-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q6S1XBzizBQm1wZ6uRuT7YE5sDqemnpLHJDoaPp6L4RQLP3euL/BKuFzw7mlQIY+ FFNh0INzJCcVpmTBSWdUEg== 0000215155-97-000009.txt : 19970912 0000215155-97-000009.hdr.sgml : 19970912 ACCESSION NUMBER: 0000215155-97-000009 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970908 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASTROCOM CORP CENTRAL INDEX KEY: 0000215155 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 410946755 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-08482 FILM NUMBER: 97676549 BUSINESS ADDRESS: STREET 1: 2700 SUMMER STREET N E CITY: MINNEAPOLIS STATE: MN ZIP: 55413-2820 BUSINESS PHONE: 6123787800 MAIL ADDRESS: STREET 2: 2700 SUMMER ST NE CITY: MINNEAPOLIS STATE: MN ZIP: 55413 10KSB/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB/A Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission file December 31, 1996 number O-8482 ASTROCOM CORPORATION (Name of small business issuer in its charter) Minnesota 41-0946755 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2700 Summer Street N.E., Minneapolis, Minnesota 55413-2820 (Address of principal executive offices) (zip code) Issuer's telephone number, including area code: (612) 378-7800 PART II ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Astrocom, a public company (O.T.C., ATCC), was incorporated in 1968 to design, manufacture and distribute telecommunications products to serve the short-haul communication market by providing line drivers and other equipment for local area networks (LANs). In 1989 the Company developed high speed digital access communication equipment for wide area networks (WANs). Astrocom's CSU/DSUs (Channel Service Unit/Digital Service Unit) function to interface high handwidth telephone company services for such applications as high-speed Internet access, video conferencing and corporate internetworking. Astrocom multiplexers reduce telecommunications costs by combining up to seven separate data paths into a single communication line. Astrocom products are used by internet service providers, telephone service providers, government and educational entities, private enterprises and others. Astrocom sells its products through a direct sales force, as well as an international network of distributors, value-added resellers (VARs) and original equipment manufacturers (OEMs). COMPARISON OF 1996 WITH 1995 REVENUES increased 3.4% to $3,287,000 from $3,178,000 in 1995. This increase in sales was primarily attributable to an increase in sales of the NX-1 product and the introduction of the T-series product in late 1996. Gross profit (before inventory write-off) declined to $832,000 in 1996 from $1,141,000 in 1995. The gross margin declined from 35.9% in 1995 to 25.3% in 1996, because of a combination of competitive pricing pressure and product cost issues. The Company hopes to increase the gross margin in 1997 by reducing its manufacturing costs. RESEARCH AND DEVELOPMENT EXPENSES increased by 0.7% from $442,000 in 1995 to $445,000 in 1996. Astrocom substantially increased its research and development efforts in the fourth quarter by recruiting several experienced telecommunications engineers and accelerating development efforts on two new product families, the T-1000 and SP100, which are full-featured T1 and fractional T1 CSU/DSUs. Expenses related to product development and testing also contributed to the increase. Astrocom will continue its focus on product development in 1997, and expects that research and development expenses will increase accordingly. SELLING AND ADMINISTRATIVE EXPENSES increased by 23.5% from $1,274,000 in 1995 to $1,574,000 in 1996. A combination of increased sales and marketing expenditures and additions to management accounted for the increases. Sales and marketing efforts were enhanced by the addition of experienced sales personnel, reorganization of the distributor network and increased advertising and promotional activities. Increased administrative expense stemmed from the addition of a chief operating officer and other senior managers. These expenses are ongoing and will be in effect for all of 1997. INTEREST EXPENSES were $97,000 for 1996, a 14% decrease from $112,000 in 1995, a result of lower levels of borrowing in the final months of 1996 due to the Company's securities offering. RESTATEMENT Subsequent to December 31, 1996, the Company determined that its December 31, 1996 inventories were overstated. As a result, the Company has restated its financial statements for the year ended