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 June 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: 9,667,113
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ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
1997 1996
<S> <C> <C>
Net Revenues $ 672,000 $ 595,000
Cost of Products Sold 632,000 394,000
Gross Profit 40,000 201,000
Expenses:
Selling and administrative expense 489,000 310,000
Research and development expense 215,000 91,000
Total Expenses 704,000 401,000
Operating Loss (664,000) (200,000)
Interest Expense (12,000) (35,000)
Loss before income taxes (676,000) (235,000)
Income tax 1,000 0
Net Loss $ (677,000) $(235,000)
Net Loss per share $ ( .07) $( .04)
Shares used in computation 9,801,595 6,046,375
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<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Net Revenues $ 1,470,000 $ 1,653,000
Cost of Products Sold 1,350,000 1,048,000
Inventory Write-Off 329,000
Gross Profit (209,000) 605,000
Expenses:
Selling and administrative expense 1,082,000 626,000
Research and development expense 458,000 179,000
Total Expenses 1,540,000 805,000
Operating Loss (1,749,000) (200,000)
Interest Expense (24,000) (66,000)
Income tax 1,000 0
Net Loss $ (1,774,000) $ (266,000)
Net Loss per share $ ( .18) $ ( .04)
Shares used in computation 9,738,970 6,031,038
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<CAPTION>
BALANCE SHEETS
ASTROCOM CORPORATION
(UNAUDITED)
June 30 December 31,
1997 1996
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 245,000 $ 979,000
Accounts receivable, less allowance
for doubtful accounts 311,000 594,000
Inventories 588,000 695,000
Prepaid expenses 2,000 32,000
TOTAL CURRENT ASSETS 1,146,000 2,300,000
OTHER ASSETS 67,000 66,000
Building, Machinery, and Equipment 2,108,000 2,078,000
Allowances for depreciation (1,681,000) (1,638,000)
427,000 440,000
TOTAL ASSETS $ 1,640,000 $2,806,000
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<CAPTION>
June 30 December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 224,000 $ 444,000
Accounts payable 1,080,000 367,000
Accrued expenses 68,000 69,000
Current maturities of long-term debt
and capital leases 30,000 30,000
TOTAL CURRENT LIABILITIES 1,424,000 910,000
LEASE-SETTLEMENT COSTS 50,000 62,000
Long-Term Debt 0 1,000
Total Stockholders' Equity (deficit)
Preferred Stock 200,000 200,000
Common Stock, par value $.10/share: 988,000 959,000
Issued and outstanding shares -
9,885,954 at 6-30-97 and
9,597,163 at 12-31-96
Additional Paid in Capital 6,504,000 6,426,000
Retained earnings (deficit) (7,526,000) (5,752,000)
Total Stockholders' Equity 166,000 1,833,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,640,000 $2,506,000
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<CAPTION>
STATEMENTS OF CASH FLOWS
ASTROCOM CORPORATION
Six Months Ended June 30,
1997 1996
<S> <C> <C>
Operating Activities
Net loss $(1,774,000) $ (235,000)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 43,000 56,000
Write-off of inventory 329,000
Changes in operating assets and liabilities:
Accounts receivable 283,000 (57,000)
Inventories and prepaid expenses (192,000) (11,000)
Accounts payable and accrued expenses 734,000 (38,000)
Other Assets (1,000) 13,000
Net cash used by operating activities (578,000) (272,000)
INVESTING ACTIVITIES
Purchases of equipment (30,000) (29,000)
Net cash used by investing activities (30,000) (29,000)
Financing Activities
Decrease in short term debt (220,000) (7,000)
Payments on lease settlement obligations (12,000) (3,000)
Payment on long-term debt (1,000) 28,000
Proceeds from exercises of warrants and options 107,000 0
Net cash (used in) provided by financing activities (126,000) 18,000
Decrease in cash (734,000) (283,000)
Cash at beginning of period 979,000 81,000
Cash at end of period $ 245,000 $ (202,000)
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
ASTROCOM CORPORATION
June 30, 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 and six months
ended June 30, 1997, there is no difference between basic earnings per share
under Statement No. 128 and primary net loss per share as reported.
