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 September 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 _X_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
September 30, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 169,785 $ 549,337
Accounts receivable, 142,648 239,199
less allowance
Inventories 478,577 566,751
Prepaid expenses 17,665 39,919
Total current assets 808,675 1,395,207
Property and equipment
Property and equipment 706,830 2,122,466
Accumulated depreciation (578,037) (1,879,913)
Net property & equipment 128,793 242,553
License agreements, net 71,719 65,625
Other assets 10,000 7,572
Total assets $ 1,019,187 $ 1,710,956
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 122,423 100,425
Accrued expenses 97,823 84,907
Current portion of lease 33,648 31,703
settlement costs
Total current liabilities 253,894 217,035
Lease settlement costs 10,844 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 (9,024,458) (8,321,313)
Total shareholders' equity 754,449 1,457,594
Total liabilities and $ 1,019,187 $ 1,710,956
shareholders' equity
See accompanying notes to financial statements.
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<CAPTION>
Astrocom Corporation
Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 237,949 725,155 $ 1,206,238 2,266,751
Cost of products sold 151,496 464,369 798,062 1,499,035
Gross profit 86,453 260,786 408,176 767,716
Operating expenses
Selling and admin. 213,290 221,651 692,134 755,856
Research and dev. 122,022 83,278 380,207 197,444
Total operating expenses 335,312 304,929 1,072,341 953,300
Operating loss (248,859) (44,143) (664,165) (185,584)
Other income (expense)
Interest income 2,964 10,063 11,764 12,297
Interest expense (997) (2,008) (4,746) (146,290)
Other expense 575 (53) (36,985) (812)
Total other income (expense) 2,542 8,002 (29,967) (134,805)
Net loss before taxes (246,317) (36,141) (694,132) (320,389)
Taxes 0 250 13 1,750
Net loss (246,317) (36,391) (694,145) (322,139)
Less preferred stock 3,000 3,000 9,000 9,000
dividends
Loss applicable to $ (249,317) (39,391) $ (703,145) (331,139)
common shares
Loss per common share - $ (0.02) (0.00) $ (0.05) (0.03)
basic and diluted
Weighted average number 14,999,161 14,839,986 14,999,161 12,373,137
of common shares
outstanding
See accompanying notes to financial statements.
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<CAPTION>
Astrocom Corporation
Statements of Cashflows (Unaudited)
Nine Months Ended September 30
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(694,145) $ (322,139)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 120,081 116,300
Amortization of debt discount 0 95,984
Interest on debt converted to common stock 0 1,274
Professional fees paid in warrants and stock 0 30,000
Loss (gain) on disposal of equipment 35,979 (243)
Changes in operating assets and liabilities:
Accounts receivable 96,550 248,786
Inventories 88,174 (142,507)
Prepaid expenses 22,254 46,679
Other assets (2,428) 0
Accounts payable 21,998 (163,728)
Accrued expenses 3,917 (33,618)
Net cash used in operating activities (307,621) (123,212)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (8,475) (5,501)
Purchase of license agreements (42,500) (87,500)
Proceeds from sale of equipment 2,583 3,790
Net cash used in investing activities (48,392) (89,211)
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 (62,806)
Payments on notes payable 0 (435,000)
Payments on lease settlement obligations (23,539) (4,320)
Cash provided by financing activities (23,539) 994,774
Net decrease in cash (379,552) 782,351
Cash at beginning of period 549,337 31,830
Cash at end of period $ 169,785 $ 814,181
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
September 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 September 30, 1999 and December 31, 1998
consisted of the following:
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September 30, 1999 December 31, 1998
<S> <C> <C>
Raw materials $219,022 $169,666
Work in process 265,711 431,172
Finished goods 107,802 104,154
Less obsolescence reserve (113,958) (138,154)
$478,577 $566,751
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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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Three Months Nine Months
Ended % Increase Ended % Increase
September 30, (Decrease) September 30, (Decrease)
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% (67.2)% 100.0% 100.0% (46.8)%
Cost of Sales 63.7 64.0 (67.4) 66.2 66.1 (46.8)
Gross Profit 36.3 36.0 (66.8) 33.8 33.9 (46.8)
Selling and 89.6 30.6 (3.8) 57.4 33.3 (8.4)
Administrative
Research and 51.3 11.5 46.5 31.5 8.7 92.6
Operating Loss (104.6) (6.1) 463.8 (55.1) (8.2) 257.9
Other Expense 1.1 1.1 (68.2) (2.5) (5.9) (77.8)
Net Loss (103.5)% (5.0)% 576.9% (57.5)% (14.2)% 115.5%
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Net Sales. Net sales for the three month and nine month periods ended
September 30, 1999 were $237,949 and $1,206,238, reflecting decreases of 67.2%
and 46.8%, respectively, over the comparable periods of 1998. The decrease in
sales was due to a marked decrease in orders from the top three customers with
no offsetting increase from other customers. Management attributes the
overall decrease in sales to the company's limited product family competing
against much larger companies with broader product lines. New product
development has been targeted at repositioning the Company to more niche
oriented products.
