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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
Commission file number 1-4530
ASTREX, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-1930803
(State of incorporation) (IRS Employer Identification No.)
205 Express Street, Plainview, New York 11803
(Address of principal executive offices) (Zip Code)
516 - 433-1700
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
SECURITIES REGISTERED PURSUANT TO 12 (g) OF THE ACT:
Common Stock, $.01 Par Value
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 each filing requirements for the past 90
days. Yes X No.
---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $14,373,403.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified date
within the past 60 days. $487,270 as of May 27,1999 (See Item 5).
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 5,629,277 shares of Common Stock as
of May 27, 1999.
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ASTREX, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item required by Form 10-KSB Location of Item
- ---------------------------- ----------------
<S> <C>
Item 1. - Description of Business Item 1. Business
Item 2. - Description of Property Item 2. Description of Property
Item 3. - Legal Proceedings Item 3. Legal Proceedings
Item 4. - Submission of Matters to a Item 4. Submission of Matter to a
Vote of Security Holders Vote of Security Holders
Item 5. - Market for Common Equity Item 5. Market for Registrant's Common Equity
and Related Shareholder and Related Shareholder Matters
Matters
Item 6. - Management's Discussion and Item 6. Management's Discussion and Analysis of
Analysis or Plan of Operation Financial Condition and Results of Operation
Item 7. - Financial Statements Item 13. Exhibits, Financial Statements and Reports
on Form 8-K
Item 7a. - Quantitative and Qualitative Item 7a. - Quantitative and Qualitative
Disclosure About Market Risk Disclosure About Market Risk
Item 8. - Changes In and Disagreements Item 8. Changes in and Disagreements with
With Accountants on Accounting Accountants on Accounting
and Financial Disclosure and Financial Disclosure
Item 9. - Directors, Executive Officers, Item 9. Directors and Executive Officers
Promoters and Control Persons, of the Company;
Compliance with Section 16(a) Compliance with Section 16(a)
of the Exchange Act of the Exchange Act
Item 10. - Executive Compensation Item 10. Executive Compensation
Item 11. - Security Ownership of Certain Item 11. Security Ownership of Certain Beneficial
Beneficial Owners and Owners and Management
Management
Item 12. - Certain Relationships and Item 12. Certain Relationships and Related
Related Transactions Transactions
Item 13. - Exhibits and Reports on Item 13. Exhibits, Financial Statements and
Form 8-K Reports on Form 8-K
</TABLE>
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Part I
Item 1. Business.
General
Astrex, Inc., a Delaware corporation (the "Company" or "Astrex"), is a
value-added distributor of electronic components used to connect, control,
regulate or store electricity in equipment. The principal products assembled and
sold by Astrex are "connectors." Connectors link a wire or group of wires to
another wire or group of wires. Other products sold include relays, switches,
and LED's.
The Company (including its wholly owned subsidiaries T.F. Cushing, Inc.
and AVest, Inc.) has 60 employees, principally at facilities in Plainview, New
York and West Springfield, Massachusetts and carries in inventory over 25,000
different electronic parts from approximately 20 manufacturers, including
Amphenol Corporation, Hirose Electric (USA), Inc., ITT Cannon, ITW Switches,
Litton Winchester Electronics, Micro Switch (division of Honeywell, Inc.),
Packard Hughes Interconnect, and WPI Salem Division (Wire Pro). While the
Company sells a portion of this inventory without any further value
enhancements, a significant portion of its sales consists of components
assembled to customer specifications. The Company's sales are worldwide with a
concentration in the Northeast and Mid-Atlantic States. The Company serves more
than 3,200 customers representing a broad range of electronics users from major
original equipment manufacturers, to engineering firms and research and
educational institutions. The Company's largest industry markets include the
defense, aerospace, industrial equipment, and computer industries.
Approximately 81% of the products sold by the Company are connectors. A
connector links electronic components together and generally consists of a
shell, insert, contacts and adaptive hardware. Each of these four parts has many
variations and can be assembled together in almost unlimited combinations.
Connectors range in price, depending on design, complexity, use, and
availability from $0.25 to $2,500 a connector. The Company has traditionally
emphasized the sale of connectors that meet a higher standard of reliability and
performance including those meeting United States military specifications. Most
of the connectors sold by the Company range in price from $5 to $70 each.
