10KSB 1 tenksb.txt 10KSB FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2002 |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-13732 COMTREX SYSTEMS CORPORATION (Name of small business issuer in its charter)
Delaware 22-2353604 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 102 Executive Drive, Moorestown, NJ 08057 (Address of principal executive offices) (Zip Code) Issuer's telephone number (856) 778-0090 Securities registered under Section 12 (b) of the Act: None Securities registered under Section 12 (g) of the Act: Common Stock, par value $.003 (Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |x| No |_| Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |x| Issuer's revenues for the fiscal year ended March 31, 2002 were $6,691,438. Based on the closing price of $0.65 per share for the registrant's common stock, the aggregate market value of the voting stock held by non-affiliates of the registrant as of June 17, 2002 is $523,250. Shares of common stock held by each executive officer and director of the registrant, and by each person who may be deemed to be an affiliate of the registrant, have been excluded from this computation. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of June 17, 2002, there were outstanding 1,417,120 shares of the registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its 2002 Annual Meeting of Shareholders, to be filed on or before July 25, 2002 pursuant to Regulation 14A, are incorporated by reference into Part III of this Form 10-KSB. Transitional Small Business Disclosure Format: Yes |_| No |x| Total number of pages of this report: 49 ----------------- Index to exhibits located at page: 19 ----------------- PART I Item 1. Description of Business This Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The matters discussed in this Form 10-KSB that are forward-looking statements are based on current management expectations that involve a number of risks and uncertainties. Potential risks and uncertainties include, without limitation, those matters discussed and contained in this Item 1 under BUSINESS AND INVESTMENT RISKS; INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS. INTRODUCTION Comtrex Systems Corporation (the "Company") was incorporated in New Jersey in April, 1981. At the Annual Meeting of Shareholders held November 28, 1988, the shareholders approved an Agreement and Plan of Merger, pursuant to which the state of incorporation of the Company was changed to Delaware. In February of 1989 the Company completed the statutory merger, whereby each share of the outstanding common stock of the New Jersey corporation was exchanged for one share of common stock of the Delaware corporation. The Company designs, develops, assembles and markets computer software and electronic terminals which provide target retailers with transaction processing, in-store controls and management information. The Company markets these products through a network of authorized dealers in Canada, France, Belgium, Holland, the Caribbean Islands and Spain, and through a wholly-owned subsidiary in the United Kingdom. In the United States, the Company markets these products through a network of dealers and through its own direct sales offices in Atlanta, Detroit and the greater Philadelphia area. On April 1, 1996, the Company acquired substantially all the assets of AUBIS Hospitality Systems, Inc., an Atlanta, Georgia based company, which relate to the resale activity of Comtrex point of sale products. As of June 17, 2002, the Company employed five individuals in its Atlanta District Office. The personnel are engaged in the direct sale and service of the Company's products in both the Atlanta metropolitan area and in the southeastern United States. On October 2, 1997, the Company acquired all the issued and outstanding capital stock of Data Systems Terminals Limited ("DSTL"), a corporation formed and existing under the laws of England. DSTL was the former distributor of the Comtrex product line in the United Kingdom. As a result of such acquisition, DSTL became a wholly-owned subsidiary of the Company, and formally changed its corporate name to Comtrex Systems Corporation LTD ("Comtrex U.K."). As of June 17, 2002, Comtrex U.K. employed twenty-one individuals. Comtrex U.K. operates essentially autonomously, maintaining its own accounting systems, clerical and administrative staff and sales and service departments. The subsidiary also provides sales and service support for the Company's distribution network in Europe. On June 23, 1999, the Company acquired all the issued and outstanding capital stock of Cash Register Systems Inc. ("CRS"), a Michigan corporation. CRS was a privately-held corporation which sold and serviced point-of-sale equipment, principally the product lines of the Company. As of June 17, 2002, the Company employed five individuals in its Michigan District Office. The personnel are engaged in the direct sale and service of the Company's products in both the Detroit metropolitan area and in the mid-western United States. 2 PRODUCTS The Company's principal products are various software programs, point-of-sale (POS) terminals, printers, computers and peripheral devices which the Company integrates to provide complete systems to restaurants, both table service and quick service. Through its various direct sales offices, the Company provides integration, customization and maintenance services on these systems for end users of the systems. The Company has historically designed, developed and manufactured POS terminals, which combine traditional cash register functions with the control and data gathering capabilities of a computerized system. The current product line of POS terminals offered by the Company has been specified by the Company, but designed and manufactured by third parties. The Company internally develops software programs which execute on POS terminals, and perform traditional cash register functionality. In addition, the Company internally develops software which executes on an in-store computer to provide enhanced reporting capabilities for its terminal systems and facilitate local and remote information transfer between computers and the Company's terminal systems. The Company also licenses various software programs from third parties which interact with the Company's own software to provide enhanced or additional functionality to the in-store computer. The Company began deliveries of the PCS-5000 series in October of 1996. The product line is based on PC architecture, and generally available local-area-network technology. Included in the product line is an active matrix, LCD touch entry terminal, along with touch entry color CRT and a keyboard and CRT terminal. The use of PC architecture components results in greater acceptance by the Company's customer base, since the technology is generally available and not proprietary, as well as allows for greater processing capabilities at a reduced manufacturing or procurement cost. The product line is designed to be continuously upgraded, as PC technology continues to provide increased capabilities at lower costs, through high volume manufacturing economies. The PCS-5000 software addresses the needs of both the sit-down dining and the quick service market segments. In February of 1999, the Company introduced the iTP series of POS terminals as a hardware component of the PCS-5000 system. In February of 2001, the Company introduced a replacement series of products, the Odyssey series of terminals. The Odyssey hardware series includes both an integrated terminal, including a Pentium class processor, and a stand-alone terminal. The hardware series is designed to operate both with the Company's current PCS-5000 software and the next generation software series scheduled for release in the second quarter of fiscal year 2003. This series of terminals is manufactured to the Company's specifications in Taiwan, and received by the Company as a finished product, but without certain optional components such as a magnetic card reader, customer display or hard disk drive installed. The PCS-5000 software and series of terminals, including the Odyssey and iTP hardware, accounted for approximately 98%, 82%, and 96% of net sales in fiscal years 2002, 2001, and 2000, respectively. The Company's Sprint terminal was first introduced in fiscal year 1986, and was designed principally to be sold to quick service food outlets. The PCS-5000 software set provides substantially all of the operational and reporting capabilities of the Sprint series, and the PCS-5000 product series is being offered as the alternative, current product of the Company for quick service food outlets. The Sprint family of terminals accounted for less than 5% of revenues in each of the fiscal years 2002, 2001 and 2000. The Company has been engaged in a software design and development project for the past three years aimed at improving the position of its entire product line. The initial phase of this project was an entirely new suite of in-store back office software modules, which the Company markets as the Odyssey Software Suite. This back office software integrates both with the Company's PCS-5000 software set and serves as the foundation for the next generation of Windows point-of-sale software. The Company released the Odyssey Software Suite in November of 2001. The second phase of the design and development project is an entirely new, 32-bit Windows application software module for the point-of-sale function. Marketed as the Odyssey POS/2100, this software is currently installed in a customer site, in beta release. Pending a successful outcome of the beta installation, it is currently anticipated that the POS/2100 will be released for delivery in the second quarter of fiscal year 2003. 3 MANUFACTURING AND TECHNOLOGY The strategic focus of the Company's manufacturing program is to maintain flexibility and reduce costs by continuously evaluating the outsourcing of key products and sub-assemblies. The Company's manufacturing operations consist primarily of assembling various components, parts, sub-assemblies, and assemblies which are purchased by the Company from third parties. Many of these are manufactured to the Company's design and specifications. The component parts, sub-assemblies, and finished assemblies, whether purchased or assembled by the Company, are subject to quality control testing by the Company. The Company believes that alternative sources of supply for its components are available and that the loss of its current sources for components and purchased assemblies would not have a material adverse effect on the Company's business. The Company cannot estimate the effect on costs of parts and assemblies if it were required to use alternative sources, but it believes that such effect would not materially affect the profit contribution of such products to the Company. The Company believes that it maintains good relationships with its suppliers. The current point-of-sale (POS) terminal products of the Company are manufactured to the Company's specifications by Firich Enterprises ("Firich"), in Taiwan. The decision to outsource the manufacturing was based upon an extensive analysis of projected long-term product costs, current and projected terminal demand relative to internal manufacturing capacity, targeted product quality levels, and internal design and manufacturing capabilities. The analysis indicated that the Company could obtain these products from Firich at a lower cost than the Company could produce. Firich has sufficient assembly capacity to meet the Company's forecasted sales demand and was capable of achieving targeted product quality levels. The Company retains its assembly and testing capability and continues to manufacture several products, including its own touch entry LCD terminal for the PCS-5000 series. Future material, sub-assembly and POS terminal sourcing will be based on availability, service, cost, delivery and quality of the purchased items from both domestic and international suppliers. The Company has, in the past, released enhanced versions of its software products at least twice each year, although there can be no assurance that this practice will continue. All of the Company's current software products share the same technological foundation, which makes the enhancement of the entire product line more efficient. Software enhancements to a product are usually driven by requests received from existing end-users or by interviews with certain key end-users, technological developments and by competitive analysis. The Company estimates that during the 2002, 2001, and 2000 fiscal years, it expended approximately $412,080, $340,535, and $301,406, respectively, (which amounts include capital expenditures of $314,113, $150,000, and $113,283, respectively) on engineering design and development of new products plus improvements on existing products. The Company anticipates that it will continue to incur research and development costs in connection with enhancements of its current products and the development of new products. INTELLECTUAL PROPERTY RIGHTS The Company believes its competitive position