SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1998 Commission File Number 0-13318
STAR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0794452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 Shaw Road
Sterling, Virginia 20166
(Address of principal executive offices)
(Zip Code)
(703) 689-4400
(Registrant's telephone number, including area code)
Not Applicable
(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 Securities Exchange Act
of 1934 during the preceding 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
--- ---
21,356,384 shares of Common Stock were outstanding as of March 31, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
1998 1997
Revenue
<S> <C> <C>
Products $ 327 $ 10
Services 816 99
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1,143 109
Cost of revenue
Products 61 135
Services 607 186
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668 321
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Gross margin 475 (212)
Operating expenses
Research and development 189 237
Selling, general and administrative 1,279 472
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Total operating expenses 1,468 709
Operating loss (993) (921)
Interest and other income, net 1 225
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Net loss before provision for income taxes (992) (696)
Provision for income taxes - -
------- ------
Net loss $ (992) $ (696)
======= ======
Net loss $ (992) $ (696)
Preferred stock dividend requirement (50) (50)
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Net loss applicable to common shares $(1,042) $ (746)
======= ======
Net loss per common share
Basic $ (.05) $ (.04)
Diluted $ (.05) $ (.04)
Weighted average common shares outstanding
Basic 21,306 19,842
Diluted 23,387 21,954
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(In thousands, except share data)
March 31, December 31,
Assets 1998 1997
Current assets
<S> <C> <C>
Cash $ 4 $ 95
Short-term investments 515 1,117
Accounts receivable, net 453 630
Other current assets, net 351 318
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Total current assets 1,323 2,160
Property and equipment, net 926 775
Goodwill and other assets, net 2,641 2,728
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Total assets $ 4,890 $ 5,663
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 906 $ 665
Accrued payroll and related benefits 140 105
Deferred revenue 360 451
Other accrued liabilities 396 367
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Total current liabilities 1,802 1,588
Commitments and contingencies - -
Stockholders' equity
Preferred stock; $.01 par value; 1,000,000 shares authorized
Series A convertible; 500,000 shares designated; 13,200
issued; 13,200 shares outstanding; aggregate liquidation
preference of $475 1 1
Series B convertible; 120,117 shares designated; 11,917
shares issued and outstanding; aggregate liquidation
preference of $1,192 1 1
Series C convertible; 80,079 shares designated; 7,945
shares issued and outstanding; aggregate liquidation
preference of $795 1 1
Common stock; $.01 par value; 60,000,000 shares authorized;
21,451,575 and 19,968,075 shares issued; 21,356,384 and
19,872,884 shares outstanding 215 214
Additional paid-in capital 61,396 61,357
Accumulated other comprehensive income (loss) (169) (134)
Treasury stock, at cost; 95,191 shares (209) (209)
Retained deficit (58,148) (57,156)
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Total stockholders' equity 3,088 4,075
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Total liabilities and stockholders' equity $ 4,890 $ 5,663
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from (used for) operating activities
<S> <C> <C>
Net loss $ (992) $ (696)
Adjustments to reconcile net loss to net cash
from (used for) operating activities
Depreciation and amortization 183 44
Loss on sale of property and equipment - 101
Decrease in accounts receivable 177 96
(Increase) decrease in other current assets (33) 236
Increase (decrease) in accounts payable 241 (155)
Decrease in accrued liabilities (27) (498)
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Net cash used for operating activities (451) (872)
------- ------
Cash flows from (used) for investing activities
Proceeds from sale of property and equipment - 12
Capital expenditures (247) (36)
Other investing activities, net - 109
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Net cash from (used for) investing activities (247) 85
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Cash flows from (used for) financing activities
Proceeds from stock option exercises 40 -
------- ------
Net cash from financing activities 40 -
------- ------
Net decrease in cash and equivalents (658) (787)
Cash and equivalents, beginning of period 771 6,330
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Cash and equivalents, end of period $ 113 $5,543
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
STAR TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1997, Star Technologies, Inc. ("Star" or the "Company") completed
a transition from providing performance-enhancing computing products and
solutions principally for the medical imaging market to providing imaging
solutions for the broader document imaging market. In July 1997, the Company
sold its medical imaging archival technology and, through a newly-created
operating subsidiary, PowerScan, Inc. ("PowerScan"), acquired document
imaging and processing technology from Intrafed, Inc., as its entry into this
broader market. Additionally, in October 1997, the Company acquired Curran
Data Technologies, Inc. ("CDT"), a provider of data entry imaging services.
