U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the quarterly period ended March 31, 1997, or
/ / Transition report under 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)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check 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: 9,667,113
<PAGE>
<TABLE>
<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
1997 1996
(Restated)
<S> <C> <C>
Net Revenues $ 798,000 $1,057,000
Cost of Products Sold 718,000 654,000
Inventory Write-Off 329,000
Gross Profit (249,000) 403,000
Expenses:
Selling and administrative expense 593,000 317,000
Research and development expense 243,000 87,000
Total Expenses 836,000 404,000
Operating Loss (1,085,000) (1,000)
Interest Expense (12,000) (30,000)
Net Loss $ (1,097,000) $ (31,000)
Net Loss per share $ ( .11) $( .01)
Weighted average shares outstanding 9,667,113 6,015,702
<PAGE>
<CAPTION>
BALANCE SHEETS
ASTROCOM CORPORATION
(UNAUDITED)
March 31, December 31,
1997 1996
(Restated) (Restated)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 735,000 $ 979,000
Accounts receivable 372,000 594,000
Inventories 662,000 695,000
Prepaid expenses 18,000 32,000
TOTAL CURRENT ASSETS 1,787,000 2,300,000
OTHER ASSETS 37,000 66,000
Building, machinery, and equipment 2,114,000 2,078,000
Allowances for depreciation (1,661,000) (1,638,000)
TOTAL PLANT AND EQUIPMENT 453,000 440,000
TOTAL ASSETS $2,277,000 $2,806,000
<PAGE>
<CAPTION>
March 31, December 31,
1997 1996
(Restated) (Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 576,000 $ 444,000
Accounts payable 773,000 367,000
Accrued expenses 82,000 69,000
Current maturities of long-term debt
and capital leases 30,000 30,000
TOTAL CURRENT LIABILITIES 1,461,000 910,000
LEASE-SETTLEMENT COSTS 55,000 62,000
Long-Term Debt 0 1,000
Total Stockholders' Equity (deficit)
Preferred Stock 200,000 200,000
Common Stock, par value $.10/share: 972,000 959,000
Issued and Outstanding Shares -
9,730,579 at 3-31-97 and 9,597,163
at 12-31-96
Additional Paid in Capital 6,438,000 6,426,000
Accumulated Deficit (6,849,000) (5,752,000)
Total Stockholders' Equity 761,000 1,833,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,277,000 $2,806,000
<PAGE>
<CAPTION>
STATEMENTS OF CASH FLOWS
ASTROCOM CORPORATION
(UNAUDITED)
Three Months Ended March 31,
1997 1996
(Restated)
<S> <C> <C>
Operating Activities
Net loss $ (1,097,000) $ (31,000)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 23,000 56,000
Write-off of inventory 328,000
Changes in operating assets and liabilities:
Accounts Receivable 222,000 (57,000)
Inventories and prepaid expenses (281,000) (11,000)
Accounts payable and accrued expenses 419,000 (38,000)
Other Assets 29,000 13,000
Net cash used by operating activities (357,000) (68,000)
INVESTING ACTIVITIES
Purchases of plant and equipment (36,000) (29,000)
Net cash used by investing activities (36,000) (29,000)
Financing Activities
Increase in short term debt 132,000 (7,000)
Payments on bank notes payable (3,000)
Decrease/Increase in long-term debt (8,000) 28,000
Proceeds from sales of common stock 25,000 0
Net cash provided by financing activities 149,000 18,000
Decrease in cash $ (244,000) $ (79,000)
Cash at beginning of quarter 979,000 81,000
Cash at end of quarter $ 735,000 $ 2,000
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ASTROCOM CORPORATION
March 31, 1997
NOTE A - ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
the instructions to Form 10-QSB. Accordingly, they do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and statement of cash flows. In the opinion
of management, all adjustments necessary for a fair presentation of results
have been made and registrant believes such presentation is adequate to make
the information presented not misleading. The Balance Sheet at December 31,
1996 is derived from the audited financial statements at that date.
For further information, refer to the financial statements and footnotes
included in registrant's annual report on Form 10-KSB for the year ended
December 31, 1996.
NOTE B - NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 128, "Earnings Per Share." This Statement
replaces the presentation of primary earnings per share (EPS) with basic
EPS and also requires dual presentation of basic and diluted EPS for
entities with complex capital structures. This Statement is effective for
the fiscal year ended December 31, 1997. For the quarter ended March 31,
1997, there is no difference between basic earnings per share under
Statement No. 128 and primary net loss per share as reported.
NOTE C - RESTATEMENT
Subsequent to March 31, 1997, The Company has determined that its
inventories at December 31, 1996 were overstated, and accordingly has restated
its December 31, 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. The restated net
loss for 1996 $(1,282,000) or $(.19) per common share, compared to the
previously reported net loss of $(1,064.000) or $(.16) per common share.
In addition, the Company's Board of Directors discovered that
certain accounting irregularities and errors had occurred during the three-
month period ended March 31, 1997. As a result, the Company has restated its
financial statements for the three months ended March 31, 1997. The
restatement includes a reduction in revenues, an increase in cost of products
sold, a write-off of inventory, an increase in selling and administrative
expenses and an increase in research and development expenses.