is not materially dependent upon patent protection. The technology used in the design and manufacture of most of the Company's hardware products is generally known and available to others. The Company intends to continue to use its best efforts to expand its existing product offerings and to introduce new products which keep pace with technological developments in the marketplace. The Company's success is heavily dependent upon proprietary technology. The Company relies primarily on a combination of copyright law, patents and trade secret law to protect its proprietary rights to its technology. Due to the rapid pace of technological innovation within the point-of-sale industry, the Company's ability to establish and maintain a position of technological leadership in the point-of-sale industry is more dependent upon the skills of its development personnel than upon the legal protection afforded its existing technology. There can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that the Company's competitors will not independently develop similar or superior technology. Policing unauthorized use of the Company's software is difficult, 4 although the Company utilizes hardware protection devices, which are included with licensed copies of the Company's software products, which are intended to prevent the unauthorized execution of the Company's software by unlicensed end-users. The Company is unable, however, to determine the extent to which piracy of its software products exists, and software piracy can be expected to be a persistent problem in the software industry. In most cases, the Company distributes its software products under "shrink-wrap" software license agreements which grant end-users licenses to the Company's software products and which contain various provisions to protect the Company's ownership of, and the confidentiality of, the underlying technology. The Company also requires its employees and other parties with access to its confidential information to execute agreements prohibiting the unauthorized use or disclosure of the Company's technology. Despite these precautions, it may be possible for a third party to misappropriate the Company's technology or to independently develop similar technology. In addition, "shrink-wrap" licenses, which are not signed by the end-user, may be unenforceable in certain jurisdictions. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. The Company is not aware that any of its products infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim infringement by the Company with respect to current or future products. The Company expects that software product developers will increasingly be subject to infringement claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect on the Company's business, operating results and financial condition. SALES, MARKETING AND DISTRIBUTION During fiscal year 2002, the Company recorded foreign sales of $4,029,258, representing 60% of net sales. Foreign sales were $5,295,646, representing 65% of net sales, during fiscal year 2001, and $6,431,518, representing 65% of net sales during fiscal year 2000. Included in foreign sales are sales made by the subsidiary company, Comtrex Systems Corporation LTD ("Comtrex U.K.") subsequent to its acquisition, through the consolidation of the operations of the subsidiary. During fiscal year 2002, sales to the Company's distributor in France, Restaurant Data Systems (RDS) were approximately $685,211, representing 10% of sales. Sales to ASK Restaurants were $947,463 and sales to the City Centre Group were approximately $858,012, representing 14% and 13% of sales, respectively. Both ASK and City Centre are customers of Comtrex U.K. These three customers of the Company and its subsidiary accounted for approximately 19%, 9% and 14%, respectively, of consolidated net sales during fiscal year 2001. In 2000, sales to RDS accounted for 21% of consolidated sales while sales to ASK Restaurants and the City Centre Group accounted for 8% and 7% of sales, respectively. No other single customer represented more than 10% of sales during fiscal years 2002, 2001, or 2000. Sales through the Atlanta District Office during fiscal years 2002, 2001 and 2000 were approximately $644,781, $885,000 and $1,010,000, or 10%, 11% and 10%, respectively, of net sales. Sales through the Michigan District Office during fiscal years 2002, 2001 and 2000, for the three quarters for which such sales were consolidated, were approximately $582,454, $572,000 and $630,000, or 9%, 7% and 6% of net sales, respectively. During fiscal year 2002, the balance of the Company's net sales were distributed among the network of U.S. dealers and international distributors, and there was no single dealer or distributor who purchased product in excess of 10% of net sales. As of June 17, 2002, the Company's consolidated backlog was approximately $683,000, as compared with a backlog of approximately $1,183,000 as of June 15, 2001. The Company recognizes income when an order is shipped to the customer. Deposits, if any, on orders are not recognized as income until such order is shipped to the customer. Substantially all of the Company's backlog is expected to be filled within the current fiscal year, and there is no seasonal or other material aspects relating to the backlog. 5 The business segments within which the Company operates are highly competitive. The Company and its dealers and distributors compete with a number of service providers, software companies and manufacturers of terminals and peripherals. Many of these competitors have longer operating histories, greater financial resources, more substantial manufacturing capabilities and greater name recognition in the marketplace. Management believes that the key to growth will be establishing and maintaining relationships and distribution channels which provide close contact with its target customers, coupled with the ability of the Company to supply an extremely reliable product, thoroughly tailored to the specific needs of the foodservice segment of the retailing industry. SERVICE AND WARRANTIES The Company warrants its products to its dealers for a six-month period, including parts and labor, for repair or replacement at the Company's corporate facility in Moorestown, New Jersey. The products of the Company which are sold to customers by dealers are serviced on-site by dealer service personnel. Certain international distributors are provided up to a one-year warranty, again on a repair or replacement basis at the Company's corporate facility. Certain of the Company's customers have chosen to service their equipment themselves and ship parts to the Company's facility for repair or exchange. ENVIRONMENTAL MATTERS The Company believes that it is in compliance with all applicable environmental laws and does not anticipate that such compliance will have a material effect on its future capital expenditures, earnings or competitive position. EMPLOYEES As of June 17, 2002, Comtrex employed a total of fifty-two individuals. Thirty-one employees were located in the United States, all of whom were employed on a full time basis. Comtrex Systems Corporation LTD, the Company's wholly-owned subsidiary in the United Kingdom, employed an additional twenty-one full-time employees. None of the employees of the Company or of its wholly owned subsidiary are represented by a union and the Company believes that its employee relations are good. BUSINESS AND INVESTMENT RISKS; INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS Due to the competitive nature of the market in which it competes, the Company continues to experience gross margin pressure on its products and service offerings in all of its distribution channels. There can be no assurance that the Company will be able to increase sales through its higher margin, direct distribution channels or to increase sufficiently sales of its higher margin products, including software, to prevent future declines in the Company's overall gross margin. Moreover, the Company's financial results in any single quarter may be dependent upon the timing and size of customer orders and the shipment of products for large orders. Large software or software development orders from customers may account for more than an insignificant portion of earnings in any quarter. The customers with whom the Company does the largest amount of business are expected to vary from year to year as a result of a variety of factors. Furthermore, if a customer delays or accelerates its delivery requirements or a product's completion is delayed or accelerated, revenues expected in a given quarter may be deferred or accelerated into subsequent or earlier quarters. The statements contained herein not based on historic facts are forward-looking statements that involve risks and uncertainties. Past performance is not necessarily a strong or reliable indicator of future performance. Actual results could differ materially from past results, estimates, projections, or forward looking statements made by, or on behalf of, Comtrex. Primary risks are disclosed in the Company's press releases and periodic SEC filings. Some of the additional risks and uncertainties include the following: 6 - On May 30, 2002, the Company filed a Form 8-K with the Securities and Exchange Commission reporting receipt of a Nasdaq Staff Determination letter on May 23, 2002 indicating that the Nasdaq Listing Qualifications Panel had decided to delist Comtrex's common stock from the Nasdaq SmallCap Market, effective at the opening of business on May 31, 2002. The Company's common stock began listing in the OTC Bulletin Board(R)(OTCBB) on May 31, 2002. OTCBB eligibility rules require that companies report their current financial information to the SEC, or other regulatory agency, in order to meet continued eligibility requirements. The Company intends to continue to satisfy all required eligibility criteria in order that its securities be quoted on the OTCBB; - Like other stocks traded over this quotation system, the Company's common stock is thinly traded, highly volatile and not followed by analysts. Because its common stock was delisted for failure to meet the Nasdaq maintenance requirements, the common stock is subject to the rules promulgated under the Securities Exchange Act of 1934, as amended, relating to "penny stocks." These rules require brokers selling securities subject to these rules to persons other than established customers and institutional accredited investors to complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning the risks of trading in the security. These rules may restrict the ability of brokers to sell the Company's common stock and thus may have an adverse effect on the liquidity and market price of its common stock; - Because of large broker-dealer spreads, investors may be unable to sell the stock immediately back to the broker-dealer at the same price the broker-dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. The market among broker-dealers may not be active, making it more difficult for investors to sell this stock. Investors in a penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make; - Shareholders should be aware that, according to Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse which could cause investors to lose their entire investment. Such patterns include: - control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; - manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; - "boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; - excessive and undisclosed bid-ask differentials and mark-ups by selling broker-dealers; and - the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. - The Company's management is aware of the abuses that have occurred historically in the penny stock market. Although it does not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, it will strive within the confines of practical limitations to prevent the described patterns; - The impact of economic conditions generally and in the intelligent point-of-sale terminal industry in particular; - The risk of unavailability of adequate capital or financing; - The Company's actions in connection with continued and increasing price and product competition in many product areas; - Difficulties or delays in the development, production, testing and marketing of products, including a failure to deliver new products and technologies when generally anticipated; the failure of customers to accept these products or technologies when planned; any defects in 7 products; the Company's inability to differentiate its products; and a failure of manufacturing efforts, whether internal or through any third party manufacturing entities; - Implementation of a cost-effective service structure capable of servicing increasingly complex software systems in increasingly more remote locations and additional costs and expenses associated with servicing and supporting open systems, which generally incorporate third party software products (the support and service of which may be more difficult and costly); - Unanticipated manufacturing, supply, service or labor difficulties experienced by certain large vendors of the Company, including Firich Enterprises and its subsidiary CDS Commercial Data Systems, resulting in a disruption or discontinuation of the services or products provided to the Company; - The technological risks of large customer roll-outs, especially where the contracts involve new technology or third party software; - Because more than half of the Company's sales are outside the U.S., the Company's results could be significantly affected by weak economic conditions in countries in which it does business, particularly in the United Kingdom and France, and by changes in foreign currency exchange rates affecting those countries; - The ability of the Company to recruit and retain engineers and other highly-skilled personnel, especially in light of increasingly tight labor markets in the technology industry; - Controlling expenses associated with the expansion of the Company's infrastructure necessitated by the acquisition strategies of the Company; - Although the Company attempts to protect its proprietary technology through a combination of trade secrets, patent and copyright law, nondisclosure agreements and technical measures, such protection may not preclude competitors from developing products with features similar to the Company's products; and - The effects of, and changes in, laws and regulations and other activities of governments, agencies and similar organizations, particularly in the United Kingdom and France. 