The Company has the capacity to both assemble and test connectors to
customer's specifications, which is a capability that some of its competitors do
not have. The assembly capability also enables the Company to inventory fewer
finished parts and to deliver a wider variety of finished connectors,
substantially enhancing service to its customers. During the fiscal year ended
March 31, 1999, of the 81% of connectors sold, approximately 41% of the
Company's sales represented assembled connectors, approximately 35% of the
Company's sales represented connectors not requiring further assembly by the
Company and approximately 5% of the Company's sales represented unassembled
connector parts.
The other products sold by the Company are devices that control or
regulate the flow of electricity to or within components, including relays and
switches that control current by opening or closing an electric circuit. These
products represented approximately 19% of sales.
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Assembly of military specification connectors, a significant part of
the Company's business, usually requires government approval. The Company has
such approvals as are necessary for the military specification connectors it
assembles and does not perceive any future problems with respect to such
approvals. The nature of the Company's business does not require significant
expenditures for product research and development and the Company's expenditures
in that regard over the past two years have been nominal.
The Company markets the products of approximately 20 manufacturers. Its
four largest suppliers, ITT Cannon, Amphenol Corporation, ITW Switches and
Packard Hughes Interconnect accounted for approximately 44% of the purchases for
fiscal year ending March 31, 1999.
The Company has satisfactory relations with its suppliers, most of
which have done business with the Company for over 15 years. The Company
believes that most of the products it presently sells are available from other
sources at competitive prices. Most of the products sold by the Company are
pursuant to franchise agreements that are typically cancelable at any time.
As of March 31, 1999 the Company's net inventory aggregated
approximately $4,440,000 of which approximately 88% consisted of connectors.
While manufacturers generally do not give distributors, such as the Company, the
absolute right to return unsold inventory, it is the policy of many
manufacturers to protect or partially protect franchised distributors, such as
the Company, against the potential write-down of inventories due to
technological change or manufacturer's price reductions. Similarly, a
manufacturer who elects to terminate a franchise may be required to purchase
from the distributor a substantial, if not the total, amount of its product
carried in inventory. No assurance can be given however, that these industry
practices will continue.
The Company serves more than 3,200 customers representing a broad
spectrum of electronic users ranging from major original equipment manufacturers
to engineering firms and research and educational institutions. Such customers
include manufacturers in the aerospace, industrial, defense and computer
industries. No single customer accounted for more the 10% of sales, during years
ended 1999 and 1998.
Many of the Company's customers require delivery schedules, which are
generally not available on direct purchase from manufacturers. The Company
offers its customers the convenience of diverse and extensive local inventories
and rapid deliveries. In addition, because of its expertise in connectors, the
Company can offer its customers technical advice and support, and innovative
solutions to customer problems. The Company believes that its has good long-term
relationships with its customers extending, in some cases, over a period of 20
years.
For the fiscal year ended March 31, 1999 and 1998, 79% and 79% of the
Company's sales, respectively, were in the Northeast and Mid-Atlantic States,
16% and 18% of sales, respectively were to other parts of the country and 5% and
3% of sales, respectively were for export.
Sales are generated by the Company's field sales force, which covers
specific geographic territories and customers; by the Company's inside telephone
sales force; by independent sales representatives; and by the use of space
advertising in industry publications. Sales are managed and coordinated by
regional sales managers and by product managers located in the Company's
Plainview, New York or West Springfield, Massachusetts facilities.
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When used herein, the words "believe," "anticipate," "think," "intend,"
"will be," "expect" and similar expressions identify forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are not guarantees of future performance and involve certain risks
and uncertainties discussed herein, which could cause actual results to differ
materially from those in the forward-looking statements. Readers are cautioned
not to place undue reliance on the forward-looking statements, which speak only
as of the date hereof. Readers are also urged carefully to review and consider
the various disclosures made by the Company which attempt to advise interested
parties of the factors which affect the Company's business, including, without
limitation, the disclosures made under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation." All references to
fiscal year are to the Company's fiscal year which ends March 31.
Recent Developments
-------------------
In November 1998, the Company began selling a new line of high density
cylindrical connectors manufactured by ITT Cannon. This new line of connectors
allows the Company to provide its customers with a very broad offering of
cylindrical connectors.
In October 1998, the Company added an international sales manager to
increase its focus on international sales. Results for the first six months have
been very positive.
