U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the quarterly period ended September 30, 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: 10,099,601
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter Ended Sep 30, Nine Months Ended Sep 30
1997 1996 1997 1996 <C> <C>
Net Sales $1,038,000 $ 802,000 $2,508,000 $2,454,000
Cost of Products Sold 783,000 519,000 2,134,000 1,570,000
Inventory Writeoff 0 329,000
Gross Profit 255,000 283,000 45,000 884,000
Operating Expenses:
Sales & Administration 333,000 351,000 1,396,000 970,000
Research & Development 114,000 79,000 572,000 259,000
Total Operating Expenses 447,000 430,000 1,968,000 1,229,000
Operating Loss (192,000) (147,000) (1,923,000) (345,000)
Non-Operating (Income) & Expenses
Interest Expense 30,000 29,000 43,000 95,000
Other (48,000) 0 (19,000) 0
Total Non-Operating
Income & Expenses (18,000) 29,000 24,000 95,000
Net Loss Before Taxes (174,000) (176,000) (1,947,000) (440,000)
Taxes 0 0 1,000 0
Net Loss $ (174,000) $(176,000) $(1,948,000) (440,000)
Preferred Stock Dividend 3,000 3,000 9,000 6,000
Net Loss Applicable to
Common Shareholder (177,000) (179,000) (1,957,000) (446,000)
Net Loss per
Common share $ ( .02) $( .02) $ ( .20) $ ( .07)
Shares used in
computation 10,093,862 7,058,798 9,991,776 6,380,796
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ASTROCOM CORPORATION
BALANCE SHEETS
(UNAUDITED)
Sep 30 Dec 31,
1997 1996
ASSETS
CURRENT ASSETS
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Cash $ 181,000 $ 979,000
Accounts receivable, less allowance 606,000 594,000
Inventories 441,000 695,000
Prepaid expenses 22,000 32,000
TOTAL CURRENT ASSETS 1,250,000 2,300,000
Property & Equipment
Property & Equipment 2,116,000 2,078,000
Accumulated Depreciation (1,704,000) (1,638,000)
Net Property & Equipment 412,000 440,000
OTHER ASSETS 0 66,000
TOTAL ASSETS $ 1,662,000 $2,806,000
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June 30 December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Notes Payable-Bank $ 128,000 $ 444,000
Convertible Note Payable (Net of Discount) 361,000 0
Accounts Payable 792,000 367,000
Accrued Expenses 104,000 69,000
Dividends Payable 5,000 0
Current Maturities of Lease Settlement Costs 13,000 30,000
TOTAL CURRENT LIABILITIES 1,403,000 910,000
Long-Term Debt
Lease-Settlement Costs 65,000 62,000
Other Long-Term Debt 0 1,000
TOTAL LONG-TERM DEBT 65,000 63,000
Stockholders' Equity
Preferred Stock 200,000 200,000
Common Stock 1,009,000 986,000
Additional Paid-In Capital 6,833,000 6,537,000
Retained Earnings (7,848,000) (5,890,000)
Total Stockholders' Equity 194,000 1,833,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,662,000 $2,806,000
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ASTROCOM CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Sep 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $(1,948,000) $ (440,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 68,000 94,000
Amortization of Discount on Convertible Debt 16,000 0
Bad Debt Expense 25,000 0
Reserve for Inventory Obsolescence 47,000 0
Net Gain on Sale of Assets (18,000) 0
Professional Fees Paid in Warrants and Stock 54,000 0
(Incr) Decr in Accounts Receivable (36,000) 174,000
(Incr) Decr in Inventories and Prepaid Expenses 217,000 (399,000)
(Incr) Decr in Other Assets 66,000 (3,000)
(Decr) Incr in Accounts Payable and Accrued
Expenses 459,000 (277,000)
Net Cash Provided (Used) in Operating Activities (1,050,000) (851,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Assets 50,000 0
Purchases of equipment (72,000) (122,000)
Net Cash Provided (Used) in Investing Activities (22,000) (122,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Payments on Revolving Credit Agreement (316,000) (206,000)
Proceeds from Convertible Debt 510,000 0
Payments on Lease Obligations (14,000) (8,000)
Proceeds (Payments) on Other Long Term Debt (1,000) 26,000
Proceeds from Exercise of Warrants and Options 99,000 0
Proceeds from Sale of Stock 0 2,878,000
Dividends Paid (4,000) 0
Cash Provided (Used) by Financing Activities 274,000 2,690,000
Net Increase (Decrease) in Cash (798,000) 1,717,000
Cash at Beginning of Period 979,000 81,000
Cash at End of Period $ 181,000 $ 1,798,000
See notes to financial statements.
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ASTROCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. 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. 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.
2. 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 and nine months
ended September 30, 1997, there is no difference between basic earnings per
share under Statement No. 128 and primary net loss per share as reported.
3. BORROWINGS
In September 1997, the Company secured $510,000 from private investors
through the issuance of convertible notes payable with interest at 12%
due July 31, 1998. The notes are convertible into common stock of the
Company at 80% of the average bid and ask price of the common stock on the
day preceding conversion. The investors also received 5-year warrants to
purchase 1.5 shares of common stock for every dollar loaned at an exercise
price of $.50 per share. The warrants and conversion feature were
valued and recorded as a debt discount to be amortized over the life
of the notes.
The Company's bank line of credit expired on September 30, 1997, and was
repaid in full in October. This source of financing was replaced by a
factoring and security agreement with Principal Resources, LLC on October
3, 1997. The agreement provides a commitment of up to $1,000,000 under which
the Company may assign 80% of eligible accounts receivable at an interest
rate of prime plus 2.5% plus a processing fee of 1.5% of the monthly average
gross face amount of assigned invoices. The agreement extends through April
3, 1998, and is renewable for successive six month periods.