8 Item 2. Description of Property The Company currently leases and occupies approximately 19,000 square feet of plant and office space in an industrial park in Moorestown, New Jersey. In May of 2002, the Company renewed its lease through August of 2005. The Company's property is suitable and adequate for the Company's operations, with sufficient productive capacity to meet the Company's current needs, and projected needs over the coming fiscal year. Should additional space be required to accommodate future growth, the Company believes that additional space is available in the immediate vicinity of its current location. In August of 1998, the Company entered into a new lease with its existing landlord in Atlanta, Georgia, for approximately 2,900 square feet of primarily office space to replace the existing facility, with no penalties under the prior lease. The lease extends through September of 2003. The Company believes that this space is suitable and adequate for the operations of the Atlanta District Office, and further, that additional or alternative space would be made available through its current landlord, on similar terms and conditions to those currently prevailing, in the immediate vicinity of its current location, should further expansion be required. In May of 2000, the Company entered into a new lease with a new landlord in Waterford, Michigan, for approximately 1,800 square feet of primarily office space to replace an existing leased facility of approximately the same size, the term for which was essentially complete. The lease extends through June of 2003. The Company believes that this space is suitable and adequate for the operations of the Michigan District Office, and further, that additional or alternative space would be made available through its current landlord, on similar terms and conditions to those currently prevailing, in the immediate vicinity of its current location, should expansion be required. The Company's subsidiary in the U.K., Comtrex Systems Corporation LTD, currently owns and occupies approximately 4,700 square feet of office and warehouse space in a two story commercial office complex in Horley, England (located near Gatwick Airport). The building's ground floor serves as the warehouse for shipping, receiving and service activities. The building's first floor provides adequate office and conference space for the sales, support and administrative groups of the subsidiary. The land and building are covered under a mortgage, with a term that extends through 2017. Item 3. Legal Proceedings The Company is not involved in any pending legal proceedings which, if adversely determined to the Company, could have a material adverse effect on the Company's business or financial condition. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted by the Company to a vote of its security holders during the fourth quarter of fiscal year 2002. 9 Special Item. Executive Officers of the Registrant Name Age Position Jeffrey C. Rice 52 President and Chief Executive Officer Charles A. Hardin 47 Secretary, Vice President of Engineering Steven D. Roberts 40 Managing Director, Comtrex U.K. Matthew R. Carter 31 Vice President of Sales Jeffrey C. Rice has been President, Chief Executive Officer and a Director of the Company since February of 1989. From May of 1985 through January of 1989 he was a Director of American Business Computers Corporation, and served as its President and Chief Executive Officer from May of 1985 through May of 1986 and as President of a wholly-owned subsidiary, ABC/SEBRN TechCorp, from November, 1986 through January, 1989. From its founding in 1977 through January of 1985, Mr. Rice served as President, Chief Executive Officer and a Director of MICROS Systems, Inc. Mr. Rice is a graduate of the University of Virginia, with a Bachelor of Science degree in Electrical Engineering. Charles A. Hardin was elected Corporate Secretary in August of 2000 and promoted to Vice President of Engineering of the Company at the same time. Mr. Hardin has been an employee of the Company since its founding in 1981, and served as Vice President of Engineering from June 1995 through August 1997. From 1979 to 1981, Mr. Hardin was a hardware and software engineer for MKD Corporation, the predecessor corporation of Comtrex Systems. Prior to 1979, Mr. Hardin worked as an electrical engineer for the Hazeltine Corporation. Mr. Hardin is a graduate of Northeastern University, with a Bachelor of Science degree in Electrical Engineering. Steven D. Roberts has been Managing Director of Comtrex Systems Corporation LTD, the Company's U.K. subsidiary, since its acquisition in October of 1997, and has served on the Company's Board of Directors since November of 1997. He had served as Managing Director of the acquired company, Data Systems Terminals LTD (DSTL), since 1990, and had been an employee of DSTL since 1984. From 1985 to 1987, Mr. Roberts served as President of Electronic Cash Registers, Inc. (ECR) in Cincinnati, Ohio. ECR was a wholly owned subsidiary of DSTL, engaged in the distribution of point-of-sale systems for dry cleaning establishments in the United States. Matthew R. Carter was promoted to Vice President of Sales of the Company effective as of July 1, 2000. Mr. Carter joined the Company in June of 1999 as National Sales Manager. Mr. Carter was one of the four shareholders of Cash Register Systems (CRS), Inc., and served as its Vice President of Sales from 1995 until its acquisition by the Company in June, 1999. Mr. Carter functioned as Sales Manager for CRS from 1992 through 1995, and worked in various sales, service and installation capacities for CRS, beginning as a summer employee in 1986. 10 PART II Item 5. Market for Common Equity and Related Stockholder Matters The Company's common stock (symbol "COMX") is quoted in the OTC Bulletin Board (R) (OTCBB) which provides dynamic last-sale and volume information and end-of-day high, low, close and volume information, as well as bids and offers by specific Market Makers. Bid and asked prices for the Company's common stock (symbol "COMX") had been quoted on the Nasdaq Stock Market since July 1, 1985. Prior to May 11, 1988, the stock was traded on the Nasdaq National Market System and was traded in the Nasdaq Small Cap Market until May 30, 2002. On May 30, 2002, the Company filed a Form 8-K with the Securities and Exchange Commission reporting receipt of a Nasdaq Staff Determination letter on May 23, 2002 indicating that the Nasdaq Listing Qualifications Panel had decided to delist Comtrex's common stock from the Nasdaq SmallCap Market effective at the opening of business on May 31, 2002. The Company's common stock began listing in the OTCBB on May 31, 2002. At a special meeting of Shareholders held on February 12, 2001, the Company's shareholders approved a one-for-three reverse stock split. All prices in the table below, which shows the high and low closing bid prices for the period indicated as reported by Nasdaq, have been adjusted to reflect the one-for-three reverse split. The quotations reflect inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
Bid Prices ---------- Period Year Ended March 31, 2002 Year Ended March 31, 2001 High Low High Low ---- ---- ---- ---- First Quarter 2.800 1.375 6.375 2.625 Second Quarter 2.300 .900 4.500 2.439 Third Quarter 1.450 .850 3.000 .750 Fourth Quarter 1.430 1.010 2.440 .688
RECENT SALES OF UNREGISTERED SECURITIES In conjunction with the Company's acquisition of its U.K. subsidiary, The Company issued a Subordinated Convertible Debenture (the "Debenture") on October 1, 1997. The original amount of the Debenture was $300,000. The Debenture originally provided that no principal be payable until January 1, 2001, and that any principal outstanding on October 2, 2000 be paid in twelve equal quarterly installments, commencing January 1, 2001. The Debenture was convertible into shares of the common stock (in blocks of 6,667 shares), at the rate of $3.00 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 extended 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 extended the date on which the first principal payment was due from January 1, 2001 to July 1, 2001. Any principal outstanding on April 2, 2001 was to be paid in twelve equal quarterly installments, commencing on July 1, 2001. On December 31, 2001, the Company repaid in full its obligation under the Debenture. At the time of repayment, a total of $216,667 was owed on the debenture, of which $86,667 was due over the succeeding twelve months. To partially finance this repayment, the Company's wholly-owned subsidiary in the U.K. entered into a second mortgage on the land and buildings in the U.K. in the amount of (pound)100,000, or approximately $145,300, and utilized the proceeds to reduce its accounts payable to the parent company. This note bears interest at a floating rate of 2% over the base rate of the lending institution (base rate of 4% as of 3/31/2002), and is payable in equal monthly principal amounts, plus accrued interest, over a six year period. 11 APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS Approximate Number of Record Holders Title of Class (as of June 17, 2002) -------------- ---------------------- Common Stock, $ .003 par value 350 (1) (1) Included in the number of stockholders of record are shares held in "nominee" or "street" name. DIVIDENDS The Company has never paid a dividend. Future dividend policy will be determined by the Board of Directors based on the Company's earnings, financial condition, capital requirements and other existing conditions. It is anticipated that cash dividends will not be paid to holders of the common stock in the foreseeable future. EQUITY COMPENSATION PLAN INFORMATION The following table summarizes certain information regarding the Company's equity compensation plans which have been previously approved by shareholders. There are no equity compensation plans which have not been previously approved by shareholders.
Number of securities Number of remaining securities to be available for issued upon future issuance exercise of Weighted average under equity Equity outstanding exercise price compensation plans compensation options, of outstanding (excluding securities plans warrants and options, warrants reflected in approved by rights and rights column (a)) security holders (a) (b) (c) ------------------------------ ---------------------- --------------------- ---------------------- 1992 Non-qualified stock 6,670 $2.59 - option plan (1) 1995 Employee incentive 10,669 $2.46 42,815 stock option plan (1) 1999 Stock option plan (1) 6,003 $2.39 60,664
