<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number 0-13732
COMTREX SYSTEMS CORPORATION
---------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2353604
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
102 Executive Drive, Moorestown, NJ 08057-4224
----------------------------------------------
(Address of principal executive offices)
(609) 778-0090
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the 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
------- ------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at July 27, 1999
----- ----------------------------
Common Stock, par value $.001 3,756,572
Transitional Small Business Disclosure Form (check one):
Yes No X
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<PAGE>
COMTREX SYSTEMS CORPORATION
TABLE OF CONTENTS
FORM 10-QSB
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements, Unaudited
Unaudited Consolidated Balance Sheets
at June 30, 1999 and March 31, 1999
Unaudited Consolidated Statement of Operations
for the three months ended
June 30, 1999 and 1998
Unaudited Consolidated Statement of Cash Flow for the
three months ended June 30, 1999 and 1998
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or
Plan of Operation
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
(These statements are unaudited.)
<TABLE>
<CAPTION>
ASSETS
------
Current assets: June 30, 1999 March 31, 1999
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 296,985 $ 483,917
Accounts receivable, net of reserve of
$109,465 and $108,010 as of 06/30/1999
and 3/31/1999, respectively 2,290,401 2,043,095
Inventories 1,660,174 1,257,561
Prepaid expenses and other 135,449 92,969
----------- -----------
Total current assets 4,383,009 3,877,542
----------- -----------
Property and equipment:
Machinery, equipment, furniture and leasehold 1,504,141 1,512,563
Less - accum depreciation (1,242,637) (1,229,711)
----------- -----------
Net property and equipment 261,504 282,852
----------- -----------
Land and building:
Land and building 450,049 468,900
Less - accum depreciation (24,082) (21,532)
----------- -----------
Net land and building 425,967 447,368
----------- -----------
Other assets:
Purchased and capitalized software and design 1,196,991 1,171,434
Less - accum amortization and depreciation (831,310) (816,570)
----------- -----------
Total other assets 365,681 354,864
----------- -----------
Goodwill, net of amortization 401,498 406,998
----------- -----------
TOTAL ASSETS $ 5,837,659 $ 5,369,624
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities: June 30, 1999 March 31, 1999
----------- -----------
<S> <C> <C>
Bank loan, line of credit $ 271,000 $ 301,000
Accounts payable 1,268,340 699,056
Current portion of long term debt 59,546 64,086
Income and V.A.T. payable 71,212 146,234
Accrued expenses 155,747 82,032
Deferred revenue 260,580 389,753
Customer deposits 38,060 5,648
----------- -----------
Total current liabilities 2,124,485 1,687,809
----------- -----------
Long term liabilities:
Long term debt, net of current 252,522 275,700
Convertible debentures payable 300,000 300,000
----------- -----------
Total long term liabilities 552,522 575,700
----------- -----------
Deferred income taxes 8,805 9,321
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none outstanding -- --
Common stock, $.001 par value, 5,000,000
shares authorized, 3,749,072 and 3,593,572
issued and outstanding as of
6/30/1999 and 3/31/1999, respectively 3,600 3,594
Additional paid-in capital 5,593,391 5,591,306
Foreign currency translation adjustment (49,272) 9,030
Accumulated deficit (2,395,872) (2,507,136)
----------- -----------
Total shareholders' equity 3,151,847 3,096,794
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,837,659 $ 5,369,624
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(These statements are unaudited.)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
--------------------------------------
<S> <C> <C>
Net sales $ 2,145,415 $ 1,964,727
Costs and expenses
Cost of sales 1,123,747 1,075,012
Administrative 294,092 258,423
Research and development 35,995 33,343
Sales and marketing 224,387 181,319
Customer support 289,739 294,272
Depreciation and amortization 47,653 39,911
----------- -----------
2,015,613 1,882,280
----------- -----------
Income from operations 129,802 82,447
Interest income (expense), net (12,368) (15,953)
----------- -----------
Income before income taxes 117,434 66,494
Provision for income taxes (6,170) (14,736)
----------- -----------
Net income $ 111,264 $ 51,758
=========== ===========
Basic earnings per share:
Net income $ .03 $ .01
=========== ===========
Diluted earnings per share:
Net income $ .03 $ .01
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(These statements are unaudited.)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 111,264 $ 51,758
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities -
Depreciation and amortization 47,653 39,911
Provisions for losses on accounts
receivable 3,000 10,274
Provisions for losses on inventories 20,000 9,000
Foreign currency translation adjustment (11,538) (2,504)
(Increase) decrease in -
Certificate of deposit -- --
Accounts receivable (306,705) 55,522
Inventories (440,624) (154,763)
Prepaid expenses and other (36,799) (38,966)
Increase (decrease) in -
Accounts payable 569,439 46,875
Accrued expenses 7,539 (4,740)
Customer deposits 32,412 21,634
Deferred revenue (108,460) (81,217)
Notes payable, current -- (16,250)
--------- ---------
Net cash provided by (used in)
operating activities (112,819) (63,466)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchases) of property and equipment:
Purchases of property and equipment (11,718) (7,669)
Purchases of software and capitalized
software and design (25,557) (17,261)
--------- ---------
Net cash provided by (used in)
investing activities (37,275) (24,930)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit, net (30,000) --
Payments on notes and other loans -- 688
Payments on debt (8,929) (6,658)
Proceeds from issuing equity securities 2,091 7,041
--------- ---------
Net cash provided by (used in)
financing activities (36,838) 1,071
--------- ---------
Net increase (decrease) in cash (186,932) (87,325)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 483,917 313,617
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 296,985 $ 226,292
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of business:
Comtrex Systems Corporation ("Comtrex" or "the Company") is a Delaware
corporation, initially incorporated in New Jersey in April, 1981. Comtrex
designs, develops, assembles, markets, sells and provides services for computer
software, electronic terminals and turn-key systems for restaurants, both table
and quick service. The Company's hardware and software systems provide
transaction processing, operational controls and management information, both
in-store and on an enterprise level. The Company markets its products through a
network of authorized distributors in Canada, France, Belgium, Germany,
Portugal, Holland, Ireland and Australia, and through a wholly-owned subsidiary
in the United Kingdom. In the United States, the Company markets its products
through a network of dealers and through its own direct sales offices.
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 its distributor in the United Kingdom and
engaged in the direct sale and service of its products throughout the U.K. In
June, 1999, Comtrex acquired its dealer in Pontiac, Michigan and engaged in the
direct sale and service of its products in the Detroit metropolitan area and in
the mid-western United States. Hereinafter, Comtrex and its subsidiary are
referred to as the Company.
Basis of presentation:
The accompanying consolidated financial statements have been prepared
by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the SEC. In the opinion of the
Company's management, all adjustments necessary for a fair presentation of the
accompanying unaudited consolidated financial statements are reflected herein.
All such adjustments are normal and recurring in nature. All significant
intercompany transactions and balances have been eliminated. Interim results are
not necessarily indicative of the results for the full year or for any future
interim periods. For more complete financial information, these consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999, as filed with the SEC.
Foreign currency translation:
Adjustments resulting from translating foreign functional currency
financial statements into U.S. dollars are included in the currency adjustment
in shareholders' equity.
2. INVENTORIES:
Inventories include the cost of materials, labor and overhead and are
valued at the lower of cost (first-in, first-out) or market as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Raw materials $ 664,251 $ 837,922
Work-in-process 115,843 65,431
Finished goods 977,302 431,430
Reserve for excess and obsolete inventory (97,222) (77,222)
----------- -----------
$ 1,660,174 $ 1,257,561
=========== ===========
</TABLE>
6
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES:
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $2,725,000, which begin to expire in 2004. Such loss
carryforwards result in deferred tax assets of approximately $1,090,000, which
has been offset by a valuation allowance of equal amount. During the quarter
ended June 30, 1999, the valuation account was reduced by $50,000.
The components of the provision for income taxes consist of current
expense (foreign) of $6,170, current expense (U.S.) of $50,000, offset by the
benefits of net operating loss carryforwards of $50,000 through the reduction of
the valuation account.
