-----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, DlFFBtg4WE+f/ALtktoH7JGh8sZjBKxj1zYdpo6DJYFBJHWnYFq4ltczR2Xf4frd otUpRJW1jgpDUToNlWAi1A== 0000215155-98-000005.txt : 19980813 0000215155-98-000005.hdr.sgml : 19980813 ACCESSION NUMBER: 0000215155-98-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-08482 FILM NUMBER: 98684040 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 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) /X/ Quarterly report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the quarterly period ended June 30, 1998, or / / Transition report Pursuant to Section 13 or 15(d) of the Exchange Act, for the transition period from to COMMISSION FILE NUMBER 0-8482 ASTROCOM CORPORATION (Exact name of small business issuer as specified in its charter) MINNESOTA 41-0946755 (State or other jurisdiction (I.R.S. Employer Ident. No.) of incorporation or organization) 2700 SUMMER STREET N.E. 55413-2820 MINNEAPOLIS, MINNESOTA (zip code) (Address of principal executive office) (612) 378-7800 (Issuer's telephone number) NOT APPLICABLE (Former name, address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes / / No / / APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 14,828,573 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
ASTROCOM CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended June 30, 1998 1997 Net Sales $ 713,692 $ 672,279 Cost of Products Sold 490,153 632,571 Inventory Writeoff 0 0 Gross Profit 223,539 39,708 Operating Expenses Selling and administrative 263,995 498,489 Research and development 62,413 214,597 Total Operating Expenses 326,408 713,086 Operating Loss (102,869) (673,379) Other Income & (Expense) Interest Income 2,016 8,231 Interest Expense (76,881) (8,993) Other Expense (45) (1,056) Net Loss before Taxes (177,779) (675,196) Taxes 500 1,327 Net Loss $ (178,279) $ (676,522) Less Preferred Stock Dividends 3,000 3,000 Loss Applicable to Common Stock $ (181,279) $ (679,522) Net Loss per Common Share $ (0.02) $ (0.07) Shares used in Computation 11,717,813 10,004,510 See accompanying notes to financial statements.
ASTROCOM CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended June 30, 1998 1997 Net Sales $ 1,541,596 $ 1,469,902 Cost of Products Sold 1,034,666 1,350,748 Inventory Write-Off 0 329,430 Gross Profit 506,930 (210,276) Operating Expenses Selling and administrative 534,205 1,116,527 Research and development 114,166 404,392 Total Operating Expenses 648,371 1,520,920 Operating Loss (141,441) (1,731,196) Other Income & Expense Interest Income 2,234 13,300 Interest Expense (144,282) (25,660) Other Expense (759) (28,910) Total Other Income & (Expenses) (142,807) (41,271) Net Loss Before Taxes (284,248) (1,772,467) Taxes 1,500 1,327 Net Loss $ (285,748) $ (1,773,794) Less Preferred Stock Dividends 6,000 6,000 Loss Applicable to Common Stock $ (291,748) $ (1,779,794) Net Loss per Common Share $ (0.03) $ (0.18) Shares used in computation 11,119,270 9,939,887 See accompanying notes to financial statements. ASTROCOM CORPORATION BALANCE SHEETS (UNAUDITED) June 30, 1998 December 31, 1997 ASSETS Current Assets Cash $ 785,131 $ 31,830 Accounts receivable, less allowance 540,645 557,662 Inventories 517,104 521,084 Prepaid expenses 10,407 51,097 Total Current Assets 1,853,287 1,161,673 Property & Equipment Property & Equipment 2,110,250 2,114,119 Accumulated Depreciation (1,798,292) (1,729,976) Net Property & Equipment 311,958 384,143 Intangible Assets 43,750 0 Other Assets 7,572 7,572 Total Assets $ 2,216,567 $1,553,388 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Payable to Factor $ 3,524 $ 62,806 Convertible Note Payable (Net of Discount) 0 364,016 Accounts Payable 386,274 507,275 Accrued Expenses 90,352 111,448 Current Maturities of Lease Settlement Costs 24,543 11,859 Total Current Liabilities 504,693 1,057,404 Lease Settlement Costs 52,495 68,031 Stockholders' Equity Preferred Stock 200,000 200,000 Common Stock 1,482,461 1,046,099 Additional Paid in Capital 8,060,885 6,974,073 Accumulated Deficit (8,083,967) (7,792,219) Total Stockholders' Equity 1,659,379 427,953 Total Liabilities and Stockholders' Equity $ 2,216,567 $1,553,388 See accompanying notes to financial statements. ASTROCOM CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 1998 1997 Cash Flows from Operating Activities Net loss $( 285,748) $(1,773,794) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 74,888 44,733 Amortization of debt discount 95,984 0 Interest on debt converted to common stock 1,274 0 Loss (gain) on disposal of assets (243) 