Gross Profit. Gross profit margin for the three and nine month periods
ended September 30, 1999 was 36.3% and 33.8%, respectively, as compared to
36.0% and 33.9% for the comparable periods of 1998. While the decrease in
gross profit is directly attributable to the lower sales volume; the gross
margin percentage remained relatively constant due to a decrease in labor and
burden in manufacturing. Gross margins will continue to be affected by sales
volume, product mix and the distribution channel used.
Operating Expenses. Selling and administrative expenses were $213,290
for the three month period ended September 30, 1999, a decrease of 3.8% from
the comparable period of 1998. For the nine month period ended September 30,
1999, selling and administrative expenses were $692,134, a decrease of 8.4%
from the comparable period of 1998. Administration expenses decreased
compared to 1998 due to a lower reliance on outside services and staff
attrition. Selling expenses increased slightly in the first nine months of
1999 compared to 1998 due to trade show expenses and additional salary
expenses.
Research and development expenses were $122,022 for the three month
period ended September 30, 1999, an increase of 46.5% from the comparable
period in 1998. For the nine month period ended September 30, 1999, research
and development expenses were $380,207, an increase of 92.6% from the
comparable period of 1998. These increases were due to a larger engineering
staff and the costs associated with new product development.
Other Income (Expense). Interest expense for the three month period
ended September 30, 1999 decreased to $997 from $2,008 in the comparable
period in 1998. For the nine month period ended September 30, 1999, interest
expense decreased to $4,746 from $146,290 in the comparable period of 1998.
The higher interest expense in 1998 was associated with the bridge financing
that was repaid in September 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 $35,979.
Net Loss. The Company reported a net loss of $(246,317) and $(694,145)
for the three and nine month periods ended September 30, 1999, respectively,
compared to a net loss of $(36,391) and $(322,139) 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 nine months of 1999, the Company's operations were
funded by existing working capital. Net working capital declined to $544,781
on September 30, 1999 from $1,178,171 on December 31, 1998. Cash decreased to
$169,785 on September 30, 1999 from $549,337 on December 31, 1998. This
decrease in cash is largely due to the Company's net operating loss.
To cover current operating requirements, the Company has a pending
agreement with a lending institution for a $500,000 line of credit based on
accounts receivable that the Company believes it will implement within the
next month. The Company's level of accounts receivable would allow it to
borrow substantially less than $500,000 at the present time. In addition, the
Company is pursuing financing to cover mid- and long-term needs. 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
On November 3, 1999, Frederic H. Sweeny joined the company as Sr. Vice
President of Sales and Marketing. Mr. Sweeny has 30 years of experience in
sales, marketing and management in the data communications market. His
experience building successful sales organizations in our industry, especially
in the area of manufacturers' sales representatives, will help guide the
company as we look forward to future growth opportunities.
Prior to joining Astrocom, Mr. Sweeny was an independent management consultant
for a number of companies in technology related businesses. From December
1992 to August 1997, he served as Chief Executive Officer of Unimax
Corporation, a designer and developer of configuration management software for
multivendor telecommunications systems. As Sr. Vice President of Marketing
for Lee Data Corporation from 1981 to 1986, Mr. Sweeny was instrumental in
building that organization to a publicly held $100 million company. From 1987
to 1989, he served as CEO and President of Check Technology Corporation where
he increased sales from $13 million to $18 million while bringing the company
from a significant loss to profitability. Mr. Sweeny has also held numerous
senior level sales and marketing positions with Printware, Four Phase Systems
and Unisys.
Mr. Sweeny is a member of the board of directors of a number of small high
technology private companies. He has a bachelor's degree in Business
Administration (Industrial Management and Marketing) from The University of
Connecticut.
Item 6. Exhibits and Reports on Form 8-K
None
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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: November 9, 1999
ASTROCOM CORPORATION
By:_____/s/_______________
Ronald B. Thomas
President and Chief Executive Officer
