UNITED STATES 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, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
3500 Holly Lane North, Suite 60, Plymouth, Minnesota 55447-1284
(Address of principal executive office) (Zip Code)
(612) 378-7800
(Issuer's telephone number)
(Former name, former 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 14,999,161
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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ASTROCOM CORPORATION
BALANCE SHEETS
June 30, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 419,468 $ 549,337
Accounts receivable, less allowance 126,821 239,199
Inventories 440,653 566,751
Prepaid expenses 24,269 39,919
Total current assets 1,011,211 1,395,206
PROPERTY AND EQUIPMENT
Property and equipment 706,830 2,122,466
Accumulated depreciation (557,270) (1,879,913)
Net property & equipment 149,560 242,553
License agreements, net 85,625 65,625
Other assets 10,000 7,572
Total assets $ 1,256,396 $ 1,710,956
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 106,629 100,425
Accrued expenses 93,507 84,907
Current portion of lease settlement costs 32,992 31,703
Total current liabilities 233,128 217,035
Lease settlement costs 19,502 36,327
Shareholders' equity:
Preferred stock 200,000 200,000
Common stock 1,499,520 1,499,520
Additional paid-in capital 8,079,387 8,079,387
Accumulated deficit (8,775,141) (8,321,313)
Total shareholders' equity 1,003,766 1,457,594
Total liabilities and shareholders' equity $ 1,256,396 $ 1,710,956
See accompanying notes to financial statements.
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<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 438,987 $ 713,692 $ 968,289 $ 1,541,596
Cost of products sold 268,646 490,153 646,566 1,034,666
Gross profit 170,341 223,539 321,723 506,930
Operating expenses
Selling and administrative 233,773 263,995 478,844 534,205
Research and development 117,462 62,413 258,185 114,166
Total operating expenses 351,235 326,408 737,030 648,371
Operating loss (180,894) (102,869) (415,307) (141,441)
Other income (expense)
Interest income 3,775 2,016 8,800 2,234
Interest expense (1,157) (76,881) (3,749) (144,282)
Other expense (37,162) (45) (37,559) (759)
Total other income (expense) (34,544) (74,910) (32,508) (142,807)
Net loss before taxes (215,438) (177,779) (447,815) (284,248)
Taxes 0 500 13 1,500
Net loss (215,438) (178,279) (447,828) (285,748)
Less preferred stock dividends 3,000 3,000 6,000 6,000
Loss applicable to $(218,438) $(181,279) $(453,828) $ (291,748)
common share
Loss per common share - basic $ (0.01) $ (0.02) $ (0.03) $ (0.03)
and diluted
Weighted average number of 14,999,161 11,726,604 14,999,161 11,123,689
common shares outstanding
See accompanying notes to financial statements.
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<CAPTION>
ASTROCOM CORPORATION
STATEMENTS OF CASHFLOWS (UNAUDITED)
Six Months Ended June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (447,828) $ (285,748)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 85,408 74,888
Amortization of debt discount 0 95,984
Interest on debt converted to common stock 0 1,274
Loss (gain) on disposal of equipment 36,977 (243)
Changes in operating assets and liabilities:
Accounts receivable 112,378 17,017
Inventories 126,098 3,980
Prepaid expenses 15,650 40,690
Other assets (2,428) 0
Accounts payable 6,204 (121,001)
Accrued expenses 2,600 (27,096)
Net cash used in operating activities (64,941) (200,256)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (8,475) 0
Purchase of license agreements (42,500) (50,000)
Proceeds from sale of equipment 1,583 3,790
Net cash used in investing activities (49,392) (46,210)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock 0 1,466,900
Proceeds from exercise of warrants and options 0 30,000
Net proceeds from factoring agreement 0 (59,282)
Payments on notes payable 0 (435,000)
Payments on lease settlement obligations (15,536) (2,852)
Cash provided by financing activities (15,536) 999,767
Net decrease in cash (129,869) 753,301
Cash at beginning of period 549,337 31,830
Cash at end of period $ 419,468 $ 785,131
SUPPLEMENTAL CASH FLOW INFORMATION:
Conversion of notes payable to common stock 0 25,000
See accompanying notes to financial statements.
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Astrocom Corporation
Notes to Financial Statements
June 30, 1999
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, 1998.
2. Inventories
Inventories are stated at the lower of cost or market, determined on an
average cost basis. Inventories at June 30, 1999 and December 31, 1998
consisted of the following:
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<CAPTION>
June 30, 1999 December 31, 1998
<S> <C> <C>
Raw materials 198,402 169,666
Work in process 269,163 431,172
Finished goods 85,982 104,154
Less obsolescence reserve (112,894) (138,154)
440,653 566,751
3. Loss Per Share
The Company follows Financial Accounting Standards Board Statement No. 128,
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains certain forward-looking statements that project or
estimate future events. When used in this Form 10-QSB, the words "believes",
"expects", "anticipates", "intends", and similar expressions are intended to
identify forward-looking statements. These statements are subject to various
risks and uncertainties which could cause actual results to differ materially
from historical results or those currently projected. Readers are cautioned
not to place undue reliance on these forward-looking statements.
