-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N/tJjWq+pn2al63Zf6/PcrdeUr8fJgfoREdWbToN8SqxdmGDJhL7qiZPJP0n+eBP Ky+pKIfaVtZxQVYK27gZfg== /in/edgar/work/0000950116-00-002691/0000950116-00-002691.txt : 20001114 0000950116-00-002691.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950116-00-002691 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMTREX SYSTEMS CORP CENTRAL INDEX KEY: 0000769525 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 222353604 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13732 FILM NUMBER: 761630 BUSINESS ADDRESS: STREET 1: 102 EXECUTIVE DR SUITE 1 CITY: MOORESTOWN STATE: NJ ZIP: 08057 BUSINESS PHONE: 6097780090 MAIL ADDRESS: STREET 1: 102 EXECUTIVE DRIVE SUITE 1 CITY: MOORESTOWN STATE: NJ ZIP: 08057 10QSB 1 0001.txt 10QSB 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 September 30, 2000 [ ] 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) (856) 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 November 10, 2000 ----- -------------------------------- Common Stock, par value $.001 3,866,572 Transitional Small Business Disclosure Form (check one): Yes ___ No _X_ 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, 2000 and March 31, 2000 Unaudited Consolidated Statement of Operations for the six months ended September 30, 2000 and 1999 Unaudited Consolidated Statement of Cash Flow for the six months ended September 30, 2000 and 1999 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 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit Index 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (These statements are unaudited.)
ASSETS Current assets: September 30, 2000 March 31, 2000 ------------------ -------------- Cash and cash equivalents $ 17,683 $ 246,270 Accounts receivable, net of reserve of $98,551 and $99,318 as of September 30, 2000 and March 31, 2000, respectively 2,574,478 3,022,935 Inventories 1,928,349 1,808,984 Prepaid expenses and other 135,945 116,668 ----------- ----------- Total current assets 4,656,455 5,194,857 ----------- ----------- Property and equipment: Land 156,244 156,244 Building 312,656 312,656 Machinery, equipment, furniture and leasehold 1,687,007 1,639,881 ----------- ----------- 2,155,907 2,108,781 Less - accumulated depreciation (1,421,843) (1,372,781) ----------- ----------- Net property and equipment 734,064 736,000 ----------- ----------- Other assets: Purchased and capitalized software and design, net of amortization 424,557 409,188 Goodwill, net of amortization 535,784 551,125 ----------- ------------ Total other assets 960,341 960,313 ----------- ----------- TOTAL ASSETS $ 6,350,860 $ 6,891,170 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving line of credit loan $ 1,125,000 $ 775,000 Accounts payable 479,246 1,020,988 Current portion of long term debt 81,313 64,711 Income and V.A.T. payable 93,664 146,471 Accrued expenses 219,279 168,502 Deferred revenue 272,653 464,153 Customer deposits 48,624 37,640 ----------- ----------- Total current liabilities 2,319,779 2,677,465 ----------- ----------- eferred income taxes 10,051 10,051 ----------- ----------- Long term liabilities: Long term debt, net of current 240,568 245,213 Convertible debentures payable, net of current 216,667 256,667 ----------- ----------- Total long term liabilities 457,235 501,880 ----------- ----------- Shareholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none outstanding - - Common stock, $.001 par value, 10,000,000 shares authorized, 3,866,572 and 3,840,572 issued and outstanding as of September 30, 2000 and March 31, 2000, respectively 3,867 3,841 Additional paid-in capital 5,782,538 5,757,704 Foreign currency translation adjustment (7,314) 29,651 Accumulated deficit (2,215,296) (2,089,422) ----------- ----------- Total shareholders' equity 3,563,795 3,701,774 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,350,860 $ 6,891,170 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (These statements are unaudited.)
