<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-13732
COMTREX SYSTEMS CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2353604
- ------------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 Executive Drive, Moorestown, NJ 08057-4224
- -------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(609) 778-0090
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 30, 1998
----- -------------------------------
Common Stock, par value $.001 3,591,572
<PAGE>
COMTREX SYSTEMS CORPORATION
TABLE OF CONTENTS
FORM 10-QSB
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements, Unaudited
Unaudited Consolidated Balance Sheets
at September 30, 1998 and March 31, 1998
Unaudited Consolidated Statement of Operations
for the three and six months ended
September 30, 1998 and 1997
Unaudited Consolidated Statement of Cash Flow
for the six months ended
September 30, 1998 and 1997
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II
OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
Item 1.
Financial Statements
COMTREX SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------
(These statements are unaudited.)
<TABLE>
<CAPTION>
ASSETS
------
Current assets: September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Cash and cash equivalents $ 123,622 $ 313,617
Accounts receivable, net of reserve of
$149,563 and $131,488 as of 09/30/1998
and 3/31/1998, respectively 1,660,554 1,679,136
Note receivable and accrued interest 11,440 14,495
Inventories 1,331,630 1,180,783
Due from officers 16,015 17,523
Prepaid expenses and other 132,223 106,334
----------- -----------
Total current assets 3,275,484 3,311,888
----------- -----------
Property and equipment:
Machinery, equipment, furniture and leasehold 1,471,284 1,426,107
Less - accum depreciation (1,172,161) (1,133,616)
----------- -----------
Net property and equipment 299,123 292,491
----------- -----------
Land and building:
Land and building 468,900 468,900
Less - accum depreciation (14,922) (8,313)
----------- -----------
Net land and building 453,978 460,587
----------- -----------
Other assets:
Purchased and capitalized software and design 1,116,059 1,068,980
Less - accum amortization and depreciation (787,090) (759,411)
----------- -----------
Total other assets 328,969 309,569
----------- -----------
Goodwill 417,998 428,998
----------- -----------
TOTAL ASSETS $ 4,775,552 $ 4,803,533
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 886,091 $ 842,352
Accrued expenses 180,895 200,671
Note payable -- 32,500
Customer deposits 21,344 31,901
Current portion, debt and notes payable 56,308 56,136
Deferred revenue 125,971 277,970
----------- -----------
Total current liabilities 1,270,609 1,441,530
----------- -----------
Long term liabilities:
Long term debt, net of current 284,501 296,563
Convertible debentures payable 300,000 300,000
----------- -----------
Total long term liabilities 584,501 596,563
----------- -----------
Deferred income taxes 10,418 10,418
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none outstanding -- --
Common stock, $.001 par value, 5,000,000
shares authorized, 3,591,572 and 3,583,572
issued and outstanding as of
09/30/1998 and 3/31/1998, respectively 3,592 3,584
Additional paid-in capital 5,564,125 5,557,092
Foreign currency translation adjustment 33,098 34,912
Accumulated deficit (2,690,791) (2,840,566)
----------- -----------
Total shareholders' equity 2,910,024 2,755,022
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,775,552 $ 4,803,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(These statements are unaudited.)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Net sales $ 2,169,473 $ 1,365,212 $ 4,134,200 $ 2,619,804
Costs and expenses
Cost of sales 1,151,642 869,843 2,226,653 1,647,113
Administrative 288,098 146,543 546,521 308,585
Research and
development 43,690 63,386 77,033 109,711
Sales and marketing 193,291 125,149 374,610 258,606
Customer support 311,608 77,183 605,880 135,733
Depreciation and
amortization 43,921 30,706 83,833 61,056
----------- ----------- ----------- -----------
2,032,250 1,312,810 3,914,530 2,520,804
----------- ----------- ----------- -----------
Income from operations 137,223 52,402 219,670 99,000
Interest expense, net (16,097) (1,425) (32,049) (2,612)
----------- ----------- ----------- -----------
Income before income taxes 121,126 50,977 187,621 96,388
Provision for income taxes 23,109 -- 37,846 --
----------- ----------- ----------- -----------
Net income $ 98,017 $ 50,977 $ 149,775 $ 96,388
=========== =========== =========== ===========
Basic earnings per share:
Net income $ .03 $ .02 $ .04 $ .03
=========== =========== =========== ===========
Diluted earnings per share:
Net income $ .03 $ .02 $ .04 $ .03
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(These statements are unaudited.)