4. EARNINGS PER SHARE DISCLOSURE:
<TABLE>
<CAPTION>
Three months ended
June 30, 1999
-------------
Income Shares Per Share
------ ------ ---------
<S> <C> <C> <C>
Net income $ 111,264
Basic EPS:
Income available to common shareholders $ 111,264 3,599,989 $ 0.03
Effect of dilutive securities, options and
warrants 63,322
Effect of dilutive convertible debenture 300,000
Diluted EPS:
Income available to common shareholders $ 117,264 3,963,311 $ 0.03
For purposes of computing diluted per share data, $6,000 of interest
related to the convertible debenture was added to net income.
Three months ended
June 30, 1998
-------------
Income Shares Per Share
------ ------ ---------
Net income $ 51,758
Basic EPS:
Income available to common shareholders $ 51,758 3,583,660 $ 0.01
Effect of dilutive securities, options 93,396
Effect of dilutive convertible debenture 300,000
Diluted EPS:
Income available to common shareholders $ 57,758 3,977,056 $ 0.01
For purposes of computing diluted per share data, $6,000 of interest
related to the convertible debenture was added to net income.
</TABLE>
7
<PAGE>
COMTREX SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
5. STOCK PURCHASE TRANSACTION:
On June 23, 1999, the Company acquired all of the outstanding capital
stock of Cash Register Systems (CRS), Inc., a Michigan corporation, in exchange
for 150,000 restricted shares of the Company's common stock. CRS will operate as
a District Office, Comtrex Michigan. Prior to the acquisition, CRS was a
privately-held corporation which sold and serviced point-of-sale equipment,
principally the product lines of the Company. The four selling shareholders of
CRS were all employees within the organization, and will remain as Comtrex
employees pursuant to three year employment agreements. Results of operation of
Comtrex Michigan will be consolidated with those of the Company effective as of
July 1, 1999, the beginning of the second quarter of the Company's 2000 fiscal
year. The transaction is not expected to have an immediate material impact on
the financial results of the Company.
8
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-QSB 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-QSB 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; and the risk of unavailability
of adequate capital or financing. Further information is contained in the Item 1
section of the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1999, as filed with the SEC.
Liquidity and Capital Resources
As of June 30, 1999, the Company had total current assets of
$4,383,009, including cash and cash equivalents of $296,985, as compared to
$3,877,542 of total current assets and $483,917 of cash and cash equivalents as
of March 31, 1999. The Company had current liabilities of $2,124,485, resulting
in a current ratio of 2.1 as of June 30, 1999, compared to $1,687,809 and 2.3,
respectively, as of March 31, 1999.
Cash and cash equivalents decreased by $186,932 during the first three
months of fiscal year 2000. Operating activities consumed $112,819 of cash, as
compared with cash consumption of $63,466 for the corresponding prior year
period. The combination of investing and financing activities consumed an
additional $74,113 during the period.
The Company reported net income of $111,264 for the three month period
ended June 30, 1999. The Company has net operating loss carryforwards of
approximately $2,725,000 for federal income tax purposes, which do not begin to
expire until 2004.
The financial statements of Comtrex U.K. are translated into U.S.
dollars for financial reporting purposes. Revenues and expenses are translated
at an average exchange rate during the fiscal year, and the assets and
liabilities of Comtrex U.K. are translated at that average rate of exchange at
the end of each fiscal quarter. As a consequence of a difference in the exchange
rate used during fiscal year 2000 and the exchange rate as of March 31, 1999,
differences between accounts on the consolidated balance sheets as of June 30,
1999 and March 31, 1999 do not involve cash outlay to the extent they are merely
the result of a differing rate of exchange. The following analysis relates to
the changes in the Company's balance sheet accounts on a cash flow basis.
Increases in both accounts receivable and inventories represented
significant negative contributions to cash flow. Accounts receivable increased
by $306,705, while inventories increased by $440,624. An offset to both was an
increase in accounts payable of $569,439. Each of these amounts is largely a
result of timing, and not necessarily indicative of trends for the balance of
the fiscal year. Net sales during the month of June accounted for approximately
one-half of sales for the quarter, resulting in an increase of current
receivables. In May and in June, the Company received deliveries in quantity of
a new model of its iTP series of terminals, with a larger LCD screen, faster
processor and increased memory. The integrated touch entry terminals which
comprise the iTP series are received as essentially complete products, with the
Company providing final assembly of optional components such as hard disk
drives, customer displays and magnetic card reader assemblies. During the
quarter, raw materials inventory declined by $173,671, while finished goods and
work-in-process inventories increased by $545,872 and $50,412, respectively. The
iTP product of the Company is manufactured to the Company's specifications by
CDS Commercial Data Systems, in Taiwan, and sold in conjunction with the
software for the PCS-5000 series. Software modifications to the PCS-5000 to take
advantage of the increased screen resolution were not completed until late in
June, causing a short term increase in both inventories and accounts payable.
The Company anticipates declines in accounts receivable, inventories and in
accounts payable during the second quarter of the current fiscal year.
9
<PAGE>
Liquidity and Capital Resources (continued)
Another negative contribution to cash flow from operating activities
was 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, which are billed on an annual basis. The decrease of
$108,460 is the result of a quarter's recognition of such deferred revenue and
is of a recurring nature, and not necessarily indicative of any trend
representing a decline in maintenance revenue or billings.
The primary positive contributors to cash flow were net income of
$111,264 and depreciation and amortization of $47,653. The quarterly
depreciation and amortization contribution is expected to continue throughout
the current fiscal year at same approximate quarterly amount.
Investing activities consumed $37,275 of cash during the three month
period ended June 30, 1999, through a combination of purchased property and
equipment and capitalized software and design. Financing activities consumed
$36,838, with the principal activity being repayments under the Company's line
of credit and payments on debt.
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 quarter ended June 30, 1999, these adjustments
had the effect of a cash consumption of $11,538 on the consolidated cash flows.
On the consolidated balance sheets, these adjustments are recorded in a currency
translation adjustment in shareholders' equity. As a result of a reduced
exchange rate between the pound sterling and the U.S. dollar, this adjustment
changed from a positive impact of $9,030 to shareholders' equity as of March 31,
1999, to a negative impact of $49,272 as of June 30, 1999.
In March of 1999, the Company's wholly-owned subsidiary in the U.K.,
Comtrex Systems Corporation LTD, renewed its line of credit agreement with
Barclays Bank PLC. The agreement calls for borrowings of up to (pound)150,000,
and expires on March 30, 2000. 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 1999, the Company and PNC Bank N.A. extended an existing
credit facility through September 30, 1999 and increased the credit facility
from $700,000 to $1,050,000. The increase provides for the same level of
borrowings, of up to $650,000, and for the issuance by the bank of up to
$400,000 of Irrevocable Letters of Credit, as compared to an amount of $50,000
under the prior agreement. The balance of the terms and provisions of the
facility remained the same. The Company anticipates that this line of credit
will be extended through September 30, 2000 prior to September 30, 1999.
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 June 30, 1999, the Company had no material commitments for
capital expenditures.
Results of Operation
Net sales during the first quarter of fiscal year 2000 increased by 9%,
to $2,145,415, as compared with corresponding sales of $1,964,727 during the
first quarter of fiscal year 1999. Results of operation of the Company's U.K.
distributor, acquired as of October 2, 1997, are consolidated in both quarters.
Results of operation of Comtrex Michigan, acquired on June 23, 1999, will be
consolidated with those of the Company effective as of July 1, 1999, the
beginning of the second quarter of the current fiscal year.
The Company reported net income of $111,264 for the current three month
period, or $.03 per share, as compared with net income of $51,758, or $.01 per
share, for the comparable prior year period.