Three months ended Six months ended September 30, September 30, 2000 1999 2000 1999 ---------------------------- ---------------------------- Net sales $ 1,755,793 $ 2,265,194 $ 4,025,993 $ 4,410,609 Costs and expenses Cost of sales 814,757 1,114,926 1,882,283 2,238,673 Administrative 340,674 325,353 654,590 619,444 Research and development 58,419 39,465 110,615 75,461 Sales and marketing 245,447 245,803 506,817 470,190 Customer support 402,668 390,754 805,705 680,493 Depreciation and amortization 51,548 51,850 106,838 99,503 ----------- ----------- ----------- ----------- 1,913,513 2,168,151 4,066,848 4,183,764 ----------- ----------- ----------- ----------- Income (loss) from operations (157,720) 97,043 (40,855) 226,845 Interest income (expense), net (38,364) (32,164) (72,324) (44,532) ----------- ----------- ----------- ----------- Income (loss) before income taxes (196,084) 64,879 (113,179) 182,313 Provision for income taxes 367 3,310 12,695 9,480 ----------- ----------- ----------- ----------- Net income (loss) $ (196,451) $ 61,569 $ (125,874) $ 172,833 =========== =========== =========== =========== Basic earnings per share: Net income (loss) $ (.05) $ .02 $ (.03) $ .05 =========== =========== =========== =========== Diluted earnings per share: Net income (loss) $ (.05) $ .02 $ (.03) $ .05 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (These statements are unaudited.)
Six months ended September 30, 2000 1999 --------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (125,874) $ 172,833 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities - Depreciation and amortization 106,838 99,441 Provisions for losses on accounts receivable 2,426 3,258 Provisions for losses on inventories - 20,000 Foreign currency translation adjustment (36,965) 37,939 (Increase) decrease in - Accounts receivable 355,588 (260,920) Inventories (146,400) (613,071) Prepaid expenses and other (22,214) (30,954) Increase (decrease) in - Accounts payable (465,802) 100,098 Current portion of long term debt 43,183 - Accrued expenses 10,557 (10,129) Customer deposits 10,984 42,945 Deferred revenue (160,317) (191,839) Notes payable, current - - ------------ ----------- Net cash provided by (used in) operating activities (427,996) (630,399) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Sale (purchases) of property and equipment: Purchases of property and equipment (47,126) (45,328) Purchases of software and capitalized software and design (57,500) (55,783) Cost of acquiring district - (8,489) ------------ ----------- Net cash provided by (used in) investing activities (104,626) (109,600) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under line of credit, net 350,000 510,502 Payments on Debt (70,825) (22,895) Proceeds from issuing equity securities 24,860 4,941 ------------ ----------- Net cash provided by (used in) financing activities 304,035 492,548 ------------ ------------ Net increase (decrease) in cash (228,587) (247,451) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 246,270 483,917 ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,683 $ 236,466 ============ ===========
The accompanying notes are an integral part of these financial statements. 5 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES 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, 2000, 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 foreign currency translation 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: September 30, March 31, 2000 2000 ----------- ----------- Raw materials $ 824,039 $ 838,633 Work-in-process 142,533 50,838 Finished goods 1,041,777 999,513 Reserve for excess and obsolete inventory (80,000) (80,000) ----------- ----------- $ 1,928,349 $ 1,808,984 =========== =========== 6 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INCOME TAXES: The Company has net operating loss carryforwards for federal income tax purposes of approximately $2,452,000, which begin to expire in 2004. Such loss carryforwards result in deferred tax assets of approximately $985,000, which has been offset by a valuation allowance of equal amount. During the quarter ended September 30, 2000, the valuation account was not affected. The components of the provision for income taxes for the six months ended September 30, 2000 consist of current expense (foreign) of $12,495, and current expense (U.S.) of $200, respectively. The current expense (U.S.) for both periods has been offset by the benefits of net operating loss carryforwards through the reduction of the valuation account. 4. EARNINGS PER SHARE DISCLOSURE: In the quarter ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). It replaces the presentation of primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the basic and diluted EPS for the three months ended September 30, 2000 and 1999 is as follows:
Three months ended September 30, 2000 ------------------ Income (Loss) Shares Per Share ------------- ------ --------- Net income (loss) $(196,451) Basic EPS: Income (loss) available to common shareholders (196,451) 3,853,239 $ (0.05) Effect of dilutive securities, options and warrants 38,025 Effect of dilutive convertible debenture 5,333 266,667 Diluted EPS: Income available to common shareholders $(191,118) 4,157,931 $ (0.05)
For purposes of computing diluted per share data, $5,333 of interest related to the convertible debenture was added to net income.
