share,
for the prior fiscal year. A significant contributing factor to the increase in
sales was the acquisition, outlined in Note 2 to the Notes to Financial
Statements, of the Company's U.K. distributor, as of October 2, 1997, and the
resulting consolidation of sales.
The Company's subsidiary in the U.K., Comtrex Systems Corporation LTD
("Comtrex U.K.") operates essentially autonomously, maintaining its own
accounting system, clerical and administrative staff. While the accounting
function within Comtrex U.K. has day-to-day reporting responsibility to the
parent Company, the sales, support and service departments operate within the
reporting structure of the subsidiary. Comtrex U.K. also provides sales and
service support for the Company's distribution network in Europe. This activity
was integrated, subsequent to the acquisition, within the business plan and
operating activities of Comtrex U.K.
Administrative expenses increased from $681,859, or 13% of sales, in
fiscal year 1997 to $883,759, or 14% of sales, in fiscal year 1998. Sales,
marketing and customer support expenses increased from $1,207,915, during fiscal
year 1997, to $1,288,821 during fiscal year 1998, while declining when
represented as a percentage of sales, from 22% to 20% for fiscal years 1997 and
1998, respectively. Substantially all of the operating activities of Comtrex
U.K., like the Company's District Office in Atlanta, relate to the direct sale,
installation and service of products to end-users. The selling and customer
support expense required for such direct sales activities generally represents a
higher percentage of sales than is associated with sales through a dealer or
distribution channel. The reduction in such expenses, expressed as a percentage
of sales, is a result of a combination of several factors, which are discussed
below.
The primary customer base of the Company's Atlanta District Office is
represented by quick service food restaurants. A customer preference for open
architecture systems, when compared with the Company's proprietary Sprint
product line, began to gradually impair sales beginning in the middle of fiscal
year 1997. Personnel reductions were implemented in the fourth quarter of fiscal
year 1997, reducing sales and customer support expenses. As a result of product
development specifically for the quick service industry, with the Company's open
architecture PCS-5000 series, the Atlanta office began to successfully secure
several new customers in the third and fourth quarters of fiscal year 1998,
including the Atlanta Bread Company. In addition, the District Office began a
program to upgrade and implement new store installations with existing customers
with the PCS-5000, including Hoover Foods. The Company anticipates an increase
in sales in the Atlanta office during fiscal year 1999, and is currently
expanding its personnel in the office.
During fiscal year 1998, the Company determined to focus its dealer
sales activities on those organizations with whom it had an existing sales
relationship, and more specifically, those dealerships which represented
approximately 80% of its dealer sales. This focus in sales and support activity
allowed the Company to implement a reduction in personnel related to dealer
sales in both the U.S. and Canada. The Company intends to work more closely with
these dealer organizations, and seek to penetrate target mid-sized accounts,
principally in the quick service food segment, in conjunction with the Company's
own direct sales efforts in Atlanta and on a national basis.
Cost of sales decreased during the most recent fiscal year, from 62% of
net sales, for fiscal year 1997, to 56% of net sales, for the most recent fiscal
year. The significant reduction in cost of sales and increase in gross margin is
a result of the consolidation of sales of Comtrex U.K. While selling and support
expenses generally represent a higher percentage of direct sales than sales
through a distribution network, the gross margin on such product sales is
generally significantly greater. In addition to product sales, approximately 30%
of the net sales of Comtrex U.K. represent maintenance, installation and
implementation services. Such service related revenue is at a greater gross
margin than product sales.
12
<PAGE>
RESULTS OF OPERATIONS (continued)
International sales increased dramatically from $1,846,275, or 34% of
sales, during fiscal year 1997, to $4,021,723, or 63% of sales, in the current
fiscal year. A primary factor in this increase was the consolidation of sales
with the Company's U.K. subsidiary. In addition, sales to the Company's French
distributor, Restaurant Data Systems (RDS) increased by approximately $475,000.
RDS introduced the PCS-5000 product in France during the fourth quarter of the
fiscal year 1997, primarily to a quick service restaurant customer base. During
the 1998 fiscal year, RDS successfully implemented the PCS-5000 product in over
one hundred Courte Paille locations, a family dining restaurant chain which is
part of the restaurant division of the Accor Group. In July of 1997, RDS and
Comtrex began a development, evaluation and trial implementation of the PCS-5000
with Quick Restaurants N.V. in twelve stores in France and Holland. This process
resulted in the PCS-5000 being selected as the sole approved POS system for new
openings and store retrofits of this Belgian operator of quick service hamburger
restaurants. The Company anticipates an even greater increase in sales to its
French distributor during fiscal year 1999.
As of June 19, 1998, the Company's consolidated backlog was
approximately $1,053,670 as compared with a backlog of $295,000 on June 20,
1997. The Company expects that substantially all of its current backlog will be
shipped within the next ninety (90) days.
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 fiscal year ended March 31, 1996.
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. 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.
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
was 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 the District office.
Cost of sales decreased during fiscal year 1997 to 62% of net sales,
from 66% of net sales for fiscal year 1996. Cost of sales during fiscal year
1997 were favorably impacted by the operation of the Atlanta District Office,
since sales made directly to end-users are at higher margins than sales to a
dealer or distribution channel.
Sales to the Canadian and international dealers increased from
$1,812,145 during fiscal year 1996, or 36% of net sales, to $1,846,275, 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 1997 fiscal year,
primarily to a quick service restaurant customer base.
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.
13
<PAGE>
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.
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 1998
Annual Meeting of Shareholders. For information concerning the Company's
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 1998 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 1998 Annual Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive Proxy
Statement for its 1998 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
Auditors' Report to the Members of Comtrex Systems Corporation Limited
Consolidated Balance Sheets at March 31, 1998 and 1997
Consolidated Statements of Operations for the years ended March 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flow for the years ended March 31,
1998, 1997 and 1996
Notes to Financial Statements
(a)2. Financial Statement Schedules (included in this report):
VIII. Valuation and Qualifying Accounts for the years ended March 31,
1998, 1997 and 1996
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.
14
<PAGE>
(a)3. Exhibits Filed Pursuant to Item 601 of Regulation S-K:
3.1 *(b) Certificate of Incorporation, as amended, of the Company
3.2 *(b) By-Laws, as amended, of the Company
4.1 *(b) Specimen Common Stock Share Certificate
4.2 *(a) Subordinated Convertible Debenture, in the original
principal amount of $300,000 (the "Debenture"), issued
by the Company to Norman and Shirley Roberts .............. 34
4.3 *(a) Promissory note, in the original principal amount of
$65,000 (the "Note"), delivered by the Company to Norman
Roberts and Shirley Roberts ............................... 42
10.1 *(c) 1985 Employee Incentive Stock Option Plan of the Company
10.2 *(c) 1985 Non-Qualified Stock Option Plan of the Company
10.3 *(d) 1992 Non-Qualified Stock Option Plan of the Company
10.4 *(e) 1995 Employee Incentive Stock Option Plan of the Company
10.5 *(f) Stock Purchase Agreement, dated October 2, 1997, between
the Company, Norman Roberts, Shirley Roberts and
Steven Roberts
10.6 *(a) Working Cash Line of Credit Agreement between the Company
and PNC Bank N.A. dated June 12, 1998 ..................... 45
10.7 *(a) Security Agreement dated June 12, 1998, delivered by the
Company to PNC Bank N.A. .................................. 55
10.8 *(a) Loan Agreement (Business Overdraft Facility) between
Comtrex Systems Corporation LTD and Barclays Bank PLC
dated March 30, 1998 ...................................... 64
10.9 *(a) Security Agreement (Debenture), dated March 30, 1998,
delivered by Comtrex Systems Corporation LTD to Barclays
Bank PLC .................................................. 68
21.1 *(a) Subsidiaries of the Company ............................... 74
24.1 *(a) Consent of Drucker, Math & Whitman, P.C. .................. 75
25.1 *(a) Powers of Attorney ........................................ 76
27 *(a) Financial Data Schedules .................................. 83
- - -------------------
*(a) Filed herewith.
*(b) Incorporated by reference to the exhibits to the Company's Form 8-K
filed with the Securities and Exchange Commission on May 16, 1989.
15
<PAGE>
*(c) Incorporated by reference to the exhibits from the Company's
registration statement on Form S-18. (File No. 2-97898-NY).
*(d) Incorporated by reference to the exhibits to the Company's definitive
proxy statement filed with the Securities and Exchange Commission on
July 16, 1992.
*(e) Incorporated by reference to the exhibits to the Company's definitive
proxy statement filed with the Securities and Exchange Commission on
July 13, 1995.
*(f) Incorporated by reference to the exhibits to the Company's Form 8-K
filed with the Securities and Exchange Commission on October 14, 1997.
b. Reports on Form 8-K
During the fourth quarter of the year ended March 31, 1998, no current
reports on Form 8-K were filed by the registrant with the Securities and
Exchange Commission.
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Comtrex Systems Corporation
Moorestown, New Jersey
We have audited the accompanying consolidated balance sheets of Comtrex Systems
Corporation (a Delaware corporation) and subsidiary ("Company") as of March 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three year
period ended March 31, 1998. 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 did not audit the financial
statements of Comtrex Systems Corporation Limited (a corporation formed under
the laws of England) ("Comtrex UK"), a wholly-owned subsidiary, which statements
reflect total assets and revenues constituting 39 percent and 28 percent,
respectively, of the related consolidated totals for 1998. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Comtrex UK, is based
solely on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Comtrex Systems Corporation and
subsidiary as of March 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three year period ended March 31,
1998 in conformity with generally accepted accounting principles.
In connection with our audits of the financial statements referred to above, we
audited the financial statement schedule for the years ended March 31, 1998,
1997 and 1996 listed under Items 13 (a) 2. In our opinion, based on our audit
and the report of the other auditors, the financial statement schedule presents
fairly, in all material respects, the information stated therein, when
considered in relation to the consolidated financial statements taken as a
whole.
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
June 18, 1997
17
<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF
COMTREX SYSTEMS CORPORATION LIMITED
(FORMERLY DATA SYSTEMS TERMINALS LIMITED)
PERIOD FROM OCTOBER 2, 1997 TO MARCH 31, 1998
We have audited the financial statements of Comtrex Systems Corporation Limited
a company incorporated in England, set out on pages 2 to 11 which have been
prepared under the historical cost convention and on the basis of the accounting
policies set out on pages 7 and 8.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of these financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on these statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Boards. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the company as at 31 March 1998 and of its profit and cash flows
for the period then ended and have been properly prepared in accordance with
United States generally accepted accounting principles.
Date: 24, June 1998 ROTHMAN PANTALL & CO
Chartered Accountants &
Registered Auditors
Clareville House
26/27 Oxendon Street
London SW1Y 4EP
18
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
-----------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 313,617 $ 142,886
Certificate of deposit - 100,000
Accounts receivable, net of reserve
of $131,488 in 1998 and $186,710 in 1997 1,711,154 1,057,014
Inventories 1,180,783 1,084,238
Prepaid expenses and other 106,334 73,752
---------- ----------
Total current assets 3,311,888 2,457,890
---------- ----------
Property and equipment:
Land 156,244 -
Building 312,656 -
Machinery and equipment 816,417 758,911
Office furniture and equipment 609,690 293,906
---------- ----------
1,895,007 1,052,817
Less accumulated depreciation (1,141,929) (905,268)
---------- ----------
Net property and equipment 753,078 147,549
---------- ----------
Other assets:
Software development costs, net of amortization 309,569 337,772
Goodwill, net of amortization 428,998 -
---------- ----------
738,567 337,772
---------- ----------
$4,803,533 $2,943,211
========== ==========
</TABLE>
See notes to financial statements.
19
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
-----------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 842,352 $ 581,687
Current portion of long-term debt 56,136 -
Note payable 32,500 -
Accrued expenses:
Payroll 87,904 60,506
Other 112,767 41,799
Deferred income 277,970 22,049
Customer deposits 31,901 -
---------- ----------
Total current liabilities 1,441,530 706,041
---------- ----------
Deferred income taxes 10,418 -
---------- ----------
Long-term debt, net of current portion 596,563 -
---------- ----------
Total liabilities 2,048,511 706,041
---------- ----------
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, 3,583,572 and 3,164,022 shares issued and
outstanding March 31, 1998 and 1997, respectively 3,584 3,165
Additional paid-in capital 5,557,092 5,315,970
Foreign currency translation adjustments 34,912 -
Accumulated deficit (2,840,566) (3,081,965)
---------- ----------
Total shareholders' equity 2,755,022 2,237,170
---------- ----------
$4,803,533 $2,943,211
========== ==========
</TABLE>
See notes to financial statements.
