U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the quarterly period ended June 30, 1998,
or
/ / Transition report Pursuant to 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)
Indicate by check mark whether the registrant (1) has 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
Indicate by check mark 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: 14,828,573
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
1998 1997
<S> <C> <C>
Net Sales $ 713,692 $ 672,279
Cost of Products Sold 490,153 632,571
Inventory Writeoff 0 0
Gross Profit 223,539 39,708
Operating Expenses
Selling and administrative 263,995 498,489
Research and development 62,413 214,597
Total Operating Expenses 326,408 713,086
Operating Loss (102,869) (673,379)
Other Income & (Expense)
Interest Income 2,016 8,231
Interest Expense (76,881) (8,993)
Other Expense (45) (1,056)
Net Loss before Taxes (177,779) (675,196)
Taxes 500 1,327
Net Loss $ (178,279) $ (676,522)
Less Preferred Stock Dividends 3,000 3,000
Loss Applicable to Common Stock $ (181,279) $ (679,522)
Net Loss per Common Share $ (0.02) $ (0.07)
Shares used in Computation 11,717,813 10,004,510
See accompanying notes to financial statements.
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</TABLE>
<TABLE>
<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended June 30,
1998 1997
<S> <C> <C>
Net Sales $ 1,541,596 $ 1,469,902
Cost of Products Sold 1,034,666 1,350,748
Inventory Write-Off 0 329,430
Gross Profit 506,930 (210,276)
Operating Expenses
Selling and administrative 534,205 1,116,527
Research and development 114,166 404,392
Total Operating Expenses 648,371 1,520,920
Operating Loss (141,441) (1,731,196)
Other Income & Expense
Interest Income 2,234 13,300
Interest Expense (144,282) (25,660)
Other Expense (759) (28,910)
Total Other Income & (Expenses) (142,807) (41,271)
Net Loss Before Taxes (284,248) (1,772,467)
Taxes 1,500 1,327
Net Loss $ (285,748) $ (1,773,794)
Less Preferred Stock Dividends 6,000 6,000
Loss Applicable to Common Stock $ (291,748) $ (1,779,794)
Net Loss per Common Share $ (0.03) $ (0.18)
Shares used in computation 11,119,270 9,939,887
See accompanying notes to financial statements.
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<CAPTION>
ASTROCOM CORPORATION
BALANCE SHEETS
(UNAUDITED)
June 30, 1998 December 31, 1997
<S> <C> <C>
ASSETS
Current Assets
Cash $ 785,131 $ 31,830
Accounts receivable, less allowance 540,645 557,662
Inventories 517,104 521,084
Prepaid expenses 10,407 51,097
Total Current Assets 1,853,287 1,161,673
Property & Equipment
Property & Equipment 2,110,250 2,114,119
Accumulated Depreciation (1,798,292) (1,729,976)
Net Property & Equipment 311,958 384,143
Intangible Assets 43,750 0
Other Assets 7,572 7,572
Total Assets $ 2,216,567 $1,553,388
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Payable to Factor $ 3,524 $ 62,806
Convertible Note Payable (Net of Discount) 0 364,016
Accounts Payable 386,274 507,275
Accrued Expenses 90,352 111,448
Current Maturities of Lease Settlement Costs 24,543 11,859
Total Current Liabilities 504,693 1,057,404
Lease Settlement Costs 52,495 68,031
Stockholders' Equity
Preferred Stock 200,000 200,000
Common Stock 1,482,461 1,046,099
Additional Paid in Capital 8,060,885 6,974,073
Accumulated Deficit (8,083,967) (7,792,219)
Total Stockholders' Equity 1,659,379 427,953
Total Liabilities and Stockholders' Equity $ 2,216,567 $1,553,388
See accompanying notes to financial statements.
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<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $( 285,748) $(1,773,794)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 74,888 44,733
Amortization of debt discount 95,984 0
Interest on debt converted to common stock 1,274 0
Loss (gain) on disposal of assets (243) 29,693
Professional fees paid in warrants and stock 0 10,000
Changes in operating assets and liabilities:
Accounts receivable 17,017 283,497
Inventories 3,980 140,541
Prepaid expenses 40,690 30,058
Other Assets 0 (34,577)
Accounts payable (121,001) 712,430
Accrued expenses (27,096) 20,938
Net cash used in operating activities (200,255) (536,481)
Cash Flows from Investing Activities
Purchases of equipment 0 (61,355)
Purchase of Technology Rights (50,000) 0
Sale of Assets 3,790 0
Net cash used in Investing Activities (46,210) (61,355)
Cash Flows from Financing Activities
Proceeds from sale of stock 1,466,900 0
Proceeds from exercise of warrants and options 30,000 97,108
Net proceeds from factoring agreement (59,282) 0
Net proceeds from revolving credit agreement 0 (219,952)
Payments on notes payable (435,000) 0
Payments on lease settlement obligation (2,852) (12,013)
Payments on other long-term debt 0 (843)
Cash provided by financing activities 999,766 (135,700)
Net increase (decrease) in cash 753,301 (733,536)
Cash at beginning of period 31,830 978,798
Cash at end of period $ 785,131 $ 245,262
Supplemental cash flow information:
Conversion of debt to common stock 25,000 0
See accompanying notes to financial statements.