Six months ended September 30, 2000 ------------------ Income (Loss) Shares Per Share ------------- ------ --------- Net income (loss) $(125,874) Basic EPS: Income (loss) available to common shareholders (125,874) 3,846,905 $ (0.03) Effect of dilutive securities, options 52,106 Effect of dilutive convertible debenture 10,933 273,333 Diluted EPS: Income available to common shareholders $(114,941) 4,172,344 $ (0.03)
For purposes of computing diluted per share data, $10,933 of interest related to the convertible debenture was added to net income. 7 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. EARNINGS PER SHARE DISCLOSURE: (CONTINUED)
Three months ended September 30, 1999 ------------------ Income Shares Per Share ------ ------ --------- Net income $ 61,569 Basic EPS: Income available to common shareholders 61,569 3,754,072 $ 0.02 Effect of dilutive securities, options and warrants 75,122 Effect of dilutive convertible debenture 6,000 300,000 Diluted EPS: Income available to common shareholders $ 67,569 4,129,194 $ 0.02
For purposes of computing diluted per share data, $6,000 of interest related to the convertible debenture was added to net income.
Six months ended September 30, 1999 ------------------ Income Shares Per Share ------ ------ --------- Net income $ 172,833 Basic EPS: Income available to common shareholders 172,833 3,675,655 $ 0.05 Effect of dilutive securities, options 69,222 Effect of dilutive convertible debenture 12,000 300,000 Diluted EPS: Income available to common shareholders $ 184,833 4,044,877 $ 0.05
For purposes of computing diluted per share data, $12,000 of interest related to the convertible debenture was added to net income. 5. SEGMENT INFORMATION In the fiscal year ended March 31, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise", replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company has two reportable segments: the United States and the United Kingdom.
Three months ended Six Months Ended September 30, September 30, 2000 1999 2000 1999 ----------------------------- ----------------------------- Net sales: United States, domestic $ 621,364 $ 815,192 $ 1,488,694 $ 1,527,096 United States, export 545,923 698,387 1,300,806 1,621,520 United Kingdom 849,709 951,861 1,816,743 1,831,058 Transfers between segments (261,203) (200,246) (580,250) (569,065) ----------- ----------- ----------- ----------- Net sales $ 1,755,793 $ 2,265,194 $ 4,025,993 $ 4,410,609 =========== =========== =========== ===========
8 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. SEGMENT INFORMATION (CONTINUED)
Three months ended Six Months Ended September 30, September 30, 2000 1999 2000 1999 -------------------------- --------------------------- Income (loss) before income taxes: United States $ (183,784) $ 61,961 $ (135,840) $ 187,543 United Kingdom 3,051 12,619 63,790 37,168 Corporate (15,351) (9,701) (41,129) (42,398) ----------- -------- ---------- --------- Income before income taxes $ (196,084) $ 64,879 $ (113,179) $ 182,313 ========== ======== ========== ========= Depreciation and amortization: United States $ 34,910 $ 34,482 $ 73,504 $ 65,441 United Kingdom 9,538 10,268 19,134 19,862 Corporate 7,100 7,100 14,200 14,200 ----------- -------- ---------- --------- $ 51,548 $ 51,850 $ 106,838 $ 99,503 ========== ======== ========== =========
September 30, 2000 March 31, 2000 ------------------ -------------- Identifiable assets: United States $ 4,786,520 $ 4,841,358 United Kingdom 2,126,380 2,414,652 Corporate 373,998 384,998 Eliminations (936,038) (749,838) ----------- ----------- Total assets $ 6,350,860 $ 6,891,170 =========== =========== Long lived assets: United States $ 156,993 $ 150,716 United Kingdom 577,071 585,284 ----------- ------------ $ 734,064 $ 736,000 =========== =========== 6. COMPREHENSIVE INCOME In the fiscal year ended March 31, 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and displaying of comprehensive income and its components in the Company's consolidated financial statements. Comprehensive income is defined in SFAS 130 as the change in equity (net assets) of a business enterprise during the period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company's comprehensive income is comprised of net income and foreign currency translation adjustments. Comprehensive income (loss) is $(213,039) and $154,617 for the quarters ended September 30, 2000 and 1999, respectively, and $(162,839) and $207,579 for the six months ended September 30, 2000 and 1999, respectively. The difference from net income as reported is the tax effected change in the foreign currency translation adjustment component of shareholders' equity. 