10
<PAGE>
Results of Operation (continued)
Administrative expenses increased from $258,423 during the first
quarter of fiscal year 1999, to $294,092 for the first quarter of fiscal year
2000, representing 13% and 14% of net sales, respectively. Sales, marketing and
customer support expenses increased from $475,591 during the period ended June
30, 1998, to $514,126, during the current fiscal year period, although both
amounts represent 24% of net sales. 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.
Cost of sales during the first quarter of fiscal year 2000 were
$1,123,747, or 52% of net sales, as compared to $1,075,012, or 55% of net sales,
for the first quarter of the prior fiscal year. The reduction in cost of sales,
and increase in gross margin, is a result of increased emphasis on the direct
sales activities of the Company, through Comtrex U.K., the Atlanta District
Office and in the Philadelphia metropolitan area. While selling and support
expenses represent a higher percentage of direct sales than sales through a
distribution network, the gross margin on such product sales is significantly
greater. In addition to product sales, a significant percentage of the net sales
realized through such direct sales activities consists of maintenance and
repairs, installation, training and implementation services. Such service
related revenue is at a greater gross margin than product sales.
As of August 6, 1999, the Company's backlog was approximately
$1,100,000. Excluded from this backlog are any orders for delivery to
subsidiaries or District Offices from the parent. The Company's backlog as of
July 24, 1998 was approximately $918,000. The Company expects that substantially
all of its current backlog will be shipped within the next 90 days.
Year 2000
The Company is currently in the process of performing a review of its
business systems and products, and is querying its customers, vendors and
resellers with respect to Year 2000 compliancy issues. The "Year 2000 Issue" is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's computer programs that have
a time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in normal business activities.
The Company believes it is diligently addressing the Year 2000 issues
and that it will satisfactorily resolve significant Year 2000 problems. The
Company anticipates completing substantially all of its Year 2000 projects
during calendar year 1999, with major completion milestones being targeted for
the third quarter of calendar year 1999. In the event that the Company
determines that it may fail to achieve these milestones, additional internal
resources will be focused on completing these projects or developing contingency
plans.
The Company has expensed all incremental costs related to the Year 2000
analysis and remediation efforts. Internal and external costs specifically
associated with modifying software for the Year 2000 will be charged to expenses
as incurred. All of these costs are being funded through operating cash flows.
To the extent that hardware upgrades of certain of the Company's computer
systems have been or will be required, these expenses will be charged to capital
equipment expenditures. Based on preliminary reviews from presently available
information, it is believed that the additional costs of addressing potential
problems are not expected to have a material adverse impact on the Company's
results of operations, liquidity and capital resources. However, if the Company,
its large customers, or significant suppliers are unable to resolve such
processing issues in a timely manner, it could have a material impact on the
results of operations, liquidity or capital resources of the Company.
More complete information with respect to the Company's activities
related to the Year 2000 issue is included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1999, as filed with the SEC.
11
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Information Required by Item 701 of Regulation S-B - Recent Sales of
Unregistered Securities
On June 23, 1999, the Company acquired all of the outstanding capital
stock of Cash Register Systems (CRS), Inc., a Michigan corporation, in exchange
for 150,000 restricted shares of the Company's common stock. CRS will operate as
a District Office, Comtrex Michigan. Prior to the acquisition, CRS was a
privately-held corporation which sold and serviced point-of-sale equipment,
principally the product lines of the Company. The four selling shareholders of
CRS were all employees within the organization, and will remain as Comtrex
employees pursuant to three year employment agreements. The transaction is not
expected to have an immediate material impact on the financial results of the
Company.
Item 5. Other Information
Stockholder Proposals:
Stockholder proposals intended to be considered at the 2000 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, 2000. 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 2000 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, 2000. 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 2000 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, 2000.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits required by Item 601 of Regulation S-B:
Exhibit No. Description of Instrument
- ----------- -------------------------
2.1 *(a) Stock Purchase Agreement, dated June 23, 1999, between the Company,
Michael R. Carter, Matthew R. Carter, Mark R. Carter and Donn Scott
Smith
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 *(g) Subordinated Convertible Debenture, in the original
principal amount of $300,000 (the "Debenture"), issued by the
Company to Norman and Shirley Roberts
4.3 *(g) Promissory note, in the original principal amount of $65,000 (the "Note"), delivered by the
Company to Norman Roberts and Shirley Roberts
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.4 *(h) Warrant to Purchase Shares of Common Stock from Comtrex Systems
Corporation and Exhibit A (Registration Rights Declaration), dated
February 8, 1999, issued to Alvin L. Katz
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 *(g) Working Cash Line of Credit Agreement between the Company and
PNC Bank N.A. dated June 12, 1998
10.7 *(g) Security Agreement dated June 12, 1998, delivered by the
Company to PNC Bank N.A.
10.8 *(g) Loan Agreement (Business Overdraft Facility) between Comtrex Systems
Corporation LTD and Barclays Bank PLC dated March 30, 1998
10.9 *(g) Security Agreement (Debenture), dated March 30, 1998,
delivered by Comtrex Systems Corporation LTD to Barclays Bank
PLC
10.10*(h) Comtrex Systems Corporation 1999 Stock Option Plan
10.11*(h) Financial Advisory Agreement, dated February 8, 1999, between Comtrex
Systems Corporation and Alvin L. Katz
27 *(a) Financial Data Schedule in accordance with Article 5 of Regulation S-X
</TABLE>
- ----------------
*(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.
*(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.
*(g) Incorporated by reference to the exhibits to the Company's Form 10KSB
filed with the Securities and Exchange Commission on June 29, 1998.
*(h) Incorporated by reference to the exhibits to the Company's Form 10KSB
filed with the Securities and Exchange Commission on June 28, 1999.
(b) Reports on Form 8-K
During the quarter ended June 30, 1999, no current reports on Form 8-K
were filed by the registrant with the Securities and Exchange Commission.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMTREX SYSTEMS CORPORATION
(Registrant)
Date: August 10, 1999 By: /s/
------------------- -------------------------------------
Jeffrey C. Rice
Chief Executive Officer
Date: August 10, 1999 By: /s/
------------------- -------------------------------------
Lisa J. Mudrick
Chief Financial &
Chief Accounting Officer
14
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Exhibit Index
-------------
Exhibit Page
- ------- ----
2.1 Stock Purchase Agreement, dated June 23, 1999, between 16
the Company, Michael R. Carter, Matthew R. Carter,
Mark R. Carter and Donn Scott Smith
27 Financial Data Schedule in accordance with Article 5 of
Regulation S-X. 34
15
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of June 23, 1999, among COMTREX SYSTEMS
CORPORATION, a Delaware corporation (the "Buyer"), MICHAEL R. CARTER
("MICHAEL"), MATTHEW R. CARTER ("MATTHEW"), MARC R. CARTER ("MARC"), DONN SCOTT
SMITH ("DONN", together with MICHAEL, MATTHEW and MARC, the "Shareholders") and
CASH REGISTER SYSTEMS, INC., a Michigan Corporation (the "Company"). The
Shareholders are also, at times, referred to herein as the "Sellers."
WHEREAS, the Shareholders desire to sell, and the Buyer desires to
acquire, all of the outstanding capital stock of the Company for the
consideration set forth below;
NOW, THEREFORE, in consideration of the respective representations,
warranties and agreements hereinafter set forth, the Shareholders, the Buyer and
the Company represent, warrant and agree as follows:
1. Sale and Purchase of Stock. In reliance on the representations,
warranties and covenants contained herein and subject to the terms and
conditions hereof, at the Closing hereinafter referred to, each Shareholder
shall sell, convey, transfer and deliver to the Buyer, and the Buyer shall
purchase from each Shareholder, the number of shares of the common stock, par
value $1.00 per share, of the Company (the "Stock"), set forth opposite their
respective names on Exhibit A hereto, constituting in the aggregate all of the
issued and outstanding capital stock of the Company.
2. Purchase Price. The Purchase Price payable hereunder for the sale
and purchase of the Stock shall be satisfied by the delivery by the Buyer to the
Shareholders, on the Closing Date (as such term is defined below), of 150,000
restricted shares of the common stock of the Buyer, $.001 par value per share
(the "Comtrex Shares").
