SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
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
Securities registered pursuant to Section 12(g) of the Act:
Shares of Common Stock, par value $.10 per share
(Title of Class)
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, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not 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 its most recent fiscal year were $3,302,751.
As of March 14, 1997, the aggregate market value of the voting stock held by
non-affiliates was $17,242,000, computed by reference to the average of the bid
and asked prices on such date, as reported in the over-the-counter market.
As of March 27, 1997, there were outstanding 9,617,868 shares of the
registrant's common stock, par value $.10 per share, its only class of stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended
December 31, 1996, are incorporated by reference into Part II.
Portions of the proxy statement for the annual meeting of shareholders to
be held on May 22, 1997, are incorporated by reference into Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT.
Astrocom Corporation ("Astrocom") was incorporated in the State of
Minnesota on September 28, 1968. Astrocom has been engaged in the design,
development, manufacture, assembly and sale of electronic products used for
data communications since it commenced operations in 1968.
4300 Peavey Road Corporation, a wholly-owned, inactive subsidiary of
Astrocom, was formerly engaged in the manufacture and sale of printed circuit
boards.
As used in this Form 10-KSB report, the term "registrant" shall refer
to Astrocom Corporation and its wholly-owned subsidiary as a single entity,
unless the context indicates otherwise.
(b) BUSINESS OF REGISTRANT.
ELECTRONIC PRODUCTS. Registrant develops, manufactures, markets and
services electronic devices which address key areas of wide area data, voice and
video communication networks. Registrant's current products can be generally
placed in the following product categories: T1 and Fractional T1 CSU/DSU's and
Multiplexers, 56/64K Kbps DDS CSU/DSU's and Statistical Multiplexers. These
products contain all the features and functionality of industry standard
counterparts combined with application specific added value features which
address the requirements of the Internet, Video Conferencing and Corporate
Internetworking markets. Advanced features of registrant's products help
organizations make better use of their bandwidth and reduce capital costs.
Registrant's products are backed by 2-year, 5-year and lifetime warranties
which include its signature Customer Service program which provides 7 days a
week, 24 hours a day toll-free technical support and free overnight replacement
of failed units.
Registrant's customers include telephone companies, Internet Service
Providers (ISPs), corporate and institutional end-users, integrators,
distributors and original equipment manufacturers (OEMs). Two purchasers of
registrant's products each accounted for more than 10% of registrant's total
net revenues during 1996.
The sales activities for registrant's electronic products are carried on
by three regional sales managers and five manufacturers representative firms
channel sales flow through a network of approximately six domestic and five
international top-tier distributors who buy the products for resale to dealers
and integrators. These distributors employ sales people who contact dealers
and integrators in principal areas of the United States and foreign markets. In
addition to channel sales, registrant's sales force pursues direct business
with sizable service providers, OEMs and end-user accounts. Registrant
provides marketing support through participation in selected industry trade
shows, through a comprehensive corporate web site, through direct mail
campaigns and through cooperative marketing activities with distributors.
Registrant has international distributors in Europe, Canada and the Far East.
PRINTED CIRCUIT BOARDS. Registrant's wholly-owned subsidiary, Circuit
Board One, Inc. (since renamed 4300 Peavey Road Corporation), manufactured
printed circuit boards for registrant's use and for sale to outside customers
until the sale of its business and substantially all of its assets on May 29,
1990. Since that time, the subsidiary has been inactive.
MANUFACTURING. In 1996, registrant subcontracted over 95% of its
manufacturing operations to outside organizations specializing in
manufacturing. Registrant believes that there are several outside
organizations who could provide the specialized manufacturing services required
by registrant.
SOURCE AND AVAILABILITY OF MATERIALS. The outside organizations with
which registrant subcontracts to do its manufacturing purchase the necessary
components and raw materials. Registrant purchases a limited amount of
components and raw materials from an assortment of suppliers, manufacturers
and distributors throughout the United States. Registrant believes that there
are several sources of supply for the required components and raw materials.
PATENTS. Registrant has no patents, exclusive licenses, franchises or
concessions which are of material importance to its business. Registrant has
registered the trademark "WanMaster" with the United States Patent and
Trademark Office and is in the process of registering additional trademarks.