With these two acquisitions, Star is a provider of integrated products and
services for commercial and government users involved in data capture, image
capture and document imaging. These two acquisitions are part of the
Company's long-term growth plan to build market presence in the document
imaging market through strategic acquisitions and alliances. The Company
continues its search to identify additional acquisition opportunities in this
market.
NOTE 1 - Financial Information
The interim consolidated financial statements presented herein are
unaudited. They reflect all adjustments that, in the opinion of management,
are necessary to fairly present the Company's financial position and results
of operations for the interim periods presented. All such adjustments are of
a normal, recurring nature. The results of operations for the three-month
period ended March 31, 1998 are not necessarily indicative of the results to
be expected for the entire fiscal year.
The interim consolidated financial information should be read in
conjunction with the Company's Transition Report on Form 10-K, Commission
file number 0-13318, for the Transition Period from April 1, 1997 to December
31, 1997.
Certain 1997 amounts have been reclassified for comparative purposes.
NOTE 2 - Accounting Policies
Revenue recognition
On January 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2") which superseded Statement of
Position 91-1, "Software Revenue Recognition." SOP 97-2 focuses on when and
in what amounts revenue should be recognized for licensing, selling, leasing
or otherwise marketing computer software. The adoption of SOP 97-2 did not
have a material impact on the Company's revenue recognition policies.
Revenue from the sale of commercial, off-the-shelf software is
recognized when the following four criteria are met: (1) the sale is in
writing, (2) the software has been shipped, (3) the fee is fixed or
determinable and (4) collectibility is probable. Customized software revenue
is recognized when the software is accepted by the customer.
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<PAGE>
Maintenance revenues, which include unspecified when-and-if deliverable
software upgrades, user documentation and technical support for software
products, are deferred and recognized on a straight-line basis over the term
of the maintenance agreement, generally one year. Revenue from services
including data entry, integration, installation and system training is
recognized when the services are performed. Amounts received but not earned
are deferred.
Net income (loss) per share
Basic and diluted net income (loss) per share were computed in
accordance with Statement of Financial Accounting Standards No.128, "Earnings
Per Share." The differences between basic weighted average common shares
outstanding and diluted weighted average common shares outstanding are as
follows (in thousands):
<TABLE>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Basic weighted average common shares 21,306 19,842
Convertible preferred stock 2,081 2,112
------ ------
Diluted weighted average common shares 23,387 21,954
====== ======
</TABLE>
NOTE 3 - Cash and Equivalents and Short-Term Investments
Cash and equivalents include cash and short-term investments in
commercial paper. Short-term investments in commercial paper, which are held
to maturity (less than three months from the date of purchase), are carried
at cost which approximates their market value. These investments totaled
$109,000 and $676,000 at March 31, 1998 and December 31, 1997, respectively.
At March 31, 1998 and December 31, 1997, other short-term investments
include 92,800 shares of common stock of Lumisys, Inc. ("Lumisys") acquired
from the sale of the Company's medical imaging archival technology in July
1997. The Company does not actively seek to trade this investment for
purposes of maximizing trading gains and classifies it as "available for
sale." Accordingly, the temporary excess (deficiency) of market value over
(under) the underlying cost is reported as an unrealized gain (loss) as a
separate component of stockholders' equity.
NOTE 4 - Accounts Receivable
Accounts receivable are shown net of an allowance for doubtful accounts
of $13,000 and $22,000 at March 31, 1998 and December 31, 1997, respectively.