9 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. 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 have been 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 cost of the acquired enterprise is $171,915, which represents 150,000 shares of Comtrex common stock with an assigned value of $100,800, $62,628 of net liabilities assumed in the transaction and associated legal fees of $8,489. Acquired goodwill of $171,915 is being amortized over 20 years, using the straight-line method. 10 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, 2000, as filed with the SEC. Liquidity and Capital Resources As of September 30, 2000, the Company had total current assets of $4,656,455, including cash and cash equivalents of $17,683, as compared to $5,194,857 of total current assets and $246,270 of cash and cash equivalents as of March 31, 2000. The Company had current liabilities of $2,319,779, resulting in a current ratio of 2.0 as of September 30, 2000, compared to $2,677,465 and 1.9, respectively, as of March 31, 2000. Cash and cash equivalents decreased by $228,587 during the first six months of fiscal year 2001. Operating activities consumed $427,996 of cash, as compared with cash consumption of $630,399 for the corresponding prior year period. Investing activities consumed $104,626 during the first six months of fiscal year 2001 while financing activities provided $304,035, as compared with a net consumption of $109,600 for investing activities and net provision of $492,548 from financing activities in the corresponding prior year period. Cash provided by financing activities in both periods was principally from the Company's line of credit. The Company reported a net loss of $125,874 for the six month period ended September 30, 2000. The Company has net operating loss carryforwards of approximately $2,430,000 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 2001 and the exchange rate as of March 31, 2000, differences between accounts on the consolidated balance sheets as of September 30, 2000 and March 31, 2000 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. A decrease in accounts receivable of $355,588 along with depreciation of $106,838 represented significant positive contributions to cash flow for the six month period ending September 30, 2000. These positive cash flows were offset by a net loss of $125,874, an increase in inventories of $146,400, a decrease in accounts payable of $465,802, and a decrease in deferred revenues of $160,317. Each of these amounts is largely a result of timing, and not necessarily indicative of trends for the balance of the fiscal year. The decrease of current receivables is a reflection of the Company's aggressive collections efforts. During the six month period, work-in-process inventory increased by $91,695, while finished goods increased by $42,264 and raw materials decreased by $14,594. 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 $160,317 is the result of two 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. 11 Liquidity and Capital Resources (continued) The primary positive contributors to cash flow were a reduction of receivables of $355,588 and depreciation and amortization of $106,838. The quarterly depreciation and amortization contribution is expected to continue throughout the current fiscal year at approximately the same quarterly amount. Investing activities consumed $104,626 of cash during the six month period ended September 30, 2000, through a combination of purchased property and equipment and capitalized software and design. Financing activities provided $304,035, with the principal activity being borrowings under the Company's line of credit and the reclassification of short term 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 six months ended September 30, 2000, these adjustments had the effect of a cash consumption of $36,965 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 to shareholders' equity changed from a positive impact of $29,651 as of March 31, 2000, to a negative impact of $7,314 as of September 30, 2000. In March of 2000, 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, 2001. Borrowings bear interest at the rate of 2.75 percent in excess of the bank's base rate and are collateralized by substantially all assets of the subsidiary. The Company is not a guarantor on this line of credit. On July 5, 2000, the Company entered into a credit facility with Summit Bank, replacing an existing facility, which had extended through September of 2000, with PNC Bank N.A. The new credit facility, which extends through September of 