(1) See Note 6 of Notes to consolidated financial statements, Stock Option Plans/Warrants, for a description of stock option plans. 12 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations This Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The matters discussed in this Form 10-KSB that are forward-looking statements are based on current management expectations that involve a number of risks and uncertainties. Potential risks and uncertainties include, without limitation, those matters discussed and contained in the Item 1 section of this Form 10-KSB under BUSINESS AND INVESTMENT RISKS; INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS. LIQUIDITY As of March 31, 2002, the Company had total current assets of $4,226,627, including cash and cash equivalents of $143,245, as compared to $4,894,354 of total current assets and $164,866 of cash and cash equivalents as of March 31, 2001. The Company had current liabilities of $2,286,618, resulting in a current ratio of 1.8 as of March 31, 2002, compared to $2,515,657 and 1.9, respectively, as of March 31, 2001. Cash and cash equivalents decreased by $21,621 during fiscal year 2002. Operating activities provided $253,193 of cash, as compared with cash provided of $254,092 during the prior year. Investing activities consumed $442,157 of cash, while financing activities provided $167,343 during the current period and $42,292 in the prior year period. The Company reported a net loss of $150,059 during fiscal year 2002. Substantially all of the loss was incurred during the first quarter of the fiscal year, when the Company reported a net loss of $176,703. The Company has net operating loss carryforwards in excess of $3,200,000 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 the actual rate of exchange at the end of each fiscal quarter. As a consequence of a difference in the exchange rate used during fiscal year 2002 and the exchange rate as of March 31, 2002, differences between accounts on the consolidated balance sheets as of March 31, 2002 and March 31, 2001 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. Accounts receivable on a cash flow basis decreased during the 2002 fiscal year by $271,491. The decrease in receivables is a combination of two factors; overall decreased sales levels, and a reduction in sales to customers with historically slow payment cycles. Net sales for the full fiscal year decreased by $1,444,634, or 18%, and sales to the Company's distributor in France declined by approximately $857,789, or 56%, over fiscal year 2001. The Company's aged receivables from this distributor, over the twelve-year relationship between the two companies, has consistently extended beyond one hundred and twenty days. The Company also extends terms to its U.S. dealer network of up to sixty days, terms of thirty to sixty days to its direct customers through the Atlanta and Michigan District Offices and terms of thirty to ninety days through Comtrex U.K.. On a cash flow basis, inventories declined by $355,843 during fiscal year 2002. While declining by approximately $70,000 in absolute dollars, the finished goods component of inventories as of March 31, 2002 represented 68% of total inventories, as compared to 58% at the end of the prior fiscal year. As the Company's proprietary product lines have been phased out, these products have been replaced by an open architecture product series. By definition, an open architecture product series is configured principally with assemblies which are generally available, often with off-the-shelf delivery, to the Company. 13 LIQUIDITY (continued) Both the iTP and Odyssey/iTP series of terminals 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. The Company is able to maintain a lower level of raw material, component inventory than is required with a proprietary product series, at comparable sales levels. The Company is constantly seeking to balance the carrying costs of its inventories against the desire to fill orders both from its distribution network and its direct customers on a timely basis. The net loss of $150,059, was offset by depreciation and amortization of $242,321, the $355,833 decrease in inventories, the $271,491 decrease in accounts receivables and a $105,315 increase in deferred revenue. The largest utilization of cash was a reduction in accounts payable of $644,306 during the fiscal year. The net result was $253,193 in positive cash flow from operating activities. Financing activities provided $167,343 in 2002. Included in financing activities are net proceeds in borrowings under the Company's various lines of credit of $274,592, repayments of long-term obligations of $269,061 and long-term borrowings of $160,632. On December 31, 2001, the Company repaid in full its obligation under a convertible debenture issued in October of 1997 to Norman and Shirley Roberts. At the time of repayment, a total of $216,667 was owed on the debenture, of which $86,667 was due over the succeeding twelve months. The debenture was payable in equal quarterly principal installments on the first day of each calendar quarter, and bore interest at the fixed rate of 8% per annum. To partially finance this repayment, the Company's wholly-owned subsidiary in the U.K. entered into a second mortgage on the land and buildings in the U.K. in the amount of (pound)100,000, or approximately $145,300, with its primary lender, National Westminster Bank PLC. The proceeds were utilized to reduce the accounts payable of the subsidiary to the parent company. This note bears interest at a floating rate of 2% over the base rate of the bank (base rate of 4% as of March 31, 2002), and is payable in equal monthly principal amounts and accrued interest, approximately $2,385 based on the interest rate as of March 31, 2002. The Company is not a guarantor on this note. Investing activities consumed $442,157 of cash during the fiscal year, including capitalized software and design expenses of $314,113 and purchases of property and equipment of $128,044. The Company has increased its investment in software development during this fiscal year as it prepares to roll out new product offerings. The first component of the new product suite was released during November of 2001. Beginning in January of 2002, all development resources have been allocated toward the second component of the product suite, a set of 32-bit Windows point-of-sale software modules. The capitalization of software and design costs is expected to continue through the first quarter of fiscal year 2003, at essentially the same rate. The complete product suite is currently scheduled for initial release in the second quarter of fiscal year 2003, which is the quarter ending September 30, 2002. 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 fiscal year ended March 31, 2002, these adjustments resulted in a negligible negative impact of $5,303 on the consolidated cash flow. On the Balance Sheet, these adjustments are recorded in a foreign currency translation adjustment in the calculation of shareholders' equity, resulting in a negligible contribution to shareholders' equity of $24 and a reduction in shareholders' equity of $14,357, as of March 31, 2002 and March 31, 2001, respectively. In February of 2001, the Company's wholly-owned subsidiary in the U.K., Comtrex Systems Corporation LTD, signed a line of credit agreement with National Westminster Bank PLC. The agreement calls for borrowings of up to (pound)150,000, and was renewed in December of 2001, in conjunction with the borrowings under the previously referenced second mortgage, through December 3, 2002. Borrowings bear interest at the rate of 2 percent above the bank's base rate (4% as of March 31, 2002) and are collateralized by substantially all assets of the subsidiary. The Company is not a guarantor on this line of credit. 14 LIQUIDITY (continued) In November of 2001, the Company entered into a credit facility with Fleet National Bank (the "Bank"), replacing an existing facility originally scheduled to expire on September 30, 2001 and subsequently extended through November of 2001. The new credit facility provides the Company with the availability of a total amount of $1,500,000 for borrowings and the issuance of Irrevocable Letters of Credit and expires on September 30, 2002. Outstanding borrowings bear interest at either the bank's prime rate of interest, or three percent above the Euro-Rate interest, at the Company's option. The credit facility is collateralized by substantially all domestic assets of the Company. The previous facility with the Bank provided the Company with the availability of a total amount of $2,000,000. Loans under the previous facility bore interest at the bank's prime rate of interest less one half percent. All other terms and conditions of the line of credit facility remained essentially the same. Both the current and prior credit facility also require that the Company maintain certain financial covenants as a condition of the loan. Compliance with these covenants is reported to the Bank on a quarterly basis. As of March 31, 2002, the Company was in compliance with all financial covenants except the debt service covenant, which requires cash flows from operating activities to be equal to or greater than 125 percent of the Company's debt service, including interest and taxes. The calculation is based on a trailing twelve-month period, which therefore includes the Company's loss of $176,703 in the period ended June 30, 2001. The Company is, therefore, in technical default on the loan and the entire amount of the outstanding loan is immediately callable as a consequence of such technical default. Prior to the execution of the current credit facility, the Company had reported its non-compliance with the debt service covenant for the periods ended September 30, 2001 and December 31, 2001 to the Bank. The Company believes that it will come into compliance with the debt service covenant at the end of the first quarter of fiscal year 2003, the period ending June 30, 2002. Based on its negotiations with the Bank, management believes that the credit facility will continue to be available to the Company throughout its scheduled term. The terms of any renewal of the credit facility will be dependent on the Company's ability to comply with all terms of the credit facility in future quarterly reports to the Bank. 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 March 31, 2002, the Company had no material commitments for capital expenditures. RESULTS OF OPERATIONS Year Ended March 31, 2002 Compared to the Year Ended March 31, 2001 Net sales during fiscal year 2002 decreased by 18%, to $6,691,438, as compared with corresponding sales of $8,136,072 during fiscal year 2001. The Company reported a net loss of $150,059, or $.11 per share, for the fiscal year ended March 31, 2002, as compared with a net loss of $148,445, or $.11 per share, for the prior fiscal year. Note 9 to the Notes to Consolidated Financial Statements provides segment information relating to the two reportable segments of the Company, the United States and the United Kingdom. The Company's subsidiary in the U.K., Comtrex Systems Corporation LTD ("Comtrex U.K.") operates autonomously, maintaining its own accounting system, clerical and administrative staff. While the accounting function within Comtrex U.K. has day-to-day reporting responsibility to the parent Company, the sales, support and service departments operate within the reporting structure of the subsidiary. Comtrex U.K. also provides sales and service support for the Company's distribution network in Europe. Administrative expenses decreased by $314,307 from the prior fiscal year, from $1,252,785 in fiscal year 2001 to $938,478 for the current fiscal year, resulting in a decrease from 15% to 14%, when expressed as a percentage of sales. Sales, marketing and customer support expenses also decreased in absolute numbers by $299,345, while increasing as a percentage of sales, from $2,556,688, or 31% of sales, during fiscal year 2001, to $2,257,343, or 34% of sales, during fiscal year 2002. 15 RESULTS OF OPERATIONS (continued) Year Ended March 31, 2002 Compared to the Year Ended March 31, 2001 (continued) 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. The selling and customer support expense required for such direct sales activities generally represents a higher percentage of sales than is associated with sales through a dealer or distribution channel. The increase in such expenses, when expressed as a percentage of sales, is a result of the decline in sales revenues while customer service and sales expenses remained fairly constant during the fiscal year. Cost of sales, expressed as a percentage of net sales, decreased to 47% of sales from 48% in the previous year. While selling and support expenses generally represent a higher percentage of direct sales than sales through a distribution network, the gross margin on such product sales is generally significantly greater. In addition to product sales, approximately 30% of the net sales of Comtrex U.K. represent maintenance, installation, spare parts and implementation services. Such service related revenue is at a greater gross margin than product sales. The market for the Company's products is extremely competitive, and the Company continues to experience gross margin pressure on its products and service offerings in all of its distribution channels. The Company has been successful in increasing its sales through its higher margin, direct, distribution channels. However, there can be no assurance that this continued competitive pressure will not cause future declines in the Company's overall gross margin. International sales declined both in absolute dollars and when expressed as a percentage of overall net sales. The decline in international sales accounted for approximately 87% of the decline in overall sales for fiscal year 2002. During fiscal year 2002, the Company recorded foreign sales of $4,029,258, or 60% of sales, compared to $5,295,646, or 65% of sales, for fiscal year 2001. Sales to the Company's French distributor, Restaurant Data Systems (RDS), decreased by $857,789, from $1,543,000 in fiscal year 2001 to $685,211 in fiscal year 2002. Sales through Comtrex