December 31, 1996. The restatement resulted in a decrease in inventories and an increase in previously reported cost of products sold, net loss and accumulated deficit by $218,000. Additionally, the net loss per common share has been increased from $(.16) to $(.19). As reported As restated Loss applicable to common $(1,064,000) $(1,282,000) stock Net loss per common share $(.16) $(.19) LIQUIDITY AND RESOURCES During 1996 the Company financed its operations through a combination of sources: a private placement of equity securities, usage of a bank line of credit and short-term notes to certain shareholders. The Company raised $3,046,000 in net proceeds from the sale of common stock in 1996. Sources and uses of cash from operations were approximately neutral. Capital expenditures for property and equipment were approximately $206,000 in 1996, up significantly from $80,000 in 1995. Large purchases in 1996 included an integrated manufacturing software package, a telephone system, testing devices and computer design equipment. The Company expects to purchase additional computer and design equipment in 1997. The bank line of credit, as of March 31, 1997, allowed the Company to borrow up to $600,000. The Company expects to renew the line relationship when it expires on April 30, 1997. The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced operating losses in each of fiscal years 1994 through 1996, and has continued to operate at a loss through the six-months ended June 30, 1997, depleting most of its available capital. The Company is dependent on future financing activities to continue as a going concern. Management is evaluating financing alternatives; however, there can be no assurance that the Company will be successful in obtaining financing on terms favorable to the Company. Because of uncertainties regarding the achievability of management's plans, no assurance can be given about the Company's ability to continue in existence. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. ITEM 7. FINANCIAL STATEMENTS ASTROCOM CORPORATION DECEMBER 31, 1996 AND 1995 Contents Report of Independent Auditors 1 Audited Financial Statements Balance Sheet 2 Statements of Operations 4 Statements of Shareholders' Equity (Deficit) 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Report of Independent Auditors Board of Directors Astrocom Corporation We have audited the accompanying balance sheet of Astrocom Corporation as of December 31, 1996, and the related statements of operations, shareholders' equity (deficit) and cash flows for each of the two years in the period then ended. 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 conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Astrocom Corporation at December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming Astrocom Corporation will continue as a going concern. As more fully described in Note 13, the Company has experienced continued operating losses in each of fiscal years 1994 through 1996, and has continued to operate at a loss through the six months ended June 30, 1997, depleting most of its available capital. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ Ernst & Young LLP Minneapolis, Minnesota March 6, 1997, except as to Notes 12 and 13 as to which the date is August 29, 1997
Astrocom Corporation Balance Sheet December 31, 1996 (Restated) Assets Current assets: Cash $ 979,000 Accounts receivable, less allowance of $15,000 594,000 Inventories 695,000 Prepaid expenses 32,000 Total current assets 2,300,000 Buildings, machinery, and equipment: Buildings 5,000 Machinery and equipment 1,243,000 Office furniture and fixtures 830,000 Total buildings, machinery and equipment 2,078,000 Accumulated depreciation (1,638,000) 440,000 Demonstration, sample and repair inventory 55,000 Other assets 11,000 Total assets $2,806,000
Liabilities and shareholders' equity Current liabilities: Notes payable to bank $ 444,000 Accounts payable 367,000 Accrued expenses 69,000 Current portion of lease settlement costs 30,000 Total current liabilities 910,000 Lease settlement costs 62,000 Long-term debt 1,000 Shareholders' equity: Preferred stock, $1.00 par value: Authorized share - 5,000,000 Issued and outstanding shares - 200,000 200,000 Common stock, $.10 par value: Authorized shares - 50,000,000 Issued and outstanding shares - 9,597,163 959,000 Additional paid-in capital 6,426,000 Accumulated deficit (5,752,000) Total shareholders' equity 1,833,000 Total liabilities and shareholders' equity $2,806,000 See accompanying notes.