In November 1998, the Company's quality system became ISO 9002
certified. ISO 9002 is a globally recognized certifiable series of standards for
implementing and managing a system to ensure a quality product.
During the last quarter of the fiscal year ended March 31, 1999 the
Company's then auditors, KPMG LLP, advised that it contemplated a significant
increase in audit fees. As a consequence the Company determined that it was
appropriate to change auditors for the purpose of keeping audit costs reasonably
near prior levels while maintaing the same level and quality of service. The
Company's new auditors are Grant Thornton LLP, see Item 8 "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure".
On July 20, 1998 the Company purchased an 8% equity interest in Enigma
Energy Company, L.L.C. ("Enigma") with an option ("Enigma Option") to purchase
the remaining equity interest in late 1998 or early 1999. Enigma is a closely
held Dallas, Texas producer of natural gas and oil. It owns working interests in
several leases located principally in Panola County, Texas including seven
producing wells, two `shut in' wells, and several potential well sites. The
purchase price for the 8% equity interest and Enigma Option was $300,000
($225,000 attributed to the equity interest and the remaining $75,000 attributed
to the Enigma Option).
The Company funded the $300,000 purchase price through the private
placement of 1,200,000 unregistered shares of its Common Stock with its Chairman
of The Board and members of his family at twenty-five cents a share ("Private
Placement"). The Private Placement Agreement provided in part that if the
Company did not make a rights offering of registered shares on similar terms by
November 1998, which it did not, then the Company would have the option of
repurchasing those privately placed shares, ("Private Placement Option") see
Item 12 "Certain Relationships and Related Transactions".
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On December 15, 1998 the Company determined in light of Enigma's post
July 1998 drilling results and the depressed energy market that it would not
exercise the Enigma Option. As a consequence of the foregoing, $7,500 of
directly related costs and $75,000 attributed to the value of the Enigma Option
have been expensed, together with an additional $150,000 recognized as an
impairment charge as the asset was deemed not to be recoverable. The Company
continues to own an 8% minority equity interest in Enigma.
In February 1999 the Company, without the participation of its Chairman
of the Board, determined that it would not be in the best interests of the
Company to exercise the Private Placement Option, see Item 12 "Certain
Relationships and Related Transactions".
Competition
-----------
The Company operates in a highly competitive environment. The sale and
distribution of products sold by the electronics distribution industry is
extremely competitive, particularly with regard to price and product
availability. The Company competes with numerous local, regional, and national
distributors, many of which have greater financial resources and sales than the
Company. To a certain extent, the Company also competes with manufacturers of
electronic parts and components, including some of its suppliers, which are
involved in the direct sales of their products.
Backlog
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At April 1, 1999, the Company's total backlog of confirmed, unfilled
orders was approximately $3,801,000, an increase of 19% over the April 1, 1998
backlog of $3,182,000. The Company expects almost the entire backlog to be
shipped before the end of the fiscal year ending March 31, 2000. The backlog at
year-end is not necessarily indicative of sales for any specific subsequent
period.
Compliance with Environmental Laws
----------------------------------
In the fiscal years ending March 31, 1999 and 1998 the Company expended
less than $10,000 in order to comply with environmental laws with respect to the
Plainview building. The Company has had no other expenditures with respect to
such laws in that time period.
Employees
---------
As of March 31, 1999 the Company had 60 employees. The Company has
senior operating personnel at both its Plainview, New York and West Springfield,
Massachusetts facilities, some of whom have been with the Company or a
subsidiary for more than 15 years. Management believes that its relations with
its employees are satisfactory.
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Year 2000 Disclosure
--------------------
The Company has completed its assessment of its informational
technology systems ("IT Systems) and equipment and has made the necessary
changes to make such systems and equipment year 2000 ("Y2K") compliant.
Preliminary testing of its informational technology systems has been completed
with minimal cost to the Company. The Company believes there is no significant
internal risk with regards to Y2K.
Management is currently monitoring and evaluating vendors and
suppliers to determine their compliance and any material impact there might be
on the Company. Currently, major suppliers are either Y2K compliant or have
established plans to be so by December 1999.
An inventory and assessment of all non-IT systems (items containing
embedded chips, such as electronic door locks, telephones, security systems
etc.) is being undertaken. The majority of these systems are not believed to be
potential sources of significant disruption.