U.K. decreased by $300,186, from $3,414,814 in fiscal year 2001 to $3,114,628 in fiscal year 2002. A significant contributor to the decline in sales to RDS was their local sourcing, in France, of the hardware components associated with sales of the Company's product lines. In addition, the Company believes that international sales have been negatively impacted by delays in the introduction of the Company's next generation Windows point-of-sale product line, as both RDS and Comtrex U.K. face increasing competitive pressures from an increasing number of software vendors. The Company also continues to experience a gradual erosion in sales to customers in the sit-down dining segment of its customer base, coupled with a gradual decline in sales through its U.S. dealer network. The primary customer base for the Company's U.S. dealer network has traditionally been the sit-down dining segment. Management believes that in order to effectively compete in this market segment, the Company must release for general delivery its next generation point-of-sale software. Currently, all development resources of the Company are focused on this effort. Initial beta installation of the point-of-sale software has been accomplished during the first quarter of fiscal year 2003. Pending the successful beta implementation of the software, the Company believes that its new software product line will be available for general delivery during the second quarter of the current fiscal year. The Company has been engaged in the software design, development and documentation of an entirely new suite of in-store software, including both back office software and point-of-sale software for approximately the last three fiscal years. Initial installations of the back office software were placed in service at customer locations, through the Company's district office channel, during the second quarter of the fiscal year 2002. The back office software component of this product suite was released for general sale during the third quarter of fiscal year 2002. This component of the new product suite has been designed to interact with the Company's current point-of-sale product line, as well as forming the basis for the next generation point-of-sale software. The primary market for this product combination is in the quick service market where the Company's current point-of-sale software remains extremely competitive from a feature and functionality perspective. The target customer base is small to medium sized franchise operations, with between five and fifty locations. 16 RESULTS OF OPERATIONS (continued) Year Ended March 31, 2002 Compared to the Year Ended March 31, 2001 (continued) As of June 17, 2002, the Company's consolidated backlog was approximately $683,000, as compared with a backlog of $1,183,000 as of June 15, 2001. The Company recognizes income when an order is shipped to the customer. Deposits, if any, on orders are not recognized as income until such order is shipped to the customer. Substantially all of the Company's backlog is expected to be filled within the next ninety (90) days. Year Ended March 31, 2001 Compared to the Year Ended March 31, 2000 Net sales during fiscal year 2001 decreased by 18%, to $8,136,072, as compared with corresponding sales of $9,886,287 during fiscal year 2000. The Company reported a net loss of $148,445, or $.11 per share, for the fiscal year ended March 31, 2001, as compared with net income of $417,714, or $.34 per share, for the prior fiscal year. Results of operations for the last three quarters of fiscal year 2000 include a consolidation of the operations of the Company's domestic subsidiary, Comtrex Michigan. Acquired by the Company as of June 23, 1999, net sales through Comtrex Michigan were approximately $582,000 in the fiscal year ending March 31, 2001 and approximately $630,000 for the nine-month period ending March 31, 2000. Administrative expenses decreased slightly from the prior fiscal year, from $1,258,924 in fiscal year 2000 to $1,252,785 for the current fiscal year, resulting in an increase from 13% to 15%, when expressed as a percentage of sales. Sales, marketing and customer support expenses increased slightly in absolute numbers while increasing as a percentage of sales, from $2,535,900, or 26% of sales, during fiscal year 2000, to $2,556,688, or 31% of sales, during fiscal year 2001. The increase in such expenses, when expressed as a percentage of sales, is a result of the decline in sales revenues while customer service and sales expenses remained fairly constant during the fiscal year. Cost of sales, expressed as a percentage of net sales, decreased to 48% of sales from 52% in the previous year. Contributing to the reduction in cost of sales was approximately $110,000 in funded development and an additional $104,000 in license fees associated with the development of the Company's new Odyssey Back Office Software Suite. International sales remained constant when expressed as a percentage of overall net sales. During fiscal year 2001, the Company recorded foreign sales of $5,295,646, or 65% of sales, compared to $6,431,518, or 65% of sales, for fiscal year 2000. The two primary contributors to international sales for the company are sales to the Company's French distributor, Restaurant Data Systems (RDS) which were down $558,000 and sales through Comtrex U.K. which decreased $438,000. Most of the dollar decrease in Comtrex UK sales can be attributed to the currency fluctuations. As of June 15, 2001, the Company's consolidated backlog was approximately $1,183,000, as compared with a backlog of $1,010,000 as of June 15, 2000. The Company recognizes income when an order is shipped to the customer. Deposits, if any, on orders are not recognized as income until such order is shipped to the customer. 17 Item 7. Financial Statements See Item 13 (a) in Part III of this Report. Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16 (a) of the Exchange Act Information regarding the Directors of the Company and the compliance of the Company's Directors and Executive Officers with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference from the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders. For information concerning the Company's executive officers, see "Executive Officers of the Registrant" in Part I of this Report. Item 10. Executive Compensation Incorporated herein by reference from the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders. Item 11. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders. Item 12. Certain Relationships and Related Transactions Incorporated herein by reference from the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders. Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)1. Financial Statements (included in this report): Independent Auditors' Report Auditors' Report to the Members of Comtrex Systems Corporation Limited Consolidated Balance Sheets at March 31, 2002 and 2001 Consolidated Statements of Operations for the years ended March 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the years ended March 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flow for the years ended March 31, 2002, 2001 and 2000 Notes to Financial Statements (a)2. Financial Statement Schedules (included in this report): VIII. Valuation and Qualifying Accounts for the years ended March 31, 2002, 2001 and 2000 All schedules, other than those listed above, have been omitted because the information required therein is not applicable, or is furnished in the financial statements or notes thereto. 18 (a)3. Exhibits Filed Pursuant to Item 601 of Regulation S-B: 3.1 *(h) Certificate of Amendment of Certificate of Incorporation 3.2 *(h) Certificate of Incorporation, as amended through February 14, 2001, of the Company 3.3 *(b) By-Laws, as amended, of the Company 4.1 *(b) Specimen Common Stock Share Certificate 4.2 *(d) 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 *(e) Stock Purchase Agreement, dated June 23, 1999, between the Company, Michael R. Carter, Matthew R. Carter, Marc R. Carter and Donn Scott Smith 10.2 *(c) 1995 Employee Incentive Stock Option Plan of the Company 10.3 *(d) 1999 Stock Option Plan of the Company 10.4 *(g) 1992 Non-Qualified Stock Option Plan of the Company 10.5 *(f) Amended and Restated Master Advance Note between the Company and Fleet National Bank, dated November 19, 2001 10.6 *(f) Advice of Borrowing Terms between Comtrex Systems Corporation LTD and National Westminster Bank, PLC, dated December 21, 2001 10.7 *(d) Financial Advisory Agreement, dated February 8, 1999, between Comtrex Systems Corporation and Alvin L. Katz 21.1 *(a) Subsidiaries of the Company 43 23.1 *(a) Consent of Drucker, Math & Whitman, P.C. 44 24.1 *(a) Powers of Attorney 45 27 *(a) Financial Data Schedules 49 *(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 13, 1995. *(d) Incorporated by reference to the exhibits to the Company's Form 10-KSB filed with the Securities and Exchange Commission on June 28, 1999. *(e) Incorporated by reference to the exhibits to the Company's Form 10-QSB filed with the Securities and Exchange Commission on August 9, 1999. 19 *(f) Incorporated by reference to the exhibits to the Company's Form 10-QSB filed with the Securities and Exchange Commission on February 11, 2002. *(g) Incorporated by reference to the exhibits to the Company's definitive proxy statement filed with the Securities and Exchange Commission on July 16, 1992. *(h) Incorporated by reference to the exhibits to the Company's Form 10-KSB filed with the Securities and Exchange Commission on June 29, 2001. b. Reports on Form 8-K During the fourth quarter of the year ended March 31, 2002, no current reports on Form 8-K were filed by the registrant with the Securities and Exchange Commission. On May 30, 2002, the Company filed a Form 8-K with the Securities and Exchange Commission reporting receipt of a Nasdaq Staff Determination letter on May 23, 2002 indicating that the Nasdaq Listing Qualifications Panel had decided to delist Comtrex's common stock from the Nasdaq SmallCap Market effective at the opening of business on May 31, 2002. The Panel determined that Comtrex was no longer in compliance with the requirement that the minimum market value of the Company's publicly held shares be at least $1,000,000. Comtrex's press release, dated May 30, 2002, relating to the Nasdaq notification was attached as an exhibit to the filing. 20 Independent Auditors' Report Board of Directors Comtrex Systems Corporation Moorestown, New Jersey We have audited the accompanying consolidated balance sheets of Comtrex Systems Corporation (a Delaware corporation) and subsidiaries ("Company") as of March 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three year period ended March 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Comtrex Systems Corporation Limited (a corporation formed under the laws of England) ("Comtrex UK"), a wholly-owned subsidiary, which statements reflect total assets and revenues constituting 36 percent and 47 percent, respectively, of the related consolidated totals for 2002. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Comtrex UK, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Comtrex Systems Corporation and subsidiaries as of March 31, 2002 and 2001, and the results of its operations and its cash flows for each of the years in the three year period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States. In connection with our audits of the financial statements referred to above, we audited the financial statement schedule for the years ended March 31, 2002, 2001 and 2000 listed under Items 13 (a) 2. In our opinion, based on our audits and the report of the other auditors, the financial statement schedule presents fairly, in all material respects, the information stated therein, when considered in relation to the consolidated financial statements taken as a whole. DRUCKER, MATH & WHITMAN, P.C. North Brunswick, New Jersey June 18, 2002 21 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF COMTREX SYSTEMS CORPORATION LIMITED -------------------------------------------------------------------------------- We have audited the financial statements of Comtrex Systems Corporation Limited on pages 4 to 13 for the year ended 31 March 2002. These financial statements have been prepared under the historical cost convention and the accounting policies set out therein. Respective responsibilities of the directors and auditors As described in the statement of directors' responsibilities on page 2 the company's directors are responsible for the preparation of the financial statements in accordance with applicable law and United Kingdom Accounting Standards. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Accounting Standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors' report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the company is not disclosed. We read the directors' report and consider the implications for our report if we become aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Boards. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company's affairs as at 31 March 2002 and of its profit for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Rothman Pantall & Co Date: 17 June 2002 Chartered Accountants & Registered Auditors Clareville House 26/27 Oxendon Street London SW1Y 4EP 22 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