3. Closing. (a) The closing of the sale and purchase of the Stock (the
"Closing") shall take place at the offices of the Buyer in Moorestown, New
Jersey, or at such other place as the Company and the Buyer shall mutually
agree, on such date and at such time as shall be mutually agreed to by the
Company and the Buyer, but in any event on or before June 30, 1999. The date of
the Closing is referred to in this Agreement as the Closing Date.
(b) The Closing shall be effectuated as follows:
(i) The Shareholders shall deliver to the Buyer
certificates representing the Shares, duly endorsed (or accompanied by duly
executed stock powers) for transfer to the Buyer on the Closing Date, with all
requisite documentary or stock transfer tax stamps affixed. Shareholders will
pay all federal, state, county and local taxes (including all requisite transfer
taxes) which may be due or payable by reason of a consummation of such sale and
purchase; and
(ii) The Shareholders and the Company shall deliver
to the Buyer a certificate executed by the Shareholders and the Company
representing and warranting to the Buyer that each of the Shareholders' and the
Company's representations and warranties contained in this Agreement was
16
<PAGE>
accurate in all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date, as if made on the Closing Date.
(iii) The Buyer shall deliver to the Shareholders the
Comtrex Shares.
4. Representations, Warranties and Covenants of the Company and the
Shareholders. The Company and the Shareholders hereby, jointly and severally,
represent, warrant and covenant to the Buyer as of the date hereof and the time
of the Closing as follows:
(a) The Company Organization, Etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan, is duly qualified as a foreign corporation in all
jurisdictions wherein the character of the property owned or leased or the
nature of the business transacted by it makes qualification as a foreign
corporation necessary (except where the failure to be so qualified would not
have a material adverse effect upon the assets, business, or financial condition
of the Company (a "Material Adverse Effect")), and has the corporate power to
own its properties and carry on its business. The Company does not own any
capital stock or other equity interest in any other corporation or other
organization. True and correct copies of the Articles of Incorporation, By-Laws
or other constituent documents of the Company have been provided to Buyer.
(b) Capitalization; Stock Ownership. (i) The Company's
authorized capital stock consists of 50,000 shares of Common Stock, par value
$1.00 per share, of which 5,000 shares are issued and outstanding. There are no
existing options, calls, or commitments of any character whatsoever, or
agreements to grant the same, relating to authorized or issued shares of the
Company and the Company has no outstanding securities convertible into or
exercisable for any such shares, or any options, calls or commitments of any
character whatsoever with respect to the issuance or sale of any such
convertible securities.
(ii) Each Shareholder is the owner, beneficially and
of record, of the number of shares of Stock of the Company set forth opposite
his name on Exhibit A hereto, free and clear of any claim, lien, option, charge,
restriction or encumbrance of any nature whatsoever. All the issued and
outstanding shares of Stock have been duly authorized and validly issued, and
are fully paid and nonassessable. The Shareholders have full requisite power and
authority to sell the Stock to the Buyer according to the terms and the
provisions of this Agreement so as to vest in the Buyer (and at Closing the
Shareholders shall vest in Buyer) good and marketable title to the Stock free
and clear of any claim, lien, option, charge or encumbrance, other than those
restrictions on transfer imposed by the federal securities laws. Each
Shareholder has all requisite power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly authorized, executed and delivered by
each Shareholder and constitutes the legal, valid, and binding obligation of
each Shareholder, enforceable in accordance with its terms, subject to
limitations relating to bankruptcy, insolvency, receivership, or other laws
limiting creditors' rights generally.
(iii) To the best of the Company's and each
Shareholder's knowledge, all of the issued capital stock of the Company has been
offered, sold and issued in compliance with all applicable securities laws.
(c) Corporate Authority; Etc. The execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary corporate action and will not violate any provision of law or of the
Company's Articles of Incorporation or By-Laws or other constituent document, or
result in the breach of, or constitute a default under, or result in the
creation of
17
<PAGE>
any lien, charge or encumbrance upon any property or assets of the Company
pursuant to, any indenture, agreement or instrument to which the Company is a
party or by which the Company or any of its property may be bound or affected.
The Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid, and binding obligation of the Company, enforceable
in accordance with its terms, subject to limitations relating to bankruptcy,
insolvency, receivership, or other laws limiting creditors' rights generally.
(d) Financial and Other Data. The Company has delivered to the
Buyer copies of the following consolidated financial statements (the "Financial
Statements") of the Company:
(i) Balance sheets as of March 31, 1999 and March 31,
1998 (the "Balance Sheets"); and
(ii) Statements of income for the years ended March
31, 1999 and March 31, 1998.
The annual Financial Statements have been compiled, without footnotes, by
Jenkins, Magnus, Volk & Carroll, P.C., having an address at 2605 South Woodward
Avenue, Suite A, Bloomfield Hills, Michigan 48304. The Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated (other than, with respect
to any interim financial statement, normal year-end accruals and adjustments),
the above-referenced Balance Sheets present fairly in all material respects the
financial position of the Company as of their respective dates, and the
above-referenced statements of income present fairly in all material respects
the results of operations of the Company for the periods covered thereby.
(e) Accounts. The accounts receivable of the Company as of the
date hereof and on the Closing Date (i) represent and will represent
transactions for good and valuable consideration resulting from bona fide sales
or services to third parties in the ordinary course of business, (ii) are not
and shall not be subject to any known defenses, set-offs or counterclaims, and
(iii) to the best of the Company's and Shareholders' knowledge are and shall be
legally enforceable (except as such enforceability may be limited by bankruptcy,
insolvency or other legal or equitable principles affecting the enforcement of
creditor's rights generally). To the Company's and each Shareholder's knowledge,
the accounts receivable as of the Closing will be collectible in the ordinary
course of business, at the aggregate gross recorded amount thereof. Since March
31, 1999, there has been no change in the Company's accounts receivable which
would have a Material Adverse Effect.
(f) Litigation, Etc. There is no litigation, proceeding or
governmental investigation pending or, to the best knowledge of the Company and
the Shareholders, threatened against or relating to the Company, its properties
or business, or the transactions contemplated by this Agreement. The
consummation of the transactions contemplated by this Agreement will not require
the consent, approval, authorization or order of any court or governmental
authority. There are no decrees, injunctions or orders of any court or
governmental department or agency regarding the Company, or its properties or
business.
(g) Compliance with Laws. The Company has complied in all
respects with all federal, state, county, local and foreign laws, statutes,
ordinances, rules, regulations, and orders (collectively, the "Laws") relating
to the Company or its assets, except for violations which do not, alone or in
the aggregate, have a Material Adverse Effect. The operation of the Company's
business at their current locations is in conformity in all material respects
with all applicable zoning ordinances and regulations. The Company has all
licenses, franchises, permits, certificates, authorizations, consents, licenses
and
18
<PAGE>
approvals required by law or any governmental authority or agency for (i) the
conduct of the Company's business as presently conducted, or (ii) the execution,
delivery or performance of this Agreement or any instrument hereunder. The
Company is not in default or in noncompliance in any material respect under any
of such permits, certificates, consents, approvals, authorizations, orders,
licenses, franchises and/or other similar authority. The consummation of the
transactions herein contemplated including, but not limited to, the execution,
delivery, and performance of this Agreement, does not, and will not, constitute
a violation of or default under, conflict with, or result in a breach of any
judgment, order, award, decree, of any court, administrative agency or
governmental body or law applicable to the Company.
(h) Assets; Absence of Liens and Encumbrances, Etc. Except as
otherwise reflected on Schedule 4(h), the Company has good and marketable title
to all its properties and assets, personal, tangible and intangible, including
the assets included on the Balance Sheets, free and clear of all claims, liens,
options, charges and encumbrances of any nature whatsoever other than Permitted
Liens (as hereinafter defined). The Company does not own any real estate. The
term "Permitted Lien" means (i) any liens for current taxes not yet due, and
(ii) those immaterial statutory liens of the type that arise out of taxes or
general or special assessments not in default and payable without penalty or
interest. Such assets are in good repair and operating condition and include all
assets that have been used by the Company to conduct the business of the Company
as it has been conducted. There is no existing claim which would provide a right
of set-off under any of the Company's contracts, agreements and leases, each is
in full force and effect, and there is no default or event, but for notice or
lapse of time or both, would constitute an event of default under any such
contract, agreement or lease.