The Company is in the process of developing a "worst-case scenario"
with respect to the Y2K non-compliance and to develop contingency plans designed
to minimize the effects of such a scenario. Although management believes that it
is very unlikely that the worst-case scenario will occur, contingency plans will
be developed and will address both the IT system and equipment and the non-IT
system failure.
There is still uncertainty as to the broader scope of the Y2K issue as
it may affect the Company and third parties that are critical to the Company's
operations. As an example, lack of readiness by electrical and water utilities,
financial institutions, governmental agencies or other general infrastructure
providers could pose significant impediments to our ability to carry on our
normal operations. The Company intends to request assurances of Y2K readiness
from its telephone and utilities suppliers. However, management has been
informed that some suppliers have either declined to provide the requested
assurances, or have limited the scope of assurances to which they are willing to
permit. If suppliers of services that are critical to the Company's operations
were to experience business disruptions as a result of their lack of Y2K
readiness, their problems could have a material adverse affect on the financial
position and results of operations of the Company. The impact of a failure of
readiness by critical suppliers cannot be estimated with confidence, and the
effectiveness cannot provide an assurance that there will be no material adverse
effects to the financial condition or results of operations of the Company as a
result of Y2K issues.
Item 2. Properties.
Through its wholly owned subsidiary, AVest, Inc., the Company owns a
22,000 square foot building at 205 Express Street, Plainview, New York. The
Company's principal executive offices occupy approximately 750 square feet of
that building with the balance of the building space constituting office,
warehouse and assembly facilities for the Company. The property is adequately
covered by insurance and there are at present no significant renovation,
improvement or development plans with respect to the
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facility. The Company's T.F. Cushing, Inc. subsidiary occupies 3,500 square feet
in West Springfield, Massachusetts at an annual rent of $20,760 under a lease
that expires August 31, 2000. In addition the Company presently maintains sales
offices in Endwell, New York (1,500 square feet, $15,000 annual rent, under a
lease that expires December 31, 1999), Willow Grove, Pennsylvania (1,323 square
feet, $19,978 annual rent, month-to-month occupancy under a lease which expired
December 19, 1992) and Woburn, Massachusetts (1,058 square feet, $19,147 annual
rent, under a lease that expires November 30, 1999). All of the Company's
premises are adequate for the Company's current and foreseeable requirements.
The Company has no present plans to significantly renovate or improve any of its
leased properties.
During fiscal year ended March 31, 1998 the Company made a long-term
investment of $50,000 in a real estate investment partnership (which owns and
leases commercial property) which represents an immaterial amount of the
Company's assets. The Company is not presently or does not plan to engage in
other real estate activities but reserves the right to engage in any such
activities in the future (generally without stockholder approval).
Item 3. Legal Proceedings.
As of March 31, 1999 and the date hereof there was no litigation
pending against or on behalf of the Company or its properties.
Item 4. Submission of Matters to a Vote of Security Holders.
At the March 25, 1999 Annual Meeting of the Company for the fiscal year
ending March 31, 1998, Mr. Mark Schindler and Mr. David S. Zlatin were elected
as Class II directors for a term of three years. The other Astrex directors are,
John C. Loring, Howard Amster, and Michael McGuire. The voting tally at the
meeting was as follows:
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For Against Abstain & Broker Nonvotes
- --------------------------------------------------------------------------------
Mr.Schindler 4,002,310 13,957 0
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Mr. Zlatin 4,003,849 12,418 0
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock ("Astrex Common Stock") trades on the
over-the-counter market under the symbol "ASXI". The following table sets forth
the high and low closing bids for Astrex Common Stock. These over-the-counter
market quotations reflect inter-dealer prices without retail mark-up, mark-down
or commission, are approximate and may not necessarily represent actual
transactions.
- --------------------------------------------------------------------------------
Calendar Year
& Quarter High Closing Bid Low Closing Bid
- --------------------------------------------------------------------------------
1997 First Quarter 9/32 1/4
- --------------------------------------------------------------------------------
Second Quarter 9/32 1/4
- --------------------------------------------------------------------------------
Third Quarter 11/32 7/32
- --------------------------------------------------------------------------------
Fourth Quarter 3/8 9/32
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1998 First Quarter 5/16 5/16
- --------------------------------------------------------------------------------
Second Quarter 11/32 5/16
- --------------------------------------------------------------------------------
Third Quarter 11/32 9/32
- --------------------------------------------------------------------------------
Fourth Quarter 9/32 27(cent)
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1999 First Quarter 27(cent) 1/4
- --------------------------------------------------------------------------------
For purposes of the disclosure of the aggregate market value of the
voting stock held by non-affiliates as set forth on page 1 of this Report, the
Company has used the price of 9/32 cents (28.125(cent)) per share, which is the
average of the reported closing bid and ask prices on May 27, 1999.