March 31, ------------------------------------------ 2002 2001 ----------------- ----------------- Current assets: Cash and cash equivalents $ 143,245 $ 164,866 Accounts receivable, net of reserve of $100,055 in 2002 and $136,704 in 2001 2,529,557 2,752,426 Note receivable 3,146 - Inventories 1,452,386 1,845,357 Prepaid expenses and other 98,293 131,705 ----------------- ----------------- Total current assets 4,226,627 4,894,354 ----------------- ----------------- Property and equipment: Land 156,244 156,244 Building 312,656 312,656 Machinery, equipment and furniture 1,970,002 1,855,039 ----------------- ----------------- 2,438,902 2,323,939 Less accumulated depreciation (1,596,268) (1,475,320) ----------------- ----------------- Net property and equipment 842,634 848,619 ----------------- ----------------- Other assets: Software development costs, net of amortization 715,397 473,297 Goodwill, net of amortization 489,761 520,443 ----------------- ----------------- 1,205,158 993,740 ----------------- ----------------- $ 6,274,419 $ 6,736,713 ================= =================
See notes to financial statements. 23 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, ------------------------------------------ 2002 2001 ------------------ ----------------- Current liabilities: Revolving line of credit loan $ 850,000 $ 574,482 Accounts payable 313,814 951,316 Current portion of long-term debt 76,972 115,370 Income and V.A.T payable 114,791 14,234 Accrued expenses: Payroll 78,114 116,354 Other 72,860 75,947 Deferred income 778,067 661,403 Customer deposits 2,000 6,551 ----------------- ----------------- Total current liabilities 2,286,618 2,515,657 ----------------- ----------------- Deferred income taxes - 17,704 ----------------- ----------------- Long-term debt, net of current portion 386,154 452,849 ----------------- ----------------- Total liabilities 2,672,772 2,986,210 ----------------- ----------------- Commitments and contingency Shareholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized, none outstanding - - Common stock, $.003 par value, 10,000,000 shares authorized, 1,417,120 and 1,416,453 issued and outstanding, as of March 31, 2002 and 2001, respectively 4,252 4,250 Additional paid-in capital 5,999,654 5,998,477 Foreign currency translation adjustments (14,333) (14,357) Accumulated deficit (2,387,926) (2,237,867) ----------------- ----------------- Total shareholders' equity 3,601,647 3,750,503 ----------------- ----------------- $ 6,274,419 $ 6,736,713 ================= =================
See notes to financial statements. 24 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 2002, 2001 AND 2000
2002 2001 2000 ------------------ ------------------ ------------------ Net sales $ 6,691,438 $ 8,136,072 $ 9,886,287 ------------------ ------------------ ------------------ Costs, expenses, and other: Cost of sales 3,155,355 3,913,297 5,128,900 Administrative 938,478 1,252,785 1,258,924 Research and development 97,976 190,535 188,123 Sales and marketing 828,024 997,329 1,002,739 Customer support 1,429,319 1,559,359 1,533,161 Depreciation and amortization 242,321 229,802 211,109 Interest expense, net 85,513 125,243 102,454 ----------------- ------------------ ------------------ 6,776,986 8,268,350 9,425,410 ----------------- ------------------ ------------------ Income (loss) before income taxes (85,548) (132,278) 460,877 Provision for income taxes 64,511 16,167 43,163 ----------------- ----------------- ------------------ Net income (loss) ($ 150,059) ($ 148,445) $ 417,714 ================= ================== ================== Per share basis: Basic: Net income (loss) ($ .11) ($ .11) $ .34 ================ ================ ================== Diluted: Net income (loss) ($ .11) ($ .11) $ .32 ================ ================ ==================
See notes to financial statements. 25 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED MARCH 31, 2002, 2001 AND 2000
Common stock Foreign ------------------------ Additional currency Total Shares paid-in translation Accumulated shareholders' issued Amount capital adjustments deficit equity --------- -------- ----------- ----------- ----------- ------------- Balance, March 31, 1999 1,197,934 $ 3,594 $ 5,591,306 $ 9,030 ($ 2,507,136) $ 3,096,794 Issuance of common stock, exercise of options 25,667 77 45,768 45,845 Issuance of common stock, exercise of convertible debentures 6,667 20 19,980 20,000 Issuance of common stock, purchase of subsidiary 50,000 150 100,650 100,800 Net income 417,714 417,714 Foreign currency 20,621 20,621 translation adjustments Comprehensive income 438,335 ---------- -------- ----------- ----------- ------------ ------------ Balance, March 31, 2000 1,280,268 $ 3,841 $ 5,757,704 $ 29,651 ($ 2,089,422) $ 3,701,774 Issuance of common stock, exercise of options 11,000 33 21,149 21,182 Issuance of common stock, private placement purchased by directors 118,518 356 199,644 200,000 Issuance of common stock, exercise of convertible debentures 6,667 20 19,980 20,000 Net income(loss) (148,445) (148,445) Foreign currency translation adjustments (44,008) (44,008) Comprehensive income(loss) (192,453) ---------- -------- ----------- ----------- ------------ ------------ Balance, March 31, 2001 1,416,453 $ 4,250 $ 5,998,477 ($ 14,357) ($ 2,237,867) $ 3,750,503 Issuance of common stock, exercise of options 667 2 1,177 1,179 Net income(loss) (150,059) (150,059) Foreign currency translation adjustments 24 24 Comprehensive income(loss) (150,035) ---------- -------- ----------- ----------- ------------ ------------ Balance, March 31, 2002 1,417,120 $ 4,252 $ 5,999,654 ($ 14,333) ($ 2,387,926) $ 3,601,647 ========== ======== =========== =========== ============ ============
See notes to financial statements. 26 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2002, 2001 AND 2000
2002 2001 2000 ------------------ ------------------ ------------------ Cash flows from operating activities: Net income(loss) ($150,059) ($148,445) $417,714 Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation and amortization 242,321 229,8022 211,109 Deferred income taxes (17,924) 7,653 730 Provisions for (recovery of) losses on accounts receivable (34,753) 37,386 31,702 Provisions for losses on inventories 41,197 10,000 20,000 Foreign currency translation adjustments (5,303) (44,008) 20,621 Loss on sale of fixed assets - 1,940 4,382 Changes in assets and liabilities: Accounts receivable 271,491 233,123 (999,781) Inventories 355,833 (46,373) (482,963) Prepaid expenses and other 30,841 (15,037) (23,699) Accounts payable (644,306) (69,672) 169,563 Accrued expenses and other (41,840 23,799 78,369 Accrued V.A.T. payable 33,944 (94,824) (2,021) Accrued income tax payable 66,436 (37,413) 2,258 Deferred income 105,315 166,161 82,114 ------------- ----------- ------------- Net cash provided (used) by operating activities 253,193 254,092 (469,902) -------------- ----------- ------------- Cash flows from investing activities: Purchases of property and equipment (128,044) (228,263) (117,238) Software development costs (314,113) (150,000) (113,283) Proceeds from disposals of fixed assets - 475 4,125 Cost of acquiring subsidiary - - (8,487) Cash (overdraft) of subsidiary at date acquired - - 488 ------------- ----------- ------------- Net cash used in investing activities (442,157) (377,788) (234,395) ------------- ----------- ------------- Cash flows from financing activities: Proceeds from borrowings under line of credit, net 274,592 (200,518) 443,514 Proceeds from notes payable 160,632 86,520 - Repayments on debt (269,061) (64,892) (22,709) Proceeds from issuing equity securities 1,180 221,182 45,845 ------------- ----------- ------------- Net cash provided (used) by financing activities 167,343 42,292 466,650 -------------- ----------- ------------- Net increase (decrease) in cash (21,621) (81,404) (237,647) Cash and cash equivalents, beginning of year 164,866 246,270 483,917 ------------- ----------- ------------- Cash and cash equivalents, end of year $ 143,245 $ 164,866 $ 246,270 ============= =========== =============
See notes to financial statements. 27 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED MARCH 31, 2002 2001 AND 2000
2002 2001 2000 ------------------ ------------------ ------------------ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $85,513 $125,243 $102,455 =============== ================== ================== Income taxes $24,495 $ 16,769 $ 2,088 =============== ================== ==================
See notes to financial statements. 28 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2002, 2001 AND 2000 1. NATURE OF BUSINESS AND 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, Holland, the Caribbean Islands and Spain, 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 subsidiaries are referred to as the Company. Principles of consolidation: The consolidated financial statements include the accounts of Comtrex and its wholly owned subsidiaries. Intercompany transactions and accounts are eliminated in consolidation. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash equivalents: The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. 29 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) Concentrations of credit risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and temporary cash investments and accounts receivable. The carrying amount of these financial instruments, including accounts payable, accrued liabilities, bank lines of credit, capital lease obligations, and long term debt, approximates fair value. The Company places its cash and temporary cash investments with high quality financial institutions. The Company has not incurred losses related to these financial instruments. Accounts receivable are primarily from distributors of the Company's equipment and consist of domestic and foreign entities. The Company minimizes credit risk by obtaining bank and trade references, and primarily for foreign customers, by obtaining advance deposits or letters of credit. The Company reviews its accounts receivable monthly and provides allowances for potential uncollectible accounts. Inventories: Inventories include the cost of materials, labor and overhead and are valued at the lower of cost (first-in, first-out) or market. Property and equipment: Property and equipment are stated at cost. Maintenance and repairs are expensed, while betterments are capitalized. When an asset is disposed of, the related costs and accumulated depreciation are removed from the accounts, and any gain or loss is charged to operations. Software development costs and amortization: Software development costs consist primarily of salaries incurred to develop and enhance software applications used in the Company's products. Amortization is provided on a product-by-product basis using the faster of the straight-line method over the estimated useful life of the software or based upon units of sale. Amortization begins when the software is available for general release to customers. Amortization expense was $72,013, $85,891, and $58,960, for the years ended March 31, 2002, 2001, and 2000, respectively. Accumulated amortization was $395,045 and $323,032 at March 31, 2002 and 2001, respectively. Goodwill: Goodwill represents the cost in excess of net assets acquired related to Comtrex's acquisition of its subsidiaries. Goodwill is being amortized over 20 years using the straight-line method. Accumulated amortization was $122,152 and $91,470 at March 31, 2002 and 2001, respectively. Goodwill is periodically reviewed by the Company for impairment to determine if the fair value is less than the carrying value. See Note 13. 30 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued) Product maintenance contract revenue: Revenue is recognized from sales of maintenance contracts and extended warrantees on a straight-line basis over the contract period. Unearned revenue is deferred and reflected as deferred income on the consolidated balance sheets. Hardware and software revenue recognition: Revenue is recognized from sales of hardware and software upon shipment. Depreciation: Depreciation on personalty is computed by both straight-line and accelerated methods over the estimated useful lives of the assets which are three to seven years. Depreciation on realty is computed using the straight-line method over the estimated useful life of thirty years. Foreign currency translation: Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the currency translation adjustment in shareholders' equity. Income(loss) per share: Basic income(loss) per share is computed by dividing income(loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted income(loss) per share is computed as above while giving effect to all dilutive potential common shares (but not giving effect to securities that would have an antidilutive effect, as would occur in loss years) that were outstanding during the period. Reverse Stock Split: On February 12, 2001, the shareholders approved a one for three reverse stock split, effective as of February 14, 2001 with the filing of a Certificate of Amendment to the Company's Certificate of Incorporation with the Secretary of State of the State of Delaware. All amounts have been restated to reflect such reverse stock split. 