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 March 31, 1998, 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: 10,537,430
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
1998 1997
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Net Sales $ 827,904 $ 797,623
Cost of Products Sold 544,513 718,176
Inventory Writeoff 0 329,430
Gross Profit 283,391 (249,984)
Operating Expenses
Sales and administration 270,210 618,038
Research and development 51,753 189,795
Total Operating Expenses 321,963 807,833
Operating Loss (38,572) (1,057,817)
Other Income & (Expense)
Interest Income 218 5,069
Interest Expense (67,401) (16,733)
Other Expense (714) (27,789)
Total Other Income & (Expense) (67,897) (39,454)
Net Loss Before Taxes (106,469) (1,097,271)
Taxes 1,000 0
Net Loss $ (107,469) (1,097,271)
Less Preferred Stock Dividends 3,000 3,000
Loss Applicable to Common Stock (110,469) (1,100,271)
Net Loss per Common Share $ ( .01) $( .11)
Shares Used in the Computation 10,514,076 9,874,546
See accompanying notes to financial statements.
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ASTROCOM CORPORATION
BALANCE SHEETS (UNAUDITED)
ASSETS 31-Mar-98 31-Dec-97
CURRENT ASSETS
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Cash $ 5,178 $ 31,830
Accounts receivable, less allowance 577,905 557,662
Inventories 643,798 521,084
Prepaid expenses 12,676 51,097
TOTAL CURRENT ASSETS 1,239,557 1,161,673
PROPERTY AND EQUIPMENT
Property and Equipment 2,114,119 2,114,119
Accumulated Depreciation (1,764,392) (1,729,976)
NET PROPERTY & EQUIPMENT 349,727 384,143
Intangible Assets 50,000 0
Other Assets 7,572 7,572
TOTAL ASSETS $1,646,856 $1,553,388
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31-Mar-98 31-Dec-97
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
Payable to Factor $ 185,239 $ 62,806
Convertible Note Payable (Net of Discount) 382,424 364,016
Accounts Payable 535,862 507,275
Accrued Expenses 121,093 111,448
Current Maturities of Lease Settlement Costs 18,138 11,859
TOTAL CURRENT LIABILITIES 1,242,756 1,057,404
LEASE-SETTLEMENT COSTS 60,340 68,031
Stockholders' Equity
Preferred Stock 200,000 200,000
Common Stock 1,053,347 1,046,099
Additional Paid in Capital 6,993,099 6,974,073
Accumulated Deficit (7,902,686) (7,792,219)
Total Stockholders' Equity 343,760 427,953
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,646,856 $1,553,388
See accompanying notes to financial statements.
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ASTROCOM CORPORATION
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
1998 1997
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Cash Flows from Operating Activities
Net loss $ (107,468) $(1,097,271)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 34,416 23,483
Amortization of debt discount 43,408 0
Interest on debt converted to common stock 1,274 0
Loss on disposal of assets 0 27,789
Changes in operating assets and liabilities:
Accounts receivable (20,243) 222,617
Inventories (122,714) 35,829
Prepaid expenses 38,421 14,346
Other assets 0 5,885
Accounts payable 28,587 406,123
Accrued expenses 6,645 12,237
Net cash used in operating activities (97,674) (348,962)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment 0 (42,125)
Purchase of technology rights (50,000) 0
Net cash used in investing activities (50,000) (42,125)
Cash Flows from Financing Activities
Proceeds from exercise of warrants and options 0 25,870
Net proceeds from factoring agreement 122,433 0
Net proceeds from revolving credit agreement 0 131,821
Payments on lease settlement obligations (1,412) (7,160)
Payments on other long term debt 0 (843)
Cash provided by financing activities 121,021 149,688
Net decrease in cash (26,652) (241,399)
Cash at beginning of period 31,830 978,798
Cash at end of period $ 5,178 $ 737,399
Supplemental cash flow information
Conversion of debt to common stock 25,000 0
See accompanying notes to financial statements.
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ASTROCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
1. BASIS OF PRESENTATION
The financial statements in this Form 10-QSB have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect
all adjustments necessary for a fair presentation of financial position,
results of operations, and cash flows. These financial statements should be
read in conjunction with the financial statements and notes included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1997.