No dividends have been paid on common stock since April 1978 and the
Company does not anticipate paying dividends with respect to common stock in the
foreseeable future.
As of May 27, 1999 there were 5,629,277 shares of the Company's common
stock outstanding and held by 360 holders of record.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
The Company showed a net loss of approximately $236,000 for fiscal year
1999 versus net income of approximately $322,000 for fiscal year 1998. The
decrease is attributable to a write down of an 8% investment in Enigma of
$232,500, as well as, lower gross profit margins and an increase in sales,
general and administrative expenses.
Due to price pressure in all connector markets, the Company's gross
margins fell slightly to 22.7% in fiscal 1999 from 23.3% in fiscal 1998. Pricing
pressures, which began approximately six years ago, were caused by larger
distributors increasing their market share in a relatively weak connector
market. The Company responded to these pressures with reduced prices.
Net sales for the fiscal year ended March 31, 1999 remained relatively
constant at approximately $14.4 million as compared to approximately $14.3
million for the fiscal year ended March 31, 1998.
At April 1, 1999, the Company's total backlog of confirmed, unfilled
orders was approximately $3,801,000 an increase of 19% over the April 1, 1998
backlog of $3,182,000.
Selling, general and administrative expenses increased approximately
$232,000, or 8%, for the fiscal year ended March 31, 1999, to $3,120,462 from
$2,888,645 for the fiscal year ended March 31, 1998. This increase is primarily
the result of additional expenses associated with the implementation and
certification of ISO 9002, see Item I "Business, Recent Developments", along
with, increases in sales personnel.
Interest expense increased to $115,452 in fiscal 1999 from $103,225 in
fiscal 1998. This was due to an increase in average loan balances.
Liquidity and Capital Resources
The Company used approximately $1,200,000 in cash from its line of
credit to increase inventory purchases. Inventory purchases increased
significantly to satisfy the increase in backlog of confirmed, unfilled
orders. The Company began fullfilling its order backlog resulting in an
increase in sales and accounts receivable in the last quarter of fiscal year
1999. At March 31, 1999, the Company had working capital of $4,795,376 and its
stockholders' equity was $3,197,315. The Company believes that its present
working capital, cash generated from operations and amounts available under
the new loan
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agreement will be sufficient to meet its cash needs during the next year. The
Company's principal credit facility is a line of credit ("Line") first entered
into on July 9, 1997. The Line is secured by substantially all of the Company's
assets, and since May 14, 1999, a term loan collateralized by a mortgage on the
205 Express Street property. Borrowings under the Line, other than with respect
to the mortgage, is based on the Company's inventory and receivables. Presently
the term of the Line runs to April 30, 2002. On March 31, 1999, the Company owed
approximately $2,413,000 on the Line. The Company's relationship with its
secured lender is satisfactory and the Company believes that the lending
arrangement will be adequate for the foreseeable future.
During the fiscal year ended March 31, 1999 the provisions of the Line
were modified to reduce the interest rate, increase the maximum availability and
extend the then term. Since that time, on May 14, 1999, the Line was further
modified to increase the overall borrowing availability by converting a negative
pledge on the Company's 205 Express Street property to a mortgage securing a
term loan and extending the term of the Line generally to April 30, 2002.
Item 7. Financial Statements and Supplementary Data.
Pages F-1 et. seq. of this Form 10-KSB are by this reference
incorporated herein.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to interest rate change market risk with
respect to its credit facility with a financial institution which is priced
based on the libor rate plus 1 1/2 %. At March 31, 1999, $2,412,768 was
outstanding under the credit facility. A change in libor rate during fiscal 2000
will have a positive or negative effect on the Company's interest expense. Each
1% fluctuation in the interest rate will increase or decrease interest expense
for the Company by approximately $24,000 on an annualized basis.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
On March 30, 1999 Astrex, Inc. (the "Company") engaged Grant Thornton
LLP ("New Auditor") to audit the Company's financial statements for the fiscal
year to end March 31, 1999. For the past several fiscal years KPMG LLP ("Former
Auditor") performed the Company's annual audit. The Company elected to change
auditors with the approval of its Board of Directors in order to keep its audit
costs reasonably near prior levels while maintaining the same level and quality
of services.