29,693 Professional fees paid in warrants and stock 0 10,000 Changes in operating assets and liabilities: Accounts receivable 17,017 283,497 Inventories 3,980 140,541 Prepaid expenses 40,690 30,058 Other Assets 0 (34,577) Accounts payable (121,001) 712,430 Accrued expenses (27,096) 20,938 Net cash used in operating activities (200,255) (536,481) Cash Flows from Investing Activities Purchases of equipment 0 (61,355) Purchase of Technology Rights (50,000) 0 Sale of Assets 3,790 0 Net cash used in Investing Activities (46,210) (61,355) Cash Flows from Financing Activities Proceeds from sale of stock 1,466,900 0 Proceeds from exercise of warrants and options 30,000 97,108 Net proceeds from factoring agreement (59,282) 0 Net proceeds from revolving credit agreement 0 (219,952) Payments on notes payable (435,000) 0 Payments on lease settlement obligation (2,852) (12,013) Payments on other long-term debt 0 (843) Cash provided by financing activities 999,766 (135,700) Net increase (decrease) in cash 753,301 (733,536) Cash at beginning of period 31,830 978,798 Cash at end of period $ 785,131 $ 245,262 Supplemental cash flow information: Conversion of debt to common stock 25,000 0 See accompanying notes to financial statements.
ASTROCOM CORPORATION NOTES TO FINANCIAL STATEMENTS June 30, 1998 1. BASIS OF PRESENTATION The financial statements in this form 10-QSB have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of financial position, results of operations and cash flows. These financial statements should be read in conjunction with the financial statements and notes included in the Company's annual report on Form 10-KSB for the year ended December 31, 1997. 2. INVENTORIES Inventories are stated at the lower of cost or market, determined on an average cost basis. Inventories at June 30, 1998 and December 31, 1997 consisted of the following: June 30, 1998 December 31, 1997 Raw materials $ 362,428 $ 328,042 Work in process 94,558 61,155 Finished goods 144,602 211,368 Less obsolescence reserve (84,484) (79,481) $ 517,104 $ 521,084 3. INTANGIBLE ASSETS Purchased technology, license agreements and other intangible assets are recorded at cost. Intangible assets are amortized on a straight-line basis over their estimated useful lives of one to five years. 4. NET LOSS PER SHARE In 1997, the Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," which replaces the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share exclude the dilutive effect of options, warrants and convertible securities, while diluted earnings per share include such effects. For all periods presented, the Company's basic and diluted loss per share are the same because the effects of all options, warrants and convertible securities were antidilutive. 5. RECLASSIFICATIONS Certain amounts in the financial statements have been reclassified to conform to the current presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPANY'S INTERIM STATEMENTS OF OPERATIONS The following table sets forth selected information derived from the Company's interim statements of operations expressed as percentages of net sales:
Three Months Ended % Increase Six Months Ended %Increase June 30, (Decrease) June 30, (Decrease) 1998 1997 1998 1997 Net Sales 100.0% 100.0% 6.2% 100.0% 100.0% 4.9% Cost of Sales 68.7 94.1 (23.3) 67.1 91.9 (23.8) Write-off of Inventory 0 0 0 0 22.4 (100.0) Gross Profit 31.3 5.9 475.6 32.9 (14.3) 243.5 Selling and Administrative 37.0 74.1 (47.0) 34.7 76.0 (52.2) Research and Development 8.7 31.9 (70.9) 7.4 27.5 (71.8) Operating Loss (14.4) (100.1) (85.5) (9.2) (117.8) (92.1) Other Income (Expense) (10.6) (0.3) 4,022.7 (9.3) (2.8) 146.0 Net Loss (25.0)% (100.6)% (74.4) (18.5)% (120.7)% (84.2)
NET SALES. Net sales for the three month and six month periods ended June 30, 1998 were $713,692 and $1,541,596, reflecting increases of 6.2% and 4.9%, respectively, over the comparable periods in 1997. These increases were the result of a broader product mix offering. The Astrocom SP-100, a T-1 data only CSU/DSU, was introduced in late February of 1997. GROSS PROFIT. Gross profit margins before the inventory write-off for the three and six month periods ended June 30, 1998 were 31.3% and 32.9%, respectively, as compared to 5.9% and (14.3)% for the comparable periods in 1997. These increases can be attributed to adjustments made to the pricing and product costs of the new product lines that were introduced in 1997. The Company expects the gross profit margins to remain at these higher levels, but also to be affected by sales volume, product mix