2. ACQUISITION OF SUBSIDIARIES: U.K. subsidiary: On October 2, 1997, Comtrex acquired all the issued and outstanding capital stock ("Stock") of Data Systems Terminals Limited, a corporation formed and existing under the laws of England ("DSTL"). DSTL was a distributor of Comtrex's products in the United Kingdom, which business Comtrex intends to continue. Subsequent to the acquisition, DSTL's name was changed to Comtrex Systems Corporation Limited ("Comtrex UK"). 31 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 2. ACQUISITION OF SUBSIDIARIES: (continued) U.K. subsidiary: (continued) The following consideration was paid for the acquisition: a) 133,333 restricted shares of Common Stock. These were not transferable on or before October 2, 1999. b) A Subordinated Convertible Debenture, in the amount of $300,000 ("Debenture"). The Debenture accrued interest at the rate of eight percent per annum, payable monthly. The original Debenture provided that no principal be payable until January 1, 2001. The Debenture was originally convertible into shares of the Common Stock (in blocks of 6,667 shares), on or before October 1, 2000, at the rate of $3.00 per share. The principal outstanding on October 2, 2000 was scheduled to be paid in twelve equal quarterly installments, commencing January 1, 2001. The Debenture was subordinate to all debt of the Company. The Debenture was modified by Amendment on July 31, 2000 extending the expiration of the conversion date to April 1, 2001 and the commencement of principal repayments to July 1, 2001. On December 31, 2001, the Company repaid in full its obligation under the Debenture. c) A Promissory note, in the amount of $65,000 ("Note"). The Note was paid in full by March 31, 1999. The business combination has been accounted for using the purchase method. The results of operations of Comtrex UK have been included in the statement of operations since the date of acquisition. The cost of the acquired enterprise is $681,204, which represents 133,333 shares of Comtrex Common Stock with an assigned value of $233,600, the $300,000 Debenture, the $65,000 Note and legal and accounting fees associated with the transaction of $82,604. Acquired goodwill of $439,998 will be amortized over 20 years, using the straight-line method. Domestic subsidiary: 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 50,000 restricted shares of the Company's common stock. CRS operates 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 have remained as Comtrex employees pursuant to three-year employment agreements. See Note 8. The business combination has been accounted for using the purchase method. The results of operations of Comtrex Michigan are included in the statements of operations for the year ended March 31, 2001 since the date of acquisition. The cost of the acquired enterprise is $171,915, which represents 50,000 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 $8,487. Acquired goodwill of $171,915 will be amortized over 20 years, using the straight-line method. 32 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 3. INVENTORIES:
2002 2001 -------------- -------------- Raw materials $ 601,850 $ 854,816 Work-in-process 1,033 31,456 Finished goods 980,700 1,049,085 Reserve for excess and obsolete inventory (131,197) (90,000) -------------- -------------- $ 1,452,386 $ 1,845,357 ============== ==============
4. SIGNIFICANT CUSTOMERS: The customers listed below accounted for a significant portion of sales and receivables:
% of Sales % of Receivables Fiscal Year Ended March 31, as of March 31, ------------------------------------------ ---------------------------- 2002 2001 2000 2002 2001 ---------- ---------- ---------- ----------- ----------- Customer "A" 10% 19% 21% 20% 45% Customer "B" 13% 14% 7% 25% 15% Customer "C" 14% 9% 8% 12% 6%
Customers "A", "B" and "C" are all foreign corporations. 5. LONG-TERM DEBT:
2002 2001 ------------- ------------- Convertible debenture, issued in connection with acquisition of the U.K. subsidiary. See Note 2(b). - $ 260,000 Note payable, bank, due 2017, paid in monthly installments of $2,228 which includes interest. Interest is the bank's base prime rate plus 2 percent. The bank's base rate was 4.00 percent at March 31, 2002. Substantially all assets of the U.K. subsidiary serve as collateral. 235,960 240,108 Note payable, bank, due 2007, paid in monthly installments of $2,385 which includes interest. Interest is the bank's base prime rate plus 2 percent. The bank's base rate was 4.00 percent at March 31, 2002. Substantially all assets of the U.K. subsidiary serve as collateral. 138,393 - Notes payable, financial companies, due from 2003 to 2006 payable in monthly installments of $2,308 which includes interest ranging from 5 to 11.5 percent. Secured by certain assets financed. 88,773 68,111 ------------- ------------- 463,126 568,219
33 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 5. LONG TERM DEBT: (continued)
Less current portion 76,972 115,370 ------------ ------------ $ 386,154 $ 452,849 ============ ============ Payable as follows: 2003 $ 76,972 2004 83,112 2005 79,664 2006 61,576 2007 49,721 2008 and thereafter 112,081
6. STOCK OPTION PLANS / WARRANTS: 1985 Employee incentive stock option plan: During 1985, the Company adopted an employee incentive stock option plan. During 1989, the plan was amended to increase the total number of shares to 133,333. The plan provided for the granting of options to officers and other key employees. There are no outstanding options at March 31, 2002. Through March 31, 1999, 84,000 options were exercised and 46,000 expired. No options are available for grant. The following is a summary of activity under the 1985 Employee incentive stock option plan:
Outstanding Options ---------------------------------------------------- Number Price Range Total -------------- -------------------- ----------- Balance, March 31, 1999 3,333 2.43 8,100 Exercised ( 3,333) 2.43 ( 8,100) -------------- -------------------- ----------- Balance, March 31, 2000 - - - - - -------------- -------------------- ----------- Balance, March 31, 2001 - - - - - - -------------- -------------------- ----------- Balance March 31, 2002 - - - ============== ==================== ===========
1992 Non-qualified stock option plan: This plan was instituted in fiscal year 1993, and provides for options for 50,000 shares. Options are exercisable at any time for a period of five years from date of grant. Outstanding options have a weighted average remaining contract life of 1.5 years at March 31, 2002. The plan was terminated, as to future grants available thereunder, with the approval by shareholders of the 1999 stock option plan in August of 1999. 34 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 6. STOCK OPTION PLANS / WARRANTS: (continued) 1992 Non-qualified stock option plan: (continued) The following is a summary of activity under the 1992 Non-qualified stock option plan:
Outstanding Options Available ---------------------------------------------------- for Grant Number Price Range Total ------------ -------------- --------------------- ---------- Balance, March 31, 1999 19,333 28,000 $ 1.32 - $ 5.25 $ 70,560 Granted ( 4,667) 4,670 2.82 13,160 Forfeited 4,000 ( 4,000) 5.25 ( 21,000) Exercised - ( 7,330) 1.89 - 2.43 ( 14,220) Termination of plan ( 18,666) - - - ------------ -------------- --------------------- ---------- Balance, March 31, 2000 - 21,340 1.32 - 3.00 48,500 Forfeited - ( 8,000) 1.32 - 3.00 ( 17,180) Exercised - ( 3,335) 1.32 - 2.43 ( 6,923) ------------ -------------- --------------------- ---------- Balance, March 31, 2001 - 10,005 1.32 - 3.00 24,397 Forfeited - ( 2,668) 1.32 - 3.00 ( 5,943) Exercised - ( 667) 1.77 ( 1,181) ------------ -------------- --------------------- ---------- Balance, March 31, 2002 - 6,670 $ 1.32 - $ 3.00 $ 17,273 ============ ============== ===================== ==========
1995 Employee incentive stock option plan: During fiscal year 1996, the Company adopted an employee incentive stock option plan. The plan provides for the granting of up to 83,334 options to officers and other key employees. The option price must equal at least 100% of the market price on the date of grant. Outstanding options have a weighted average remaining contract life of 1.6 years at March 31, 2002. The following is a summary of activity under the 1995 Employee incentive stock option plan:
Outstanding Options Available ---------------------------------------------------- for Grant Number Price Range Total ------------ -------------- --------------------- ---------- Balance, March 31, 1999 48,000 28,150 $ 1.14 - $ 2.07 $ 46,828 Granted ( 13,333) 13,333 3.00 - 3.75 41,250 Forfeited 333 ( 333) 1.89 ( 630) Exercised - ( 15,000) 1.14 - 2.07 ( 23,525) ------------ ------------- --------------------- --------- Balance, March 31, 2000 35,000 26,150 1.14 - 3.75 63,923 Forfeited 2,815 ( 2,815) 1.89 - 3.75 ( 8,426) Exercised - ( 7,666) 1.86 ( 14,261) ------------ ------------- --------------------- --------- Balance, March 31, 2001 37,815 15,669 1.14 - 3.00 41,236 Forfeited 5,000 ( 5,000) 3.00 ( 15,000) Exercised - - - - ------------ -------------- --------------------- ---------- Balance, March 31, 2002 42,815 10,669 $ 1.14 - $ 3.00 $ 26,236 ============ ============== ===================== ==========
35 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 6. STOCK OPTION PLANS / WARRANTS: (continued) 1999 Stock option plan: During fiscal year 2000, the Company adopted a stock option plan. The plan provides for the granting of up to 66,667 options to employees, directors and other individuals responsible for making significant contributions to the Company's business. The option price must equal at least 100% of the market price on the date of grant. By adoption of the plan, future grants under the 1992 non-qualified stock option plan were terminated. Outstanding options have a weighted average remaining contract life of 3.9 years at March 31, 2002. The following is a summary of activity under the 1999 stock option plan:
Outstanding Options Available ---------------------------------------------------- for Grant Number Price Range Total ------------ -------------- --------------------- ---------- Balance, March 31, 2000 66,667 - $ - $ - $ - Granted ( 2,668) 2,668 3.38 9,018 ----------- -------------- --------------------- ---------- Balance, March 31, 2001 63,999 2,668 3.38 9,018 Granted ( 3,335) 3,335 1.60 5,336 ----------- -------------- --------------------- ---------- Balance, March 31, 2002 60,664 6,003 $ 1.60 - $ 3.38 $ 14,354 ============ ============== ===================== ==========
Accounting for stock based compensation: The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS 123")." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been recognized based on the fair value at the grant date for awards consistent with the provisions of SFAS 123, the Company's net income (loss) and income (loss) per share would have changed as indicated:
2002 2001 2000 --------------- ------------- ------------- Net income as reported ($ 150,059) ($ 148,445) $ 417,714 ============= ============= ============= Pro forma ($ 151,524) ($ 149,823) $ 387,729 ============= ============= ============= Income per share: Basic, as reported ($ .11) ($ .11) $ .34 ============= ============= ============= Basic, Pro forma ($ .11) ($ .11) $ .31 ============= ============= ============= Diluted, as reported ($ .11) ($ .11) $ .32 ============= ============= ============= Diluted, Pro forma ($ .11) ($ .11) $ .30 ============= ============= =============
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants; expected volatility of 12% and a risk-free interest rate of 6.0%. 36 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 6. STOCK OPTION PLANS / WARRANTS: (continued) Warrants: In February, 1999, warrants to purchase 40,000 shares of common stock were issued in exchange for consulting services valued at $20,000. All warrants have expired as of March 31, 2002. The warrants were exercisable upon issuance as follows: 13,333 warrants, $3.00 per share, expired February 9, 2001 13,333 warrants, $4.50 per share, expired February 9, 2002 13,334 warrants, $9.00 per share, expired February 9, 2002 7. INCOME TAXES: Deferred tax liabilities arise as a result of differences between financial statement and tax amortization of capitalized software and goodwill. Deferred tax assets arise as a result of differences between financial statement and tax depreciation of fixed assets, inventory and bad debt allowances, which are not deductible for tax purposes, capitalized inventory costs which are not permitted for financial statement purposes, and net operating loss carryforwards. A valuation reserve for the net asset created by these differences has been recorded due to the uncertainty of realization.