BACKLOGS AND TURN-OVER. The backlog of unfilled orders for electronic
products as of March 14, 1997, was approximately $160,000, as compared to
approximately $200,000 on March 15, 1996. In addition to the respective
backlogs of unfilled orders on March 14, 1997, and March 15, 1996, registrant
also anticipated receiving lease revenues of $4,000 under existing leases
during each of the ensuing 12-month periods. Registrant normally fills its
orders for electronic products within ten days after receipt. Accordingly, the
backlog and anticipated lease revenue figures are not indicative of future
sales. There is no significant seasonal aspect to the backlog for electronic
products.
GOVERNMENT SALES. Registrant has for several years sold and leased
electronic products to various United States government agencies. Revenues
received from such sales and leases totaled approximately $13,000 in 1996 and
$12,455 in 1995.
COMPETITION. The business of registrant is highly competitive. Price
competition and service are the most significant features of the market in
which registrant competes. Registrant competes on a nationwide basis with many
other firms. Almost all of its competitors are larger and financially stronger
than registrant, including IBM. Management believes that registrant accounts
for only a very small portion of the respective national and local markets.
RESEARCH AND DEVELOPMENT. Registrant spent $442,000 in 1995 and $490,000
in 1996 for research and development.
Registrant deducts internal research and development costs as items of
expense as they occur.
Registrant recognizes that the sale of electronic products will require
continuous development of new products and refinement of established products.
GOVERNMENT REGULATION. Some of registrant's electronic products are used
in conjunction with the telephone network. Existing Federal Communications
Commission (FCC) regulations and local tariffs allow such products to be
interconnected with the telephone network. Certain of the products marketed by
registrant have been registered with the FCC and management believes they meet
all applicable FCC standards. Restrictive changes in interstate regulation (FCC
jurisdiction) or intrastate tariffs (state regulatory agency jurisdiction)
could limit the uses and hence the marketability of some of registrant's
products.
ENVIRONMENTAL ISSUES. Management believes that compliance with federal,
state and local provisions which have been enacted or adopted regulating the
discharge of materials in the environment or otherwise relating to the
protection of the environment should have no material effect upon the capital
expenditures, earnings and competitive position of registrant's operations.
EMPLOYEES. As of March 14, 1997, registrant had a total of 29 employees,
which includes five officers, 15 technical and marketing employees, three
clerical employees and six production employees. Registrant's inactive
wholly-owned subsidiary has no employees.
No employees are currently represented by labor organizations and there
are no collective bargaining agreements. Registrant provides paid holidays and
vacations. In addition, registrant provides and partially funds group medical,
dental and life insurance.
FOREIGN OPERATIONS. Approximately 9% and 10% of registrant's revenues
from continuing operations were derived from customers in foreign countries in
1996 and 1995, respectively.
SALE OF SUBSIDIARY AND LEASE SETTLEMENT COSTS. On May 29, 1990,
registrant's wholly-owned subsidiary sold its business and substantially all of
its assets to Visi-Tour Vision, Inc. (subsequently renamed Circuit Board One,
Inc.). As a result of that transaction, all of the subsidiary's right, title
and interest in a real estate lease and various equipment leases were assigned
to Circuit Board One, Inc., but registrant remained contingently liable to the
respective lessors in the event of default by Circuit Board One, Inc. On
June 24, 1991, Circuit Board One, Inc. filed for protection under Chapter 11 of
the Bankruptcy Code. On July 28, l992, a plan of reorganization proposed by
Circuit Board One, Inc. was approved by the Bankruptcy Court. Circuit Board
One, Inc. ceased operations on October 8, l992.
The real estate lease assigned to Circuit Board One, Inc. covered a 29,867
square foot office, manufacturing and warehouse facility at 4300 Peavey Road,
Chaska, Minnesota. Registrant's guaranty of the lease remained in effect after
the assignment to Circuit Board One, Inc. After Circuit Board One, Inc. ceased
operations on October 8, 1992, the landlord asserted a claim against
registrant. This matter was settled during 1993, and the landlord and the
registrant agreed upon a settlement payment schedule. Registrant continues to
make payments pursuant to such payment schedule. See Notes to Financial
Statements.
TRANSACTIONS WITH HANROW FINANCIAL GROUP, LTD.