(i) Liabilities. Other than liabilities specifically set forth
on the Balance Sheets and trade payables incurred by the Company in the ordinary
course of business after March 31, 1999, the Company has no liabilities or
obligations (whether accrued, absolute, contingent or otherwise) of any nature
whatsoever.
(j) Absence of Certain Changes or Events. Since March 31,
1999, there has not been:
(i) Any change in the financial condition, assets,
liabilities, or business of the Company other than changes which do not,
individually or in the aggregate, have a Material Adverse Effect;
(ii) Any declaration, setting aside or payment of any
dividend or other distribution in respect of the Company's capital stock, or any
redemption of the Company's capital stock, or any change in the authorized,
issued or outstanding capital stock of the Company, or agreement or commitment
with respect to any thereof;
(iii) Any increase in the compensation payable or to
become payable by the Company to any of its directors, officers, employees or
agents, whose total compensation for services rendered is currently at an annual
rate of more than $25,000, or any bonus, incentive compensation, service award
or other like benefit, granted, made or accrued, contingently or otherwise, to
or to the credit of any of the directors, officers, employees or agents thereof,
or any employee welfare, pension, retirement or similar payment or arrangement
made or agreed to by the Company, except as listed on Schedule 4(j) attached;
(iv) Any significant labor trouble, or any material
controversies or unsettled grievances pending or threatened, between the Company
and any of its employees or a collective bargaining organization representing or
seeking to represent such employees;
19
<PAGE>
(v) Any conducting of business by the Company other
than in the ordinary course;
(vi) Any material adverse change in relationship with
any substantial customer;
(vii) The entry into, termination of, receipt of
notice of termination of, or amendment of or modification to (x) any license,
distributorship, dealer, supplier, sales representative, joint venture, credit
or similar agreement, or (y) any contract or commitment (other than for the sale
of products by the Company in the ordinary course of business) involving a total
remaining commitment by or to the Company in excess of $25,000;
(viii) Any borrowing or lending of money by the
Company;
(ix) Any individual capital expenditure, or incurring
of liability therefor, in excess of $15,000; or
(x) Any loans to or guaranty of the indebtedness of
any Shareholder, employee or family member of any thereof.
(k) Independent Contractors. (i) All persons who have served
as independent contractors for the Company have signed an agreement, whereby
each such person has, among other things, acknowledged that he or she is an
independent contractor responsible for his or her own payroll taxes and workers'
compensation insurance; provided, however, notwithstanding the foregoing, the
Company voluntarily has included a number of such persons within its workers'
compensation insurance from time to time. All independent contractors have been
covered by workers' compensation insurance provided either by the Company or the
contractor.
(ii) Except for current compensation and premiums for
workers' compensation insurance described in clause (i) above, in each case
which is not yet due and payable, the Company has no liabilities or obligations
(whether accrued, absolute, contingent or otherwise) with respect to persons
engaged by the Company as independent contractors prior to the date hereof,
including without limitation liabilities for payment of payroll or withholding
taxes, workers' compensation premium payments, or relating to injuries sustained
by any such independent contractors.
(l) Schedules. The following Schedules which are attached
hereto contain accurate lists and summary descriptions of the following:
SCHEDULE 4(l)(i): (A) A complete list of all real
estate leased by the Company and (B) a complete list of the Company's vehicles,
machinery, equipment, tools, replacement parts, molds and furniture and
fixtures.
SCHEDULE 4(l)(ii): All of the Company's intellectual
or similar property, including but not limited to patents, copyrights, trade
names and trademarks, and applications therefor, and registrations thereof, and
all other inventions, discoveries, improvements, designs, processes, formuli,
trade secrets, ideas and other know-how, whether or not patentable.
SCHEDULE 4(l)(iii): All contracts, leases, agreements
and other documents and commitments of the Company, including agreements with
suppliers, distributors and employees.
20
<PAGE>
SCHEDULE 4(l)(iv): All policies of insurance in force
with respect to the Company or its assets.
SCHEDULE 4(l)(v): All mortgages, promissory notes,
bonds and other evidences of indebtedness upon which the Company is obligated.
SCHEDULE 4(l)(vi): All of the suppliers of the
Company accounting for purchases in excess of $5,000 by the Company during the
fiscal year ended March 31, 1998 or March 31, 1999.
SCHEDULE 4(l)(vii): All permits, licenses, orders,
authorizations or other approvals necessary to operate the Company's business as
presently conducted.
SCHEDULE 4(l)(viii): All of the Company's employment
agreements, labor contracts and collective bargaining agreements, and all
employee profit-sharing, incentive, deferred compensation, welfare, pension,
retirement, group insurance and other employee benefit plans, arrangements and
practices (including all trust agreements and the most recent determination
letters of the United States Internal Revenue Service relating to such plans),
relating to the Company or its employees ("Employee Benefit Plans").
SCHEDULE 4(l)(ix): The names and current annual rates
of compensation of all the officers, employees and agents of the Company,
together with a summary (containing estimates to the extent necessary) of (i)
existing bonuses, additional compensation (whether current or deferred) and
other like benefits, if any paid to such persons in the two prior fiscal years
or subsequent thereto, and (ii) any other payments made by or on behalf of the
Company to any labor organization or representative, employee, or agent of any
labor organization in the two prior fiscal years or subsequent thereto.
SCHEDULE 4(l)(x): The name of each institution in
which the Company has a bank account or safety deposit box, the number of any
such account or box and the names of all persons authorized to draw thereon or
to have access thereto.
SCHEDULE 4(l)(xi): All marketable securities, and all
other notes or other obligations evidenced by written instruments, owned by the
Company.
Accurate and complete copies of the leases, agreements,
contracts, commitments, plans, policies, arrangements and other documents
referred to in the foregoing Schedules have been delivered by the Company to
Buyer.
(m) Tax Matters. The Company has duly and timely filed with
the appropriate governmental agencies (federal, state, foreign and local) all
tax and other returns required to be filed by it, all of which have been
accurately prepared. All federal, state, local and foreign taxes, assessments,
interest, and penalties, and all other sums owed to any other governmental
authority or agency, whether federal, foreign, state or local (collectively,
"Taxes"), due, owing and payable, or which may be due, owing and payable, have
been fully paid or duly provided for in the Financial Statements. The accrual
for taxes reflected in the Balance Sheet shall be sufficient for the payment of
all accrued and unpaid Taxes for the period ending on the Closing Date and for
all periods prior thereto. The Company's United States Income Tax Returns have
not been audited by the United States Internal Revenue Service ("IRS") or any
other state, local or foreign taxing authority. There are no agreements by the
Company for the extension of time for the assessment of any Tax. No claim for
Taxes due is being contested by the Company. The
21
<PAGE>
Company has not received notice from the IRS or any other taxing authority of
any deficiency or other adjustment which has not been satisfied, and the Company
and Shareholders have no knowledge that such a notice may be sent. The Company
has delivered to the Buyer true and complete copies of the Federal income tax
and foreign and state income and franchise tax returns relative to the
operations of the Company from inception through the date hereof, together with
true and complete copies of all reports of Federal and state tax authorities
relating to examinations of such returns.
(n) Books and Records. The books of account, minute books,
stock record books, and other records of the Company, all of which have been
made available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls. The minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Board of Directors, and committees of the Boards
of Directors of the Company, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Company.