20
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
Net sales $6,382,948 $5,430,221 $5,033,737
---------- ----------- -----------
<S> <C> <C> <C>
Costs, expenses, and other:
Cost of sales 3,562,600 3,366,509 3,339,337
Administrative 883,759 681,859 684,242
Research and development 193,684 131,258 164,992
Sales and marketing 854,137 744,075 678,530
Customer support 434,684 463,840 319,997
Depreciation and amortization 157,716 139,801 103,909
Interest expense (income), net 45,276 (8,104) (23,522)
---------- ----------- -----------
6,131,856 5,519,238 5,267,485
---------- ----------- -----------
Income (loss) before income
taxes and extraordinary credit 251,092 (89,017) (233,748)
Provision for income taxes 94,109 - -
---------- ----------- -----------
Income (loss) before
extraordinary credit 156,983 (89,017) (233,748)
Extraordinary credit, reduction of income
taxes arising from utilization of prior
years' operating losses 84,416 - -
----------- ----------- -----------
Net income (loss) $ 241,399 ($ 89,017) ($ 233,748)
=========== =========== ===========
Per share basis:
Basic:
Income (loss) before extraordinary credit $ .05 $ (.03) $ (.07)
========== =========== ===========
Net income (loss) $ .07 $ (.03) $ (.07)
========== =========== ===========
Diluted:
Income (loss) before extraordinary credit $ .05 $ (.03) $ (.07)
========== =========== ===========
Net income (loss) $ .07 $ (.03) $ (.07)
========== =========== ===========
</TABLE>
See notes to financial statements.
21
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Foreign
--------------------- Additional currency Accu- Total
Shares paid-in translation mulated shareholders'
issued Amount capital adjustments deficit equity
------ ------ ------- ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
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
Issuance of
common stock,
exercise of options 19,550 19 7,922 7,941
Issuance of
common stock,
purchase of
subsidiary 400,000 400 233,200 233,600
Currency translation 34,912 34,912
adjustment
Net income 241,399 241,399
--------- ------ ---------- ------- ----------- ----------
Balance, March 31,
1998 3,583,572 $3,584 $5,557,092 $34,912 ($2,840,566) $2,755,022
========= ====== ========== ======= =========== ==========
</TABLE>
See notes to financial statements.
22
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 241,399 ( $89,017) ($233,748)
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 157,716 139,801 103,909
Provisions for (recovery of)
losses on accounts receivable (57,217) 51,664 44,780
Provisions for (recovery of) losses on inventories (37,920) 120,232 75,609
Foreign currency translation adjustments (2,278) - -
Changes in assets and liabilities:
Certificate of deposit 100,000 - 150,000
Accounts receivable (188,602) 27,512 ( 208,688)
Inventories 246,532 ( 274,585) ( 245,244)
Prepaid expenses and other 20,386 17,277 11,096
Accounts payable (32,771) 150,106 38,413
Accrued expenses and other (4,807) 13,328 ( 60,122)
--------- --------- ---------
Net cash provided (used) by
operating activities 442,438 156,318 ( 323,995)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (36,304) (94,549) ( 59,719)
Software development costs (37,538) (137,049) ( 151,489)
Proceeds from disposals of fixed assets 7,472 - -
Cost of acquiring subsidiary (82,604) - -
Cash overdraft of subsidiary at date acquired (81,582) - -
--------- --------- ---------
Net cash used in investing activities (230,556) ( 231,598) ( 211,208)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings under line of credit 300,000 265,000 -
Repayments under line of credit (300,000) ( 265,000) -
Repayments on notes payable (32,500) - -
Repayments on debt (16,592) - -
Proceeds from issuing equity securities 7,941 - 2,650
--------- --------- ---------
Net cash provided (used) by financing activities (41,151) - 2,650
--------- --------- ---------
Net increase (decrease) in cash 170,731 ( 75,280) ( 532,553)
Cash and cash equivalents, beginning of year 142,886 218,166 750,719
--------- --------- ---------
Cash and cash equivalents, end of year $ 313,617 $142,886 $218,166
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 38,321 $ 3,954 -
========= ========= =========
Cash paid during the year for income taxes $ 26,600 $ - $ -
========= ========= =========
</TABLE>
Non-cash financing activity: The Company purchased all of the capital stock of
its subsidiary; see Note 2 for debt issued. In connection with the acquisition,
debt of the subsidiary approximating $369,000 was assumed.
See notes to financial statements.
23
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of business:
Comtrex Systems Corporation ("Company") is a Delaware corporation.
Comtrex designs, develops, assembles and markets electronic terminals and
computer software which provides retailers with transaction processing, in-store
controls and management information. Comtrex sells in the United States through
various distribution organizations. In April, 1996, Comtrex 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. In October, 1997, Comtrex acquired, via a subsidiary, a
distribution organization in the United Kingdom. Comtrex and its subsidiary are
referred to as "Company".
Principles of consolidation:
The consolidated financial statements include the accounts of Comtrex
and its wholly owned subsidiary. Intercompany transactions and accounts are
eliminated in consolidation.
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.
Cash equivalents:
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
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 receivable monthly and provides
allowances for potential uncollectible accounts.
24
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
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 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 $65,740, $33,103, and
$16,310, for the years ended March 31, 1998, 1997, and 1996, respectively.
Accumulated amortization was $563,971 and $498,230 at March 31, 1998 and 1997,
respectively.
Goodwill:
Goodwill represents the cost in excess of net assets acquired related to
Comtrex's acquisition of its subsidiary. Goodwill is being amortized over 20
years using the straight-line method. Accumulated amortization was $11,000 at
March 31, 1998. Goodwill is periodically reviewed by the Company for impairment
to determine if the fair value is less than the carrying value.
Product maintenance contract revenue:
Revenue is recognized from sales of maintenance contracts and extended
warrantees on a straight-line basis over the contract period. Unearned revenue
is deferred and reflected as deferred income on the consolidated balance sheets.
Software revenue recognition:
Revenue is recognized from sales of software when the program is
shipped.
Depreciation:
Depreciation on personalty is computed by both straight-line and
accelerated methods over the estimated useful lives of the assets which are
three to seven years. Depreciation on realty is computed using the straight-line
method over the estimated useful life of thirty years.
25
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
Foreign currency translation:
Adjustments resulting from translating foreign functional currency
financial statements into U.S. dollars are included in the currency translation
adjustment in shareholders' equity.
Income (loss) per share:
Basic income (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted income (loss) per share is computed as
above while giving effect to all dilutive potential common shares (but not
giving effect to securities that would have an antidilutive effect, as would
occur in loss years) that were outstanding during the period.
Reclassifications:
Reclassifications have been made to the consolidated balance sheet as of
March 31, 1997 to conform to the presentation as of March 31, 1998. The
reclassifications have no effect on financial position.
2. ACQUISITION OF SUBSIDIARY
On October 2, 1997, Comtrex acquired all the issued and outstanding
capital stock ("Stock") of Data Systems Terminals Limited, a corporation formed
and existing under the laws of England ("DSTL"). DSTL was a distributor of
Comtrex's products in the United Kingdom, which business Comtrex intends to
continue. Subsequent to the acquisition, DSTL's name was changed to Comtrex
Systems Corporation Limited ("Comtrex UK").
The following consideration was paid for the acquisition:
a) 400,000 restricted shares of Common Stock. These are not
transferrable on or before October 2,1999.
b) A Subordinated Convertible Debenture, in the amount of $300,000
("Debenture"). The Debenture accrues interest at the rate of eight
percent per annum, payable monthly. No principal is payable until
January 1, 2001. The Debenture is convertible into shares of the
Common Stock (in blocks of 20,000 shares), on or before October 1,
2000, at the rate of $1.00 per share. Comtrex may prepay all
amounts outstanding under the Debenture at any time on or before
October 2, 2000 if the shares of Comtrex Common Stock have closed
at $1.50, or higher, for each trading day for a 30 day period. Any
principal outstanding on October 2, 2000 shall be paid in twelve
equal quarterly installments, commencing January 1, 2001. The
Debenture is subordinate to all debt of the Company.
c) A Promissory note, in the amount of $65,000 ("Note"). The Note
bears interest at the rate of six percent per annum. The
outstanding principal balance of the Note, and all interest
accrued thereon, is repayable in twelve (12) equal monthly
installments, commencing on November 1, 1997.
26
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
2. ACQUISITION OF SUBSIDIARY: (continued)
The business combination has been accounted for using the purchase
method. The results of operations of Comtrex UK are included in the statement of
operations for the year ended March 31, 1998 since the date of acquisition.
The cost of the acquired enterprise is $681,204, which represents
400,000 shares of Comtrex Common Stock with an assigned value of $233,600, the
$300,000 Debenture, the $65,000 Note and legal and accounting fees associated
with the transaction of $82,604. Acquired goodwill of $439,998 will be amortized
over 20 years, using the straight-line method.
The following summarized unaudited pro forma financial information
assumes the acquisition had occurred on April 1 of each year:
Pro forma information
---------------------
1998 1997
-------------- --------------
Net sales $7,600,000 $7,850,000
Net income (loss) $ 237,000 $ (50,000)
Net income (loss)
per share, basic $ .07 $ (.01)
The pro forma results do not necessarily represent results which would
have occurred if the acquisition had taken place on the basis assumed above, nor
are they indicative of the results of future combined operations.
3. INVENTORIES:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C> <C>
Raw materials $ 706,342 $1,037,167
Work-in-process 91,398 128,141
Finished goods 443,467 108,127
Reserve for excess and obsolete inventory (60,424) (189,197)
---------- ----------
$1,180,783 $1,084,238
========== ==========
</TABLE>
4. SIGNIFICANT CUSTOMERS:
The customers listed below accounted for a significant portion of sales
and receivables:
<TABLE>
<CAPTION>
% of Sales % of Receivables
Fiscal Year Ended March 31, as of March 31,
------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997
---------- ---------- ---------- ----------- -----------
Customer "A" 10% 3% 6% 23% 39%
Customer "B" 10% - - 20% -
</TABLE>
Customers "A" and "B" are foreign corporations.
27
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
1998
--------
Convertible debenture, issued in connection
with acquisition of subsidiary. See Note 2(b). $300,000
Note payable, bank, due 2016, paid in monthly installments of $3,068
which includes interest. Interest is the bank's base prime rate plus 2
percent. The bank's base rate was 7.5 percent at March 31, 1998.
Substantially all assets of the subsidiary serve as collateral. 311,743
Notes payable, financial companies, due 2000, payable in monthly
installments of $1,984 which includes interest ranging from 7.5 to 11.5
percent. Secured by certain assets financed. 40,956
--------
$652,699
Less current portion 56,136
--------
$596,563
--------
Payable as follows, assuming no conversion of convertible debenture:
1999 $ 56,136
2000 58,438
2001 61,809
2002 136,809
2003 136,809
thereafter 202,698
</TABLE>
6. 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 1.4 years, 2.3 years, and 2.4 years at March 31, 1998, 1997, and 1996,
respectively. Through March 31, 1995, 247,000 options were exercised. Following
is a summary of activity:
28
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
6. STOCK OPTION PLANS: (continued)
<TABLE>
<CAPTION>
Outstanding Options
Available ----------------------------------------------
for Grant Number Price Range Total
--------- --------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
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 and 1998 - 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 2.5 years at March 31,
1998, 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> <C>
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
Granted (14,000) 14,000 .44 6,160
Forfeited 27,000 (27,000) .88 - 1.50 (33,060)
------- ------- ---------------- -------
Balance, March 31, 1998 68,000 82,000 $.44 - $1.75 $67,120
======= ======= ================ =======
</TABLE>
29
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
6. 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 3.9 years, 4.3 years and 5.0 years, at March 31,
1998, 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> <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
Granted (105,000) 105,000 .38 - .88 59,600
Forfeited 4,000 (4,000) .63 (2,520)
Exercised - (19,550) .38 - .63 (7,942)
-------- ------- --------------- -------
Balance, March 31, 1998 116,000 114,450 $.38 - $.88 $69,928
======== ======= =============== =======
</TABLE>
Accounting for stock based compensation:
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 income (loss) and income (loss)
per share would have changed as indicated:
1998 1997
-------- --------
Net income (loss) as reported $241,399 $(89,017)
======== ========
Pro forma $168,124 $(93,026)
======== ========
Income (loss) per share:
Basic, as reported $ .07 $ (.03)
======== ========
Basic, Pro forma $ .05 $ (.03)
======== ========
Diluted, as reported $ .07 $ (.03)
======== ========
Diluted, Pro forma $ .05 $ (.03)
======== =========
30
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
6. STOCK OPTION PLANS: (continued)
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 90% and a risk-free interest
rate of 6.0%.