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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<CAPTION>
Three Months % Increase Six Months % Increase
Ended June 30, (Decrease) Ended June 30, (Decrease)
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% (38.5)% 100.0% 100.0% (37.2)%
Cost of Sales 61.2 68.7 (45.2) 66.8 67.1 (23.8)
Gross Profit 38.8 31.3 (23.8) 33.2 32.9 (37.5)
Selling and Admin. 53.3 37.0 (11.4) 49.4 34.7 (10.4)
Research and Dev. 26.7 8.7 88.2 26.7 7.4 126.1
Operating Loss (41.2) (14.4) 75.8 (42.9) (9.2) 193.6
Other Expense (7.9) (10.6) (53.9) (3.3) (9.3) (77.2)
Net Loss (49.1)% (25.0)% 20.8% (46.2)% (18.5)% (56.7)%
Net Sales. Net sales for the three month and six month periods ended
June 30, 1999 were $438,987 and $968,289, reflecting decreases of 38.5% and
37.2%, respectively, over the comparable periods of 1998. The ongoing
weakness in sales for the quarter is the result of continued reduced demand
from a few significant customers and a general seasonal slowdown in the
market. Shipment of two new products began in the second quarter but did not
contribute substantial revenue for the period. The Company is continuing its
new product development projects, and is also focusing on establishing a
network of manufacturers' representatives to sell its products in the United
States market.
Gross Profit. Gross profit margin for the three and six month periods
ended June 30, 1999 was 38.8% and 33.2%, respectively, as compared to 31.3%
and 32.9% for the comparable periods of 1998. This improvement is primarily
attributable to reduced labor costs and increased volume of higher margin
repair revenue. Gross margins will continue to be affected by sales volume,
product mix and the distribution channel used.
Operating Expenses. Selling and administrative expenses were $233,773
for the three month period ended June 30, 1999, a decrease of 11.4% from the
comparable period of 1998. For the six month period ended June 30, 1999,
selling and administrative expenses were $478,844, a decrease of 10.4% from
the comparable period of 1998. Administrative expenses decreased because of
reduced reliance on outside professional services.
Research and development expenses were $117,462 for the three month
period ended June 30, 1999, an increase of 88.2% from the comparable period in
1998. For the six month period ended June 30, 1999, research and development
expenses were $258,185, an increase of 126.1% from the comparable period of
1998. These increases were due to a larger engineering staff and the costs
associated with new product development, including product testing and
prototype parts.
Other Income (Expense). Interest expense for the three month period
ended June 30, 1999 decreased to $1,157 from $76,881 in the comparable period
in 1998. For the six month period ended June 30, 1999, interest expense
decreased to $3,749 from $144,282 in the comparable period of 1998. The
higher interest expense in 1998 was associated with the bridge financing that
was repaid in June 1998 with the proceeds of a private placement of equity.
Other expense during 1999 included the disposal of $1,424,111 of obsolete
equipment. Most of this equipment was fully depreciated, so the result was a
loss amounting to $36,977.
Net Loss. The Company reported a net loss of $(215,438) and $(447,828)
respectively for the three and six month periods ended June 30, 1999, compared
to a net loss of $(178,279) and $(285,748) for the comparable periods of 1998.
The increased loss is attributable to reduced sales and increased expenditures
on product development.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1999, the Company's operations were funded
by existing working capital. Net working capital declined to $778,083 on June
30, 1999 from $1,178,171 on December 31, 1998. Cash decreased to $419,468 on
June 30, 1999 from $549,337 on December 31, 1998. This decrease in cash is
largely due to the Company's net operating loss.
Management remains focused on achieving profitable operations that
generate adequate cash flow to meet current obligations on a timely basis.
The Company intends to secure an asset-based lending facility during the
current fiscal year and has received assurances of financing availability from
a former lender. The Company currently believes that its available sources of
funds will be adequate to finance current operations and anticipated
investments for the current year.
YEAR 2000 ISSUES
The Company is aware of the Year 2000 problem resulting from the
inability of some computer software or hardware to recognize or properly
process dates ending in "00" because a computer program is written using two
digits rather than four to define the applicable year. The Company has
examined its internal information systems and has determined that all of its
critical business software and hardware are Year 2000 compliant. The Company
also has determined that all of its products are Year 2000 compliant. The
Company has requested assurances from its major suppliers that they are
addressing this issue and will achieve Year 2000 compliance. The Company is
not aware of any suppliers with a Year 2000 issue that would materially impact
the Company.
Based on information presently available, the Company does not believe
that the costs and efforts to address the Year 2000 problem will be material
to its business, financial condition or results of operation. If some
unforeseen problem does arise, the worst case scenario may result in delays of
shipments and possible lost sales. The Company could also be subject to
litigation for computer systems product failure. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time. The Company plans to
address any unforeseen problems by utilizing manual workarounds and
alternative suppliers.
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. Sarah B. Fjelstul resigned as Vice President, Corporate Controller and
Assistant Secretary effective July 16, 1999.
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirement 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 13, 1999
ASTROCOM CORPORATION
By:____/S/________________
Ronald B. Thomas
President and Chief Executive Officer
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