(o) Employee Benefit Plans and Agreements. (i) The Company
does not have any employment agreements, arrangements, contracts, or
understandings, whether enforceable or unenforceable, or written or oral with
any employee, labor organization, or representative of any labor organization
relating to its employees, except those listed on Schedule 4(l)(viii) attached
hereto. The Company has not violated any laws, regulations, orders or contract
terms, affecting the collective bargaining rights of employees, equal
opportunity in employment, or employee's health, safety, wages and hours.
(ii) There are no labor disputes existing, or to the
best of the Company's knowledge, threatened, involving strikes, slowdowns, work
stoppages, job actions or lockouts of any employees of the Company. There are no
unfair labor practices or petitions for election pending before the National
Labor Relations Board or any other federal or state labor commission relating to
the employees of the Company. No demand for recognition heretofore made by any
labor organization is pending with respect to the Company.
(p) Pension Plans. The Company is not nor has it ever been a
party to any multi-employer retirement plan. No Employee Benefit Plan is in
material violation of any of the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and no prohibited transaction within
the meaning of Title I or Title II of ERISA has occurred and is continuing with
respect to any such plan. With respect to each Employee Benefit Plan: (i) the
minimum funding standards have been met for each year in which Section 302 of
ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code"), were applicable, and no waiver of the minimum funding standards has
been requested for any such year, (ii) no events have occurred which are
required to be reported to the Pension Benefit Guaranty Corporation ("PBGC")
under Section 4043(b) of ERISA, (iii) all premiums required to be paid to the
PBGC have been paid, (iv) there is no unfunded liability, (v) such plans as are
intended to be qualified under Section 401(a) of the Code have received,
subsequent to January 1, 1989, favorable determination letters from the Internal
Revenue Service with respect to such qualified status and at all times have been
operated in a manner consistent therewith, and (vi) all report forms or other
information required to be filed with any government agency or to be delivered
to any plan participant or beneficiary have been filed, distributed or made
available.
(q) Patents, Licenses, and Trademarks. (i) The Company owns or
has sufficient right to use all patents, trademarks, trade names, copyrights and
rights utilized in its business, including those
22
<PAGE>
set forth on Schedule 4(l)(ii), without any obligation or liability for
royalties, fees, or other compensation to any owner, licensor, or other claim to
any of the foregoing, and, to the best of the Company's, and Shareholders'
knowledge, without conflict with or infringement upon any right or claimed right
of any other person.
(ii) There have been no claims made against the
Company for assertion of the invalidity, abuse, misuse or unenforceability of
any of its patents, trademarks, trade names, copyrights and rights with respect
to any of the foregoing, and to the knowledge of the Company or the
Shareholders, the Company is not infringing any patent, trademark, trade name or
other right, or application therefor, of any other party.
(iii) The Company owns and has sufficient
unrestricted right to use all of its proprietary rights free and clear of any
right, lien, encumbrance, charge, or claim of any other person or entity.
(r) Environmental Matters. (i) The Company holds, and its
business has been conducted in compliance with, all environmental permits,
certificates, licenses, approvals, registrations and authorizations
(collectively, "Permits") required under all applicable environmental laws,
rules and regulations, and all of such Permits are in full force and effect. All
such Permits are listed on Schedule 4(l)(vii) hereto and, except as set forth on
such schedule, all such Permits shall not be affected by the Closing. To the
best knowledge of the Company and the Shareholders, the Company's business has
been conducted in compliance with all, and the conduct thereof is not in
violation of any, applicable environmental statutes, rules, regulations,
ordinances and orders of any federal, state, local or foreign governmental or
regulatory agency or authority (collectively, "Authorities"), including those
relating to Hazardous Substances (as defined below).
(ii) No notice, citation, summons or order has been
issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or threatened by any Authority with respect
to (A) any alleged violation in the conduct of the Company's business or with
respect to its assets of any environmental statute, ordinance, rule, regulation
or order of any Authority; or (B) any alleged failure to have any environmental
permit, certificate, license, approval, registration or authorization required
in connection with the conduct of the Company's business; or (C) any generation,
treatment, storage, recycling, transportation or disposal of any Hazardous
Substance in connection with the conduct of the Company's business or with
respect to any of its assets. "Hazardous Substances" shall mean and include any
hazardous substances defined in the United States Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), any hazardous
materials defined in the United States Hazardous Materials Transportation Act,
any hazardous wastes defined in the United States Resources Conservation and
Recovery Act ("RCRA"), any toxic substance as defined in the Toxic Substances
and Control Act, any pollutant or contaminant as defined in the United States
Clean Water Act and as the terms hazardous substance, hazardous waste, hazardous
materials, toxic substance or pollutants or contaminants are defined in
corresponding state and local laws, ordinances and regulations and including
petroleum products and radioactive materials.
(iii) The Company has not received any request for
information, notice of claim, demand or other notification that it is or may be
potentially responsible with respect to any investigation or cleanup of any
threatened or actual release of any Hazardous Substances in connection with the
conduct of its business.
23
<PAGE>
(iv) Except as set forth on Schedule 4(r) hereto, the
Company has not used, generated, treated, stored, recycled or disposed of any
Hazardous Substances on any property now or previously owned, operated or leased
by the Company nor, to the best of the Company's and Shareholders' knowledge,
has any other person treated, stored, recycled or disposed of any Hazardous
Substances on any property now or previously owned, operated or leased by the
Company in connection with the conduct of the Company's business that might have
a Material Adverse Effect.
(v) The Company and Shareholders know of no facts or
circumstances related to environmental matters concerning the conduct of the
Company's business or with respect to its assets that could lead to any future
environmental claims, liabilities or responsibilities under any presently
existing environmental statute, ordinance, rule, regulation or order of any
Authority which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect upon the value of the Company's assets or
business to Buyer, or the possession, use, occupancy or operation by Buyer, of
any material portion of the Company's business or its assets.
(s) Insurance. The Company and its properties, businesses and
assets, are covered by such fire, casualty, product liability and other
insurance policies issued by reputable companies as are customarily obtained to
cover comparable business and assets in the regions in which such business and
assets are located, in amounts, scope and coverage which are reasonable in light
of existing conditions, and which are adequate to insure fully against risks to
which the Company and its properties, business and assets, are normally subject
in the operations of the Company's businesses.
(t) No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by the Company and
the Shareholders directly with the Buyer without the intervention of any other
person as a result of the act of the Company, or the Shareholders, in such
manner as to give rise to any valid claim against any of the parties hereto for
a brokers commission, finder's fee or other like payment.
(u) Disclosure. No representation or warranty made in this
Agreement or as provided herein contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
5. Investment Representations. Each Shareholder understands, represents
and warrants to, and agrees with, the Buyer (all such representations and
warranties being made to and for the benefit of the Buyer and any transfer agent
of the Buyer employed for that purpose) as follows:
(a) Each Shareholder understands that no federal or state
agency has passed on or made any recommendation or endorsement of the Comtrex
Shares;
(b) Each Shareholder acknowledges that, in making a decision
to acquire the Comtrex Shares hereunder, he has relied solely upon independent
investigations made by him and not upon any representations made by the Buyer
with respect to the Buyer or the Comtrex Shares;
(c) Each Shareholder understands that the Comtrex Shares are
being sold to him hereunder in reliance on specific exemptions from the
registration requirements of federal and state securities laws and that the
Buyer is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments, and understandings of such Shareholders set forth
herein in order to determine the applicability of such exemptions and the
suitability of each Shareholder to acquire the Comtrex Shares;
24
<PAGE>
(d) No Shareholder is an affiliate of the Buyer;
(e) Each Shareholder is aware that the Comtrex Shares have not
been and will not be registered under the Securities Act and may only be offered
or sold by him pursuant to registration under the Securities Act or an available
exemption therefrom; and
(f) Each Shareholder will offer, sell, pledge or otherwise
transfer the Comtrex Shares only pursuant to registration under the Securities
Act or an available exemption therefrom and, in any case, in accordance with all
applicable federal, state and foreign securities laws.