7. INCOME TAXES:
The statement of operations for 1998 reflects a provision for United
States 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) plus
a 21 percent provision for U.K. income taxes. The United States provision for
income taxes is offset by an extraordinary credit which arises from the
utilization of prior years' operating losses. Domestic pretax income and foreign
pretax income was $211,000 and $41,000, respectively, in 1998. Domestic tax
provision and foreign tax provision was $84,000 and $10,000, respectively, in
1998.
The Company has net operating loss carryforwards of approximately
$3,100,000 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
through the fiscal year ending 2002. Rent expense was approximately $285,000,
$160,000 and $141,000 for the years ended March 31, 1998, 1997 and 1996,
respectively. Rental commitments under noncancelable operating leases for the
years ending March 31, are as follows: 1999, $213,000; 2000, $131,000; 2001,
$87,000; 2002, $13,000.
The Company maintains a 401(k) plan ("Plan") in which 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 subsidiary in England maintains a defined
contribution plan ("U.K. Plan") in which substantially all employees may
participate, subject to invitation by that entity's Directors. Under the U.K.
Plan, Comtrex UK is committed to fund $15,000 annually for certain executive
employees plus three percent of salaries for other participants. The Company's
contributions to both plans aggregated $30,985, $14,230 and $14,967 in the
fiscal years ending March 31, 1998, 1997 and 1996, respectively.
9. OPERATIONS IN GEOGRAPHIC AREAS:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
United States, domestic $2,361,225 $3,583,946 $3,221,592
United States, export 2,717,651 1,846,275 1,812,145
United Kingdom * 1,780,170 - -
Eliminations (476,098) - -
---------- ---------- ----------
Net sales $6,382,948 $5,430,221 $5,033,737
========== ========== ==========
</TABLE>
31
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
9. OPERATIONS IN GEOGRAPHIC AREAS: (continued)
<TABLE>
<CAPTION>
1998 1997 1996
------------------ --------------- ---------------
<S> <C> <C> <C>
Income (loss) before taxes and extraordinary credit:
United States $211,040 ($89,017) ($ 233,748)
United Kingdom * 41,491 - -
Unallocated (1,439) - -
-------- -------- -----------
Income (loss) before income
taxes and extraordinary credit $251,092 ($89,017) ($ 233,748)
======== ======== ===========
Identifiable assets:
United States $3,017,826 $2,943,211 $2,868,794
United Kingdom * 1,856,899 - -
Corporate 428,998 - -
Eliminations (500,190) - -
---------- ---------- -----------
Total assets $4,803,533 $2,943,211 $2,868,794
========== ========== ===========
</TABLE>
* Subsidiary acquired October 2, 1997
10. PER SHARE INFORMATION:
A reconciliation of the average number of common shares outstanding used
in the basic and diluted computations follows:
<TABLE>
<CAPTION>
Average Common Shares Outstanding
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Basic 3,375,130 3,164,022 3,163,605
Diluted effect of stock options 42,751 - -
Diluted effect of convertible debenture 150,000 - -
----------- ---------- ---------
Diluted 3,567,881 3,164,022 3,163,605
========== ========== ==========
</TABLE>
For purposes of computing diluted per share data, $12,000 of interest
related to the convertible debenture was added to net income.
11. SUBSEQUENT EVENT:
In June, 1998, the Company and a bank entered into a line of credit
agreement. This agreement replaced a line of credit with a different bank that
existed as of March 31, 1998; no loans were outstanding under the agreement as
of March 31, 1998. The new agreement provides for borrowings of up to $700,000,
expires on June 30, 1999, bears interest at the bank's prime rate, and is
collateralized by substantially all assets of the Company.
32
<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, 1998 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- - --------- ----- ----
/s/ President, Director and June 25, 1998
- - ------------------------------------ Principal Executive Officer
Jeffrey C. Rice
/s/ Principal Financial and June 25, 1998
- - ------------------------------------ Accounting Officer
Lisa J. Mudrick
* Director June 25, 1998
- - ------------------------------------
Anthony S. Maladra
* Director June 25, 1998
- - ------------------------------------
Sidney Dworkin
* Director June 25, 1998
- - ------------------------------------
Larry Irwin
* Director June 25, 1998
- - ------------------------------------
Steven D. Roberts
* Director June 25, 1998
- - ------------------------------------
William A. Landman
* Director June 25, 1998
- - ------------------------------------
Alan G. Schwartz
* Director June 25, 1998
- - ------------------------------------
Nathan Lipson
* By /s/
- - ------------------------------------
Jeffrey C. Rice
Attorney-in-Fact
</TABLE>
33
<PAGE>
Exhibit 4.2 SUBORDINATED CONVERTIBLE DEBENTURE, IN THE ORIGINAL PRINCIPAL AMOUNT
OF $300,000 (THE "DEBENTURE"), ISSUED BY THE COMPANY TO NORMAN
ROBERTS AND SHIRLEY ROBERTS
34
<PAGE>
COMTREX SYSTEMS CORPORATION
SUBORDINATED CONVERTIBLE DEBENTURE
$300,000.00 October 2, 1997
THIS DEBENTURE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933
(THE "ACT") OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AS TO THE DEBENTURE OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
FOR VALUE RECEIVED, the undersigned, COMTREX SYSTEMS CORPORATION, a
Delaware corporation (the "Company"), hereby promises to pay to NORMAN ROBERTS
and SHIRLEY ROBERTS, or their registered assigns, the principal sum of THREE
HUNDRED THOUSAND ($300,000.00) DOLLARS, as hereinafter provided, together with
interest (computed on the basis of a three hundred sixty (360) day year of
twelve (12) thirty (30) day months) on the unpaid principal balance of this
Debenture from the date of this Debenture until paid, at the rate of eight
percent (8%) per annum.
1. PAYMENT.
(a) Payments of the principal of and interest on this Debenture shall
be made in lawful money of the United States of America at the principal
executive offices of the Company.
(b) Interest accruing on the outstanding principal balance of this
Debenture during each calendar month shall be paid on the first day of the next
calendar month, commencing on November 1, 1997.
35
<PAGE>
(c) The principal balance of this Debenture, if any, outstanding on the
Expiration Date (as such term is defined hereinafter), shall be paid in twelve
(12) equal quarterly installments, on each January 1, April 1, July 1 and
October 1 occurring after the Expiration Date, with the first such installment
being due and payable on January 1, 2001.
(d) The outstanding principal balance of this Debenture, together with
all accrued but unpaid interest thereon, may be prepaid, at the Company's option
at any time prior to the Expiration Date, without penalty or premium, provided
that (i) the average closing bid price for the Company's Common Stock in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or (ii) the average closing sale price on
the primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, shall have, for thirty (30)
consecutive trading days ending on the fifth (5th) trading day prior to the date
the Notice of Prepayment (as such term is defined hereinafter) is issued by the
Company, equaled or exceeded $1.50 per share (subject to adjustment in the event
of any stock splits or similar events). Notice of prepayment (the "Notice of
Prepayment") shall be given by the Company to the registered holder of this
Debenture not later than the sixtieth (60th) day before the date fixed for
prepayment (the "Prepayment Date"). On and after the Prepayment Date, the
registered holder of this Debenture shall have no rights with respect to this
Debenture except to receive the payment in full of the then outstanding
principal balance of this Debenture and all accrued, unpaid interest thereon.
(e) The outstanding principal balance of this Debenture, together with
all accrued but unpaid interest thereon, may be prepaid, at the Company's option
at any time after the Expiration Date, without penalty or premium.
36
<PAGE>
2. REGISTRATION AND TRANSFER.
(a) The Company shall maintain at its principal executive offices a
register for this Debenture, in which the Company shall record the name and
address of the person in whose name this Debenture has been issued and the name
and address of each transferee and prior owner thereof. The Company may deem and
treat the person in whose name this Debenture is so registered as the holder and
owner thereof for all purposes and all notices hereunder to the registered
holder may be to the address indicated on such register.
(b) This Debenture may be transferred only by the surrendering thereof
for registration of transfer duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder. The Company may
condition its registration of such transfer upon (a) the opinion of counsel
acceptable to the Company that the transfer of the Debenture does not violate
the Act or any State securities or blue sky laws, and (b) the payment to it of a
sum sufficient to cover any stamp tax or other governmental charge imposed in
respect of such transfer.
3. RIGHT OF CONVERSION.
(a) The registered holder of this Debenture at any time may convert the
outstanding principal balance of this Debenture, in blocks of $20,000.00 or any
multiple thereof, into shares of the Company's Common Stock, par value $0.001
per share (the "Common Stock"), as provided herein, at the rate (subject to
adjustment as provided in Article 4 below) of one (1) share per $1.00
outstanding principal amount of this Debenture. Such right of conversion shall
automatically terminate upon the earlier to occur of (i) 5:00 P.M., local time
in Philadelphia, Pennsylvania, on October 1, 2000 (the "Expiration Date"), or
(ii) the Prepayment Date (as defined in Article 1 above).
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(b) The right of conversion of this Debenture shall be exercised by the
registered holder hereof giving written notice of exercise to the Company's
Secretary, in form reasonably satisfactory to the Company, accompanied by this
Debenture. Such notice shall be deemed to be given when received by the
Secretary of the Company, and such notice shall be irrevocable once given. All
interest on the principal amount of this Debenture being converted shall cease
to accrue as of the effective date of the notice of exercise.
(c) Within fifteen (15) days after any exercise of the conversion
rights provided herein, the Company shall deliver to the registered holder of
this Debenture a certificate (the "Conversion Certificate") for the number of
shares of Common Stock to which such holder is entitled and, in the case of a
conversion of less than all of the then outstanding principal balance of this
Debenture, the Company shall cancel this Debenture upon the surrender hereof and
shall execute and deliver a new debenture, of like tenor, for the principal
balance remaining outstanding hereunder after the issuance of the Conversion
Certificate. The Company may condition delivery of any Conversion Certificate
upon the prior receipt from the registered holder of any undertakings that the
Company may determine are required to insure that the certificate is being
issued in compliance with all applicable federal and State securities laws.
(d) The registered holder of this Debenture shall have no rights as a
shareholder of the Company until a conversion of this Debenture and the issuance
of a certificate representing shares of the Common Stock, as provided herein.
38
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4. ADJUSTMENT FOR CAPITAL CHANGES.
In the event of a stock dividend, stock split, recapitalization,
combination, subdivision or other similar corporate change with respect to the
capital stock of the Company, the Board of Directors of the Company shall make
an appropriate adjustment in the aggregate number of shares into which this
Debenture is convertible.
5. EVENTS OF DEFAULT.
(a) Subject to the subordination provisions contained in Article 6
hereof, if one or more of the following events of default shall occur:
(i) The Company shall default in the payment of any principal of
or interest on this Debenture, and such failure shall continue for thirty
(30) days; or
(ii) The Company shall be declared, by a court of competent
jurisdiction, a bankrupt or insolvent;
then during the continuance of any such event the registered holder of this
Debenture may declare by written notice all the then unpaid principal amount of
this Debenture to be due and payable, upon which the same shall forthwith become
due and payable, together with the interest accrued thereon, without
presentation, demand, protest or notice of dishonor, all of which the Company
hereby waives.
(b) Should the indebtedness represented by this Debenture or any part
thereof be collected in any proceeding or placed in the hands of attorneys for
collection, the Company agrees to pay, in addition to the principal and interest
due and payable hereon, all costs of collecting this Debenture, including
reasonable attorneys' fees and expenses.
39
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6. SUBORDINATION.
(a) The term "Senior Indebtedness" as utilized herein means the
principal of, premium, if any, and interest on all indebtedness of the Company,
whether outstanding on the date of this Debenture or thereafter created,
incurred or assumed, in respect of borrowed money from any bank, savings and
loan, insurance company or other financial institution.