Astrocom Corporation Statements of Operations Year ended December 31 1996 1995 (Restated) Net sales $ 3,287,000 $ 3,178,000 Cost of products sold 2,455,000 2,037,000 Write-off of inventory 398,000 Gross profit 832,000 743,000 Selling and administrative expenses 1,574,000 1,274,000 Research and development expenses 445,000 442,000 Operating expenses 2,019,000 1,716,000 Operating loss (1,187,000) (973,000) Other income (expense): Interest income 11,000 Interest expense (97,000) (112,000) Net loss (1,273,000) (1,085,000) Less preferred stock dividends 9,000 Loss applicable to common stock $(1,282,000) $(1,085,000) Net loss per common share $ (.19) $ (.21) Weighted average number of common shares outstanding 6,605,169 5,053,995 See accompanying notes.
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Astrocom Corporation Statements of Shareholders' Equity (Deficit) Additional Preferred Common Stock Paid-In Accumulated Stock Shares Amount Capital Deficit Total Balance, December 31, 1994 $ $4,854,773 $ 486,000 $ 3,433,000 $ (3,385,000) $ 534,000 Issuance of common stock for retirement plan 14,013 1,000 4,000 5,000 Issuance of common stock 756,666 76,000 151,000 227,000 Issuance of common stock for debt conversion and settlement of litigation 314,000 31,000 53,000 84,000 Issuance of common stock for services 30,000 3,000 15,000 18,000 Issuance of common stock for Directors' fees 45,000 4,000 4,000 8,000 Exercise of stock options 1,250 Net loss (1,085,00) (1,085,000) Balance, December 31, 1995 6,015,702 601,000 3,660,000 (4,470,000) (209,000) Issuance of common stock, net of offering costs of $455,000 3,501,000 350,000 2,696,000 3,046,000 Issuance of preferred stock for debt conversion 200,000 200,000 Issuance of common stock for retirement plan 3,961 8,000 8,000 Issuance of common stock in connection with the exercise of warrants 31,500 3,000 9,000 12,000 Issuance of common stock for Directors' fees 45,000 5,000 53,000 58,000 Dividends on preferred stock (9,000) (9,000) Net loss (1,273,000) (1,273,000) Balance, December 31, 1996 $200,000 9,597,163 $959,000 $6,426,000 $(5,752,000) $1,833,000 (Restated) See accompanying notes.
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Astrocom Corporation Statements of Cash Flows Year ended December 31 1996 1995 (Restated) Cash flows from operating activities Net loss $(1,273,000) $(1,085,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 135,000 146,000 Issuance of stock to directors and 66,000 49,000 employees Changes in assets and liabilities: Accounts receivable 22,000 (148,000) Inventories (408,000) 447,000 Prepaid expenses (18,000) 1,000 Demonstration, sample and repair inventory (2,000) (2,000) Other assets (2,000) (1,000) Accounts payable (237,000) 278,000 Accrued expenses 3,000 29,000 Net cash used in operating activities (1,714,000) (286,000) Cash flows from investing activities Purchases of equipment (206,000) (80,000) Net cash used in investing activities (206,000) (80,000) Cash flows from financing activities Proceeds from sale of stock 3,046,000 227,000 Cash received from exercise of warrants 12,000 Dividends paid (9,000) Net proceeds on revolving credit agreement 122,000 Proceeds from notes payable 90,000 Payments on notes payable and capital lease obligations (231,000) Net cash provided by financing activities 2,818,000 439,000 Increase in cash 898,000 73,000 Cash at beginning of year 81,000 8,000 Cash at end of year $ 979,000 $ 81,000 Supplemental cash flow information Conversion of subordinated debt into preferred stock $ 200,000 See accompanying notes.