2001, provides the Company with the availability of a total amount of $2,000,000 for borrowings and the issuance of Irrevocable Letters of Credit. Outstanding borrowings bear interest at either the bank's prime rate of interest minus one half of one percent (0.50%), or two and one half percent (2.50%) above the London Interbank Offered Rate (LIBOR), at the Company's option. For borrowings under which interest will be computed on the LIBOR formula, the Company must place minimum principal amount draws of $200,000, on no more than three (3) loans outstanding at any one time, for a period of either one, two or three months. The credit facility is collateralized by substantially all domestic assets of the Company. The previous facility with PNC Bank N.A. provided the Company with the availability of a total amount of $1,500,000 for borrowings and the issuance of Irrevocable Letters of Credit. Loans under the facility with PNC Bank bore interest at the bank's prime rate and were also collateralized by substantially all domestic assets of the Company. The Company believes that its cash balance, together with its lines of credit, provides the Company with adequate liquidity to finance its projected operations for the foreseeable future. As of September 30, 2000, the Company had no material commitments for capital expenditures. Results of Operation Net sales during the first six months of fiscal year 2001 decreased by 9%, to $4,025,993, as compared with corresponding sales of $4,410,609 during the first six months of fiscal year 2000. For the comparable quarters ended September 30, sales decreased by 22%, to $1,755,793 from $2,265,194 for fiscal year 2001 and fiscal year 2000, respectively. Results of operations of the Company's U.K. distributor, acquired as of October 2, 1997, are consolidated in both quarters. Results of operations of Comtrex Michigan, acquired on June 23, 1999, have been consolidated with those of the Company effective as of July 1, 1999, the beginning of the second quarter of fiscal year 2000. The Company reported a net loss of $125,874 for the current six month period, or $.03 per share, as compared with net income of $172,833, or $.05 per share, for the comparable prior year period. During the quarter ended September 30, 2000 12 Results of Operation (continued) the Company reported a net loss of $196,451, or $.05 per share, as compared with net income of $61,569, or $.02 per share, for the second quarter of the prior fiscal year. Sales during the quarterly and six month period ended September 30, 2000 were adversely affected by several factors, most of which the Company believes are not of a recurring nature. Export sales declined, on a year to year comparative basis, during the six month period ended September 30, 2000 by $320,714, or approximately 20%. The decline in the exchange rate between the Euro and the US dollar is the largest single factor in this decline in export sales, as the Company's products become more expensive to purchase in Europe. In the U.K., the stoppage of petroleum deliveries to local retail outlets severely impacted delivery and installation of equipment for the last two weeks of September. Despite this fuel unavailability in the last half of September, sales in the U.K. increased by approximately 8% during the six month period for the current fiscal year over the prior year. When stated in US dollars, however, sales in the U.K. decreased by 1% for the six month period, when compared with the same period in the prior year, due to an approximate 10% decline in the value of the pound sterling against the dollar. Domestic sales declined by $193,828, or approximately 23%, on a quarterly comparative basis, and by $38,402, or approximately 3%, when comparing the first six month periods of fiscal years 2001 and 2000. Substantially all of the decline on a quarterly basis resulted from reduced sales through the Company's Michigan District Office. The principal customer base of the Michigan office during the prior fiscal year had been franchisee customers of a large family dining chain, replacing existing equipment which had been in service for a number of years. The Company believes that the timing of such replacement purchases are essentially discretionary when viewed over a number of quarterly periods. The capital investments during the prior fiscal year reflected the concerns over the Y2K issue. The Company believes that its customer base, as well as that of many of its competitors, are postponing additional capital equipment expenditures into calendar year 2001 as a result of the increased spending during the last quarter