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<PAGE>
NOTE 5 - Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
The new disclosure requirements with respect to comprehensive income (loss)
are as follows (in thousands):
<TABLE>
Three Months Ended
March 31,
1998 1997
Comprehensive income (loss): ---- ----
<S> <C> <C>
Net loss, as reported $ (992) $ (696)
Unrealized loss on investment (35) -
------- ------
Total comprehensive income (loss) $(1,027) $ (696)
======= ======
</TABLE>
NOTE 6 - Subsequent Events
In April 1998, the Company entered into a $750,000 working capital line
of credit with a financial institution. The line of credit is secured by the
Company's accounts receivable, inventory and other assets and allows
borrowings of up to 80% of the accounts receivable balance. The line of
credit carries an interest rate of prime plus 3% as well as a service fee
ranging from .75% to 1.5% of the amount borrowed.
Also in April 1998, the Company entered into a $300,000 line of credit
with a bank. The line of credit is secured by the Company's short-term
investment in Lumisys common stock, carries interest at prime plus one
percent and allows borrowings of up to 70% of the Lumisys stock's market
value.
The Nasdaq Stock Market, on which the Company's common stock is
currently traded, has adopted increased quantitative and other listing
standards which became effective on February 28, 1998. The Company does not
currently meet the new requirements for continued listing with respect to (i)
a minimum bid price of $1 per share, and (ii) net tangible assets of
$4,000,000. Nasdaq notified the Company in early April 1998 of the Company's
non-compliance with the continued listing requirements. In response, the
Company submitted to Nasdaq a proposed plan to achieve such compliance.
After review of that plan, Nasdaq reiterated its intention to delist the
Company's common stock from the Nasdaq National Market. The Company has
appealed this decision. The hearing date for the appeal is June 4, 1998,
with the delisting action stayed through that date. If Nasdaq ultimately
determines to remove the Company's common stock from the Nasdaq National
Market, the Company will request that its common stock be moved from the
Nasdaq National Market to the Nasdaq SmallCap Market. There can be no
assurance that Nasdaq will agree to such action. If it does not, trading on
the Company' common stock would thereafter be conducted on the OTC Bulletin
Board or in the over-the-counter market.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The following information should be read in conjunction with the
consolidated financial statements and the notes thereto and in conjunction
with the Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Form 10-K for the Transition Period
from April 1, 1997 through December 31, 1997. This Quarterly Report, and in
particular Management's Discussion and Analysis of Financial Condition and
Results of Operations, contain forward-looking statements (as defined in
Section 21E of the Securities Exchange Act of 19934, as amended) which
reflect management's current views with respect to certain future events and
financial performance. Actual future results and trends may differ
materially depending upon a variety of factors, including, among others, risk
of technological change and uncertainty of product development, risks
associated with acquisitions, the potential inability to finance future
capital needs, operating losses, competition, probable fluctuations in
operating results, reliance on key personnel, the risk of business
interruptions, potential inability to protect proprietary rights and the risk
of defects, as discussed under the heading "Risk Factors" in the Company's
Form 10-K for the Transition Period from April 1, 1997 through December 31,
1997.
Corporate Repositioning
During 1997, Star Technologies, Inc. ("Star" or the "Company") completed
a transition from providing performance-enhancing computing products and
solutions principally for the medical imaging market to providing imaging
solutions for the broader document imaging market. In July 1997, the Company
sold its medical imaging archival technology, and through a newly-created
operating subsidiary, PowerScan, Inc. ("PowerScan"), acquired document
imaging and processing technology from Intrafed, Inc., as its entry into this
broader market. Additionally, in October 1997, the Company acquired Curran
Data Technologies, Inc. ("CDT"), a provider of data entry imaging services.
With these two acquisitions, Star is a provider of integrated products and
services for commercial and government users involved in data capture, image
capture and document imaging. These two acquisitions are part of the
Company's long-term growth plan to build market presence in the document
imaging market through strategic acquisitions and alliances. The Company
continues its search to identify additional acquisition opportunities in this
market.