A. Hanrow Financial Group, Ltd./Hanrow Capital Fund Five. On March 15,
1991, registrant and Hanrow Financial Group, Ltd. ("Investor") entered into a
Purchase Agreement ("Agreement") pursuant to which Investor agreed to purchase
654,545 shares of common stock of registrant at $.55 per share, a $360,000
five year Subordinated Note bearing interest at 16% per annum and secured by a
second security position in all assets of registrant, and a Warrant enabling
Investor to purchase 180,000 shares of the common stock of registrant at $1.00
per share.
On March 15, 1991, registrant delivered to Hanrow Capital Fund Five, a
Minnesota limited partnership, the assignee of Investor, a certificate for
654,545 shares of common stock in exchange for payment of $360,000. On
April 5, 1991, registrant delivered the Subordinated Note and Warrant in
exchange for payment of an additional $360,000.
On April 5, 1992, the Subordinated Note was reduced by $60,000 in exchange
for 200,000 shares of common stock. Registrant also issued a Warrant enabling
Hanrow Capital Fund Five to purchase 50,000 shares of the common stock of
registrant at $.35 per share for a period of five years and the interest rate
on the remaining $300,000 subordinated debt balance was reduced to 13%.
On June 3, 1993, registrant borrowed $33,000 from Hanrow Capital Fund
Five. On June 30, 1993, Hanrow Capital Fund Five received 110,000 shares of
the common stock of registrant at $.30 per share in exchange for conversion of
the $33,000 loan. At that time, Hanrow Capital Fund Five also received an
additional 365,833 shares of the common stock of registrant at $.30 per share
in exchange for a $100,000 reduction in the Subordinated Note and conversion
of the interest payment in the amount of $9,750 to be owing to it by
registrant as of July 1, 1993.
On June 16, 1993, registrant issued a Warrant enabling Investor to
purchase 50,000 shares of the common stock of registrant at $.30 per share for
a period of five years. Registrant delivered the Warrant in consideration of
financial and management advisory services provided to registrant by Investor.
On June 30, 1994, Hanrow Capital Fund Five received 13,000 shares of the
common stock of registrant at $.50 per share in payment of the interest in the
amount of $6,500 to be owing to it by registrant as of July 1, 1994.
On April 5, 1996, Hanrow Fund Five converted the remaining $200,000
principal amount of the Subordinated Note into 200,000 shares of Convertible
Preferred Stock, $1.00 par value. The Preferred Stock is convertible into
shares of the common stock of registrant at $.46 per common share. The
Preferred Stock is callable by registrant at $2.00 per share on April 5, 2000.
B. Hanrow Capital Fund X. In August and September 1994, registrant
borrowed an additional $65,785 from Hanrow Capital Fund X. On December 22,
1994, registrant issued a Convertible Debenture covering the loaned amount. On
December 22, 1994, registrant also issued a Warrant enabling Hanrow Capital Fund
X to purchase 131,570 shares of the common stock of registrant at $.50 per share
from December 22, 1994 through December 31, 1999.
On March 15, 1995, registrant borrowed an additional $35,000 from Hanrow
Capital Fund X. A Convertible Debenture covering the additional loaned
amount, and containing the same terms and conditions as the December 22, 1994
Convertible Debenture, was issued by registrant. Registrant also issued a
Warrant enabling Hanrow Capital Fund X to purchase 70,000 shares of the common
stock of registrant at $.50 per share from March 15, 1995 through December 31,
1999.
On June 30, 1996, Hanrow Capital Fund X exchanged its two Convertible
Debentures for a new Note bearing interest at 10%. This Note was paid in full
by registrant in September 1996.
C. Covenants. The March 15, 1991 Agreement and related Security Agreement
contained various covenants relating to registrant's operations and financial
condition. From time to time in 1992, 1993, 1994 and 1995, registrant was in
violation of several of these covenants. By letter dated March 27, 1992,
Investor waived registrant's breach of covenants for the period ending December
31, 1991 and agreed to modify various covenants for 1992. Investor delivered a
First Amendment to Purchase Agreement, Subordinated Promissory Note and
Security Agreement, dated March 26, 1992, setting forth the modifications to
the covenants. Investor waived registrant's breach of certain covenants for
the periods ending December 31, 1992, December 31, 1993, December 31, 1994
and December 31, 1995. No waiver letter was requested for the period ending
December 31, 1996.