Astrocom Corporation Notes to Financial Statements December 31, 1996 1. Nature of Business and Significant Accounting Policies Nature of Business and Operations Astrocom Corporation (the "Company") designs, manufactures, and markets advanced digital communications equipment for the data transmission needs of corporations and other large organizations. The principal markets for the Company's products are the United States, Europe and Asia. The Company's management believes that the current credit facilities available to it from the bank, which it expects to be able to renew upon its expiration in April 1997, along with increased sales levels and continued focus on controlling costs, will enable the Company to achieve profitability. As a result, the Company believes that cash flows from operations, along with available working capital financing under a renewed credit agreement, will be sufficient to meet its cash requirements through December 31, 1997. If the Company were unable to renew its existing credit facilities, management believes that it would be able to obtain a similar credit facility with another financial institution. The Company's financial results could be adversely affected if it was unable to obtain other working capital financing. Cash and Cash Equivalents For purposes of reporting cash flows, the Company considers all investments with a maturity of three months or less when purchased to be cash equivalents. Inventories Inventories are stated at the lower of cost or market, determined on an average cost basis. Buildings, Machinery and Equipment Buildings, machinery and equipment, including assets under capital leases, are carried at cost and depreciated over 5 to 10 years using the straight-line or double declining balance methods. 1. Nature of Business and Significant Accounting Policies (continued) Demonstration, Sample and Repair Inventory This equipment is not held for sale and is amortized over an estimated useful life of five years. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123), but applies Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for its plans. Under APB 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation is recognized. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Net Loss Per Share Net loss per share of common stock is computed by dividing net loss applicable to common stock by the weighted average number of common shares outstanding during the period. 2. Inventories Inventories consisted of the following:
1996 1995 Purchased parts, materials and supplies $ 392,000 $ 92,000 Work in process 107,000 Finished products 231,000 210,000 Less obsolescence reserve (35,000) (15,000) $ 695,000 $ 287,000
3. Debt Notes Payable to Bank: The Company has entered into a line of credit agreement with a bank, whereby the Company may borrow up to $600,000, depending upon levels of accounts receivable, at 4% over the prime lending rate (10.25% at December 31, 1996) with a minimum interest rate of 10%. The bank has been granted a security interest in substantially all assets of the Company. The agreement expires April 1, 1997, but may be withdrawn at the option of the bank. The outstanding balance under the line of credit agreement was $444,000 at December 31, 1996. Bridge Loans: During 1996, the Company borrowed $225,000 through bridge loan agreements, including $75,000 from Hanrow Business Finance. The bridge loan agreements bore interest at rates between 12%-13%. In connection with the bridge loans, the Company issued warrants to purchase 225,000 shares of common stock. The warrants are exercisable at $1.50 per share and remain outstanding until 2001. The bridge loans were repaid in 1996. 3. Debt (continued) Lease Settlement Costs: In conjunction with the Company's sale of certain operations in 1990, the Company remained contingently liable for certain leases on equipment and real estate. The purchasers of these operations went bankrupt and the Company was obligated on the lease guarantees. During 1993, the Company agreed to terms with the lessors and recorded the settlement at its present value of $125,000 using an 8% interest rate. During 1995, the Company renegotiated the settlement agreement extending the payment terms through 1998. Future settlement payments are as follows:
1997 $ 36,000 1998 66,000 Total minimum settlement payments 102,000 Less amount representing interest 10,000 92,000 Less current portion 30,000 Long-term portion $ 62,000
The carrying amounts of the Company's debt instruments in the balance sheet at December 31, 1996 approximate their fair value. 4. Operating Leases The Company has a non-cancelable operating lease agreement for a building that expires in March 1999. Rental expense included in operations for this lease for the years ended December 31, 1996 and 1995 totaled $82,033 and $18,193, respectively. Future minimum rentals under the operating lease agreement are as follows: Years ending:
1997 $ 84,000 1998 84,000 1999 21,000 $189,000
5. Shareholders' Equity Preferred Stock In March 1996, the Company converted the Hanrow Financial Group $200,000 subordinated note into 200,000 shares of preferred stock. The preferred stock is callable by the Company on April 5, 2000. The preferred stock bears a coupon rate of 6% payable quarterly and is convertible into common stock at $.46 per share. Common Stock In December 1995, the Company sold 756,666 shares of its common stock at $.30 per share, resulting in proceeds to the Company of $227,000. In September 1996, the Company sold 3,501,000 units in a private placement of its common stock, resulting in net proceeds to the Company of $3,046,000. Each unit sold in the private placement consisted of one share of common stock and one redeemable warrant. Each redeemable warrant entitles the holder to purchase one share of common stock at $1.50 per share. The Company may redeem the redeemable warrants at $.01 per share of common stock at any time subsequent to 180 days after the issuance of the redeemable warrant if the closing price of the Company's common stock is above $2.00 per share for twenty consecutive days subsequent to the date the redeemable warrants are first redeemable. The redeemable warrants expire in September 1999. In connection with the private placement, the Company granted the selling agent a warrant to purchase 350,100 shares of common stock at an exercise price of $1.00 per share. The warrant expires five years after the date of grant. 6. Stock Options and Warrants The Company's stock option plans authorize the granting of incentive and non-qualified stock options. Incentive stock options may be granted to key employees at prices equal to the fair market value at the date of grant. Non-qualified stock options may be granted to employees, members of the Board of Directors, consultants, and other persons who provide services to the Company. Non-qualified options may be granted at prices not less than 85% of the fair market value at the date of grant. Options granted generally vest over a period of 48 months. 6. Stock Options and Warrants (continued) A summary of outstanding options is as follows:
Weighted Shares Average Reserved Options Exercise For Outstand - Price Per Grant ing Share Balance, December 31, 1994 453,750 570,000 $ .39 Granted (677,500) 677,500 .49 Terminated (179,250) .36 Exercised (1,250) .27 Increase in shares reserved for grant 1,000,000 Balance, December 31, 1995 776,250 1,067,000 .46 Granted 367,500 367,500 1.32 Terminated (204,000) .55 Canceled/expired (10,000) .88 Increase in shares reserved for grant 500,000 Balance, December 31, 1996 908,750 1,220,500 $ .70
As of December 31, 1996 there were 775,000 options outstanding with exercise prices between $.27 and $.50, 206,000 options outstanding with exercise prices between $.56 and $1.00 and 239,500 options outstanding with exercise prices between $1.56 and $1.88. At December 31, 1996 outstanding options had a weighted-average remaining contractual life of 4 years. The number of options exercisable as of December 31, 1996 and 1995 were 673,875 and 485,625, respectively, at weighted average exercise prices of $.54 and $.42 per share, respectively. The weighted average fair value of options granted during the years ended December 31, 1996 and 1995 was $.92 and $.32 per share, respectively. 6. Stock Options and Warrants (continued) Pro Forma Disclosures Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rate of 5.5%; no dividend yield; volatility factor of the expected market price of the Company's common stock of .846%; and a weighted-average expected life of the option of 4 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1996 1995 Pro forma loss applicable to common shares $(1,127,000) $(1,108,000) Pro forma loss per common share $(.17) $(.22)
Note: the pro forma effect on the net loss for 1996 and 1995 is not representative of the pro forma effect on net income (loss) in the future years because it does not take into consideration pro forma compensation expense related to option grants made prior to 1995. 6. Stock Options and Warrants (continued) Warrants The Company has granted warrants for the purchase of shares of the Company's common stock to directors and certain debt and equity holders. The warrants are fully vested upon issuance and expire in varying amounts through 2002. Information with respect to warrants granted as of December 31, 1996 and 1995 is summarized as follows:
Warrant Shares Price Per Share Outstanding at December 31, 1994 1,091,070 $.30 to $1.00 Granted 202,000 .50 Outstanding at December 31, 1995 1,293,070 .30 to $1.00 Granted 4,153,335 .88 to $1.88 Canceled Exercised (31,500) .38 Balance, December 31, 1996 5,414,905 $.30 to $1.88