Results of Operations
Results of operations for the three months ended March 31, 1998 are not
directly comparable to the results of operations for the same prior-year
period due to the repositioning of the Company's line of business from the
medical imaging market to the document imaging market. The Company's results
of operations for the quarter ended March 31, 1998, reflect the first full
quarter to include the operations (revenue and expenses) of both CDT and
PowerScan.
Revenue
Total revenue for the three months ended March 31, 1998 increased to
$1,143,000, from $109,000 for the same period a year ago. Product revenue
was $327,000 and $10,000 for the three months ended March 31, 1998 and 1997,
respectively, representing 28.6% and 9.2% of total revenue for such periods.
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<PAGE>
Service revenue was $816,000 and $99,000 for the three months ended March 31,
1998 and 1997, respectively, representing 71.4% and 90.8% of total revenue
for such periods. Product revenue consists of revenue from the sale of
PowerScan and StageWorks software as well as computer hardware and scanning
equipment. Service revenue consists of revenue from data entry and imaging
services, integration, installation, and systems training provided to the
Company's customers.
The increases in product and service revenue are primarily attributable
to sales of the new document imaging products and services following the
acquisitions described above. See "Corporate Repositioning." In the first
three months of 1998, the Company broadened its distribution strategy for its
imaging software by focusing on channel, value added reseller (VAR) and
integrator distribution. In this regard, the Company's PowerScan subsidiary
added Amitech to its growing list of VARs that market the PowerScan and
StageWorks software. PowerScan also entered into several key industry
partnerships, including a joint marketing program agreement with Excalibur, a
leading developer of document archival and retrieval software solutions,
pursuant to which the Company and Excalibur will market each other's
products. The change in distribution strategy, as well as the recently
entered into original equipment manufacturer (OEM) agreements with, among
others, Fuji Photo Film USA and BancTec Inc., should have a favorable impact
on the Company's results of operations beginning in the second half of 1998.
Cost of Revenue
Cost of product revenue was $61,000 and $135,000 for the three months
ended March 31, 1998 and 1997, respectively, representing 18.6% and 1,350% of
total product revenue in the respective periods. Cost of product revenue
primarily includes costs associated with the purchase of hardware products
and scanning equipment for resale. The cost of product revenue as a
percentage of product revenue may vary from period to period depending on the
ratio of software revenue, which has a lower cost, to hardware revenue.
Cost of service revenue was $607,000 and $186,000 for the three months
ended March 31, 1998 and 1997, respectively, representing 74.4% and 187.9% of
total service revenue in the respective periods. The increase in the dollar
amount of cost of service revenue is primarily attributable to an increase in
compensation and related benefits, the use of independent contractors and
third party maintenance contracts in connection with the corresponding
increase in service revenue associated with the Company's corporate
repositioning.
Research and Development
Research and development ("R&D") expenses consist primarily of:
compensation and related benefits; the use of independent contractors for
development projects; and an allocated portion of general overhead costs,
including occupancy. At March 31, 1998, the research and development staff
consisted of 8 employees. The majority of product R&D expenses for the
current quarter relate to on-going product enhancements. R&D expenses were
$189,000 and $237,000 for the three-month period ended March 31, 1998 and
1997, respectively, representing 16.5% and 217.4% of total revenue in the
respective periods. The decrease in the dollar amount of R&D expenses for
the three month period ended March 31, 1998 compared to the same period of
the prior year is primarily attributable to the Company's sale in July 1997
of its medical imaging technology, offset in part by R&D expenses associated
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<PAGE>
with the Company's document imaging software, acquired in July 1997. The
decrease as a percentage of total revenue is due to the Company's corporate
repositioning and the resultant increased revenue. The Company believes that
R&D expenditures, including compensation of technical personnel, are
essential to maintaining its competitive position and expects these costs to
increase and continue to constitute a significant percentage of revenue.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses consist primarily
of: compensation and related benefits and reimbursable travel and living
expenses related to the Company's sales, marketing and administrative
personnel; advertising and marketing expenses, including trade shows and
similar type sales and marketing expenses; and general corporate expenses,
including occupancy costs. SG&A expenses for the three months ended March
31, 1998, after excluding personnel restructuring charges, was $1.0 million,
compared to $472,000 for the same period a year ago. The increase in the
dollar amount of SG&A expenses is primarily due to the additional SG&A
expense associated with the Company's new PowerScan and CDT subsidiaries,
offset in part by the elimination of certain costs associated with the
Company's former medical imaging business.