6. Representations and Warranties by the Buyer. The Buyer hereby
represents and warrants to the Sellers as of the date hereof and the time of the
Closing as follows:
(a) Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
(b) Corporate Authority, Etc. All requisite corporate action
has been taken to authorize the execution, delivery and performance of this
Agreement by the Buyer. The Agreement has been or at Closing will be duly
executed and delivered by the Buyer and constitute or will constitute the legal,
valid and binding obligations of the Buyer, enforceable in accordance with its
respective terms.
(c) Consents, Etc. The consummation of the transactions
contemplated by the Agreement will not (i) require the consent, approval,
authorization or order of any court or governmental authority, or (ii)
constitute a violation of or default under, conflict with, or result in a breach
of (A) any judgment, order, award, decree, of any court, administrative agency
or governmental body or laws to which the Buyer is subject, or (B) any agreement
or instrument to which the Buyer is a party or by which it is bound. There are
no decrees, injunctions or orders of any court or governmental department or
agency affecting the Buyer's ability to consummate the transactions contemplated
hereunder.
(d) No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by the Buyer
directly with the Company and the Sellers without the intervention of any other
person as a result of any act of the Buyer in such manner as to give rise to any
valid claim against any of the parties hereto for a brokers commission, finder's
fee or other like payment.
7. Conditions Precedent to the Shareholders' Obligations. The
obligations of the Shareholders at the Closing shall be subject to the
satisfaction of the following conditions precedent at Closing (each of which may
be waived by the Shareholders):
(a) Representations. All representations and warranties of the
Buyer contained herein shall be true and correct on the Closing Date in all
material respects as if made on such date; all agreements of the Buyer contained
herein shall have been complied with; and the Shareholders shall have received a
certification of the Buyer, dated the Closing Date and executed by the Buyer's
President or Vice President, to each such effect.
(b) Stock Certificates. The Shareholders shall receive the
Comtrex Shares specified in Paragraph 2.2(a) above.
25
<PAGE>
(c) Governmental Consents. All necessary governmental consents
and approvals to the transactions contemplated hereby shall have been obtained.
(d) Actions or Proceedings. No preliminary or permanent
injunction or other order by any federal or state court of competent
jurisdiction that makes it illegal or otherwise prevents the consummation of the
transactions contemplated hereby shall have been issued and shall remain in
effect.
8. Conditions Precedent to the Buyer's Obligations. The obligations of
the Buyer at the Closing shall be subject to the satisfaction of the following
conditions precedent at the Closing (each of which may be waived by the Buyer):
(a) Representations. All representations and warranties of the
Company and/or the Shareholders contained herein shall be true and correct in
all material respects on the Closing Date as if made on such date; all
agreements of the Company and/or Shareholders contained herein shall have been
complied with; and the Buyer shall receive a certification, dated the Closing
Date, of the Company, executed by the Company's Chairman and CEO, and of each
Shareholder, to each such effect.
(b) Approval. All action required by law to be taken by the
Shareholders with respect to the execution, delivery and performance of the
Agreement shall have been taken and shall continue to be in full force and
effect.
(c) Stock Certificates. Each Shareholder shall have delivered
to the Buyer the certificate or certificates representing the Stock to be
purchased from such Shareholder hereunder, duly endorsed in blank for transfer
or accompanied by stock powers executed in blank, with signature guaranteed and
with all requisite documentary or stock transfer tax stamps affixed.
(d) Judgment, Tax Lien and Uniform Commercial Code Searches.
The Buyer shall have received (i) Federal and State judgment and tax lien
searches, and (ii) certified copies of Requests for Information or Copies (Form
UCC-11) or equivalent report, in each case from all appropriate jurisdictions
listing all effective financing statements which name either the Company (under
its present or any previous name or any trade names) or any Shareholder, as
debtor, together with copies of such financing statements. Such searches shall
indicate the existence of no liens or encumbrances.
(e) Resignations. All members of the Board of Directors and
each officer of the Company shall have resigned.
(f) Third Party and Governmental Consents. All necessary third
party and governmental consents and approvals to the transactions contemplated
hereby shall have been obtained.
(g) No Options, Etc. There shall be no outstanding options,
calls or commitments of any character whatsoever, or agreements to grant the
same, relating to the authorized or issued shares of the Company, and the
Company shall have outstanding no securities convertible into or exercisable for
any such shares, or any options, calls or commitments of any character
whatsoever with respect to the issuance or sale of any such convertible
securities.
(h) Injunction; Litigation. No preliminary or permanent
injunction or other order by any federal or state court of competent
jurisdiction that makes illegal or otherwise prevents the consummation of the
transactions contemplated hereby shall have been issued and remains in effect.
There shall not be pending or threatened any litigation, suit, action or
proceeding by any person which could reasonably be expected to have a Material
Adverse Effect on the Company's assets or business or
26
<PAGE>
which seeks damages from the Buyer or the Company as a result of the
transactions contemplated by this Agreement.
(i) Due Diligence Investigations. The results of the due
diligence investigations referred to in paragraph 9(d) below shall have been
satisfactory to the Buyer in its reasonable discretion.
9. Further Agreements. The parties further agree as follows:
(a) Further Assurances. The Company, the Shareholders and the
Buyer each agree that they will, upon request of the other at any time after the
Closing Date and without further consideration, execute and deliver such other
documents and instruments and take such other action as may reasonably be
requested to carry out more effectively the purpose and intent of this
Agreement.
(b) Conduct of the Company's Business. Pending the Closing,
the Company and the Shareholders shall not permit:
(i) any conduct of the Company's business other than
in the ordinary course;
(ii) any increase in the compensation payable or to
become payable to any of the Company's employees or agents or any bonus,
incentive compensation, service award or other like benefit, granted, made or
accrued, contingently or otherwise, to or to the credit of any thereof, or any
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement or union or collective bargaining agreement made or agreed to by the
Company pertaining to the Company's employees;
(iii) any borrowing or lending of money by the
Company;
(iv) any declaration, payment or accrual of any
dividend or other distribution to any of the Shareholders, any redemption or
issuance of any of their respective capital stock or securities convertible into
capital stock or commitment to grant the same, or any retirement of any debt or
obligation owed to the Shareholders;
(v) any forgiveness of any liabilities or obligations
owed to the Company by any affiliated person;
(vi) any capital expenditures which in the aggregate
would exceed $15,000, or incurring of liability therefor, by the Company;
(vii) any failure on the part of the Company to use
its best efforts to preserve its business organization intact, to keep available
the services of its present officers and employees, and to preserve the
Company's assets (including intellectual property) and the business and the
goodwill of its suppliers, customers, referring sources and others having
business relations with it; or
(viii) any act or omission which would cause the
Company to be unable to restate, as of the Closing, the representations set
forth in paragraph 4(j) above.
(c) Transition. The Shareholders agree to take any reasonable
action requested by the Buyer in order to promote the smooth transition of the
Company's business to the Buyer.
27
<PAGE>
(d) Investigations. The Buyer may prior to the Closing Date,
through its employees, agents and representatives, make or cause to be made such
investigations during normal and reasonable business hours as it deems necessary
or advisable of the properties, assets, businesses, books and records of the
Company; provided that it is understood that disclosure of confidential customer
information will be subject to such procedures as are agreed to by the Buyer and
the Company. In such regard, the Company shall permit the Buyer and its
employees, agents and representatives to have full access to the premises of the
Company and all such books and records of the Company, and the Company shall
furnish to the Buyer such financial, operating and technical data and other
information as the Buyer shall from time to time reasonably request, subject in
the case of confidential customer information to the agreed-upon procedures
referred to above.
10. Indemnification by Shareholders. The Shareholders, jointly and
severally, agree to indemnify, defend and hold harmless Buyer from and against
any loss, costs, damages, or expense (including reasonable attorneys' fees)
arising from or relating to:
(a) Any and all damage or deficiency resulting from any
misrepresentation, omission, breach of warranty or non-fulfillment of any
covenant or agreement on the part of any Shareholder under this Agreement; or
(b) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expense, including reasonable attorneys' fees,
incident to any of the foregoing.