and the distribution channel used. In the first quarter of 1997, the Company recorded a $329,430 write-down of inventory due to: 1) reserves recorded from loss of a contract and ongoing product changes; and 2) inventory which could not be accounted for due to changes in the Company's accounting system and personnel. OPERATING EXPENSES. Selling and administrative expenses were $263,995 for the three month period ended June 30, 1998, a decrease of 47.0% from the comparable period in 1997. For the six month period ended June 30, 1998, selling and administrative expenses were $534,205, a decrease of 52.2% from the comparable period in 1997. Selling and marketing expenses decreased because of reduced staff and last year's marketing activities related to the new corporate image and product positioning. Administrative expenses also decreased because of a smaller management staff. Research and development expenses were $62,413 for the three month peiod ended June 30, 1998, a decrease of 70.9% from the comparable period in 1997. For the six month period ended June 30, 1998, research and development expenses were $114,166, a decrease of 71.8% from the comparable period in 1997. These expense reductions were due primarily to reduced staff. R&D expenses were also higher during the same periods last year due to spending on product testing, prototype parts and outside services in connection with the new product introduction. The Company expects to increase its investment in product development by adding engineering personnel or using consulting services as appropriate. OTHER INCOME (EXPENSE). Interest expense for the three month period ended June 30, 1998 increased to $76,881 from $8,993 in the comparable period in 1997. For the six month period ended June 30, 1998, interest expense increased to $144,282 from $25,660 in the comparable period in 1997. These increases were connected to the bridge financing raised during the third quarter of 1997. The convertible debt was repaid at the end of the period, thereby reducing the expected interest expense in future periods. NET LOSS. The Company reported a net loss from operations of $(178,279) and $(285,748) respectively for the three and six month periods ended June 30, 1998, compared to a net loss of $(676,522) and $(1,773,794) for the comparable periods of 1997. The reduced loss is attributable to a higher gross profit and lower operating expenses. LIQUIDITY AND CAPITAL RESOURCES The Company completed a private placement of equity during the second quarter of 1998. Proceeds from the equity placement were $1,466,900, of which $435,000 was used to repay the short-term convertible debt. Net working capital increased to $1,353,594 on June 30, 1998 from $104,269 on December 31, 1997. Cash increased to $785,131 on June 30, 1998 from $31,830 on December 31, 1997. Management chose not to renew its factoring agreement that expired on July 3, 1998. The Company is seeking a less expensive, asset-based lending facility and anticipates securing such financing during the third quarter of 1998. A credit facility would be used to fund increased working capital requirements. The proceeds from the private placement are intended to fund product development activities. Management remains focused on running profitable operations that generate adequate cash flow to meet current obligations on a timely basis. The Company believes that its available sources of funds will be adequate to finance current operations and anticipated investments for at least the next twelve months. YEAR 2000 ISSUES The Company is aware of the Year 2000 problem resulting from the inability of computer software or hardware to recognize or properly process dates ending in "00." The Company has reviewed its products and internal information systems and believes that the costs and effort to address the Year 2000 problem will not be material to its business, financial condition or results of operation. The Company intends to continue monitoring Year 2000 compliance matters. However, there can be no assurance that unforeseen problems will not arise in connection with this issue. PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION 1. Gary L. Deaner was elected a director by the shareholders on May 28, 1998. 2. Duane S. Carlson was elected a director by the directors on June 9, 1998, to fill a vacancy on the Board of Directors. 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: August 11, 1998 ASTROCOM CORPORATION By: Ronald B. Thomas, President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----