<TABLE>
<CAPTION>
Six months ended
September 30,
1998 1997
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 149,775 $ 96,388
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities -
Depreciation and amortization 83,833 61,056
Deferred income tax -- --
Provisions for losses on accounts
receivable 15,298 12,613
Provisions for losses on inventories 29,000 8,500
Foreign currency translation adjustment (1,814) --
(Increase) decrease in -
Accounts receivable 3,284 (46,105)
Note receivable 3,055 300
Inventories (179,847) 165,859
Due from officers 1,508 --
Prepaid expenses and other (25,889) (36,079)
Increase (decrease) in -
Accounts payable 43,739 (61,471)
Accrued expenses (19,776) (3,612)
Customer deposits (10,557) (15,645)
Deferred revenue (151,999) --
Notes payable, current 172 --
--------- ---------
Net cash provided by (used in)
operating activities (60,218) 181,804
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchases) of property and equipment:
Purchases of property and equipment (45,177) (10,846)
Purchases of software and capitalized
software and design (47,079) --
Proceeds from disposals of property,
plant and equipment -- --
Capitalized acquisition costs -- --
--------- ---------
Net cash provided by (used in)
investing activities (92,256) (10,846)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under credit facilities 438,586 160,000
Repayments under credit facilities (438,586) (160,000)
Payments on notes and other loans (32,500) --
Payments on long-term debt (12,062) --
Proceeds from issuing equity securities 7,041 6,650
--------- ---------
Net cash provided by (used in)
financing activities (37,521) 6,650
--------- ---------
Net increase (decrease) in cash (189,995) 177,608
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 313,617 142,886
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 123,622 $ 320,494
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Interim financial reporting:
The accompanying financial statements should be read in conjunction
with the financial statements and notes included in the Company's latest Annual
Report on Form 10-KSB.
These interim financial statements reflect all adjustments, of a normal
and recurring nature, which are, in the opinion of management, necessary for a
fair statement of the results for the interim period(s) presented. The results
for the period(s) herein presented are not necessarily indicative of the results
for the entire fiscal year.
2. Inventories:
September 30, March 31,
1998 1998
---------- ----------
Raw materials $ 554,927 $ 706,342
Work-in-process 262,928 91,398
Finished goods 603,199 443,467
Reserve for excess and obsolete inventory ( 89,424) ( 60,424)
---------- ----------
$1,331,630 $1,180,783
========== ==========
3. Income taxes:
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3,000,000 (which begin to expire in 2004) and tax
credit carryforwards for state income tax purposes of approximately $148,000.
Such loss carryforwards and tax credits result in deferred tax assets of
approximately $1,350,000, which has been offset by a valuation allowance of
equal amount. During the quarter ended September 30, 1998, the valuation account
was reduced by $25,000.
The components of the provision for income taxes consist of current
expense (foreign) of $23,109, current expense (U.S.) of $25,000, offset by the
benefits of net operating loss carryforwards of $25,000.
4. Earnings per share disclosure:
Three months ended
September 30, 1998
------------------
Income Shares Per Share
------ ------ ---------
Net income $ 98,017
Basic EPS:
Income available to common shareholders $ 98,017 3,591,572 $ 0.03
Effect of dilutive securities, options 60,373
Effect of dilutive convertible debenture 3,041
Diluted EPS:
Income available to common shareholders $ 104,017 3,654,986 $ 0.03
For purposes of computing diluted per share data, $6,000 of interest
related to the convertible debenture was added to net income.
- 5 -
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
4. Earnings per share disclosure: (continued)
Six months ended
September 30, 1998
------------------
Income Shares Per Share
------ ------ ---------
Net income $ 149,775
Basic EPS:
Income available to common shareholders $ 149,775 3,587,572 $ 0.04
Effect of dilutive securities, options 78,531
Effect of dilutive convertible debenture 32,915
Diluted EPS:
Income available to common shareholders $ 161,775 3,699,018 $ 0.04
For purposes of computing diluted per share data, $12,000 of interest
related to the convertible debenture was added to net income.