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Management's Discussion and Analysis of the Results of Operations.
Comparison of the Quarters Ended June 30, 1997 and June 30, 1996
SALES. Net revenues for the quarter ended June 30, 1997, totaled
$672,000, an increase of 13% from $595,000 for the same period of 1996. The
increase was the result of increasing sales of the new T-1 products: the
Astrocom T-series and the Astrocom SP-100, which were introduced in late
1996 and early 1997 respectively. Revenues from these products account for
approximately 19% of first quarter revenue and 60% of second quarter revenue.
GROSS PROFIT. Gross profit before the inventory write-off declined
sharply due to initial costs associated with the introduction of the
Astrocom SP-100, as well as higher overhead associated with the addition of
a senior-level manager in the operations function.
EXPENSES. Overall, operating expenses increased by $303,000 or 76%
for the second quarter of 1997 compared with the same quarter of 1996. Selling,
general and administrative expenses increased by 58% for the quarter ended
June 30, 1997, compared with the same quarter of 1996. The increase was
primarily due to increased sales and marketing expenses associated with new
product introduction and promotion, but also to increased administrative
expenses due to the addition of staff. Research and development expense was
136% higher than the second quarter of last year because of personnel expenses
related to the development team added in late 1996.
NET LOSS. For the second quarter, the net loss increased from
($235,000) in 1996 to ($677,000) in 1997, an increase of $442,000. The large
loss was due primarily to an increase of $303,000 in operating expenses.
Comparison of the Six Months Ended June 30, 1997 and June 30, 1996
SALES. Net revenues for the six months ended June 30, 1997, totaled
$1,470,000, a decrease of 11% from $1,653,000 for the same period 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 late February by the
Astrocom SP-100. Combined sales of T-1 products account for approximately
37% of revenues in the first half of 1997.
GROSS PROFIT. Gross profit before the inventory write-off decreased
80% in the first six months to $120,000 from $605,000 in the same period of
1996 (8% and 37% 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.
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.
EXPENSES. Selling and administrative expenses increased 73% to
$1,082,000 from $626,000 in the same period last year. Sales and marketing
expenses increased because of marketing activities related to development
of a 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 150% from $179,000 in
1996 to $458,000 in the first half of 1997, 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.
INTEREST EXPENSE. Interest expense declined because of reduced
levels of borrowing consequent to the equity financing completed in the
fourth quarter of 1996.
NET LOSS. For the first six months, the loss increased from
$(266,000) to $(1,774,000). The greater loss is attributable to the
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 six month period ended June
30, 1997, the Company's operations were funded by cash on hand and accounts
payable. Accordingly, working capital decreased to a deficit of $278,000 at
6/30/97 from working capital of $1,390,000 at 12/31/96. In addition, common
stock increased modestly due to the exercise of options and conversion of
warrants.
Effective July 1, 1997 and August 1, 1997, the Company's bank line of
credit was reduced to $500,000 and $250,000 respectively. The line of credit
expires on September 30, 1997. Management is attempting to secure additional
sources of funding. Management believes it will maintain short-term liquidity
through the remainder of 1997 by procuring additional financing, continued
management of accounts payable, and enhanced receivable collection. However,
there can be no assurance that the Company will be able to obtain additional
funding on satisfactory terms, or at all. 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
1. Ronald B. Thomas was elected President, Chief Executive Officer and
a director of the Company effective June 27, 1997.
2. S. Albert D. Hanser resigned as Chief Executive Officer, effective June 27,
1997.
3. T.J. Carter resigned as President, effective June 27, 1997.
4. Cheryl Olseth resigned as Vice President-Marketing and Sales, effective
June 6, 1997.
5. Patricia M. Fischer resigned as Vice President-Operations, effective
July 18, 1997.
6. M. Claire Canavan resigned as Vice President and Chief Financial Officer,
effective September 12, 1997.
7. Fidelity Bank of Edina reduced the Company's line of credit to $250,000 as
of August 1, 1997. The most recent extension of the line of credit will
expire on September 30, 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: 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