Of the warrants granted during 1996, 3,501,000 are redeemable warrants granted in connection with the private placement of common stock (see Note 5). 7. Income Taxes Deferred tax assets and liabilities consisted of the following:
1996 1995 Net operating loss carryforwards $3,652,000 $3,064,000 Tax credit carryforwards 130,000 130,000 Inventory 14,000 48,000 Other 51,000 39,000 Deferred tax assets 3,760,000 3,281,000 Depreciation 73,000 65,000 Deferred tax liability 73,000 65,000 3,833,00 3,216,000 Less valuation allowance (3,920,000) (3,216,000) Net deferred tax assets $ 0 $ 0
7. Income Taxes (continued) The Company has net operating loss carryforwards and tax credit carryforwards at December 31, 1996 of approximately $9,132,000 and $130,000, respectively, which are available to reduce income taxes payable in future years. These carryforwards and credits will expire at various times through the year 2011. 8. Retirement Plan The Company has a Retirement Savings Plan for its employees which allows participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. The Company may match up to 25% of the employees' contributions to a maximum of 3% of the employee's annual salary. Employees vest immediately in their contribution and vest in the Company's contribution after one year of service. The Company's contribution to the plan in 1996 and 1995 was 3,961 and 14,013 shares of common stock, respectively, with fair market values of approximately $8,000 and $5,000, respectively, at the date of contribution. Future matching contributions will be determined annually by the Board of Directors. 9. Export Sales and Major Customers The Company had export sales of $273,303 and $315,430 for the years ended December 31, 1996 and 1995, respectively. The sales were primarily to customers located in Europe. The Company has one product family that accounted for approximately 61% and 58% of total sales for the years ended December 31, 1996 and 1995, respectively. For the year ended December 31, 1996, the Company had net sales to two customers which totaled 45% of the total net sales for the year. The receivable balance due from these customers was $328,809 at December 31, 1996. 10. Supplemental Cash Flow Information The Company made interest payments of $104,000 and $106,000 for the years ended December 31, 1996 and 1995, respectively. 11. Related Party Transactions In 1996, the Company's officers advanced the Company $68,000 against the collection of certain receivables and received a 3% fee for the advances. The receivables were subsequently collected and the advances were repaid. 12. Restatement The Company has determined that its inventories at December 31, 1996 were overstated, and accordingly has restated its 1996 financial statements. The restatement resulted in a decrease in inventories and an increase of the previously reported cost of products sold, net loss and accumulated deficit by $218,000. Additionally, the net loss per common share has been increased from $(.16) to $(.19). The restatement resulted primarily from a compilation error in the Company's physical inventory procedures. As reported As restated Loss applicable to common $(1,064,000) $(1,282,000) stock Net loss per common share $(.16) $(.19) 13. Going Concern The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced operating losses in each of fiscal years 1994 through 1996, and has continued to operate at a loss through the six-months ended June 30, 1997, depleting most of its available capital. The Company is dependent on future financing activities to continue as a going concern. Management is evaluating financing alternatives; however, there can be no assurance that the Company will be successful in obtaining financing on terms favorable to the Company. Because of uncertainties regarding the achievability of management's plans, no assurance can be given about the Company's ability to continue in existence. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. PART III ITEM 13. EXHIBITS Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 299184) pertaining to the 1988 Incentive Stock Option Plan of our report dated March 6, 1997, except as to Notes 12 and 13 as to which the date is August 29, 1997, with respect to the financial statements incorporated by reference in this Annual Report on Form 10-KSB/A of Astrocom Corporation for the year ended December 31, 1996. /s/ Ernst & Young LLP Minneapolis, Minnesota September 5, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: September 5, 1997 ASTROCOM CORPORATION (Registrant) By:Ronald B. Thomas Ronald B. Thomas, Chief Executive Officer By:M. Claire Canavan M. Claire Canavan Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----