of calendar year 1999 and the first quarter of calendar year 2000. Administrative expenses increased from $619,444 to $654,590 during the first six month period of fiscal year 2001 when compared with same period of fiscal year 2000, representing an increase from 14% to 16% of net sales in comparative periods. Sales, marketing and customer support expenses increased from $1,150,683 during the six month period ended September 30, 1999, to $1,312,522, during the current fiscal year period, representing 26% and 32% of net sales, respectively. The increase can be attributed to the additional expenses of the Michigan district office which was acquired on June 23, 1999. Substantially all of the operating activities of Comtrex U.K., like the Company's District Offices in Atlanta and Michigan, relate to the direct sale, installation and service of products to end-users. Cost of sales during the second quarter and first six month period of fiscal year 2001 were 46% and 47% of net sales, respectively, as compared to 49% and 51% 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 increased emphasis on the direct sales activities of the Company, through Comtrex U.K., the Atlanta and Michigan District Offices 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 October 30, 2000, the Company's backlog was approximately $908,435. Excluded from this backlog are any orders for delivery to subsidiaries or District Offices from the parent. The Company's backlog as of November 5, 1999 was approximately $1,415,000. The Company expects that substantially all of its current backlog will be shipped within the next 90 days. 13 Year 2000 The Company has completed a review of its business systems and products, and has queried its customers, vendors and resellers with respect to Year 2000 compliancy issues. At the time of this report, all internal information and accounting systems of the Company appear to be functioning normally, and no Year 2000 problems have been encountered. In addition, at the time of this report, all Year 2000 compliant products of the Company appear to be functioning normally, provided that software upgrades, to the extent they are required, have been performed. The Company is not aware of any Year 2000 issues with its Year 2000 compliant software products for which upgrades, to the extent they are required, are not readily available. The Company believes has diligently addressed the Year 2000 issue and that it will satisfactorily resolve significant Year 2000 problems should any additional, and currently unforeseen, problems arise. The Company has expensed all incremental costs related to the Year 2000 analysis and remediation efforts. Any internal and external costs specifically associated with modifying software for the Year 2000 will be charged to expenses as incurred. All of these costs have been 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 the Company's experience to date, and reviews from presently available information, it is believed that any 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. 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, 2000, as filed with the SEC. 14 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 August 1, 2000, the Company issued 20,000 shares of its common stock to Norman and Shirley Roberts. These shares represent a second conversion of $20,000 of convertible debentures to common stock, at the rate of $1.00 per share, pursuant to the terms and conditions of the Subordinated Convertible Debenture (the "Debenture") issued on October 1, 1997 in conjunction with the Company's acquisition of its U.K. subsidiary. The original amount of the Debenture was $300,000, and after this second conversion, the remaining balance on the debenture was $260,000. The Debenture accrues interest at the rate of eight (8) percent per annum, payable monthly. The Debenture is convertible into shares of the common stock (in blocks of 20,000 shares) at the rate of $1.00 per share. In July of 2000, the Company and Norman and Shirley Roberts executed Amendment No. 1 (the "Amendment) to the Subordinated Convertible Debenture. The Amendment extends the expiration date for the Holders' conversion rights specified in the Debenture by six (6) months, from October 1, 2000 to April 1, 2001, and extends the date on which the first principal payment is due from January 1, 2001 to July 1, 2001. Any principal outstanding under the debenture on April 2, 2001 is to be paid in twelve equal quarterly installments, commencing on July 1, 2001. Item 4. Submission of Matters to a Vote of Security Holders The 2000 Annual Meeting of Stockholders (the "Annual Meeting") was held on August 15, 2000. A quorum was present and the following sets forth a brief description of each matter voted upon at the Annual Meeting and the results of the voting on each such matter. 