D. Hanrow Business Finance Corp. In consideration of a $50,000 loan made
to registrant on May 10, 1996, and an additional $25,000 loan made to registrant
on June 5, 1996, Hanrow Business Finance received warrants to purchase an
aggregate 75,000 shares of the common stock of registrant at $1.50 per share.
The warrants were issued on August 1, 1996, and September 1, 1996, the
respective dates on which the loans were repaid.
PRIVATE PLACEMENT. During the period from July 31, 1996 through October
25, 1996, registrant sold 3,501,000 Units (consisting of one share of
registrant's common stock and a redeemable warrant to purchase one share of
registrant's common stock) in a private placement to accredited investors, at a
price of $1.00 per Unit.
ITEM 2. DESCRIPTION OF PROPERTY.
ST. PAUL PROPERTIES. On June 1, 1992, registrant sold and assigned to
The Crepeau Company ("Crepeau") all rights, duties and liabilities registrant
had under a lease from the Port Authority which covered approximately 33,600
square feet of office and manufacturing space and 165,258 square feet of land
at 120 West Plato Boulevard, St. Paul, Minnesota, in the St. Paul Port
Authority's Riverview Industrial Area West. The lease from the Port Authority
runs through August 31, 2007. Registrant remains contingently liable to the
Port Authority in the event that Crepeau defaults under the terms of the
lease.
Registrant leases from the St. Paul Port Authority 81,568 square feet of
undeveloped land. The lease runs through August 31, 2007 and provides for
rental payments of $626 per month. On August 16, 1993, registrant subleased
said undeveloped land to Rutzick-Sheehy Office Center, a Minnesota general
partnership. The sublease runs through August 31, 2007, and provides for
payments of $626 per month during the entire term of the sublease. The
sublease further provides for payments of an additional $870 per month for a
12 month period which ended July 16, 1994. Subtenant also agreed to pay all
taxes, special assessments and other charges and expenses required to be paid
by registrant pursuant to its lease with the Port Authority.
On March 5, l993, registrant entered into a Lease Agreement with Summer
Business Center Partnership ("Summer") pursuant to which registrant leases
approximately 17,524 square feet of square feet of office and manufacturing
space at 2700 Summer Street NE, Minneapolis, Minnesota. The lease runs from
April 9, l993, through March 31, l999, and provides for escalating monthly
rental payments over the term of the lease, with registrant to pay all taxes
and insurance and utility, maintenance and other costs.
On February 21, 1995, registrant and Summer entered into an Amendment to
Lease providing that effective March 1, 1995, the leased premises would be
reduced by 2,262 square feet and redefined to be 15,262 square feet of office
and manufacturing space. The Amendment provides for rental payments of
$6,995.08 per month for the months of April 1996 through March 1999.
ITEM 3. LEGAL PROCEEDINGS.
On July 27, 1983, the Board of the Minnesota Pollution Control Agency
found registrant and 13 other corporations to be responsible persons under the
Minnesota Superfund Act and thereby secondarily liable for the cleanup of
hazardous wastes given to Ecolotech and Brian Carriere. Ecolotech collected
such waste materials from registrant during the period 1973 to 1978. On
January 25, 1984, registrant and the 13 other corporations entered into an
agreement to share the costs of cleanup and litigation in proportion to the
respective volumes of waste materials given by each to Ecolotech. As of
March 14, 1997, registrant had paid approximately $171,000 pursuant to the
agreement, none of which was paid during 1996. The cleanup was completed on
February 1, 1986. During February, 1987, a judgment was obtained in favor of
registrant and the 13 other corporations against Carriere Properties and
others. No estimate can be given as to the collectibility of said judgment.
Registrant believes that any costs or liabilities that it may incur in
connection with any latent problems will not have a material effect on the
financial condition of registrant.
In June 1988, registrant was informed by Mibco, the owner and lessor of
the Minnetonka facility where registrant's wholly-owned subsidiary was located
until March 6, 1989, that there were soil and groundwater contamination
problems at the facility. There currently appear to be seven companies
(including Mibco) which are potentially responsible parties. Registrant's
alleged involvement occurred during the period March 1972 through September
1973. The matter has been reported to the Minnesota Pollution Control Agency
(MPCA) which has made a preliminary assessment, conducted a followup site
investigation and included of the site on Minnesota's permanent list of
priorities. Registrant will participate in proceedings initiated by the MPCA.