Pursuant to Regulation S-B 228.304 of the Securities and Exchange
Commission, the Company further advises that (a) its Former Auditor did not
resign or decline to stand for re-election and neither was it dismissed. Rather
with the approval of the Company's Board of Directors, the Company chose to
10
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engage its New Auditor for the fiscal year to end March 31, 1999 audit as
opposed to entering into a new engagement with its Former Auditor; (b) the
Former Auditor's accountant's reports on the financial statements for the
Company for each of the past two (2) fiscal years did not contain an adverse
opinion or disclaimer of opinion and were not qualified as to uncertainty, audit
scope, or accounting principles; (c) during the past two fiscal years and
subsequent interim period there have been no resolved or unresolved
disagreements between the Company and the Former Auditor on any matter of
accounting principals or practices, financial statement disclosure, auditing
scope or procedures, which, if not resolved to the Former Auditor's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report; (d) during the past two
fiscal years and subsequent interim period there have been no events described
in Regulation S-B 228.304 (a) (1) (iv) (B); and (e) upon review of the foregoing
the Former Auditors furnished the Company with a letter addressed to the
Securities and Exchange Commission indicating no disagreement with the
foregoing.
Part III
Item 9. Directors and Executive Officers of the Company; Compliance with
Section 16(a) of the Exchange Act.
The following table sets forth for current officers and directors, (i)
that person's name, (ii) if applicable the Director Class elected to, (iii) all
positions with the Company held by that person, (iv) that person's age, (v) that
person's principal occupation for the past five years and (vi) with respect to
directors the date on which that person first became a director of the Company.
Unless otherwise indicated, each person has held the position shown, or has been
associated with the named employer in an executive capacity, for more than five
years. The terms of the current directors are for three years or until their
respective successors are elected and qualified. The terms of the classes of
directors are staggered in order of roman numeral class number so that one class
of directors is elected each year. The terms of officers expire at the pleasure
of the Board of Directors.
Name, Age, Cal. Year First
Became a Director or Officer &
Director Class if applicable. Principal Occupation for past five years
- ------------------------------ ----------------------------------------
Howard Amster Private investor and registered
Director representative with Everen Securities,
51 - since 1992 - Class III Inc., Cleveland, Ohio. Director, Geauga
Savings Bank, a northern Ohiosavings and
loan; and formerly Trustee, CleveTrust
Realty Investors, a real estate company.
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John C. Loring Attorney and private investor,
Director and Chairman Chicago, Illinois. Director of Geauga
54 - since 1988 - Class III Savings Bank, a northern Ohio savings
and loan, and formerly: Vice Chairman
and a director of GalVest, Inc., a
Houston oil and gas company, director
of Weatherford International, a
Houston well servicing company,
director of Fleet Aerospace, Inc., a
Toronto manufacturer of components
for the aerospace market, and
director of Guardian Bankcorp., Inc.,
a former Los Angeles Bank.
Michael McGuire Mr. McGuire joined the Company in
Director, CEO and President 1969. Prior to becoming CEO and
44 - since 1991 - Class I President he was the Company's
General Manager and Director of
Operations. Mr. Michael McGuire and
Mr. Robert McGuire are not related.
Robert McGuire Mr. Robert McGuire joined the Company
Executive Vice President in 1981. Prior to becoming an
49 - since 1997 Executive Vice President he held the
position of Warehouse Manager. He has
worked in the distribution industry
since 1976. Mr. Robert McGuire and
Mr. Michael McGuire are not related.
Wayne Miller Mr. Wayne Miller joined the Company
Executive Vice President in 1996 as the Director of New
44 - since 1997 Business Development. Prior to
joining the Company Mr. Miller was
Director of Sales for Summit Radio
Corporation for a year and a half and
prior to that time General Manager of
Time Electronics, Inc. a divison of
Avnet, Inc., for fifteen years. He
has worked in the electronics
distribution industry since 1975.