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<PAGE>
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ASTROCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 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 June 30, 1998 and December 31, 1997 consisted of the
following:
June 30, 1998 December 31, 1997
Raw materials $ 362,428 $ 328,042
Work in process 94,558 61,155
Finished goods 144,602 211,368
Less obsolescence reserve (84,484) (79,481)
$ 517,104 $ 521,084
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPANY'S INTERIM STATEMENTS OF OPERATIONS
The following table sets forth selected information derived from the Company's
interim statements
of operations expressed as percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended % Increase Six Months Ended %Increase
June 30, (Decrease) June 30, (Decrease)
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997
Net Sales 100.0% 100.0% 6.2% 100.0% 100.0% 4.9%
Cost of Sales 68.7 94.1 (23.3) 67.1 91.9 (23.8)
Write-off of Inventory 0 0 0 0 22.4 (100.0)
Gross Profit 31.3 5.9 475.6 32.9 (14.3) 243.5
Selling and Administrative 37.0 74.1 (47.0) 34.7 76.0 (52.2)
Research and Development 8.7 31.9 (70.9) 7.4 27.5 (71.8)
Operating Loss (14.4) (100.1) (85.5) (9.2) (117.8) (92.1)
Other Income (Expense) (10.6) (0.3) 4,022.7 (9.3) (2.8) 146.0
Net Loss (25.0)% (100.6)% (74.4) (18.5)% (120.7)% (84.2)
</TABLE>
NET SALES. Net sales for the three month and six month periods ended
June 30, 1998 were $713,692 and $1,541,596, reflecting increases of 6.2% and
4.9%, respectively, over the comparable periods in 1997. These increases were
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 margins before the inventory write-off for the
three and six month periods ended June 30, 1998 were 31.3% and 32.9%,
respectively, as compared to 5.9% and (14.3)% for the comparable periods in
1997. These increases can be attributed to adjustments made to the pricing and
product costs of the new product lines that were introduced in 1997. The
Company expects the gross profit margins to remain at these higher levels, but
also to be affected by sales volume, product mix and the distribution channel
used.
In the first quarter of 1997, the Company recorded a $329,430 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.
OPERATING EXPENSES. Selling and administrative expenses were $263,995 for
the three month period ended June 30, 1998, a decrease of 47.0% from the
comparable period in 1997. For the six month period ended June 30, 1998,
selling and administrative expenses were $534,205, a decrease of 52.2% from the
comparable period in 1997. Selling and marketing expenses decreased because of
reduced staff and last year's marketing activities related to the new corporate
image and product positioning. Administrative expenses also decreased because
of a smaller management staff.
Research and development expenses were $62,413 for the three month peiod
ended June 30, 1998, a decrease of 70.9% from the comparable period in 1997.
For the six month period ended June 30, 1998, research and development expenses
were $114,166, a decrease of 71.8% from the comparable period in 1997. These
expense reductions were due primarily to reduced staff. R&D expenses were
also higher during the same periods last year due to spending on product
testing, prototype parts and outside services in connection with the new product
introduction. The Company expects to increase its investment in product
development by adding engineering personnel or using consulting services as
appropriate.
OTHER INCOME (EXPENSE). Interest expense for the three month period ended
June 30, 1998 increased to $76,881 from $8,993 in the comparable period in 1997.
For the six month period ended June 30, 1998, interest expense increased to
$144,282 from $25,660 in the comparable period in 1997. These increases were
connected to the bridge financing raised during the third quarter of 1997. The
convertible debt was repaid at the end of the period, thereby reducing the
expected interest expense in future periods.
NET LOSS. The Company reported a net loss from operations of $(178,279)
and $(285,748) respectively for the three and six month periods ended June 30,
1998, compared to a net loss of $(676,522) and $(1,773,794) for the comparable
periods of 1997. The reduced loss is attributable to a higher gross profit and
lower operating expenses.
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LIQUIDITY AND CAPITAL RESOURCES
The Company completed a private placement of equity during the second
quarter of 1998. Proceeds from the equity placement were $1,466,900, of which
$435,000 was used to repay the short-term convertible debt. Net working capital
increased to $1,353,594 on June 30, 1998 from $104,269 on December 31, 1997.
Cash increased to $785,131 on June 30, 1998 from $31,830 on December 31, 1997.
Management chose not to renew its factoring agreement that expired on
July 3, 1998. The Company is seeking a less expensive, asset-based lending
facility and anticipates securing such financing during the third quarter of
1998. A credit facility would be used to fund increased working capital
requirements. The proceeds from the private placement are intended to fund
product development activities. Management remains focused on running
profitable operations that generate adequate cash flow to meet current
obligations on a timely basis. The Company believes that its available sources
of funds will be adequate to finance current operations and anticipated
investments for at least the next twelve months.
YEAR 2000 ISSUES
The Company is aware of the Year 2000 problem resulting from the inability of
computer software or hardware to recognize or properly process dates ending in
"00." The Company has reviewed its products and internal information systems
and believes that the costs and effort to address the Year 2000 problem will not
be material to its business, financial condition or results of operation. The
Company intends to continue monitoring Year 2000 compliance matters. However,
there can be no assurance that unforeseen problems will not arise in connection
with this issue.
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PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
1. Gary L. Deaner was elected a director by the shareholders on May 28, 1998.
2. Duane S. Carlson was elected a director by the directors on June 9, 1998, to
fill a vacancy on the Board of Directors.
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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: August 11, 1998 ASTROCOM CORPORATION
By:
Ronald B. Thomas, President
and Chief Executive Officer