1. Election of Directors The management of the Company nominated a slate of five persons to serve on the Board of Directors until the next Annual Meeting or until their respective successors are duly elected and shall qualify. No other nominations were made. The nominees received the following votes: Nominee Votes For Votes Withheld (Abstain) ------- --------- ------------------------ Sidney Dworkin 3,711,258 17,712 Nathan I. Lipson 3,711,258 17,712 Jeffrey C. Rice 3,711,258 17,712 Steven D. Roberts 3,711,258 17,712 Alan G. Schwartz 3,711,258 17,712 The entire slate of directors nominated was elected by a majority of the shares present in person or represented by proxy and entitled to vote. Item 5. Other Information None. 15 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-B: Exhibit No. Description of Instrument - ----------- ------------------------- 3.1*(h) Certificate of Incorporation, as amended through October 26, 1999, of the Company 3.2*(b) By-Laws, as amended, of the Company 4.1*(b) Specimen Common Stock Share Certificate 4.2*(e) Subordinated Convertible Debenture, in the original principal amount of $300,000 (the "Debenture"), issued by the Company to Norman and Shirley Roberts 4.3*(f) 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 4.4*(i) Amendment No. 1, dated July 31, 2000, to the Debenture issued by the Company to Norman and Shirley Roberts 10.1*(g) Stock Purchase Agreement, dated June 23, 1999, between the Company, Michael R. Carter, Matthew R. Carter, Mark R. Carter and Donn Scott Smith 10.2*(c) 1992 Non-Qualified Stock Option Plan of the Company 10.3*(d) 1995 Employee Incentive Stock Option Plan of the Company 10.4*(f) 1999 Stock Option Plan of the Company 10.5*(e) Loan Agreement (Business Overdraft Facility) between Comtrex Systems Corporation LTD and Barclays Bank PLC dated March 30, 1998 10.6*(e) Security Agreement (Debenture), dated March 30, 1998, delivered by Comtrex Systems Corporation LTD to Barclays Bank PLC 10.7*(f) Financial Advisory Agreement, dated February 8, 1999, between Comtrex Systems Corporation and Alvin L. Katz 10.8*(i) Secured Credit Agreement between the Company and Summit Bank N.A. dated July 5, 2000 27 *(a) Financial Data Schedule in accordance with Article 5 of Regulation S-X - ------------------ *(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 to the Company's definitive proxy statement filed with the Securities and Exchange Commission on July 16, 1992. *(d) Incorporated by reference to the exhibits to the Company's definitive proxy statement filed with the Securities and Exchange Commission on July 13, 1995. *(e) Incorporated by reference to the exhibits to the Company's Form 10-KSB filed with the Securities and Exchange Commission on June 29, 1998. *(f) Incorporated by reference to the exhibits to the Company's Form 10-KSB filed with the Securities and Exchange Commission on June 28, 1999. *(g) Incorporated by reference to the exhibits to the Company's Form 10-QSB filed with the Securities and Exchange Commission on August 9, 1999. *(h) Incorporated by reference to the exhibits to the Company's Form 10-QSB filed with the Securities and Exchange Commission on November 12, 1999. *(i) Incorporated by reference to the exhibits to the Company's Form 10-QSB filed with the Securities and Exchange Commission on August 10, 2000. (b) Reports on Form 8-K During the quarter ended September 30, 2000, no current reports on Form 8-K were filed by the registrant with the Securities and Exchange Commission. 16 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 13, 2000 By: /s/ ------------------- ----------------------------------------- Jeffrey C. Rice Chief Executive Officer Date: November 13, 2000 By: /s/ ------------------- ----------------------------------------- Kenneth J. Gertie Chief Financial & Chief Accounting Officer 17 Exhibit Index Exhibit Page - ------- ---- 27 Financial Data Schedule in accordance with Article 5 Of Regulation S-X 19 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND RELATED STATEMENTS OF OPERATIONS AS OF SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS MAR-31-2001 SEP-30-2000 17,683 0 2,574,478 98,551 1,928,349 4,656,455 2,155,907 1,421,843 6,350,860 2,319,779 0 0 0 3,867 5,782,538 6,350,860 4,025,993 4,025,993 1,882,283 4,066,848 0 0 72,324 (113,179) 12,695 (125,874) 0 0 0 (125,874) (.03) (.03)
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