(b) Notwithstanding any contrary provision contained in this Debenture,
in the event of (a) any liquidation, dissolution or other winding-up of the
Company, or of any receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization or other similar proceeding relative to the Company
or its property, or (b) an event of default occurring and continuing with
respect to any Senior Indebtedness of the Company, all Senior Indebtedness
(including principal, interest, premium and penalty) shall be paid in full
before any further payment (whether principal, interest or otherwise) shall be
made with respect to this Debenture.
7. MISCELLANEOUS.
(a) If the date of any payment required by this Debenture be Saturday,
Sunday or a bank holiday, such payment shall be payable on the first business
day following such date.
(b) The Company hereby expressly waives presentment, demand, protest or
any other notice whatsoever.
(c) This Debenture and the terms and provisions hereof shall be
interpreted in accordance with the laws of New Jersey.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed, sealed and delivered on the date first above written.
COMTREX SYSTEMS CORPORATION
By: /s/ Jeffrey C. Rice
--------------------------
Jeffrey C. Rice, President
Attest:
(Seal) /s/ Lisa J. Mudrick
------------------------------------
Lisa J. Mudrick, Assistant Secretary
41
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Exhibit 4.3 PROMISSORY NOTE, IN THE ORIGINAL PRINCIPAL AMOUNT OF $65,000
(THE "NOTE"), DELIVERED BY THE COMPANY TO NORMAN ROBERTS AND
SHIRLEY ROBERTS
42
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PROMISSORY NOTE
$65,000.00 October 2, 1997
FOR VALUE RECEIVED, the undersigned, COMTREX SYSTEMS CORPORATION, a
Delaware corporation (the "Maker"), hereby promises to pay to the order of
NORMAN ROBERTS and SHIRLEY ROBERTS (collectively, the "Payee"), as hereinafter
provided, the principal sum of SIXTY-FIVE THOUSAND DOLLARS ($65,000.00),
together with interest on the unpaid principal hereof from the date of this Note
until said principal shall be paid, at a fixed rate per annum equal to Six
percent (6.0%).
Both the principal of and interest on this Note are payable in lawful
money of the United States of America to the Payee at the address specified by
the Payee in writing and delivered to the Maker.
The outstanding principal of this Note, and the interest accrued
thereon, shall be repaid in twelve (12) equal, consecutive, monthly installments
of $5,741.67 each, on the first day of each calendar month, with the first such
installment being due and payable on November 1, 1997 and the twelfth (12th) and
final installment being due and payable on October 1, 1998.
If the date of any payment required by this Note be Saturday, Sunday or
a bank holiday, such payment shall be payable on the first business day
following such date. Payments made pursuant to this Note shall be deemed made
the banking day payment is received by the Payee; payments received after 3:00
P.M., Philadelphia, Pennsylvania local time, shall be deemed made the next
banking day.
In the event that any payment of interest or principal hereunder should
not be received by the Payee within thirty (30) days of its due date, the Payee
shall have the right to declare the entire outstanding principal of this Note,
and all accrued, unpaid interest thereon, to be immediately due and payable.
This Note may at the Maker's option be prepaid in whole or in part, at
any time and from time to time, without penalty or premium. Any partial
prepayment shall be applied first to accrued and unpaid interest and then to the
principal payments due under this Note in the inverse order of maturity.
Should the indebtedness represented by this Note or any part thereof be
collected any proceeding or placed in the hands of attorneys for collection, the
Maker agrees to pay, in addition to the principal and interest due and payable
hereon, all reasonable costs of collecting this Note, including reasonable
attorneys fees and expenses.
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This Note shall be governed by and construed in accordance with the
laws of the State of New Jersey.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed,
sealed and delivered on the date first above written.
Attest: COMTREX SYSTEMS CORPORATION
/s/ Lisa J. Mudrick By: /s/ Jeffrey C. Rice
- - ------------------------------------ --------------------------
Lisa J. Mudrick, Assistant Secretary Jeffrey C. Rice, President
44
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Exhibit 10.6 WORKING CASH LINE OF CREDIT AGREEMENT BETWEEN THE
COMPANY AND PNC BANK, N.A., DATED JUNE 12, 1998
45
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Working Cash(R) Line of Credit Agreement PNCBANK
- - --------------------------------------------------------------------------------
THIS WORKING CASH(R) LINE OF CREDIT AGREEMENT ("Line of Credit Agreement") is
made as of June 11, 1998, between COMTREX SYSTEMS CORPORATION ("Customer") with
an address at 102 Executive Drive, Suite 1, Moorestown, New Jersey 08057, and
PNC Bank, National Association ("Bank") with an office at 1600 Market Street,
Philadelphia, Pennsylvania 19103.
Customer has executed and delivered to Bank a Working Cash(R), Line of Credit,
Investment Sweep Agreement (the "Sweep Agreement") establishing a Working
Cash(R) Sweep Account (the "Account") and has executed and delivered to PNC
Bank, National Association, as Trustee a Working Cash(R) Trust Agreement
establishing a revocable trust (the "Customer's Trust"), each of which is
incorporated by reference herein (individually and collectively, the "Working
Cash Agreement(s)"). Capitalized terms used but not defined herein shall have
the meaning given to them in the other Working Cash Agreements. In connection
with the Account, Customer has requested that Bank provide Customer a line of
credit pursuant to which Bank would fund Net Debits (as defined in the Working
Cash Sweep Agreement) occurring in such Account. The following outlines the
terms of Customer's Working Cash(R) Line of Credit (the "Line of Credit")
1. LINE OF CREDIT. Monies may be borrowed from time to time until the Expiration
Date against the Line of Credit, in an amount in the aggregate at any time
outstanding not, to exceed $650,000. The term "Expiration Date" means June 30,
1999 or such later date as may be designated by Bank by written notice to
Customer. Amounts borrowed hereunder shall be used to fund working capital of
Customer and shall be deposited by Bank in the Account.
2. ADVANCE PROCEDURES. In the event that the assets transferred to the Account
from the Customer's Trust under the Working Cash Sweep Agreement are
insufficient to cover the Net Debit, Bank shall, on behalf of Customer, advance
an amount equal to the lesser of (a) the remaining amount of the Net Debit, or
(b) the amount, if any, available under the Line of Credit.
3. INTEREST RATE. Interest Of the unpaid balance of the Line of Credit
advances will be charged at a rate per annum which is at all times equal to the
Prime Rate or at another variable rate of interest offered by Bank in its sole
discretion and agreed upon in writing between Bank and Customer (the "As Offered
Rate"). As used herein, the term "Prime Rate" means the rate publicly announced
by Bank from time to time as its prime rate. The Prime Rate is not tied to any
external rate or index and does not necessarily reflect the lowest rate of
interest actually charged by Bank to any particular class or category of
customers. For loans bearing interest at the Prime Rate, the rate of interest on
amounts outstanding hereunder will change automatically when the Prime Rate
changes without notice to Customer, effective on the date of any such change.
Interest will be computed on the basis of a year or 365 or 366 days, as the case
may be, and paid on the actual number of days elapsed. In no event will the rate
of interest hereunder exceed the maximum rate allowed by law. Interest will be
due and payable on or about the last day of each month and will be charged to
the Account. In the event there are insufficient Credits (as defined in the
Working Cash Sweep Agreement) in the Account to pay interest, Bank will advance
funds on behalf of Customer as provided herein to the extent Customer has
availability under the line of Credit. Otherwise, any unpaid interest will be
immediately due and payable by Customer.
4. PAYMENT TERMS. Any Credit in the Account shall, to the extent available at
the end of any Business Day, be automatically applied to the repayment of the
outstanding principal balance under the Line of Credit. In addition, the
outstanding principal balance and any accrued but unpaid interest thereon shall
be due and payable on the Expiration Date. If any payment hereunder shall become
due on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest in connection with such payment. Customer hereby authorizes
Bank to charge the Account or any deposit account maintained by Customer,
individually or jointly with others, with Bank for any payment when due
hereunder. Payments received will be applied to charges, fees, and expenses
(including attorneys' fees), accrued interest and principal in any order Bank
may choose, in its sole discretion.
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5. DEFAULT RATE. Upon maturity, whether by acceleration, demand or otherwise,
and at the option of Bank upon the occurrence of any Event of Default (as
hereinafter defined) and during the continuance thereof, amounts outstanding
under the Line of Credit shall bear interest at a rate per annum (based on a
year of 365 or 366 days, as the case may be, and actual days elapsed) which
shall be two percent (2%) in excess of Prime Rate but not more than the maximum
rate allowed by law (the "Default Rate"). The Default Rate shall continue to
apply whether or not judgment shall be entered hereon.
6. EVENTS OF DEFAULT. The occurrence of any of the following events will be
deemed to be an "Event of Default" hereunder: (i) the termination of the Sweep
Agreement by any party thereto; (ii) the nonpayment of any principal, interest
or other indebtedness hereunder when due; (iii) the occurrence of any event of
default or default and the lapse of any notice or cure period under any other
agreement with Bank or under any other debt, liability or obligation to Bank of
any Obligor; (iv) the filing by or against any Obligor of any proceeding in
bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding (and, in the case of any such proceeding
instituted against any Obligor, such proceeding is not dismissed or stayed
within thirty (30) days of the commencement thereof, provided that Bank shall
not be obligated to advance additional funds during such period; (v) any
assignment by any Obligor for the benefit of creditors, or any levy,
garnishment, attachment or similar proceeding is instituted against any property
of any Obligor held by or deposited with Bank; (vi) a default with respect to
any other indebtedness of any Obligor for borrowed money, if the effect of such
default is to cause or permit the acceleration of such debt; (vii) the
commencement of any foreclosure proceeding, execution or attachment against any
collateral securing the obligations of any Obligor to Bank; (viii) the entry of
a final judgment against any Obligor and the failure of such Obligor to
discharge the judgment within ten (10) days of the entry thereof; (ix) in the
event that the Line of Credit or any guarantee executed by any Guarantor is
secured, the failure of any Obligor to provide Bank with additional collateral
if in the opinion of Bank at any time or times, the market value of any of the
collateral securing the Line of Credit or any guarantee has depreciated; (x) any
material adverse change in the business, assets, operations, financial condition
or results of operations of any Obligor;
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(xi) any Obligor ceases doing business as a going concern; (xii) the revocation
or attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(xiii) the death or legal incompetency of any individual Obligor or, if any
Obligor is a partnership, the death or legal incompetency of any individual
general partner; (xiv) any representation or warranty made by any Obligor to
Bank in any document provided to Bank, or in any other document now or in the
future securing the obligations of any Obligor to Bank, is false, erroneous or
misleading in any material respect; or (xv) the failure of any Obligor to
observe or perform any covenant or other agreement with Bank. As used herein,
the term "Obligor" means any Customer and any Guarantor, and the term
"Guarantor" means any guarantor of the obligations of Customer to Bank existing
on the date hereof or arising in the future.
Upon the occurrence of an Event of Default: (a) Bank shall be under no further
obligation to make advances hereunder; (b) if an Event of Default specified in
either clause (iv) or (v) above shall occur, the outstanding principal balance
and accrued interest hereunder together with any additional amounts payable
hereunder shall be immediately due and payable without demand or notice of any
kind; (c) if any other Event of Default shall occur, the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder, at the option of Bank and without demand or notice of any
kind, may be accelerated and become immediately due and payable; (d) at the
option of Bank, amount outstanding hereunder will bear interest at the Default
Rate from the date of the occurrence of the Event of Default; and (e) Bank may
exercise from time to time any of the rights and remedies available to Bank
under this Agreement, any other document executed in connection herewith or
under applicable law.
7. POWER TO CONFESS JUDGMENT. Customer hereby empowers any attorney of any court
of record, after the occurrence of any Event of Default hereunder, to appear for
Customer and, with or without complaint filed, confess judgment, or a series of
judgments, against Customer in favor of Bank or any holder hereof for the entire
outstanding principal balance, all accrued interest and all other amounts due
hereunder, together with costs of suit and an attorney's commission of the
greater of 10% of such principal and interest or $1,000 added as a reasonable
attorney's fee, and for doing so this Agreement or a copy verified by affidavit
shall be a sufficient warrant. Customer hereby forever waives and releases all
errors in said proceedings and all rights of appeal and all relief from any and
all appraisement, stay or exemption laws of any state now in force or hereafter
enacted. Interest on any such judgment shall accrue at the Default Rate.
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as Bank shall elect until such time as Bank shall have received payment in
full of the debt, interest and costs.
8. RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against
the money, securities or other property of Customer given to Bank by law, Bank
shall have, with respect to all of Customer's obligations to Bank however
arising and to the extent permitted by law, a contractual possessory security
interest in and a right of setoff against, and Customer hereby assigns, conveys,
delivers, pledges and transfers to Bank all of Customer's right, title and
interest in and to, all deposits, moneys, securities and other property of
Customer now or hereafter in the possession of or on deposit with, or in transit
to, Bank whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding, however, all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Customer. Every such setoff shall be deemed to have been exercised immediately
upon the occurrence of an Event of Default hereunder without any action by Bank,
although Bank may enter such setoff on its books and records at a later time.
9. SECURITY Customer must cause the following to be executed and delivered to
Bank in form and content satisfactory to Bank as security for the Line of
Credit:
(a) a security agreement granting Bank a first priority perfected lien on the
personal property described in the security agreement to be delivered to
Bank by Customer.
If the Line of Credit is secured by inventory, equipment or real property,
hazard insurance must be maintained on such property, in such amounts and with
such coverages as are acceptable to Bank, containing a standard lender loss
payable or mortgagee clause in favor of Bank.
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10. COVENANTS. Unless compliance is waived in writing by Bank or until payment
in full and termination of the Line of Credit:
(a) Customer will promptly submit to Bank such information relating to
Customer's affairs (including but not limited to annual financial statements
and tax returns for Customer and any guarantor) or any security for the Line of
Credit as Bank may reasonably request.
(b) Customer will not make or permit any change in the nature of its business as
carried on as of the date of this Line of Credit Agreement or in its senior
management or equity ownership.
(c) Customer will comply with the covenants included in Exhibit "A" attached
hereto.
11. FEES. On the date of this Line of Credit Agreement, Customer shall pay to
Bank an up front fee of $1,000.00, in addition to the fees set forth in the
Sweep Agreement.
12. EXPENSES. Customer will reimburse Bank for Bank's out-of-pocket expenses
incurred or to be incurred in conducting UCC, title and other public record
searches, and in filing and recording documents in the public records to perfect
Bank's liens and security interests. All fees and expenses due hereunder will be
charged to the Account. If there are insufficient credits in the Account to pay
the fees and expenses due, Bank will advance funds as provided herein to the
extent Customer has availability under the Line of Credit. Otherwise, any such
fees and expenses will be immediately due and payable by Customer.
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13. ADDITIONAL PROVISIONS. Before the first advance under the Line of Credit,
Customer agrees to sign and deliver to Bank such other instruments and documents
as Bank may reasonably request, such as certified resolutions, incumbency
certificates or other evidence of authority. Bank will not be obligated to make
any advance under the Line of Credit if any Event of Default or event which,
with the passage of time, provision of notice or both, would constitute an Event
of Default shall have occurred and be continuing.
14. MISCELLANEOUS. No delay or omission of Bank to exercise any right or power
arising hereunder shall impair any such right or power or be considered to be a
waiver of any such right or power or any acquiescence therein, nor shall the
action or inaction of Bank impair any such right or power. Customer agrees to
pay on demand, to the extent permitted by law, all costs and expenses incurred
by Bank in the enforcement of its rights hereunder and in any security therefor,
including without limitation reasonable fees and expenses of Bank's counsel. If
any provision of this Line of Credit Agreement is found to be invalid by a
court, all the other provisions of this Line of Credit Agreement will remain in
full force and effect. Customer and all other makers or endorsers hereof forever
waive presentment, protest, notice of dishonor and notice of non-payment.
Customer and all other makers or endorsers hereof also waive all defenses based
on suretyship or impairment of collateral. If any Working Cash Agreement is
executed by more than one Customer, the obligations of such persons or entities
thereunder will be joint and several. This Line of Credit Agreement shall bind
Customer and the heirs, executors, administrators, successors and assigns of
Customer, and the benefits hereof shall inure to the benefit of Bank and its
successors and assigns. No modification, amendment or waiver of any provision of
this Line of Credit Agreement or any other Working Cash Agreement nor any
consent to any departure by the Customer herefrom or therefrom shall be
effective unless made in writing signed by Bank and/or the Trustee, as the case
may be, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which is given,
This Line of Credit Agreement has been delivered to and accepted by Bank and
will be deemed to be made in the State where Bank's office indicated above is
located. THIS LINE OF CREDIT AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE WHERE BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF
LAWS RULES. Customer hereby irrevocably consents to the exclusive jurisdiction
of, any state or federal court for the county or judicial district where Bank's
office indicated above is located, and consents that all service of process be
sent by nationality recognized overnight courier service directed to Customer at
Customer's address set forth herein and service so made will be deemed to he
completed on the business day after deposit with such courier, provided that
nothing contained herein will prevent Bank from bringing any action, enforcing
any award or judgment or exercising any rights against Customer individually,
against any security or against any property of Customer within any other
county, state or other foreign or domestic jurisdiction. Customer acknowledges
and agrees that the venue provided above is the most convenient forum for both
Bank and Customer. Customer waives any objection to venue and any objection
based on a more convenient forum in any action instituted hereunder.
15. WAIVER OF JURY TRIAL. CUSTOMER IRREVOCABLY WAIVES ANY AND ALL RIGHTS
CUSTOMER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS LINE OF CREDIT AGREEMENT, ANY WORKING CASH AGREEMENT,
ANY OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS LINE OF CREDIT AGREEMENT OR
ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. CUSTOMER ACKNOWLEDGES
THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
Customer acknowledges that it has read and understood all the provisions of this
Line of Credit Agreement, including the confession of judgment and waiver of
jury trial, and has been advised by counsel as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] COMTREX SYSTEMS CORPORATION
Attest: /s/ Lisa J. Mudrick By: /s/ Jeffrey C. Rice
------------------------- ----------------------------
Print Name: LISA J. MUDRICK Print Name: JEFFREY C. RICE
--------------------- --------------------
Title: ASSISTANT SECRETARY Title: PRESIDENT AND CEO
-------------------------- -------------------------
PNC BANK. NATIONAL ASSOCIATION
By: /s/ Dennis Wasilewski
----------------------------
Print Name: DENNIS WASILEWSKI
--------------------
Title: V.P.
-------------------------
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EXHIBIT A
FINANCIAL REPORTING COVENANTS:
1. The Customer will deliver to the Bank:
(a) Financial Statements for its fiscal year, within 120 days after fiscal
year end, audited and certified without qualification by a certified
public accountant acceptable to the Bank,
(b) Interim Financial Statements of Customer, certified as true and
correct by its chief financial officer, for each fiscal quarter, within
(60) days of quarter end,
(c) U.S. Securities and Exchange Commission Form 10-K within 120 days
after fiscal year end,
(d) With each delivery of Financial Statements, the Customer's chief
financial officer shall also deliver a certificate as to the Customer's
compliance with the financial covenants for the period then ended and
whether any Event of Default (as defined in the Note) exists, and, if so,
the nature thereof and the corrective measures the Customer proposes to
take
"Financial Statements" means the balance sheet and statements of income and
cash flows prepared in accordance with generally accepted accounting
principles in effect from time to time ("GAAP") applied on a consistent basis
(subject in the case of interim statements to normal year-end adjustments).
FINANCIAL COVENANTS:
1. The Customer will maintain at all times a minimum Tangible Net Worth of (i)
$2,000,000.00 plus (ii) an amount equal to 90% of the Customer's net income
for each quarter ending after March. 31, 1998. "Tangible Net Worth" means
stockholders' equity in the Customer less any advances to third parties and
all items properly classified as intangibles, in accordance with GAAP.
2. The Customer will maintain at all times a ratio of current assets to current
liabilities of at least 2 to 1, to be tested quarterly.
3. The Customer will maintain at all times a ratio of total liabilities to
Tangible Net Worth of less than 1.0 to 1, to be tested quarterly.
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4. The Customer will maintain at all times a ratio of Cash Flow to the total of
Current Maturities plus Unfunded Capital Expenditures of at least 1.25 to 1.
"Cash Flow" means net income plus depreciation plus amortization plus other
non-cash items less dividends. "Current Maturities" means the current
principal maturities of all indebtedness for borrowed money (including but
not limited to amortization of capitalized lease obligations) having an
original term of one year or more, as well as any prepayments of such
indebtedness prior to scheduled maturity. "Unfunded Capital Expenditures"
means capital expenditures made from the Customer's funds other than borrowed
funds, to be tested quarterly.
NEGATIVE COVENANTS:
1. The Customer will not create, assume, incur or suffer to exist any mortgage,
pledge, encumbrance, security interest, lien or charge of any kind upon any
of its property, now owned or hereafter acquired, or acquire or agree to
acquire any kind of property under conditional sales or other title retention
agreements, except liens disclosed on the Customer's latest Financial
Statements provided to the Bank prior to the date of this letter; provided,
however, that the foregoing restrictions shall not prevent the Customer from:
(i) incurring liens for taxes, assessments or governmental charges or
levies which shall not at the time be due and payable or can
thereafter be paid without penalty or are being contested in good
faith by appropriate proceedings diligently conducted and with
respect to which it has created adequate reserves;
(ii) making pledges or deposits to secure obligations under workers'
compensation laws or similar legislation; or
(iii) granting liens or security interests in favor of the Bank.
2. The Customer will not create, incur, guarantee, endorse (except endorsements
in the course of collection), assume or suffer to exist any indebtedness,
except (i) indebtedness to the Bank, (ii) open account trade debt incurred in
the ordinary course of business and not past due, or (iii) other Indebtedness
disclosed on the Customer's latest Financial Statements which have been
provided to the Bank prior to the date of this letter.
3. The Customer will not liquidate, merge or consolidate with any person,
firm, corporation or other entity, or sell, lease, transfer or otherwise
dispose of more than $100,000.00 during any fiscal year of all or any
substantial part of its property or assets, whether now owned or hereafter
acquired.
4. The Customer will not make acquisitions of all or substantially all of the
property or assets of any person, firm, corporation or other entity.
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5. The Customer will not make or have outstanding loans or advances greater than
$100,000.00 in the aggregate to or otherwise extend credit to any person,
firm or corporation, except in the ordinary course of business.
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The undersigned Customer, intending to be legally bound, hereby consents
and agrees to the covenants set forth in this Line of Credit Agreement as of the
date first written above.
[CORPORATE SEAL] COMTREX SYSTEMS CORPORATION
Attest: /s/ Lisa J. Mudrick By: /s/ Jeffrey C. Rice
------------------------- ----------------------------
Print Name: LISA J. MUDRICK Print Name: JEFFREY C. RICE
--------------------- --------------------
Title: ASSISTANT SECRETARY Title: PRESIDENT AND CEO
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EXHIBIT 10.7 SECURITY AGREEMENT DATED JUNE 12, 1998, DELIVERED BY THE
COMPANY TO PNC BANK N.A.
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SECURITY AGREEMENT PNCBANK
THIS SECURITY AGREEMENT (this "AGREEMENT") is made this 11th day of June,
1998, by and between COMTREX SYSTEMS CORPORATION (the "GRANTOR"), with an
address at 102 Executive Drive, Suite 1, Moorestown, New Jersey 08057, and PNC
BANK, NATIONAL ASSOCIATION (the "BANK"), with an address at 1600 Market Street,
Philadelphia, Pennsylvania 19103.
Under the terms hereof, the Bank desires to obtain and the Grantor desires
to grant the Bank security for all of the Obligations (as hereinafter defined).
NOW, THEREFORE, the Grantor and the Bank, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
(a) "COLLATERAL" shall include all personal property of the Grantor,
including without limitation the following, all whether now owned or hereafter
acquired or arising: (i) accounts, accounts receivable, contract rights, chattel
paper, notes receivable, instruments and documents (including warehouse
receipts); (ii) goods of every nature, including without limitation, inventory,
stock-in-trade, raw materials, work in process, items held for sale or lease or
furnished or to be furnished under contracts of sale or lease, goods that are
returned, reclaimed or repossessed, together with materials used or consumed in
the Grantor's business; (iii) equipment, including, without limitation,
machinery, vehicles, furniture and fixtures; (iv) general intangibles, of every
kind and description, including, but not limited, to all existing and future
customer lists, choses in action, claims (including without limitation claims
for indemnification or breach of warranty), books, records, patents and patent
applications, copyrights, trademarks, tradenames, tradestyles, trademark
applications, goodwill, blueprints, drawings, designs and plans, trade secrets,
contracts, licenses, license agreements, formulae, tax and any other types of
refunds, returned and unearned insurance premiums, rights and claims under
insurance policies, and computer information, software, source codes, object
codes, records and data; (v) all property of the Grantor now or hereafter in the
Bank's possession or in transit to or from, under the custody or control of or
on deposit with, the Bank or any affiliate thereof, including deposit and other
accounts; (vi) all cash and cash equivalents; and (vii) all cash and non-cash
proceeds (including without limitation, insurance proceeds) of all of the
foregoing property, all products thereof and all additions and accessions
thereto, substitutions therefor and replacements thereof. The Collateral shall
also include any and all other tangible or intangible property that is described
as being part of the Collateral pursuant to one or more Riders to Security
Agreement that may be attached hereto or delivered in connection herewith,
including the Rider to Security Agreement - Assignmemt of Copyrights, the Rider
to Security Agreement - Patents, the Rider to Security Agreement - Trademarks
and the Rider to Security Agreement - Cash Collateral Account.