Registrant believes that any costs or liabilities that it may incur in
connection with the proceedings before the MPCA will not have a material effect
on the financial condition of registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
On December 20, 1996, registrant held a special meeting of its
shareholders. At such meeting, the shareholders amended registrant's Restated
Articles ofIncorporation to increase the number of authorized shares of common
stock from 10,000,000 to 50,000,000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information regarding Market and Dividend Data included in
registrant's annual report to shareholders for the year ended December 31,
1996, is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in registrant's annual report to shareholders for the
year ended December 31, 1996, are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements included in registrant's annual report to
shareholders for the year ended December 31, 1996, are incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements with accountants have occurred within the two-year period
ended December 31, 1996, which required reporting on Form 8-K.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by Item 9 is incorporated herein by reference
to the proxy statement to be filed within 120 days after year end.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated herein by reference
to the proxy statement to be filed within 120 days after year end.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 is incorporated herein by reference to
the proxy statement to be filed within 120 days after year end.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated herein by reference
to the proxy statement to be filed within 120 days after year end.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Listing of Exhibits:
3(i) Restated Articles of Incorporation of registrant
[incorporated by reference to Exhibit 19 to Form 10-Q for
the quarter ended June 30, 1984 (File No.0-8482)].
3(ii) Restated Bylaws of registrant [incorporated by reference
to Exhibit 3(ii) to Form 10-K for the year ended
December 31, 1984 (File No. 0-8482)].
3(iii) Amendment to Restated Bylaws of registrant adopted by the
directors on June 25, 1985 [incorporated by reference to
Exhibit 3(iii) to Form 10-K for the year ended December 31,
1986 (File No. 0-8482)].
3(iv) Amendment to Restated Articles of Incorporation of
registrant approved by shareholders at May 20, 1987 meeting
[incorporated by reference to Exhibit 3(iv) to Form 10-K
for the year ended December 31, 1987 (File No. 0-8482)].
3(v) Amendment to Restated Bylaws of registrant adopted by the
directors on February 21, 1988 [incorporated by reference
to Exhibit 3(iv) to Form 10-K for the year ended
December 31, 1988 (File 0-8482)].
3(vi) Amendment to Restated Bylaws of registrant adopted by the
directors on July 31, 1989 [incorporated by reference to
Exhibit 3(vi) to Form 10-K for the year ended December 31,
1989 (File 0-8482)].
3(vii) Amendment to Restated Articles of Incorporation of
registrant approved by shareholders at December 20, 1996
meeting.
10(i) 1988 Stock Option Plan of registrant as approved by
shareholders at May 25, 1988 meeting [incorporated by
reference to Exhibit 10(iv) to Form 10-K for the year ended
December 31, 1988 (File No. 0-8482)].
10(ii) Amendment to 1988 Stock Option Plan of registrant adopted
by the directors on October 17, 1988 [incorporated by
reference to Exhibit 10(v) to Form 10-K for the year ended
December 31, 1989 (File No. 0-8482)].
10(iii) Amendment to 1988 Stock Option Plan of registrant adopted
by the directors on January 25, 1996 and approved by the
shareholders on May 23, 1996 [incorporated by reference
to Exhibit 10(iii) to Form 10-KSB Report for the year ended
December 31, 1996 (File No. O-8482)].
10(iv) Lease Agreement between registrant and Port Authority of
the City of St. Paul, dated September 1, 1977
[incorporated by reference to Exhibit 1 to Form 8-K Report
for September 27, 1977 (File No. 0-8482)].
10(v) Asset Sale Agreement between registrant's subsidiary,
Circuit Board One, Inc. and Visi-Tour Vision, Inc., dated
March 16, 1990 [incorporated by reference to Exhibit
10(viii) to Form 10-K Report for the year ended
December 31, 1989 (File No. 0-8482)].
10(vi) Agreement for Assignment and Assumption of Lease between
registrant and the Crepeau Company, dated January 16, 1992
[incorporated by reference to Exhibit 10(xi) to Form 10-K
Report for the year ended December 31, 1991 (File 0-8482)].
10(vii) Purchase Agreement between registrant and Hanrow Financial
Group, Ltd., dated March 15, 1991 [incorporated by
reference to Exhibit 10(x) to Form 10-K Report for the
year ended December 31, 1990 (File 0-8482)].