Interest and Other Income
During the three months ended March 31, 1998 and 1997, the Company
earned $5,000 and $79,000, respectively, of net interest income. Other
income for the three months ended March 31, 1997 included a one-time payment
of $116,000 received from the Company's former health insurance company in
connection with its conversion from a mutual insurance company to a stock
company.
Net Loss
The net loss for the three months ended March 31, 1998 was $992,000
($.05 per share) compared with a net loss of $696,000 ($.04 per share) for
the same period of the prior year. The net loss is due to the corporate
repositioning of the Company, and the associated integration of the document
imaging operations acquired as a result of the two acquisitions discussed
above. In spite of the net loss, management continues to believe that the
document imaging market is a significant market. Management believes it has
made investments in the talent and technology necessary to establish the
Company in this marketplace. However, there can be no assurance that the
Company will be able to achieve consistent profitability on a quarterly or
annual basis or that it will be able to sustain or increase its revenue
growth in future periods. Based upon the expenses associated with current
and planned staffing levels, profitability is dependent upon increasing
revenues.
Liquidity and Capital Resources
At March 31, 1998, the Company had $113,000 of cash and equivalents and
$406,000 of short-term investments. The Company had a net cash outflow from
operating activities of $451,000 for the quarter ended March 31, 1998.
In April 1998, the Company entered into a $750,000 working capital line
of credit with a financial institution. The line of credit is secured by the
Company's accounts receivable, inventory and other assets and allows
borrowings of up to 80% of the accounts receivable balance. The line of
credit carries an interest rate of prime plus 3% as well as a service fee
ranging from .75% to 1.5% of the amount borrowed.
Also in April 1998, the Company entered into a $300,000 line of credit
with a bank. The line of credit is secured by the Company's short-term
investment in Lumisys common stock, carries interest at prime plus one
percent and allows borrowings of up to 70% of the Lumisys stock's market
value.
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<PAGE>
The Company's operations and acquisitions to date have consumed
substantial amounts of cash. The continuing operation of the Company's
business, and the continued development and commercialization of its
technology, products and services, will require the availability of
additional funds for the foreseeable future. The Company's ability to obtain
cash adequate to fund its needs depends generally on the results of its
operations and the availability of financing. The Company believes that
available funds and expected cash flow to be generated from operations,
together with any borrowings under the two credit arrangements, will be
sufficient to meet its anticipated cash needs through the end of 1998. If
the cash flow from operations is insufficient or if the Company makes
acquisitions requiring significant cash outlays, the Company likely would be
required to raise additional funds from debt or equity placements, or reduce
discretionary operating and capital expenditures. If the Company has
insufficient funds for its needs, the Company may not be able to raise
additional funds on favorable terms, if at all, or may not be able to do so
on a timely basis. Failure to obtain additional funds when needed could
materially adversely affect the Company.
The Series B and Series C Senior Preferred Stock (the "Preferred Stock")
currently accrue dividends at a rate of 10% per annum. To the extent
declared, such dividends would be payable quarterly in the amount of $50,000
in cash. Unpaid cumulative dividends in arrears on the Preferred Stock total
$325,000 as of March 31, 1998.
Potential Delisting of Common Stock From Nasdaq National Market
The Nasdaq Stock Market, on which the Company's common stock is
currently traded, has adopted increased quantitative and other listing
standards which became effective on February 23, 1998. The Company does not
currently meet the new requirements for continued listing with respect to (i)
a minimum bid price of $1 per share, and (ii) net tangible assets of
$4,000,000. Nasdaq notified the Company in early April 1998 of the Company's
non-compliance with the continued listing requirements. In response, the
Company submitted to Nasdaq a proposed plan to achieve such compliance.