(b) "LOAN DOCUMENTS" means this Agreement, any and all notes evidencing
the Obligations and all related documents, instruments and agreements.
(c) "OBLIGATIONS" shall include, without limitation, all loans, advances,
debts, liabilities, obligations, covenants and duties owing to the Bank or to
any other direct or indirect subsidiary of PNC Bank Corp. from the Grantor of
any kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under any agreement, instrument or
document, whether or not for the payment of money, whether arising by reason of
an extension of credit, opening of a letter of credit, loan, equipment lease or
guarantee, under any interest or currency swap, future, option or other similar
agreements, or in any other manner, whether arising out of overdrafts on deposit
or other accounts or electronic funds transfers (whether through automated
clearing houses or otherwise) or out of the Bank's non-receipt of or inability
to collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, and any amendments, extensions, renewals or increases and all costs and
expenses of the Bank incurred in the documentation, negotiation, modification,
enforcement, collection or otherwise in connection with any of the foregoing,
including but not limited to reasonable attorneys' fees and expenses.
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2. GRANT OF SECURITY INTEREST. To secure the Obligations, the Grantor, as
debtor, hereby assigns and grants to the Bank, as secured party, a continuing
lien on and security interest in the Collateral.
3. CHANGE IN NAME OR LOCATIONS. The Grantor hereby agrees that if the
location of the Collateral changes from the locations listed on Exhibit "A"
hereto and made part hereof, or if the Grantor changes its name or form of
organization, or establishes a name in which it may do business that is not
listed as a tradename on Exhibit "A" hereto, the Grantor will immediately
notify the Bank in writing of the additions or changes. The Grantor's chief
executive office is also shown on Exhibit "A" hereto.
4. REPRESENTATIONS AND WARRANTIES. The Grantor represents, warrants and
covenants to the Bank that: (a) the Grantor has not made any prior sale, pledge,
encumbrance, assignment or other disposition of any of the Collateral and the
same are free from all encumbrances and rights of setoff of any kind; (b) except
as herein provided, the Grantor will not hereafter without the prior written
consent of the Bank sell, pledge, encumber, assign or otherwise dispose of any
of the Collateral or permit any right of setoff, lien or security interest to
exist thereon except to the Bank; (c) the Grantor will defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein; (d) each account and general intangible, if included in
the definition of Collateral, is genuine and enforceable in accordance with its
terms and the Grantor will defend the same against all claims, demands, setoffs,
and counterclaims at any time asserted; and (e) at the time any account or
general intangible becomes subject to this Agreement, such account or general
intangible will be a good and valid account representing a bona fide sale of
goods or services by the Grantor and such goods will have been shipped to the
respective account debtors or the services will have been performed for the
respective account debtors, and no such account or general intangible will be
subject to any claim for credit, allowance or adjustment by any account debtor
or any setoff, defense or counterclaim.
5. GRANTOR'S COVENANTS. The Grantor covenants that it shall:
(a) from time to time and at all reasonable times allow the Bank, by or
through any of its officers, agents, attorneys, or accountants, to examine or
inspect the Collateral, notify account debtors of the Bank's security interest
in accounts (if included in the definition of Collateral) and obtain valuations
and audits of the Collateral, at the Grantor's expense, wherever located. The
Grantor shall do, obtain, make, execute and deliver all such additional and
further acts, things, deeds, assurances and instruments as the Bank may require
to vest in and assure to the Bank its rights hereunder and in or to the
Collateral, and the proceeds thereof, including, but not limited to, waivers
from landlords, warehousemen and mortgagees;
(b) keep the Collateral in good order and repair at all times and
immediately notify the Bank of any event causing a material loss or decline in
value of the Collateral whether or not covered by insurance and the amount
of such loss or depreciation;
(c) only use or permit the Collateral to be used in accordance with all
applicable federal, state, county and municipal laws and regulations; and
(d) have and maintain insurance at all times with respect to all
Collateral against risks of fire (including so-called extended coverage),
theft, sprinkler leakage, and other risks (including risk of flood if any
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Collateral is maintained at a location in a flood hazard zone) as the Bank may
require, in such form, in such amount, for such period and written by such
companies as may be satisfactory to the Bank in its sole discretion. The
policies of all such casualty insurance shall contain a standard Lender's Loss
Payable Clauses issued in favor of the Bank under which all losses thereunder
shall be paid to the Bank as the Bank's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered or canceled
without at least thirty (30) days prior written notice to the Bank and shall
insure the Bank notwithstanding the act or neglect of the Grantor. Upon demand
of the Bank, the Grantor shall furnish the Bank with duplicate original policies
of insurance or such other evidence of insurance as the Bank may require. In the
event of failure to provide insurance as herein provided, the Bank may, at its
option, obtain such insurance and the Grantor shall pay to the Bank, on demand,
the cost thereof. Proceeds of insurance may be applied by the Bank to reduce the
Obligations or to repair or replace Collateral, all in the Bank's sole
discretion.
6. NEGATIVE PLEDGE; NO TRANSFER. The Grantor will not sell or offer to
sell or otherwise transfer or grant or suffer the imposition of a lien or
security interest upon the Collateral (except for sales of inventory and
collections of accounts in the Grantor's ordinary course of business) or use
any portion thereof in any manner inconsistent with this Agreement or with the
terms and conditions of any policy of insurance thereon.
7. COVENANTS FOR ACCOUNTS. If accounts are included in the definition of
Collateral:
(a) The Grantor will, on demand of the Bank, make notations on its
books and records showing the security interest of the Bank and make available
to the Bank shipping and delivery receipts evidencing the shipment of the goods
that gave rise to an account, completion certificates or other proof of the
satisfactory performance of services that gave rise to an account, a copy of the
invoice for each account and copies of any written contract or order from which
an account arose. The Grantor shall promptly notify the Bank if an account
becomes evidenced or secured by an instrument or chattel paper and upon request
of the Bank, will promptly deliver any such instrument or chattel paper to the
Bank, including without limitation, any letter of credit delivered to the
Grantor to support a shipment of inventory by the Grantor.
(b) The Grantor will promptly advise the Bank whenever an account debtor
refuses to retain or returns any goods from the sale of which an account arose
and will comply with any instructions that the Bank may give regarding the sale
or other disposition of such returns. The Grantor will, on at least a weekly
basis, report all credits given to account debtors on all accounts.
(c) The Grantor will immediately notify the Bank if any account arises
out of contracts with the United States or any department, agency or
instrumentality thereof, and will execute any instruments and take any steps
required by the Bank so that all monies due and to become due under such
contract shall be assigned to the Bank and notice thereof given to and
acknowledged by the appropriate government agency or authority under the Federal
Assignment of Claims Act.
(d) At any time and without notice to the Grantor, the Bank may notify
any persons who are indebted to the Grantor on any Collateral consisting of
accounts or general intangibles of the assignment thereof to the Bank and may
direct such account debtors to make payment directly to the Bank of the amounts
due. At the request of the Bank, the Grantor will direct any persons who are
indebted to the Grantor on any Collateral consisting of accounts or general
intangibles to make payment directly to the Bank. The Bank is authorized to give
receipts to such account debtors for any such payments and the account debtors
will be protected in making such payments to the Bank. Upon the written request
of the Bank, the Grantor will establish with the Bank and maintain a lockbox
account ("Lockbox") with the Bank and a depository account(s) ("Cash Collateral
Account") with the Bank subject to the provisions of this subparagraph and such
other agreements related thereto as the Bank may require, whereupon all
collections of accounts shall be paid directly from account debtors into the
Lockbox from which funds shall be transferred to the Cash Collateral Account,
and from which funds shall be applied by the Bank, daily, to reduce the
outstanding Obligations.
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8. FURTHER ASSURANCES. At the request of the Bank, the Grantor will join
with the Bank in executing one or more financing, continuation or amendment
statements pursuant to the Uniform Commercial Code in form satisfactory to the
Bank and will pay the cost of preparing and filing the same in all jurisdictions
in which such filing is deemed by the Bank to be necessary or desirable. A
carbon, photographic or other copy of this Agreement or of a UCC-1 financing
statement may be filed as and in lieu of a UCC-1 financing statement.
9. EVENTS OF DEFAULT. The Grantor shall, at the option of the Bank, be in
default under this Agreement upon the happening of any of the following events
or conditions (each, an "EVENT OF DEFAULT"): (a) any Event of Default (as
defined in any of the Obligations); (b) any default under any of the Obligations
that does not have a defined set of "Events of Default" and the lapse of any
notice or cure period provided in such Obligations with respect to such default;
(c) demand by the Bank under any of the Obligations that have a demand feature;
(d) the failure by the Grantor to perform any of its obligations under this
Agreement; (e) falsity, inaccuracy or material breach by the Grantor of any
written warranty, representation or statement made or furnished to the Bank by
or on behalf of the Grantor; (f) an uninsured material loss, theft, damage, or
destruction to any of the Collateral, or the entry of any judgment against the
Grantor or any lien against or the making of any levy, seizure or attachment of
or on the Collateral; (g) the failure of the Bank to have a perfected first
priority security interest in the Collateral; (h) any indication or evidence
received by the Bank that the Grantor may have directly or indirectly been
engaged in any type of activity which, in the Bank's discretion, might result in
the forfeiture of any property of the Grantor to any governmental entity,
federal, state or local; or (i) if the Bank otherwise deems itself insecure.
10. REMEDIES. Upon the occurrence of any such Event of Default and at any
time thereafter, the Bank may declare all Obligations secured hereby immediately
due and payable and shall have, in addition to any remedies provided herein or
by any applicable law or in equity, all the remedies of a secured party under
the Uniform Commercial Code. As permitted by such Code, the Bank may (a)
peaceably by its own means or with judicial assistance enter the Grantor's
premises and take possession of the Collateral, (b) render the Collateral
unusable, (c) dispose of the Collateral on the Grantor's premises, (d) require
the Grantor to assemble the Collateral and make it available to the Bank at a
place designated by the Bank, and (e) notify the United States Postal Service to
send the Grantor's mail to the Bank. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Bank will give the Grantor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made. The requirements of
commercially reasonable notice shall be met if such notice is sent to the
Grantor at least five (5) days before the time of the intended sale or
disposition. Expenses of retaking, holding, preparing for sale, selling or the
like shall include the Bank's reasonable attorney's fees and legal expenses,
incurred or expended by the Bank to enforce any payment due it under this
Agreement either as against the Grantor, or in the prosecution or defense of any
action, or concerning any matter growing out of or connection with the subject
matter of this Agreement and the Collateral pledged hereunder.
11. POWER OF ATTORNEY. The Grantor does hereby make, constitute and
appoint any officer or agent of the Bank as the Grantor's true and lawful
attorney-in-fact, with power to endorse the name of the Grantor or any of the
Grantor's officers or agents upon any notes, checks, drafts, money orders, or
other instruments of payment or Collateral that may come into the possession of
the Bank in full or part payment of any amounts owing to the Bank; granting to
the Grantor's said attorney full power to do any and all things necessary to be
done in and about the premises as fully and effectually as the Grantor might or
could do, including the right to sign, for the Grantor, UCC-1 financing
statements and UCC-3 Statements of Change and to sue for, compromise, settle and
release all claims and disputes with respect to, the Collateral. The Grantor
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest, and is
irrevocable.