10(viii) Subordinated Promissory Note, Security Agreement and
Warrant, dated April 5, 1991, delivered to Hanrow Financial
Group, Ltd. [incorporated by reference to Exhibit 10(xiii)
to Form 10-K Report for the year ended December 31, 1991
(File 0-8482)].
10(ix) First Amendment to Purchase Agreement, Subordinated
Promissory Note and Security Agreement [incorporated by
reference to Exhibit 10(xv) to Form 10-K Report for the
year ended December 31, 1991 (File 0-8482)].
10(x) Lease Agreement between registrant and Summer Business
Center Partnership, dated March 5, 1993 [incorporated by
reference to Exhibit 10(xvi) to Form 10-KSB Report for the
year ended December 31, 1992 (File O-8482)].
10(xi) Factoring Agreement between registrant and Hanrow Business
Finance Corp., dated January 7, l993 [incorporated by
reference to Exhibit 10(xvii) to Form 10-KSB Report for the
year ended December 31, 1992 (File O-8482)].
10(xii) Sublease Agreement between registrant and Rutzick-Sheehy
Office Center, dated August 16, 1993 [incorporated by
reference to Exhibit 10(xiv) to Form 10-KSB Report for the
year ended December 31, 1993 (File O-8482)].
10(xiii) Warrant, dated June 16, 1993, delivered to Hanrow Financial
Group, Ltd. [incorporated by reference to Exhibit 10(xvi)
to Form 10-KSB Report for the year ended December 31, 1993
(File O-8482)].
10(xiv) Convertible Debenture and Warrant, dated December 22, 1994,
delivered to Hanrow Capital Fund X [incorporated by
reference to Exhibit 10(xix) to Form 10-KSB Report for the
year ended December 31, 1994 (File O-8482)].
10(xv) Warrant, dated June 30, 1995, delivered to H. Leigh
Severance [incorporated by reference to Exhibit 10(xv) to
Form 10-KSB Report for the year ended December 31, 1995
(File O-8482)].
10(xvi) Amendment to Lease between registrant and Summer Business
Center Partnership, dated February 21, 1995 [incorporated
by reference to Exhibit 10(xxi) to Form 10-KSB Report for
the year ended December 31, 1994 (File O-8482)].
10(xvii) Non-Employee Directors' Equity Compensation Plan approved
by shareholders at May 25, 1996 meeting [incorporated by
reference to Exhibit 10(xix) to Form 10-KSB Report for the
year ended December 31, 1995 (File No. O-8482)].
13 Registrant's 1996 Annual Report to Shareholders.
22 List of registrant's subsidiaries.
23 Consent of Independent Auditors.
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
No reports on Form 8-K were filed in the fourth quarter of 1996.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASTROCOM CORPORATION
By: s/ S. Albert D. Hanser
S. Albert D. Hanser, President
and Chief Executive Officer
Dated: March 31, 1997.
By: s/ Claire Canavan
Claire Canavan, Principal
Financial Officer and Principal
Accounting Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons, constituting a majority of the Board of Directors, on
behalf of the registrant and in the capacities and on the dates indicated.
Date
s/ S. Albert D. Hanser March 31, 1997
S. Albert D. Hanser, Director
s/ Dennis E. Evans March 31, 1997
Dennis E. Evans, Director
s/ Raymond F. Good March 31, 1997
Raymond F. Good, Director
s/ Roger V. Stageberg March 31, 1997
Roger V. Stageberg, Director
s/ Douglas M. Pihl March 31, 1997
Douglas M. Pihl, Director
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Exhibit 3(vii) Amendment to Restated Articles of Incorporation approved by
shareholders at December 20, 1996 meeting
Exhibit 13 Registrant's 1996 Annual Report to Shareholders
Exhibit 22 List of registrant's subsidiaries
Exhibit 23 Consent of Independent Public Accountants
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Exhibit 3(vii)
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
Article V of the Articles of Incorporation of Astrocom Corporation was
amended to read as follows:
ARTICLE V
The authorized number of shares of the corporation shall be Fifty-five
Million (55,000,000), classified and designated as follows:
A. Common Shares: Fifty Million (50,000,000) shares are classified and
designated as common stock with a par value of Ten Cents (.10) per share.