After review of that plan, Nasdaq reiterated its intention to delist the
Company's common stock from the Nasdaq National Market. The Company has
appealed this decision. The hearing date for the appeal is June 4, 1998,
with the delisting action stayed through that date. If Nasdaq ultimately
determines to remove the Company's common stock from the Nasdaq National
Market, the Company will request that its common stock be moved from the
Nasdaq National Market to the Nasdaq SmallCap Market. There can be no
assurance that Nasdaq will agree to such action. If it does not, trading on
the Company' common stock would thereafter be conducted on the OTC Bulletin
Board or in the over-the-counter market.
Year 2000 Disclosure
The Company has made a preliminary assessment of potential Year 2000
issues with respect to various computer-related systems. The Company's
corrective actions will include reprogramming impacted software when
appropriate and feasible, obtaining vendor-provided software upgrades when
available and completely replacing impacted systems when necessary. The
Company believes that the costs to correct its systems will not materially
and adversely affect its business, results of operations or its financial
condition. However, there can be no assurance that the Company has
identified all Year 2000 impacted systems or that its corrective actions will
be timely and successful.
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<PAGE>
Effect of New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 ("FAS No. 131"), "Disclosure about
Segments of an Enterprise and Related Information". FAS No. 131 requires the
Company to present certain information about operating segments and related
information, including geographic and major customer data, in its annual
financial statements and in condensed financial statements for interim
periods. The Company is required to adopt the provisions of this Statement
during fiscal year 1998. The effect of adoption of this statement will be
limited to the form and content of the Company's disclosures and will not
impact the Company's results of operations, cash flow or financial position.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time a party to litigation arising in the
normal course of its business. Such claims, even if lacking merit, could
result in the expenditure of significant financial and managerial resources.
Management believes that no currently pending or threatened actions will have
a material and adverse effect on the financial condition or results of
operations of the Company.
Item 5. Other Information
The Nasdaq Stock Market, on which the Company's common stock is
currently traded, has adopted increased quantitative and other listing
standards which became effective on February 23, 1998.
In early April 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") informed
the Company that, based upon a review of the Company's Form 10-K for the
transition period from April 1, 1997 through December 31, 1997, the Company
no longer meets the net tangible assets requirement for continued listing on
the Nasdaq National Market. The Nasdaq rules require, among other things,
that the Company have net tangible assets (defined by Nasdaq as total assets,
excluding goodwill, minus total liabilities) of at least $4,000,000. At
December 31, 1997, the Company's net tangible assets were approximately
$1,347,000, and at March 31, 1998, the Company's net tangible assets were
$447,000. In response, the Company submitted to Nasdaq a proposed plan to
achieve such compliance. After review of that plan, Nasdaq notified the
Company of the denial of the Company's request for an extension to complete
the Company's plan to meet Nasdaq's continued listing requirements. Nasdaq
indicated that the Company's common stock would be delisted from the Nasdaq
National Market on the opening of the market on May 1, 1998. The Company
then requested an oral hearing to appeal this decision. The hearing date for
the appeal is June 4, 1998, with the delisting action stayed through the
hearing date.
Even if the Company is successful in getting Nasdaq to accept its plan
and defer delisting its common stock, there can be no assurance that the plan
will be successful. Furthermore, under the new continued listing
requirements, any security with a minimum bid price of less than $1.00 per
share is subject to delisting, regardless of the issuer's net tangible
assets. The closing pricing of the Company's common stock on May 14, 1998,
was $0.72.
If Nasdaq ultimately determines to remove the Company's common stock
from the Nasdaq National Market, the Company will request that its common
stock be moved from the Nasdaq National Market to the Nasdaq SmallCap Market.