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12. PAYMENT OF EXPENSES. At its option, the Bank may discharge taxes,
liens, security interests or such other encumbrances as may attach to the
Collateral, may pay for required insurance on the Collateral and may pay for the
maintenance, appraisal or reappraisal, and preservation of the Collateral, as
determined by the Bank to be necessary. The Grantor will reimburse the Bank on
demand for any payment so made or any expense incurred by the Bank pursuant to
the foregoing authorization, and the Collateral also will secure any advances or
payments so made or expenses so incurred by the Bank.
13. NOTICES. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing and will
be effective upon receipt if delivered personally to such party, or if sent by
facsimile transmission with confirmation of delivery, or by national1y
recognized overnight courier service, to the address set forth above or to such
other address as any party may give to the other in writing for such purpose.
14. PRESERVATION OF RIGHTS. No delay or omission on the part of the Bank
to exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power or any acquiescence
therein, nor will the action or inaction of the Bank impair any right or power
arising hereunder. The Bank's rights and remedies hereunder are cumulative and
not exclusive of any other rights or remedies which the Bank may have under
other agreements, at law or in equity.
15. ILLEGALITY. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
16. CHANGES IN WRITING. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by the Grantor
therefrom, will in any event be effective unless the same is in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on the Grantor in any case will entitle the Grantor to any other or
further notice or demand in the same, similar or other circumstance.
17. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
18. COUNTERPARTS. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.
19. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the Grantor and the Bank and their respective heirs,
executors, administrators, successors and assigns; provided, however, that the
Grantor may not assign this Agreement in whole or in part without the prior
written consent of the Bank and the Bank at any time may assign this Agreement
in whole or in part.
20. INTERPRETATION. In this Agreement, unless the Bank and the Grantor
otherwise agree in writing, the singular includes the plural and the plural the
singular; words importing any gender include the other genders; references to
statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the word "or"
shall be deemed to include "and/or", the words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to articles, sections (or subdivisions of sections) or exhibits are
to those of this Agreement unless otherwise indicated. Section headings in this
Agreement are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose. If this Agreement is
executed by more than one Grantor, the obligations of such persons or entities
will be joint and several.
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21. INDEMNITY. The Grantor agrees to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who controls
the Bank (the "INDEMNIFIED PARTIES") and to hold each Indemnified Party harmless
from and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, all fees of counsel with whom any Indemnified
Party may consult and all expenses of litigation or preparation therefor) which
any Indemnified Party may incur or which may be asserted against any Indemnified
Party as a result of the execution of or performance under this Agreement;
provided, however, that the foregoing indemnity agreement shall not apply to
claims, damages, losses, liabilities and expenses solely attributable to an
Indemnified Party's gross negligence or willful misconduct. The indemnity
agreement contained in this Section shall survive the termination of this
Agreement. The Grantor may participate at its expense in the defense of any such
claim.
22. GOVERNING LAW AND JURISDICTION. This Agreement has been delivered to
and accepted by the Bank and will be deemed to be made in the State where the
Bank's office indicated above is located. THIS AGREEMENT WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS LOCATED,
EXCEPT THAT THE LAWS OF THE STATE WHERE ANY COLLATERAL IS LOCATED (IF DIFFERENT
FROM THE STATE WHERE SUCH OFFICE OF THE BANK IS LOCATED) SHALL GOVERN THE
CREATION, PERFECTION AND FORECLOSURE OF THE LIENS CREATED HEREUNDER ON SUCH
PROPERTY OR ANY INTEREST THEREIN. The Grantor hereby irrevocably consents to the
exclusive jurisdiction of any state or federal court for the county or judicial
district where the Bank's office indicated above is located, and consents that
all service of process be sent by nationally recognized overnight courier
service directed to the Grantor at the Grantor's address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such courier; provided that nothing contained in this Agreement will
prevent the Bank from bringing any action, enforcing any award or judgment or
exercising any rights against the Grantor individually, against any security or
against any property of the Grantor within any other county, state or other
foreign or domestic jurisdiction. The Bank and the Grantor agree that the venue
provided above is the most convenient forum for both the Bank and the Grantor.
The Grantor waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Agreement.
23. SELF HELP REMEDIES. THE GRANTOR BEING FULLY AWARE OF THE RIGHT TO
NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE
ASSERTED AGAINST THE GRANTOR BY THE BANK UNDER THIS AGREEMENT, AND RELATED
AGREEMENTS AND DOCUMENTS, BEFORE THE GRANTOR CAN BE DEPRIVED OF ANY PROPERTY IN
THE GRANTOR'S POSSESSION, HEREBY WAIVES THESE RIGHTS AND AGREES THAT THE BANK
MAY EMPLOY SELF-HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO TAKE
POSSESSION OF ANY SUCH PROPERTY WITHOUT FIRST OBTAINING A FINAL JUDGMENT OR
WITHOUT FIRST GIVING THE GRANTOR NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE
VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. THE GRANTOR WAIVES ALL
RELIEF FROM ALL APPRAISEMENT OR EXEMPTION LAWS NOW IN FORCE OR HEREAFTER
ENACTED.
24. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR AND THE BANK IRREVOCABLY
WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS
EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN
ANY OF SUCH DOCUMENTS. THE GRANTOR AND THE BANK ACKNOWLEDGE THAT THE FOREGOING
WAIVER IS KNOWING AND VOLUNTARY.
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WITNESS the due execution hereof as a document under seal, as of the date first
written above.
[CORPORATE SEAL] COMTREX SYSTEMS CORPORATION
Attest: /s/ Lisa J. Mudrick By: /s/ Jeffrey C. Rice
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Print Name: Lisa J. Mudrick Print Name: Jeffrey C. Rice
Title: Assistant Secretary Title: President and CEO
Taxpayer I.D. Number: 22-2353604
PNC BANK, NATIONAL ASSOCIATION
By: /s/ D. Wasilewski
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Print Name: Dennis Wasilewski
Title: V.P.
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EXHIBIT "A"
TO SECURITY AGREEMENT
Address of Grantor's chief executive office, including the County:
Suite 1
102 Executive Drive
Moorestown, NJ 08057
Burlington County
Address for books and records, if different:
Addresses of other Collateral locations, including Counties and name and
address of landlord or owner if location is not owned by the Grantor:
Other names or tradenames now or formerly used by the Grantor:
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Exhibit 10.8 LOAN AGREEMENT (BUSINESS OVERDRAFT FACILITY) BETWEEN COMTREX
SYSTEMS CORPORATION LTD AND BARCLAYS BANK PLC DATED
MARCH 30,1998
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BARCLAYS BANK PLC
Sutton and Epsom Business Centre
PO Box 283, Wells House, 231 High Street, Sutton, Surrey
SM1 1TB
Telephone: (0181) 642 9066
The Directors
Comtrex Systems Corporation Limited Our Ref: 2343050601/64
Unit 2 Direct Dial or
Metro Central Ext No: 0181 722 3547
Balcombe Road
Horley 30 March 1998
West Sussex
RH6 9GA
Dear Sirs
BUSINESS OVERDRAFT FACILITY
Barclays Bank PLC (the "Bank") agrees to provide Comtrex Systems Corporation
Limited with an overdraft facility subject to the following terms and
conditions:
AMOUNT
L150,000.
PURPOSE
To assist with the working capital finance requirements of the company.
TERM
The overdraft facility is repayable on demand. However, subject to this
condition, the facility is scheduled for review on 30th March 1999.
INTEREST
Interest on the overdraft facility will be charged at 3.00% per annum above the
Bank's Base Rate (currently 7.25%) giving an effective rate of 10.25%, varying
in line with changes in Base Rate. Variations in Base Rate are published in the
National Press.
Borrowings in excess of the agreed facility will be charged at 15.00% per annum
above the Bank's Base Rate. Advice of this interest rate does not constitute an
agreement by us to allow borrowings in excess of the agreed facility. Cheques
and other payments may be returned unpaid without further reference to you. If
you would like us to consider any increase in your facility, please contact us
as soon as possible.
Interest will be charged on a quarterly basis and debited to the company's
current account on our usual charging dates.
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CHARGES/FEES
Account entry and general service charges which apply to the company's current
account are detailed in your tariff advice, a further copy is available upon
request.
If the company's current account exceeds the agreed overdraft limit without
prior arrangement, separate additional charges will normally be incurred.
An arrangement fee of L2,250 has been debited to the company's current account.
SECURITY
This overdraft facility is secured as detailed below, together with any other
security/guarantee now or hereafter held by us:
1. A Debenture over the assets of the Company.
2. A Legal Charge over Unit 2, Metro Centre, Balcombe Road, Horley, Surrey.
3. A Lega1 Charge over Scottish Widows Life Policy No. 5577611.
4. A Legal Charge over a suitable Life Policy, on the life of Stephen David
Roberts, sufficient to cover the amount and term of the borrowing.
Debenture Formula: The company will ensure that the overdraft and loan
facilities will at all times be covered 3.00 times by the aggregate value of
unencumbered UK book debts less than 90 days old. Despite this provision, we
retain the right to demand repayment of borrowings at any time.
We are committed to provide the highest quality service to you and your business
and have you have any queries or problems in this area, please do not
hesitate to contact myself or my assistant Michael Fryer on extension number
0181 722 3547.
FOR AND ON BEHALF OF
BARCLAYS BANK PLC
/s/ Mike Bermingham
- - -------------------
Mike Bermingham
MANAGER
Accepted on the terms and conditions contained in this letter on behalf of
Comtrex Systems Corporation Limited by a person or persons duly authorised
pursuant to a resolution of its Board of Directors.
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For and on behalf of Comtrex Systems Corporation Limited.
SIGNED
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DATE
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Exhibit 10.9 SECURITY AGREEMENT (DEBENTURE), DATED MARCH 30, 1998, DELIVERED BY
COMTREX SYSTEMS CORPORATION LTD TO BARCLAYS BANK PLC
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Debenture
Insert Company's name as registered
1. COMTREX SYSTEMS CORPORATION LIMITED
- - --------------------------------------------------------------------------
(hereinafter called "the Company") whose registered office is at
UNIT 21
METRO CENTRAL
BALCOMBE ROAD HORLEY
will on demand in writing made to the Company pay or discharge to Barclays Bank
PLC (hereinafter called "the Bank") all moneys and liabilities which shall for
the time being (and whether on or at any time after such demand) be due owing or
incurred to the Bank by the Company whether actually or contingently and whether
solely or jointly with any other person and whether as principal or surety and
including interest discount commission or other lawful charges and expenses
which the Bank may in the course of its business charge in respect of any of the
matters aforesaid or for keeping the Company's account and so that interest
shall be computed and compounded according to the usual mode of the Bank as well
after as before any demand made or judgment obtained hereunder.
2. A demand for payment or any other demand or notice under this Debenture may
be made or given by any manager or officer of the Bank or of any branch thereof
by letter addressed to the Company and sent by post to or left at the registered
office of the Company or its last known place of business and if sent by post
shall be deemed to have been made or given at noon on the day following the day
the letter was posted.
3. The Company with full title guarantee hereby charges with the payment or
discharge of all moneys and liabilities hereby covenanted to be paid or
discharged by the Company:-
(a) by way of legal mortgage all the freehold and leasehold property of the
Company the title to which is registered at H.M. Land Registry and which is
described in the Schedule hereto together with all buildings fixtures
(including trade fixtures) and fixed plant and machinery from time to time
thereon;
(b) by way of legal mortgage all other freehold and leasehold property of the
Company now vested in it (whether or not registered at H.M. Land Registry)
together with all buildings fixtures (including trade fixtures) and fixed
plant and machinery from time to time thereon;
(c) by way of first fixed charge all future freehold and leasehold property of
the Company together with all buildings fixtures (including trade fixtures)
and fixed plant and machinery from time to time thereon and all the
goodwill and uncalled capital for the time being of the Company;
(d) by way of first fixed charge all book debts and other debts now and from
time to time due or owing to the Company;
(e) by way of a first floating charge all other the undertaking and assets of
the Company whatsoever and wheresoever both present and future but so that
the Company is not to be at liberty to create any mortgage or charge upon
and so that no lien shall in any case or in any manner arise on or affect
any part of the said premises either in priority to or pari passu with the
charge hereby created and further that the Company shall have no power
without the consent of the Bank to part with or dispose of any part of such
premises except by way of sale in the ordinary course of its business.
Any debentures mortgages or charges hereafter created by the Company (otherwise
than in favour of the Bank) shall be expressed to be subject to this Debenture.