Three months ended
September 30, 1997
------------------
Income Shares Per Share
------ ------ ---------
Net income $ 50,977
Basic EPS:
Income available to common shareholders $ 50,977 3,169,855 $ 0.02
Effect of dilutive securities, options 34,513
Diluted EPS:
Income available to common shareholders $ 50,977 3,204,368 $ 0.02
Six months ended
September 30, 1997
------------------
Income Shares Per Share
------ ------ ---------
Net income $ 96,388
Basic EPS:
Income available to common shareholders $ 96,388 3,166,939 $ 0.03
Effect of dilutive securities, options 20,582
Diluted EPS:
Income available to common shareholders $ 96,388 3,187,521 $ 0.03
5. Stock purchase transaction:
On October 2, 1997, the Company acquired from Norman Roberts
("Norman"), Shirley Roberts ("Shirley"), and Steven Roberts ("Steven" together,
with Norman and Shirley, the "Sellers") all the issued and outstanding capital
stock (the "Stock") of Data Systems Terminals Limited, a corporation formed and
existing under the laws of England ("DSTL"). DSTL is a distributor of the
Company's products in the United Kingdom, which business the Company intends to
continue.
The following consideration was paid by the Company for such
acquisition of the Stock:
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<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
5. Stock purchase transaction: (continued)
(a) 400,000 restricted shares of the Common Stock of the Company, par
value $.001 per share, were delivered by the Company to Steven. These shares of
the Company's Common Stock are not transferable by Steven 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 and
Shirley. 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 2, 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 of the Debenture on October 2, 2000 shall be paid by the Company in
twelve (12) equal quarterly installments. The Company anticipates that internal
funds will be utilized to make all interest and principal payments due under the
Debenture.
(c) A promissory note, in the original principal amount of $65,000 (the
"Note"), was delivered to Norman and Shirley. 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 business combination will be accounted for using the purchase
method.
The cost of the acquired enterprise was $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 will be amortized over twenty (20) years, using the
straight line method.
6. Pro forma financial data (unaudited):
As outlined in Footnote 5, the Company acquired all the issued and
outstanding capital stock of DSTL, effective October 2, 1997. The following pro
forma financial data, unaudited, reflects revenue, income from continuing
operations, net income and income per share for the three month and six month
periods ended September 30, 1997, as though the transaction occurred as of April
1, 1997.
Three months ended Six months ended
September 30, 1997 September 30, 1997
1997 1997
------------------------------
Revenue $1,972,330 $3,834,040
Income from continuing operations 60,340 115,113
Net income 48,912 92,258
Income per share 0.02 0.03
- 7 -
<PAGE>
COMTREX SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
7. Capital structure disclosure:
In connection with the acquisition of DSTL, outlined in Footnote 5, a
Subordinated Convertible Debenture, in the original principal amount of $300,000
(the "Debenture"), was delivered by the Company to Norman and Shirley. 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 2, 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 of the Debenture on October 2, 2000 shall be paid by the Company in
twelve (12) equal quarterly installments. The Company anticipates that internal
funds will be utilized to make all interest and principal payments due under the
Debenture.
8. Year 2000 compliance:
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900, rather than the year 2000,
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has not yet completed
its assessment, but currently believes that costs of addressing this issue will
not have a material adverse impact on the Company's financial position. However,
if the Company and third parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material financial risk to the
Company. In order to assure that this does not occur, the Company plans to
devote all resources required to resolve any significant year 2000 issues in a
timely manner.
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<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of September 30, 1998, the Company had total current assets of
$3,275,484, including cash and cash equivalents of $123,622, as compared to
$3,311,888 of total current assets and $313,617 of cash and cash equivalents as
of March 31, 1998. The Company had current liabilities of $1,270,609, resulting
in a current ratio of 2.6 as of September 30, 1998, compared to $1,441,530 and
2.3, respectively, as of March 31, 1998.
Cash and cash equivalents decreased by $189,995 during the first six
months of fiscal year 1999. Operating activities consumed $60,218 of cash, as
compared with cash generation of $181,804 for the corresponding prior year
period. The combination of investing and financing activities consumed an
additional $129,777 during the period.
The Company reported net income of $98,017 and $149,775 for the three
month and six month periods ended September 30, 1998, respectively. The Company
has net operating loss carryforwards of approximately $3,000,000 for federal
income tax purposes, which do not begin to expire until 2004, and tax credit
carryforwards of approximately $148,000.