There can be no assurance that Nasdaq will agree to such action. If it does
not, trading of the Company's common stock would thereafter be conducted on
the OTC Bulletin Board or in the over-the-counter market.
The Company intends to re-apply for listing on the Nasdaq National
Market or the Nasdaq SmallCap Market as soon as possible after the Company is
able to satisfy the applicable listing requirements. There can be no
assurance that the Company will be able to satisfy such requirements.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The exhibits filed herewith or incorporated by reference are set
forth on the Exhibit Index immediately preceding the exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1998.
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<PAGE>
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.
STAR TECHNOLOGIES, INC.
Dated: May 15, 1998 /s/ Brenda A. Potosnak
------------ --------------------------------
Brenda A. Potosnak
Vice President of Finance and Administration,
Secretary, Treasurer and Chief Financial
Officer
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EXHIBIT INDEX
Exhibit
No.
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3.1* Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1988
(Registration No. 0-13318) filed with the Commission on June
29, 1988.
3.2* Certificate of Designation, Preferences and Rights of Series
B Senior Preferred Stock and Series C Senior Preferred Stock
("Certificate of Designation"), incorporated by reference
from the exhibit filing to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1990
(Registration No. 0-13318) filed with the Commission on June
29, 1990.
3.3* Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated August 29, 1994,
incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995
(Registration No. 0-13318) filed with the Commission on June
29, 1995.
3.4* Certificate of Amendment of Restated Certificate of
Incorporation of the Company, dated August 23, 1996,
incorporated by reference from the exhibit filing to the
Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1996 (Registration No. 0-13318) filed
with the Commission on November 14, 1996.
3.5* By-Laws of the Company, as amended and restated on February
24, 1994, and as further amended on August 22, 1996,
incorporated by reference from the exhibit filing to the
Company's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1996 (Registration No. 0-13318) filed
with the Commission on November 14, 1996.
11 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
*Incorporated by reference.
-15-
<PAGE>
EXHIBIT 11
----------
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS (LOSS)
---------------------------------------
(In thousands, except per share data)
Three Months Ended
March 31,
-----------------
Basic Per Share Earnings (Loss) 1998 1997
- ------------------------------ ---- ----
<S> <C> <C>
Average shares outstanding during period 21,306 19,842
======= =======
Net loss $ (992) $ (696)
Undeclared cumulative dividends on
preferred stock (50) (50)
------- -------
Net loss applicable to common shares $(1,042) $ (746)
======= =======
Basic net loss per common share $ (.05) $ (.04)
======= =======
</TABLE>
-16-
<PAGE>
EXHIBIT 11
----------
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS (LOSS) (Cont'd)
-------------------------------------------------
(In thousands, except per share data)
Three Months Ended
March 31,
------------------
Diluted Per Share Earnings (Loss) 1998 1997
- --------------------------------- ---- ----
<S> <C> <C>
Average shares outstanding during period 21,306 19,842
Employee stock options assumed exercised 598 -
Dilutive effect of convertible securities
computed by the "if converted" method:
Series A preferred stock 95 126
Series B & C preferred stock 1,986 1,986
------- -------
23,985 21,954
======= ======
Net loss applicable to common shares $ (992) $ (696)
======= ======
Diluted net loss per common share $ (.04) $ (.03)
======= ======
<PAGE> -17-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4
<SECURITIES> 515
<RECEIVABLES> 466
<ALLOWANCES> 13
<INVENTORY> 59
<CURRENT-ASSETS> 1323
<PP&E> 1954
<DEPRECIATION> 1028
<TOTAL-ASSETS> 4890
<CURRENT-LIABILITIES> 1802
<BONDS> 0
0
3
<COMMON> 215
<OTHER-SE> 2870
<TOTAL-LIABILITY-AND-EQUITY> 4890
<SALES> 1143
<TOTAL-REVENUES> 1143
<CGS> 668
<TOTAL-COSTS> 668
<OTHER-EXPENSES> 1468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (992)
<INCOME-TAX> 0
<INCOME-CONTINUING> (992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