The Company shall subject to the rights of any prior mortgagee deposit with the
Bank and the Bank during the continuance of this security shall be entitled to
hold all deeds and documents of title relating to the Company's freehold and
leasehold property for the time being and the Company shall on demand in writing
made to the Company by the Bank at the cost of the Company execute a valid legal
mortgage
69
<PAGE>
of any freehold and leasehold properties acquired by it after the date hereof
and the fixed plant and machinery thereon to secure the payment or discharge to
the Bank of the moneys and liabilities hereby secured such legal mortgage to be
in such form as the Bank may require.
4. This security shall be a continuing security to the Bank notwithstanding any
settlement of account or other matter or thing whatsoever and shall be without
prejudice and in addition to any other security whether by way of mortgage
equitable charge or otherwise howsoever which the Bank may now or any time
hereafter hold on the property of the Company or any part thereof for or in
respect of the moneys hereby secured or any of them or any part thereof
respectively.
5. During the continuance of this security the Company:-
(a) shall furnish to the Bank copies of the trading and profit and loss
account and audited balance sheet in respect of each financial year of
the Company and of every subsidiary thereof forthwith upon the same
becoming available and not in any event later than the expiration of
three months from the end of such financial year and also from time to
time such other financial statements and information respecting the
assets and liabilities of the Company as the Bank may reasonably
require;
(b) shall maintain the aggregate value of the Company's book debts
(excluding debts owing by any subsidiary of the Company) and cash in
hand as appearing in the Company's books and of its stock according to
the best estimate that can be formed without it being necessary to
take stock for the purpose at a sum to be fixed by the Bank from time
to time and whenever required by the Bank obtain from the Managing
Director of the Company for the time being or if there shall be no
Managing Director then from one of the Directors of the Company and
furnish to the Bank a certificate showing the said aggregate value;
(c) shall pay into the Company's account with the Bank all moneys which it
may receive in respect of the book debts and other debts hereby
charged and shall not without the prior consent of the Bank in writing
purport to charge or assign the same in favour of any other person and
shall if called upon to do so by the Bank execute a legal assignment
of such book debts and other debts to the Bank;
(d) shall insure and keep insured with an insurance office or underwriters
to be approved by the Bank in writing from time to time and if so
required by the Bank in the joint names of the Company and the Bank
such of its property as is insurable against loss or damage by fire
and such other risks as the Bank may from time to time require to the
full replacement value thereof and shall maintain such other
insurances as are normally maintained by prudent companies carrying on
similar businesses and will duly pay all premiums and other moneys
necessary for effecting and keeping up such insurances within one week
of the same becoming due and will on demand produce to the Bank the
policies of such insurance and the receipts for such payments and if
default shall at any time be made by the Company in effecting or
keeping up such insurance as aforesaid or in producing any such policy
or receipt to the Bank on demand the Bank may take out or renew such
insurances in any sum which the Bank may think expedient And all
moneys expended by the Bank under this provision shall be deemed to be
properly paid by the Bank;
(e) shall keep all buildings and all plant machinery fixtures fittings and
other effects in or upon the same and every part thereof in good
repair and in good working order and condition.
6. (a) At any time after the Bank shall have demanded payment of any moneys
hereby secured or if a petition shall be presented to the court under
section 9 of the Insolvency Act 1986 for the making of an
administration order in respect of the Company or if requested by the
Company the Bank may appoint by writing any person or persons (whether
an officer of the Bank or not) to be a receiver and manager or
receivers and managers (hereinafter called "the Receiver" which
expression shall where the context so admits include the plural and
any substituted receiver and manager or receivers and managers) of all
or any part of the property hereby charged.
(b) Where two or more persons are appointed to be the Receiver any act
required or authorised under any enactment this Debenture (including
the power of attorney in clause 7 hereof)
70
<PAGE>
or otherwise to be done by the Receiver may be done by any one or more
of them unless the Bank shall in such appointment specify to the
contrary.
(c) The Bank may from time to time determine the remuneration of the
Receiver and may remove the Receiver and appoint another in his
place.
(d) The Receiver shall be the agent of the Company (which subject to the
provisions of the Insolvency Act 1986 shall alone be personally liable
for his acts defaults and remuneration) and shall have and be entitled
to exercise all powers conferred by the Law of Property Act 1925 in
the same way as if the Receiver had been duly appointed thereunder
and in particular by way of addition to but without hereby limiting
any general powers hereinbefore referred to (and without prejudice to
the Bank's power of sale) the Receiver shall have power to do the
following things namely:-
(i) to take possession of collect and get in all or any part of the
property hereby charged and for that purpose to take any
proceedings in the name of the Company or otherwise as he shall
think fit;
(ii) to carry on or concur in carrying on the business of the Company
and to raise money from the Bank or others on the security of any
property hereby charged;
(iii) to sell or concur in selling let or concur in letting and to
terminate or to accept surrenders of leases or tenancies of any
of the property hereby charged in such manner and generally on
such terms and conditions as he shall think fit and to carry any
such transactions into effect in the name of and on behalf of the
Company;
(iv) to make any arrangement or compromise which the Bank or he shall
think fit;
(v) to make and effect all repairs improvements and insurances;
(vi) to appoint managers officers and agents for the aforesaid
purposes at such salaries as he may determine;
(vii) to call up all or any portion of the uncalled capital of the
Company;
(viii) to do all such other acts and things as may be considered to be
incidental or conducive to any of the matters or powers aforesaid
and which he lawfully may or can do.
7. The Company hereby irrevocably appoints the Bank and the Receiver jointly and
also severally the Attorney and Attorneys of the Company for the Company and in
its name and on its behalf and as its act and deed or otherwise to seal and
deliver and otherwise perfect any deed assurance agreement instrument or act
which may be required or may be deemed proper for any of the purposes aforesaid
and the Company hereby declares that as and when the security hereby created
shall become enforceable the Company will hold all the property hereby charged
(subject to the Company's right of redemption). Upon Trust to convey assign or
otherwise deal with the same in such manner and to such person as the Bank shall
direct and declares that it shall be lawful for the Bank by an instrument under
its Common Seal to appoint a new trustee or new trustees of the said property
and in particular at any time or times to appoint a new trustee or new trustees
thereof in place of the Company as if the Company desired to be discharged from
the trust or in place of any trustee or trustees appointed under this power as
if he or they were dead.
8. Any moneys received under the powers hereby conferred shall subject to the
repayment of any claims having priority to this Debenture be paid or applied
in the following order of priority:-
(a) in satisfaction of all costs charges and expenses properly incurred
and payments properly made by the Bank or the Receiver and of the
remuneration of the Receiver;
(b) in or towards satisfaction of the moneys outstanding and secured by
this Debenture;
(c) as to the surplus (if any) to the person or persons entitled thereto.
9. During the continuance of this security no statutory or other power of
granting or agreeing to grant or of accepting or agreeing to accept surrenders
of leases or tenancies of the freehold and leasehold property hereby charged or
any part thereof shall be capable of being exercised by the Company without the
previous consent in writing of the Bank nor shall section 93 of the
71
<PAGE>
Law of Property Act 1925 dealing with the consolidation of mortgages apply to
this security.
10. Section 103 of the said Act shall not apply to this security but the
statutory power of sale shall as between the Bank and a purchaser from the Bank
arise on and be exercisable at any time after the execution of this security
provided that the Bank shall not exercise the said power of sale until payment
of the moneys hereby secured has been demanded or the Receiver has been
appointed but this proviso shall not affect a purchaser or put him upon inquiry
whether such demand or appointment has been made.
11. All costs charges and expenses incurred hereunder by the Bank and all other
moneys paid by the Bank or by the Receiver in perfecting or otherwise in
connection with this security or in respect of the property hereby charged
including (without prejudice to the generality of the foregoing) all moneys
expended by the Bank under clause 5 hereof and all costs of the Bank or of the
Receiver of all proceedings for the enforcement of the security hereby
constituted or for obtaining payment of the moneys hereby secured or arising out
of or in connection with the acts authorised by clause 6 hereof (and so that any
taxation of the Banks costs charges and expenses shall be on a full indemnity
basis) shall be recoverable from the Company as a debt and may be debited to any
account of the Company and shall bear interest accordingly and shall be charged
on the premises comprised herein and the charge hereby conferred shall be in
addition and without prejudice to any and every other remedy lien or security
which the Bank may or but for the said charge would have for the moneys hereby
secured or any part thereof.
12. In respect of any freehold or leasehold property hereby charged the title to
which is registered at H.M. Land Registry it is hereby certified that the charge
created by this Debenture does not contravene any of the provisions of the
Memorandum and Articles of Association of the Company.
13. In this Debenture where the context so admits the expression "the Bank"
shall include persons deriving title under the Bank and any reference herein to
any statute or any section of any statute shall be deemed to include reference
to any statutory modification or re-enactment thereof for the time being in
force.
IN WITNESS whereof the Company has executed these presents as a deed
this day of 19
The Schedule above referred to
Details of registered land.
- - --------------------------------------------------------------------------------
County/London Borough Title No. Address of Property
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
72
<PAGE>
The Common Seal of the Company was hereunto
affixed in pursuance of a Resolution of the Board
of Directors in the presence of
____________________________________________ DIRECTOR
___________________________________________ SECRETARY
Company's Registered Number 1367328
Executed and delivered as a deed
by COMTREX SYSTEMS CORPORATION Limited/PLC
____________________________________________ DIRECTOR
___________________________________________ SECRETARY
Company's Registered Number 1367328
The address of the Bank for service is:-
Barclays Bank Inc.
43 High Street
Sutton Surrey SM11DR.
73
<PAGE>
Exhibit 21.1 SUBSIDIARIES OF THE COMPANY
Comtrex Systems Corporation Limited, a company incorporated in England (Formerly
Data Terminal Systems Terminals Limited)
74
<PAGE>
Exhibit 24.1 CONSENT OF DRUCKER, MATH & WHITMAN, P.C.
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 Statement 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 18, 1998,
appearing on page 17 of this Annual Report on Form 10-KSB, on the consolidated
financial statements of Comtrex Systems Corporation and subsidiary appearing on
pages 19 to 32 of this Annual Report on Form 10-KSB for the year ended March 31,
1998.
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
June 18, 1997
75
<PAGE>
Exhibit 25.1 POWERS OF ATTORNEY
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
Sidney Dworkin Date
76
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
Steven D. Roberts Date
77
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
Larry Irwin Date
78
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
William A. Landman Date
79
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
Nathan Lipson Date
80
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
Alan G. Schwartz Date
81
<PAGE>
COMTREX SYSTEMS CORPORATION
POWER OF ATTORNEY
REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 1998
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, 1998,
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, 1998
- - ----------------------------- --------------------
Anthony S. Maladra Date
82
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
COMTREX SYSTEMS CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<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> <C>
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) $189,197
============= ============== ============= ============ ========
Year ended March 31, 1998:
($ 30,450)(1)
Reserve for bad debts $ 186,710 $ 1,670 $ 32,445(3) ($ 58,887)(2) $131,488
============= ============== ============= ============ ========
Reserve for excess and ($ 90,853)(1)
obsolete inventory $ 189,197 $ - $ - ($ 37,920)(2) $ 60,424
============= ============== ============= ============= ========
(1) Write-offs against reserve
(2) Adjustment of reserve to year end balance
(3) Opening balance of subsidiary's valuation account at date of acquisition
83
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 313,617
<SECURITIES> 0
<RECEIVABLES> 1,842,642
<ALLOWANCES> 131,488
<INVENTORY> 1,180,783
<CURRENT-ASSETS> 3,311,888
<PP&E> 1,895,007
<DEPRECIATION> 1,141,929
<TOTAL-ASSETS> 4,803,533
<CURRENT-LIABILITIES> 1,441,530
<BONDS> 0
3,584
0
<COMMON> 0
<OTHER-SE> 5,557,092
<TOTAL-LIABILITY-AND-EQUITY> 4,803,533
<SALES> 6,382,948
<TOTAL-REVENUES> 6,382,948
<CGS> 3,562,600
<TOTAL-COSTS> 6,086,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (57,217)
<INTEREST-EXPENSE> 45,276
<INCOME-PRETAX> 251,092
<INCOME-TAX> 94,109
<INCOME-CONTINUING> 156,983
<DISCONTINUED> 0
<EXTRAORDINARY> 84,416
<CHANGES> 0
<NET-INCOME> 241,399
<EPS-PRIMARY> .05
<EPS-DILUTED> .07
84
</TABLE>