In addition to net income, the primary positive contributor to cash
flow from operating activities was depreciation and amortization of $83,833,
along with an increase in accounts payable of $43,739. The primary negative
contributions to cash flow from operating activities were an increase in
inventories and a decrease in deferred revenue. Deferred revenue is principally
comprised of prepayments on maintenance contracts in the Company's U.K.
subsidiary and its Atlanta District Office, many of which are pro-rated over the
calendar year. Inventories increased during the six month period by $150,847,
net of reserves, with substantially all of the increase occurring during the
first three months of the fiscal year.
The overall increase in inventory is due, in part, to the increase in
sales levels. Net sales during the first six months of fiscal year 1999
increased by approximately $370,000 over net sales during the last six months of
the prior fiscal year. While the raw materials component of inventory decreased
by $151,415, the finished goods and work-in-process components increased by
$159,732 and $171,530, respectively. The raw materials component decrease is due
primarily to the planned, gradual phase-out of the Company's proprietary 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. The increase in finished goods
inventories is a result of the combination of a more efficient assembly process,
resulting in an increased level of finished goods, and the stocking levels
necessary to fulfill immediate installation and service requirements in both the
Company's U.K. subsidiary and its Atlanta District Office.
Investing activities consumed $92,256 of cash during the six month
period ended September 30, 1998, through a combination of purchased property and
equipment and capitalized software and design. Financing activities consumed
$37,521 of cash as exercises of options offset payments on long term debt during
the six month period. The Company borrowed under its credit facilities at
various times during the course of the six month period, and repaid each such
borrowing. The Company expects to utilize its credit facilities from time to
time for short term cash requirements.
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<PAGE>
Liquidity and Capital Resources (continued)
Adjustments resulting from translating foreign functional currency
financial statements into U.S. dollars are included in the consolidated
statements of cash flows as an adjustment to reconcile net income to cash used
in operating activities. For the period ended September 30, 1998, these
adjustments had a negligible impact of $1,814 on the consolidated cash flow. On
the Balance Sheet, these adjustments are recorded in a currency translation
adjustment in shareholders' equity.
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 with PNC Bank
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. This agreement replaces a line
of credit agreement with Fleet Bank N.A., entered into in October of 1997 and
which extended through July of 1998. The agreement with Fleet Bank provided for
borrowings of up to $750,000, with a limitation depending on the eligible
receivables, as defined in the agreement. Both the new and previous facility
provide for interest at the banks' prime rate, and for collateral assignment of
substantially all assets of the Company. The facility with PNC Bank N.A.,
however, 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. As of September 30, 1998, the Company had no material commitments
for capital expenditures.
Results of Operation
Net sales during the second quarter of fiscal year 1999 increased by
59%, to $2,169,473, as compared with corresponding sales of $1,365,212 during
the second quarter of fiscal year 1998. For the six month period, net sales
increased by 58%, from $2,619,804 to $4,134,200, for fiscal years 1998 and 1999,
respectively. The primary contributing factor to the increase in sales was the
acquisition, outlined in Note 5 to the Notes to Consolidated 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 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.
The Company reported net income of $98,017 for the current three month
period, or $.03 per share, as compared with net income of $50,977, or $.02 per
share, for the comparable prior year period. Net income for the six month period
was $149,775, or $.04 per share, as compared with net income of $96,388, or $.03
per share, for the first half of the prior fiscal year.
Sales, marketing and customer support expenses increased from $202,332,
or 15% of sales, during the second quarter of fiscal year 1998, to $504,899, or
23% of sales during the most recent quarter. For the six month period, such
expenses increased from $394,339, or 15% of sales, to $980,490, or 24% of sales
for fiscal years 1998 and 1999, 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 expenses required for such sales activities
directly to end users will represent a higher percentage of sales than is
associated with sales through a dealer or distribution channel.
- 10 -
<PAGE>
Results of Operation (continued)
For both the comparable quarterly and six month periods, current
administrative expenses increased only slightly, when expressed as a percentage
of sales. Administrative expenses for the second quarter and first six month
period of the current fiscal year were $288,098 and $546,521, respectively, and
both represented 13% of net sales. During the prior fiscal year, the quarterly
and six month period administrative expenses were $146,543, or 11% of net sales,
and $308,585, or 12% of net sales, respectively.