2002 2001 ------------------ ----------------- Deferred tax liabilities: Amortization of capitalized software and goodwill ($ 293,000) ($ 221,000) Foreign subsidiary deferred tax liability - ( 17,704) ------------------ ---------------- ( 293,000) ( 238,704) Deferred tax assets: Fixed asset depreciation 62,000 40,000 Inventory valuation and bad debt allowances 78,000 64,000 Capitalized inventory costs (IRC Sec 263A) 42,000 32,000 Net operating loss carryforwards 1,091,000 933,000 ------------------ ----------------- 980,000 1,069,000 Valuation reserve ( 980,000) ( 848,000) ----------------- ---------------- $ - ($ 17,704) ================== ================
The components of the provision for income taxes consist of:
2002 2001 2000 ------------------ ------------------ ------------------ Current provision, foreign $ 45,570 $ 9,915 $ 43,163 Current provision, U.S. 18,941 6,252 140,000 Utilization of loss carryforwards - - ( 140,000) ------------------ ------------------ ----------------- $ 64,511 $ 16,167 $ 43,163 ================== ================== ==================
37 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 7. INCOME TAXES:(continued) A reconciliation of the reported amount of provision for income taxes to the amount that would result from applying domestic federal statutory tax rates (34%) to pretax income follows:
2002 2001 2000 ------------------ ------------------ ------------------ Income tax provision at U.S. statutory rate $ - $ - $ 156,698 International rate differences 45,570 9,915 ( 15,684) Utilization of loss carryforwards at 34% - - ( 119,000) Other 18,941 6,252 21,149 ------------------ ------------------ ------------------ $ 64,511 $ 16,167 $ 43,163 ================== ================== ==================
8. COMMITMENTS AND CONTINGENCY: The Company leases certain property under operating leases which expire through the fiscal year ending 2006. Rent expense was approximately $274,000, $245,000 and $337,000 for the years ended March 31, 2002, 2001 and 2000, respectively. Rental commitments under non-cancelable operating leases for the years ending March 31, are as follows: 2003, $234,000; 2004, $194,000; 2005, $171,000 and 2006, $71,000. The Company maintains a 401(k) plan ("Plan") in which substantially all employees may participate. The Company matches 25% of each participating employee's contribution, with a maximum Company contribution of 1 1/2 % of the employee's earnings. The Company's subsidiary in England maintains a defined contribution plan ("U.K. Plan") in which substantially all employees may participate, subject to invitation by that entity's Directors. Under the U.K. Plan, Comtrex UK is committed to fund $15,000 annually for certain executive employees plus three percent of salaries for other participants. The Company's contributions to both plans aggregated $69,024, $51,000 and $33,000 in the fiscal years ending March 31, 2002, 2001 and 2000, respectively. The Company has employment agreements with four employees, executed in conjunction with the acquisition of its domestic subsidiary, which provide for an aggregate of $224,000 in minimum annual salaries. Two of the agreements contain provisions which provide for bonuses and commission payments based on the achievement of certain sales levels. All four agreements expire in June, 2002. 9. 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. 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. 38 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 9. SEGMENT INFORMATION: (continued)
2002 2001 2000 ------------------ ------------------ ------------------ Net sales: United States, domestic $2,662,180 $2,840,426 $3,454,769 United States, export 1,526,969 2,763,275 3,625,517 United Kingdom 3,114,628 3,414,814 3,852,108 Transfers between segments (612,339) (882,443) (1,046,107) ----------------- ----------------- ----------------- Net sales $6,691,438 $8,136,072 $9,886,287 ================== ================== ================== Income (loss) before income taxes: United States ($273,276) ($162,543) $311,750 United Kingdom 228,642 49,419 173,077 Corporate (40,914) (19,154) (23,950) ----------------- ----------------- ----------------- Income (loss) before income taxes (85,548) ($132,278) $460,877 ================== ================= ================== Depreciation and amortization: United States $155,462 $159,632 $137,776 United Kingdom 58,459 41,770 44,933 Corporate 28,400 28,400 28,400 ------------------ ------------------ ------------------ $242,321 $229,802 $211,109 ================== ================== ================== Identifiable assets: United States $4,516,551 $5,302,642 $4,841,358 United Kingdom 2,285,735 2,005,105 2,414,652 Corporate 340,998 362,998 384,998 Eliminations (868,865) (934,032) (749,838) ----------------- ----------------- ----------------- Total assets $6,274,419 $6,736,713 $6,891,170 ================== ================== ================== Long lived assets: United States $228,803 $225,844 $150,716 United Kingdom 613,831 622,775 585,284 ------------------- ------------------- ------------------ $842,634 $848,619 $736,000 ================== ================== ==================
39 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 10. PER SHARE INFORMATION: A reconciliation of the average number of common shares outstanding used in the basic and diluted computations follows:
Average Common Shares Outstanding 2002 2001 2000 ------------------ ------------------ ------------------ Basic 1,417,009 1,328,099 1,243,649 Diluted effect of stock options - - 25,203 Diluted effect of convertible debenture - - 99,445 ------------------ ------------------ ------------------ Diluted 1,417,009 1,328,099 1,368,297 ================== ================== ==================
For purposes of computing diluted per share data in fiscal year 2000, $24,000 of interest related to the convertible debenture was added to net income. There is no dilutive effect from stock options or convertible debentures for either of fiscal years 2002 or 2001 because there was a net loss for both periods. 11. BANK LOAN, LINE OF CREDIT: At March 31, 2002, the Company was advanced $850,000 against a line of credit facility of $1,500,000. The loan bears interest at the bank's prime rate (4.75 percent at March 31, 2002) and is collateralized by substantially all domestic assets of the Company. The terms of this credit facility require the Company to meet a series of financial covenants, the failure of which would result in a technical default of the loan. Compliance with these covenants is reported to the Bank on a quarterly basis. As of March 31, 2002, the Company was in compliance with all financial covenants except the debt service covenant, which requires cash flows from operating activities to be equal to or greater than 125 percent of the Company's debt service, including interest and taxes. The Company is, therefore, in technical default on the loan and the entire amount of the outstanding loan is immediately callable as a consequence of such technical default. At March 31, 2002, the Company's UK subsidiary had no utilization against a line of credit facility of approximately $216,000. The loan bears interest at the bank's base rate plus two percent (4.00 percent at March 31, 2002) and is collateralized by substantially all assets of the subsidiary. 12. 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) was ($150,035), ($192,453) and $438,335 for fiscal years 2002, 2001 and 2000, respectively. The difference from net income as reported is the tax effected change in the foreign currency translation adjustment component of shareholders' equity. 40 COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2002, 2001 AND 2000 13. NEW ACCOUNTING PRONOUNCEMENTS: In July, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which the Company will adopt for its fiscal year beginning April 1, 2002. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, amortization of goodwill to earnings will cease and instead, the carrying value of goodwill will be evaluated for impairment on at least an annual basis. Amortization of goodwill was $30,682, $30,682 and $27,778 for fiscal years 2002, 2001 and 2000, respectively. The Company is evaluating the impact of these standards and has not yet determined the effect, if any, of adoption of the impairment requirement on its financial statements. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMTREX SYSTEMS CORPORATION Date: June 25, 2002 By: /s/ ----------------------------------------- Jeffrey C. Rice, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date /s/ President, Director and June 25, 2002 ------------------------ Jeffrey C. Rice Principal Executive Officer /s/ Principal Accounting Officer June 25, 2002 ------------------------ Pamela M. Reci * Director June 25, 2002 ------------------------ Steven D. Roberts * Director June 25, 2002 ------------------------ Nathan Lipson * Director June 25, 2002 ------------------------ Alan G. Schwartz * Director June 25, 2002 ------------------------ Howard E. Sachs * By /s/ ------------------------ Jeffrey C. Rice Attorney-in-Fact 42 Exhibit 21.1 SUBSIDIARIES OF THE COMPANY Comtrex Systems Corporation Limited, a company incorporated in England (Formerly Data Terminal Systems Terminals Limited) Cash Register Systems, Inc.(DBA Comtrex Michigan), a Michigan corporation 43 Exhibit 23.1 CONSENT OF DRUCKER, MATH & WHITMAN, P.C. CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-8, bearing Registration No. 33-32994, and the Registration Statement on Form S-3, bearing Registration No. 33-38529, and the Registration Statement on Form S-8, bearing Registration No. 33-93560, and the Registration Statement on Form S-8, bearing Registration No. 333-89881, of our report, dated June 18, 2002, appearing on page 21 of this Annual Report on Form 10-KSB, on the consolidated financial statements of Comtrex Systems Corporation and subsidiaries appearing on pages 23 to 41 of this Annual Report on Form 10-KSB for the year ended March 31, 2002. DRUCKER, MATH & WHITMAN, P.C. North Brunswick, New Jersey June 25, 2002 44 Exhibit 24.1 POWERS OF ATTORNEY COMTREX SYSTEMS CORPORATION POWER OF ATTORNEY REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 2002 KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities to sign Comtrex Systems Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 2002, and to file the same with all exhibits thereto, and any amendments thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ June 25, 2002 --------------------------- ----------------------------------- Nathan Lipson Date 45 COMTREX SYSTEMS CORPORATION POWER OF ATTORNEY REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 2002 KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities to sign Comtrex Systems Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 2002, and to file the same with all exhibits thereto, and any amendments thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ June 25, 2002 --------------------------- ----------------------------------- Steven D. Roberts Date 46 COMTREX SYSTEMS CORPORATION POWER OF ATTORNEY REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 2002 KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities to sign Comtrex Systems Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 2002, and to file the same with all exhibits thereto, and any amendments thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ June 25, 2002 --------------------------- ----------------------------------- Alan G. Schwartz Date 47 COMTREX SYSTEMS CORPORATION POWER OF ATTORNEY REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 2002 KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Jeffrey C. Rice his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities to sign Comtrex Systems Corporation's Report on Form 10-KSB for the fiscal year ended March 31, 2002, and to file the same with all exhibits thereto, and any amendments thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ June 25, 2002 --------------------------- ----------------------------------- Howard E. Sachs Date 48 Exhibit 27 FINANCIAL DATA SCHEDULES COMTREX SYSTEMS CORPORATION AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 2002, 2001 AND 2000
Column A Column B Column C Column C Column D Column E -------------- ------------ ------------ ------------ ------------- ------------ Charged Charged Balance Balance at to costs to at beginning and other end of Description of period expenses accounts Deductions period -------------- ------------ ------------ ------------ ------------- ------------ Year ended March 31, 2000: Reserve for bad debts $108,010 $32,002 $- ($40,694)(1) $99,318 ============ ============ ============ ============ ============ Reserve for excess and obsolete inventory $77,222 $20,000 $- ($17,222)(1) $80,000 ============ ============ ============ ============ ============ Year ended March 31, 2001: Reserve for bad debts $99,318 $37,386 $- $- $136,704 ============ ============ ============ ============= ============ Reserve for excess and obsolete inventory $80,000 $10,000 $- $- $90,000 ============ ============ ============ ============= ============ Year ended March 31, 2002: Reserve for bad debts $136,318 $9,159 $- ($45,422)(1) $100,055 ============ ============ ============ ============ ============ Reserve for excess and obsolete inventory $90,000 $41,197 $- $- $131,197 ============ ============ ============ ============= ============
(1) Write-offs against reserve. 49