B.Preferred Shares: Five Million (5,000,000) shares are classified and
designated as preferred stock.
Without limiting the power of the directors to fix the relative rights and
preferences of any class or series of authorized shares of the corporation, as
authorized by the Minnesota Business Corporation Act, the Board of Directors
is authorized and empowered to fix or alter, as to any shares of the
corporation authorized but unissued at the time, any or all of the following
matters, to wit: (1) the dividend rate; (2)the redemption price;
(3) the liquidation price; (4) the conversion rights; (5) the voting rights;
(6) the sinking or purchase fund rights; or (7) the number of shares in any
series or any class, all in the manner and in accordance with the statutes,
as the same may be from time to time, for such cases made and provided.
The Board of Directors is authorized to establish into more than one class
or series the shares comprising any class of stock designated in this Article
V.
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Exhibit 13
REGISTRANT'S 1996
ANNUAL REPORT TO SHAREHOLDERS
ASTROCOM CORPORATION
1996 ANNUAL REPORT
2700 Summer Street N.E.
Minneapolis, Minnesota 55413-2820
(612) 378-7800
<PAGE>
<PAGE>
TO OUR SHAREHOLDERS:
[To be provided at a later date.]
<PAGE>
<PAGE>
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 acess, video conferencing and
corporate internetworking. Astrocom multiplexers reduce telecomunications
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 3.9% to $3,303,000 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 slightly to $1,138,000 in 1996
from $1,141,000 in 1995. The gross margin declined from 35.9% in 1995
to 34.5% in 1996, because of a combination of competitive pricing pressure
and product cost issues. The Company expects to increase the gross margin
in 1997 by reducing its manufacturing costs.
RESEARCH AND DEVELOPMENT EXPENSES increased by 0.6% from $442,000 in 1995 to
$444,000 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 develpment in 1997, and expects that research and development
expenses will increase accordingly.
SELLING AND ADMINISTRATIVE EXPENSES increased by 2.4% from $479,000 in 1995
to $490,000 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 efect 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. The Company expects that borrowing
levels will remain constant or decline in 1997.
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 $270,000 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 allows the Company to borrow up to $600,000. The
Company expects to renew the line relationship when it expires on April 30,
1997.
Based upon anticipated working capital needs, the Company believes that
availability under the line of credit, cash reserves and cash flow from
operations will be sufficient to finance its needs throughout 1997.
<PAGE>
<PAGE>
FINANCIAL STATEMENTS
ASTROCOM CORPORATION
DECEMBER 31, 1996 AND 1995
<PAGE>
<PAGE>
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
<PAGE>
<PAGE>
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.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 6, 1997
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Astrocom Corporation
Balance Sheet
December 31, 1996
<S> <C>
Assets
Current assets:
Cash $ 979,000
Accounts receivable, less allowance of $15,000 594,000
Inventories 913,000
Prepaid expenses 32,000
Total current assets 2,518,000
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 $3,024,000
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Liabilities and shareholders' equity
<S> <C>
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 (5,534,000)
Total shareholders' equity 2,051,000
Total liabilities and shareholders' equity $3,024,000
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Astrocom Corporation
Statements of Operations
Year ended December 31
1996 1995
<S> <C> <C>
Net sales $ 3,287,000 $ 3,178,000
Cost of products sold 2,237,000 2,037,000
Write-off of inventory 398,000
Gross profit 1,050,000 743,000
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 (969,000) (973,000)
Other income (expense):
Interest income 11,000
Interest expense (97,000) (112,000)
Net loss (1,055,000) (1,085,000)
Less preferred stock dividends 9,000
Loss applicable to common stock $(1,064,000) $(1,085,000)
Net loss per common share $ (.16) $ (.21)
Weighted average number of common
shares outstanding 6,605,169 5,053,995
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Astrocom Corporation
Statements of Shareholders' Equity (Deficit)
Additional
Prefered Common Stock Paid-In Accumulated
Stock Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
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 (1,085,000) (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 (1,055,000) (1,055,000)
Balance, December 31, 1996 $ 200,000 9,597,163 $959,000 $6,426,000 $(5,534,000) $(2,051,000)
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Astrocom Corporation
Statements of Cash Flows
Year ended
December 31
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,055,000) $(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 (626,000) 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.