Cost of sales during the second quarter and first six month period of
fiscal year 1999 were 53% and 54% of net sales, respectively, as compared to 64%
and 63% of net sales, respectively, for the comparable quarter and six month
period of the prior fiscal year. The reduction in cost of sales, and increase in
gross margin, is a result of the consolidation of sales of Comtrex U.K., and
increased sales through the Company's Atlanta District Office. While selling and
support expenses represent a higher percentage of sales which are made directly
to end users than sales through a distribution network, the gross margin on
sales to end users is significantly greater. In addition to product sales,
maintenance services and contracts, installation and implementation services
represent a significant percentage of the total sales of both the Atlanta office
and Comtrex U.K. Such service related revenue is at a greater gross margin than
initial product sales.
As of October 28, 1998, the Company's backlog was approximately
$928,000, which included approximately $559,000 in backlog of Comtrex U.K. for
delivery to end users, and excluded any orders for delivery to the subsidiary
from the parent. The Company's corresponding backlog as of October 31, 1997,
which was subsequent to the acquisition of Comtrex U.K., was approximately
$845,500. The Company expects that substantially all of its current backlog will
be shipped within the next 90 days.
Forward Looking Statements
This Form 10-QSB discusses primarily historical information. Statements
included in this Form 10-QSB, to the extent they are forward looking, are based
on current management expectations that involve a number of uncertainties and
risks. Potential risks and uncertainties include, without limitation, the impact
of economic conditions generally; the competitive nature of the intelligent
point-of-sale terminal industry; the Company's ability to enhance its existing
products and develop and introduce new products which keep pace with
technological developments in the marketplace; and market demand.
- 11 -
<PAGE>
Item 5.
OTHER INFORMATION
Stockholder Proposals
Stockholder proposals intended to be considered at the 1999 Annual
Meeting of Stockholders and which the proponent would like to have included in
the proxy materials distributed by the Company in connection with such meeting,
pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), must be received at the principal executive offices of
the Company no later than March 19, 1999. Such proposals may be included in next
year's proxy materials if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
Stockholder proposals intended to be considered at the 1999 Annual
Meeting of Stockholders and for which the proponent does not intend to seek
inclusion of the proposal in the proxy materials to be distributed by the
Company in connection with such meeting must be received at the principal
executive offices of the Company no later than June 2, 1999. Any stockholder
proposal received after such date will not be considered to be timely submitted
for purposes of the discretionary voting provisions of Rule 14a-4 promulgated
under the 1934 Act. In accordance with Rule 14a-4(c), the holders of proxies
solicited by the Board of Directors of the Company in connection with the
Company's 1999 Annual Meeting of Stockholders may vote such proxies in their
certain matters as more fully described in such Rule, including without
limitation on any matter coming before the meeting as to which the Company does
not have notice on or before June 2, 1999.
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
27 *(1) Financial Data Schedule
*(1) Filed herewith.
Reports on Form 8-K
No Form 8-K's were filed in the quarter ended September 30, 1998.
- 12 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMTREX SYSTEMS CORPORATION
(Registrant)
Date: November 2, 1998 By: /s/
------------------- -------------------------------------------
Jeffrey C. Rice
Chief Executive Officer
Date: November 2, 1998 By: /s/
------------------- -------------------------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
- 13 -
<PAGE>
EXHIBIT INDEX
Exhibit
-------
27 Financial Data Schedule
- 14 -
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<ARTICLE> 5
<LEGEND>
COMTREX SYSTEMS CORPORATION
ARTICLE 5 OF REGULATION S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 123,622
<SECURITIES> 0
<RECEIVABLES> 1,810,117
<ALLOWANCES> 149,563
<INVENTORY> 1,331,630
<CURRENT-ASSETS> 3,275,484
<PP&E> 1,471,284
<DEPRECIATION> 1,172,161
<TOTAL-ASSETS> 4,775,552
<CURRENT-LIABILITIES> 1,270,609
<BONDS> 0
0
0
<COMMON> 3,592
<OTHER-SE> 5,564,125
<TOTAL-LIABILITY-AND-EQUITY> 4,775,552
<SALES> 4,134,200
<TOTAL-REVENUES> 4,134,200
<CGS> 2,226,653
<TOTAL-COSTS> 3,914,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,298
<INTEREST-EXPENSE> 32,049
<INCOME-PRETAX> 187,621
<INCOME-TAX> 37,846
<INCOME-CONTINUING> 149,775
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,775
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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