A summary of the restatements for the three-month period ended March 31, 1997:
Three months ended March 31, 1997
As reported Adjustments Restated
Statement of Operations
Net Revenues $ 839,000 $ (41,000) $ 798,000
Costs of Products Sold 647,000 71,000 718,000
Inventory write-off 329,000 329,000
Gross Profit 192,000 441,000 (249,000)
Expenses:
Selling and administrative 500,000 93,000 593,000
Research and development 199,000 44,000 243,000
Operating Loss (507,000) (578,000) (1,085,000)
Interest Expense 12,000 12,000
Net Loss $ (519,000) (578,000) (1,097,000)
Net loss per share $ (.05) $ (.06) $ (.11)
<PAGE>
Management's Discussion and Analysis of the Results of Operations.
Comparison of First Quarters 1997 and 1996
Subsequent to March 31, 1997, the Company's Board of Directors discovered that
certain accounting irregularities and errors had occurred during the three-
month period ended March 31, 1997. As a result, the Company has restated its
financial statements for the three months ended March 31, 1997. The restatement
includes a reduction in revenues, an increase in cost of products sold, a
write-off of inventory, an increase in selling and administrative expenses and
an increase in research and development expenses.
The restatements described above relate to the timing of revenue recognition,
additional reserves related to potentially uncollectible accounts, the write-
down of inventory due to: 1) reserves recorded from the loss of a contract
and on-going product changes and 2) inventory which cannot be accounted for
due to changes in the Company's accounting system, personnel changes and
a change in the Company's outside contract manufacturer. Further, the
Company recorded additional liabilities related to accounts payable cut-
off problems existing at March 31, 1997, the amount due under the
Company's line of credit agreement with a bank and accruals related to
employee compensation.
As a result of the accounting irregularities and errors, the Board of
Directors has taken corrective actions to address the financial and
accounting problems at the Company. These corrective actions include
the hiring of new accounting personnel and a review of the internal
control structure. In addition, the Company is currently engaged in
conducting a thorough review of the strategic direction of its
business and operations.
SALES. Net revenues for the quarter ended March 31, 1997, totaled
$798,000, a decrease of 25% from the total of $1,057,000 for the same quarter
of 1996. The decrease was the result of significantly lower sales of the
NX-1, the former leading CSU/DSU product, which was replaced in February by
the Astrocom SP-100. In the first quarter, revenues from sales of the new
product were not sufficient to offset the reduction of revenues from declining
sales of the old product.
GROSS PROFIT. Gross profit before the inventory write-off decreased
80% in first quarter to $80,000 from $403,000 in the first quarter of 1996.
Gross margin on the same basis decreased to 10% of net sales in 1997 from
38% in the same period last year. The decrease can be attributed to
a combination of a change in product mix (greater unit sales of
the lower margin T-Series and SP-100 and a lower volume of NX-1 sales) and
higher initial costs in the production of the new product line.
In the first quarter of 1997, the Company wrote-off $329,000 of
inventory, due to: 1) reserves recorded for 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 changes.
EXPENSES. Selling and administrative expenses increased 87% to
$593,000 from $317,000 in the same period last year. Sales and marketing
expenses increased because of marketing activities related to the new
corporate image and product positioning, as well as additions to the sales
staff. Administrative expenses increased because of additions to the
operations and financial management staff, as well as consulting expenses
related to the implementation of a new integrated management system.
Research and development expenses increased 179% from $87,000 in the
first quarter of 1996 to $243,000 in the first quarter of 1997 due
primarily to increased staff. A team of experienced networking engineers
was added to the staff in the fourth quarter of 1996 in order to accelerate
the new product development process. R&D expenses were also increased
in the first quarter of 1997 by higher spending on product testing,
prototype parts and outside services in connection with the new
product introduction.
INTEREST EXPENSE. Interest expense declined because of reduced levels
of borrowing after the equity financing completed in the fourth quarter of
1996.
NET LOSS. The company reported a net loss from operations of $1,097,000
for the quarter ended March 31, 1997, as compared to a net loss of $31,000
in the first quarter of 1996. The greater loss is attributable to a
combination of lower revenue, lower gross margin and higher selling,
administrative and R&D expenses, as well as the write-off of inventory.
LIQUIDITY AND CAPITAL RESOURCES. During the first quarter of 1997, the
Company's operations were funded by a combination of cash on hand and increases
in bank borrowings and accounts payables. Accordingly, net working capital
declined to $326,000 from $1,390,000 at 12/31/96. In addition, common stock
and paid-in capital increased by a total of $13,000 because of the exercise of
options and conversion of warrants.
Management believes it will maintain short-term liquidity in 1997 by
procuring additional financing, continued management of accounts payable,
and enhanced receivables collection. In the longer term, liquidity is
dependent upon returning to profitable operations that generate adequate
cash flow to meet current obligations on a timely basis. There can be
no assurance that the Company will be able to obtain additional
financing on satisfactory terms, or at all. To that end, substantial
reductions in expenses have been made, as well as changes in pricing
and distributor agreements in order to improve the gross margins.
<PAGE>
<PAGE>
PART II OTHER INFORMATION
ITEM 5
1. Douglas M. Pihl was elected to the Board of Directors on
January 31, 1997,
2. M. Claire Canavan was elected Vice President and Chief Financial
Officer on March 22, 1997.
3. Patricia M. Fischer was elected Vice President of Operations on
April 24, 1997.
4. Brien W. Johnson resigned as Vice President of Finance effective
April 25, 1997.
<PAGE>
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