11. Indemnification by the Buyer. The Buyer agrees to indemnify, defend
and hold harmless the Shareholders from and against any loss, cost, damage or
expense (including reasonable attorney's fees) arising from or relating to:
(a) any misrepresentation or breach of covenant, warranty or
agreement made by the Buyer herein; or
(b) any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses, including reasonable attorneys'
fees, incident to any of the foregoing.
12. Notice of Claims and Potential Claims. (a) Any claim for indemnity
under paragraphs 10 and 11 hereof shall be made by written notice to the
indemnifying party specifying in reasonable detail the basis of the claim. The
indemnified party agrees to give prompt written notice to the indemnifying party
of any claim by a third party against the indemnified party which might give
rise to a claim against the indemnifying party under Paragraphs 10 and 11
hereof, stating the nature and basis of such claim and, if ascertainable, the
amount thereof, but the failure to so notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to the
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the failure to give such
notice. In connection with any such third party claim, the indemnifying party
may, at its election and expense, assume the defense of such third party claim,
provided that the indemnifying party shall have acknowledged in writing its
obligation to indemnify in respect of such third party claim, and provided
further that the indemnified party has not determined in good faith that joint
representation is not possible under ethical guidelines. If the indemnifying
party assumes the defense of the third party claim, no compromise or settlement
of such claim may be effected by the indemnifying party without the indemnified
party's consent, which will not be unreasonably withheld. If the indemnifying
party shall not have elected to so assume the defense of such third party claim,
no such third party claim shall be settled without the consent of the
indemnifying party, provided that the indemnifying party shall have
28
<PAGE>
acknowledged in writing its obligation to indemnify in respect of such third
party claim and provided further that such consent will not be unreasonably
withheld.
(b) Each party hereto agrees to use its best efforts,
consistent with reasonable business practices, to mitigate any liability that is
the subject of an indemnity claim.
13. Termination. (a) This Agreement may be terminated at any time prior
to the consummation of the Closing hereunder, in accordance with the following
provisions:
(i) By mutual agreement of the Buyer and the Company;
or
(ii) By the Company if any of the conditions set
forth in paragraph 7 shall not have been met or waived in writing by the Company
by the Closing Date; or
(iii) By the Buyer if any of the conditions provided
for in paragraph 8 of this Agreement shall not have been met or waived in
writing by the Buyer by the Closing Date; or
(iv) By either Buyer or the Company in the event that
the Closing shall not have occurred on or prior to June 30, 1999.
(b) Nothing in this paragraph 13 shall be deemed to excuse
either party for a breach of any of its obligations or agreements undertaken or
made in this Agreement.
14. Miscellaneous. (a) Expenses. The Buyer, the Company and the
Shareholders each agrees to pay its own costs and expenses in connection with
the transactions contemplated by this Agreement.
(b) Survival. Notwithstanding any presumption to the contrary,
all representations, covenants, warranties and agreements contained in this
Agreement shall survive the Closing.
(c) Law; Benefit. The provisions of this Agreement shall be
construed in accordance with the laws of the State of New Jersey. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns.
(d) Notices. Any notice, request, demand, consent, approval,
or other communication required or permitted under this Agreement will be
written and will be deemed to have been given (i) when personally delivered or
sent by telecopy with receipt confirmed, or (ii) on the next day after delivery
to a nationally-recognized express delivery service with instructions for
overnight delivery; or (iii) on the third day after it is deposited in any
depository regularly maintained by the United States postal service, postage
prepaid, certified or registered mail, return receipt requested, addressed to
the following address or to such other address as the party to be notified shall
have specified to the other party in accordance with this paragraph:
If to Buyer:
COMTREX SYSTEMS CORPORATION
102 Executive Drive
Moorestown, NJ 08057
Attn: Jeffrey C. Rice, President
Facsimile No.: (609) 778-9322
29
<PAGE>
And to:
Archer & Greiner, A Professional Corporation
One Centennial Square
Haddonfield, New Jersey 08033
Attn: Deborah A. Hays, Esquire
Facsimile No: (609) 795-0574
If to the Company:
Cash Register Systems, Inc.
63 Oakland Avenue
Pontiac, Michigan 48342
Attn: Michael R. Carter, President
Facsimile No: (248) 858-8424
With a required copy to:
Richard A. Campbell, Esquire
Campbell, Keenan, Cooney, Karlstrom & Steckling,
L.L.P.
5840 Lorac Drive
Clarkston, Michigan 48346-2945
Facsimile No: (248) 625-6996
If to the Shareholders, to their respective addresses
on Exhibit A.
(e) Entire Agreement; Etc. This Agreement sets forth the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior agreements or understandings of the parties with
respect thereto. This Agreement may be amended or supplemented solely by a
writing executed by the parties hereto.
(f) Public Announcement. Any public announcement made by
either party prior to Closing pertaining to the transactions contemplated under
this Agreement shall be subject to the prior approval of the other party, except
as required by applicable laws or stock exchange requirements.
(g) Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute but one and the
same agreement.
(h) Headings. The headings preceding the text of this
Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor affect its meaning, construction or
effect.
(i) Choice of Forum. The parties irrevocably consent and
submit to the non-exclusive jurisdiction of the courts of the State of New
Jersey and the United States District Court sitting therein and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Acquisition
Documents.
(j) Non-Waiver of Rights. It is understood and agreed that no
failure or delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single
30
<PAGE>
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any right, power or privilege hereunder.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
COMTREX SYSTEMS CORPORATION
By: /s/Jeffrey C. Rice
----------------------------
Jeffrey C. Rice, President
SHAREHOLDERS:
/s/ Michael R. Carter
----------------------------
MICHAEL R. CARTER
/s/ Matthew R. Carter
----------------------------
MATTHEW R. CARTER
/s/ Marc R. Carter
----------------------------
MARC R. CARTER
/s/ Donn Scott Smith
----------------------------
DONN SCOTT SMITH
CASH REGISTER SYSTEMS, INC.
By: /s/ Michael R. Carter
----------------------------
Name: Michael R. Carter
Title: President
31
<PAGE>
EXHIBIT A
- ---------
THE SHAREHOLDERS
----------------
-------------------------------------------------------
Name Shares
Michael R. Carter 3,000
Matthew R. Carter 667
Marc R. Carter 667
Donn Scott Smith 666
Total 5,000
-------------------------------------------------------
<PAGE>
LIST OF OMITTED SCHEDULES
Schedule No. Description
- ------------ -----------
Schedule 4(j) Compensation changes
Schedule 4(l)(i) Assets
Schedule 4(l)(ii) Intellectual property
Schedule 4(l)(iii) Contracts and agreements
Schedule 4(l)(iv) Insurance
Schedule 4(l)(v) Indebtedness
Schedule 4(l)(vi) Suppliers
Schedule 4(l)(vii) Permits and approvals
Schedule 4(l)(viii) Employment agreements and benefit plans
Schedule 4(l)(ix) Employee compensation
Schedule 4(l)(x) Bank accounts
Schedule 4(l)(xi) Securities owned by company
Schedule 4(r) Hazardous substances
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND RELATED STATEMENTS OF OPERATIONS AS OF
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 296,985
<SECURITIES> 0
<RECEIVABLES> 2,399,866
<ALLOWANCES> 109,465
<INVENTORY> 1,660,174
<CURRENT-ASSETS> 4,383,009
<PP&E> 1,504,141
<DEPRECIATION> 1,242,637
<TOTAL-ASSETS> 5,837,659
<CURRENT-LIABILITIES> 2,124,485
<BONDS> 0
<COMMON> 3,600
0
0
<OTHER-SE> 5,593,391
<TOTAL-LIABILITY-AND-EQUITY> 5,837,659
<SALES> 2,145,415
<TOTAL-REVENUES> 2,145,415
<CGS> 1,123,747
<TOTAL-COSTS> 2,015,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 12,368
<INCOME-PRETAX> 117,434
<INCOME-TAX> 6,170
<INCOME-CONTINUING> 111,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,264
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