</TABLE>
<PAGE>
<PAGE>
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 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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Purchased parts, materials and supplies $ 557,000 $ 92,000
Work in process 23,000
Finished products 368,000 210,000
Less obsolescence reserve (35,000) (15,000)
$ 913,000 $ 287,000
</TABLE>
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 rate
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 84,000
1998 84,000
1999 21,000
$189,000
</TABLE>
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:
<TABLE>
<CAPTION>
Weighted
Shares Average
Reserved Options Exercise
For Outstand - Price Per
Grant ing Share
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Pro forma loss applicable to common shares $(1,127,000) $(1,108,000)
Pro forma loss per common share $(.17) $(.22)
</TABLE>
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:
<TABLE>
<CAPTION>
Warrant
Shares Price Per
Share
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net operating loss carryforwards $3,565,000 $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 (3,833,000) (3,216,000)
Net deferred tax assets $ 0 $ 0
</TABLE>
7. Income Taxes (continued)
The Company has net operating loss carryforwards and tax
credit carryforwards at December 31, 1996 of approximately
$8,914,000 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.
<PAGE>
<PAGE>
CORPORATE DATA
OFFICERS:
S. Albert D. Hanser
Chairman and Chief Executive Officer
Thomas J. Carter
President and Chief Operating Officer
Cheryl Olseth
Vice President - Marketing & Sales
Claire Canavan
Vice President and Chief Financial Officer
Brien W. Johnson
Vice President - Finance, Secretary and Treasurer
DIRECTORS:
S. Albert D. Hanser
Raymond F. Good
Executive Consultant
Roger V. Stageberg
Attorney at Law, Lommen, Nelson, Cole & Stageberg, P.A.
Dennis E. Evans
President and Chief Executive Officer, Hanrow Financial Group, Ltd.
Douglas M. Pihl
Special Technical Adviser to Ascend Communications, Inc.
SHAREHOLDER INFORMATION
AUDITORS
Ernst & Young LLP
1400 Pillsbury Center
Minneapolis, MN 55402
LEGAL COUNSEL
Lommen, Nelson, Cole & Stageberg, P.A.
1800 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
REGISTRAR/TRANSFER AGENT
Norwest Stock Transfer
161 N. Concord Exchange
South St. Paul, MN 55075
FACILITY
Corporate Office
2700 Summer Street NE
Minneapolis, MN 55413
ANNUAL MEETING
The annual meeting of Astrocom shareholders will be held at 3:00 p.m. May 22,
1997 at Astrocom Headquarters, 2700 Summer Street N.E., Minneapolis,
Minnesota. Shareholders and other interested parties are encouraged to attend.
FORM 10-KSB
A copy of the annual report filed with the Securities and Exchange Commission
of Form 10-KSB is available to shareholders, without charge, upon written
request to Brien W. Johnson, Astrocom Corporation, 2700 Summer Street N.E.,
Minneapolis, Minnesota 55413.
MARKET AND DIVIDEND DATA:
The Common Stock of Astrocom Corporation was traded during 1996 on the
over-the-counter Bulletin Board under the symbol ATCC. The high and low
selling prices for the Common Stock were as follows:
<TABLE>
<CAPTION>
1995 1996
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 1/2 5/16 1 1/8 1/4
Second Quarter 7/8 1/4 1 3/8 3/4
Third Quarter 43/64 1/4 1 3/4 7/8
Fourth Quarter 7/16 1/8 2 1 3/8
</TABLE>
The Company has never paid a cash dividend and is restricted from paying
dividends pursuant to a subordinated debt agreement dated April 5, 1991. The
Company intends to retain any earnings to finance the development of its
business and, accordingly, does not anticipate payment of a cash dividend in
the foreseeable future.
On March 14, 1997 the Company had approximately 770 shareholders of record.
<PAGE>
<PAGE>
Exhibit 22
LIST OF SUBSIDIARIES
State or Percentage
Territory of Ownership of
Name Incorporation Address Registrant
4300 Peavey Road Minnesota 2700 Summer Street 100%
Corporation Minneapolis, MN 55413
<PAGE>
<PAGE>
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, with respect to the financial statements
incorporated by reference in this Annual Report on Form 10-KSB of
Astrocom Corporation for the year ended DecemberE31, 1996.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 31, 1997