2. INVENTORIES
Inventories are stated at the lower of cost or market, determined on an average
cost basis. Inventories at March 31, 1998, and December 31, 1997, consisted
of the following:
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March 31, 1998 December 31, 1997
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Raw Materials 461,580 328,042
Work in process 45,440 61,155
Finished goods 216,259 211,368
Less obsolescence reserve (79,481) (79,481)
643,798 521,084
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3. INTANGIBLE ASSETS
Purchased technology, license agreements, and other intangible assets are
recorded at cost. Intangible assets are amortized on a straight-line basis
over their estimated useful lives of one to five years.
4. NET LOSS PER SHARE
In 1997, the Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share," which replaces the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share exclude the dilutive effect of options,
warrants, and convertible securities, while diluted earnings per share
include such effects. For all periods presented, the Company's basic and
diluted loss per share are the same because the effects of all options,
warrants, and convertible securities were antidilutive.
5. RECLASSIFICATIONS
Certain amounts in the financial statements have been reclassified to
conform to the current presentation
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth selected information derived from the
Company's interim statement of operations expressed as percentages of
net sales:
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Three Months Ended %Increase
March 31, (Decrease)
1998 1997
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Net Sales 100.0% 100.0% 3.8%
Cost of Sales 65.8 90.0 (24.2)
Write-off of Inventory -- 41.3 (100.0)
Gross Profit 34.2 (31.3) 213.4
Selling and Administrative 32.6 77.5 (56.3)
Research and Development 6.3 23.8 (72.7)
Operating Loss (4.7) (132.6) (96.4)
Other Income (Expense) (8.2) (4.9) 72.1
Net Loss (13.0)% (137.6)% (90.2)
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NET SALES. Net sales for the quarter ended March 31, 1998, totaled
$827,904, an increase of 3.8% from $797,623 for the same quarter of 1997.
The increase was the result of a broader product mix offering. The
Astrocom SP-100, a T-1 data only CSU/DSU, was introduced in late February of
1997.
GROSS PROFIT. Gross profit margin before the inventory write-off
increased to 34.2% in the first quarter from 10.0% for the same period
last year. The increase can be attributed to adjustments made to the
pricing and product costs of the new product lines that were
introduced in 1997.
In the first quarter of 1997, the Company recorded a $329,430 writedown
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. There was
no further write-off of inventory in 1998.
OPERATING EXPENSES. Selling and administrative expenses decreased
56.3% to $270,210 from $618,038 in the same period last year. Sales and
marketing expenses decreased because of reduced staff and last year's non-
recruiting marketing activities in 1997, related to the new corporate image
and product positioning. Administrative expenses also decreased because of
a smaller management staff.
Research and development expenses decreased 72.7% to $51,753 in
1998 from $189,794 in the first quarter of 1997 due primarily to reduced
staff. R&D expenses were also higher during the same period last year
due to spending on product testing, prototype parts, and outside services
in connection with the new product introduction.
OTHER EXPENSE. Interest expense increased 302.8% to $67,401 in 1998
from $16,733 in the first quarter of last year because of interest
connected to the bridge financing raised during the third quarter of 1997.
Other expense in 1997 was associated with losses on the disposal of
equipment.
NET LOSS. The Company reported a net loss from operations of
$107,469 for the quarter ended March 31, 1998, compared to a net loss
of $1,097,271 in the first quarter of 1997. The reduced loss is
attributable to a higher gross profit and lower operating expenses.
LIQUIDITY AND CAPITAL RESOURCES. During the first quarter of 1998,
the Company's operations were funded primarily by an increase in borrowings
under its factoring agreement. Net working capital declined to a deficit
of $3,199 on March 31, 1998, from $104,269 on December 31, 1997. Cash
decreased to $5,178 on March 31, 1998, from $31,830 on December 31, 1997,
and $737,399 on March 31, 1997. This decrease in cash is largely due to
the Company's net operating losses.
Management believes it will maintain short-term liquidity by
factoring its accounts receivable, managing its accounts payable, and
controlling its operating expenses. 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 address
the longer term goals of the Company, management has begun efforts to
raise additional equity through a private placement. Proceeds will
replace the existing bridge financing. Additional funds will be used
to grow the business by restarting development activities and pursuing
attractive business opportunities as they arise.
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PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
1. The Company entered into an agreement with Telemax Corporation on
March 26, 1998, to purchase manufacturing rights to the Telemax
Dawn 1100 voice/data CSU/DSU.
2. Dennis Evans resigned as a director on April 6, 1998.
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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: May 15, 1998 ASTROCOM CORPORATION
(Registrant)
By:Ronald B. Thomas, President
and Chief Executive Officer