4. RECLASSIFICATIONS
Certain amounts in the financial statements have been reclassified
to conform to the current presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES. Net sales for the quarter ended September 30, 1997, totaled
$1,038,000, an increase of 29% from $802,000 for the same period of 1996.
Sales were led by the Company's newest product, the Astrocom SP-100, with
approximately 45% of gross sales. New products now account for 65% of the
Company's sales. Net sales experienced $117,000 in returns as a result of
changes to pricing and distributor agreements.
GROSS PROFIT. At a margin of 25%, gross profit began to rebound in the
third quarter, rising from 6% in the second quarter. This trend is a direct
result of efforts to raise prices and reduce costs.
OPERATING EXPENSES. Overall, operating expenses increased by $17,000 or
% for the third quarter of 1997 compared with the same quarter of 1996.
Sales and administration expenses decreased by 5% from the same quarter of 1996.
Administration expenses included non-recurring charges of $77,000 for outside
services associated with recruiting new management and reconstructing prior
period financial statements. Research and development expense
was 44% higher than the third quarter of last year primarily due to the write-
down of a $50,000 intangible asset associated with a software license agreement.
OTHER (INCOME) EXPENSE. The Company raised $510,000 of 12% convertible
debt financing during the third quarter. Detachable warrants and a favorable
conversion feature were included in this financing, so the debt was discounted
from the stated rate and will be amortized over the term of the loan.
The Company also sold a software license associated with the intellectual
property known as the Port Extender. This resulted in a one-time gain of
$50,000.
NET LOSS. For the third quarter, the Company reduced its net loss
slightly to ($174,000) from ($176,000) in the same period of 1996. The smaller
loss was due primarily to strong sales of the new T-1 products. This loss would
have been substantially smaller without the non-recurring charges associated
with the Company's reorganization.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES. Net sales for the nine months ended September 30, 1997,
totaled $2,508,000, an increase of 2% from $2,454,000 for the same period
of 1996. Solid third quarter sales performance tied to the strong market
acceptance of the new T-1 products reversed the declining sales reported
earlier in the year.
GROSS PROFIT. Gross profit before the inventory write-off decreased
58% in the first nine months to $374,000 from $884,000 in the same period of
1996 (15% and 36% of net sales, respectively). The decrease can be attributed
to a combination of pricing pressures on the existing product line and higher
initial costs in the production of the new product line. Adjustments to
pricing and product costs made during the last quarter have had a positive
impact on the year to date results.
In the first quarter of 1997, the Company recorded a $329,000 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 changes.
OPERATING EXPENSES. Sales and administration expenses increased
44% to $1,396,000 from $970,000 in the same period last year. Most of
this increase was isolated to the first six months of the year when the
Company was pursuing marketing activities related to development of a
new corporate image and product positioning. Administration expenses
increased because of professional fees to recruit new management and
consulting expenses related to the implementation of a new integrated
management system and reconstruction of prior period financial statements.
Research and development expenses increased 120% to $571,000 from
$259,000 in the same period last year due primarily to increased staff.
A team of experienced networking engineers was added to 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. Most of these expenses
were eliminated with the reduction in personnel at the end of the second
quarter.
OTHER (INCOME) EXPENSE. Interest expense declined because of reduced
levels of borrowing consequent to the equity financing completed in the
fourth quarter of 1996. Other income and expenses were associated
with gains on the sale of intangible assets and losses on the disposal
of equipment.
NET LOSS. The net loss for the first nine months of 1997 ($1,948,000)
was substantially higher than 1996 ($440,000). The greater loss is
attributable to the combination of lower gross margin, higher sales,
administration and R&D expenses, as well as the write-off of inventory. Most
of this loss was isolated to the first six months of the year.
LIQUIDITY AND CAPITAL RESOURCES. During the nine month period ended
September 30, 1997, the Company's operations were funded primarily by cash
on hand and accounts payable. Accordingly, net working capital declined to
a deficit of $334,000 at 9/30/97 from working capital of $1,390,000 at
12/31/96. In addition, cash from financing activities included $510,000
raised through convertible debt and $99,000 from the exercise of options and
conversion of warrants.
The Company's bank line of credit expired on September 30, 1997. This
source of financing was replaced by a factoring and security agreement with
Principal Resources, LLC on October 3, 1997. The commitment size is
$1,000,000 and the Company may assign 80% of eligible accounts receivable
at prime plus 2.5% plus 1.5% of the monthly average gross face amount of
assigned invoices. The agreement extends through April 3, 1998, and is
renewable for successive six months periods.
Management believes it will maintain short-term liquidity through
the remainder of 1997 by factoring its accounts receivable, continuing to
manage its accounts payable, and enhancing its receivable 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. To that end, significant expense reductions have
been enacted, including a reduction in personnel, as well as changes
in pricing and distributor agreements in order to improve gross margins.
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PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
1. The Company's line of credit with Fidelity Bank of Edina expired
on September 30, 1997, and was repaid in October.
2. The Company entered into a Combined Factoring and Security
agreement with Principal Resources, LLC on October 3, 1997. The
commitment size is $1,000,000, and the company may assign 80% of
eligible accounts receivable at prime plus 2.5% plus 1.5% of the
monthly average gross face amount of assigned invoices. The
agreement extends through April 3, 1998, and is renewable for
successive six month periods.
3. The Company elected Ronald B. Thomas as Secretary-Treasurer on
October 13, 1997, and Sarah B. Fjelstul as Assistant Secretary on
October 22, 1997.
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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: November 14, 1997 ASTROCOM CORPORATION
(Registrant)
By:Ronald B. Thomas
Ronald B. Thomas,
Chief Executive Officer