Lori A. Sarnataro Ms. Lori Sarnataro joined the Company
CFO, Executive Vice President, Treasurer in 1998. Prior to joining the Company
and Secretary in 1998, Ms. Sarnataro, a Certified
34 - since 1998 Public Accountant, was employed with
Physician Computer Network, Inc. for
five years as Managerof Corporate
Accounting and Systems
Implementation. Prior to that she was
employed with KPMG LLP for five years
as a Senior Accountant and Tax
Specialist.
Mark Schindler Mr. Schindler is a self-employed
Director consultant, private investor, and
76 - since 1960 - Class II Secretary, Treasurer and Director of
Madison Venture Capital II, Inc.,
New York, New York. Mr. Schindler was
formerly a Director of Kushi
Macrobiotics, Inc. which became
American Phoenix, Inc. and was
formerly a Dirctor and officer of
Natural Child Care, Inc./Winners All
International, Ltd., Light Savers
U.S.A., Inc. which became Hospitality
Worldwide Services, Inc., Servtex
International Inc. which became
Hymedix, Inc. Mr. Schindler founded
Astrex, Inc.
12
<PAGE>
Nancy Shields Ms. Nancy Shields joined the Company
Executive Vice President in 1990. Prior to becoming Vice
42 - since 1995 President she was the Corporat
Product Manager. Ms. Shields has
worked in the electronics
distribution industry since 1977.
David S. Zlatin Chief Operating Officer of Ramat
Director Securities, Ltd., Rabbi and private
46 - since 1993 - Class II investor.
Messrs. Amster, Loring and Michael McGuire are members of the Board's
Executive Committee. In addition John Loring is Chairman and Secretary of the
Company's wholly owned subsidiary AVest, Inc. and David Zlatin is President and
Treasurer of AVest, Inc. They are also AVest's two directors. The directors of
T.F. Cushing, Inc. are the same as for the Company, and Mr. Michael McGuire is
its President and Ms. Sarnataro is its Treasurer and Secretary.
The Company is not aware of any person who failed to file on a timely
basis any reports relating to the Company required by Section 16(a) of the
Securities Exchange Act during the fiscal year that ended March 31, 1999.
Item 10. Executive Compensation.
The following table shows information concerning the compensation paid
or awarded by the Company and its subsidiaries for services to its Chief
Executive Officer and its Executive Vice President of Sales during fiscal years
ended March 31, 1999, 1998 and 1997. Other then Mr. Michael McGuire and Mr.
Miller there were no executive officers of the Company whose compensation was or
exceeded $100,000. The Company (i) has no retirement, pension, profit sharing,
stock option, stock appreciation rights or long term incentive plans for the
years in question, (ii) has not awarded any bonuses during or for the years in
question, except as set forth in the table below, and to one other executive
officer, and (iii) has no employment contracts or termination of employment and
change of control arrangements for any of the Company's executive officers.
In the first quarter of fiscal year 1997, the Company awarded 135,000
unregistered shares of the Company's common stock to 19 employees (including Mr.
Michael McGuire who received 15,000 shares), none of whom received more than
15,000 shares. To the extent an employee ceases to be employed by the Company
prior to March 31, 2000 (other than on account of death) the shares awarded to
said employee are forfeited to the Company. At March 31,1999, 32,500 shares have
been forfeited. It is not expected that any dividends will be paid on these
shares for the foreseeable future.
13
<PAGE>
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
Name and ------------------------------- ---------------------------
Principal Position Fiscal Year Salary ($) Bonus ($) Restricted Stock Awards ($)
- ------------------ ----------- ---------- --------- ---------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Michael McGuire 1999 $164,577 $61,000 -
- --------------------------------------------------------------------------------------------------------------------
CEO & President 1998 $161,000 $57,360 -
- --------------------------------------------------------------------------------------------------------------------
1997 $161,000 $57,360 $4,650 (1)
- --------------------------------------------------------------------------------------------------------------------
Wayne Miller 1999 $105,023 - -
- --------------------------------------------------------------------------------------------------------------------
Executive Vice President of Sales 1998 $101,506 - -
- --------------------------------------------------------------------------------------------------------------------
1997 $ 99,156 - $4,650 (1)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. McGuire and Mr. Miller were each given 15,000 shares of Common stock as
compensation in fiscal year 1997 with a fair market value of 31 cents per share.
At March 31, 1999 the fair market value of the 30,000 shares were 28 cents per
share for an aggregate fair value of $8,400.
The Board of Directors held 6 meetings during fiscal year ended March
31, 1999. Each of the directors of the Company attended each of those meetings.
Other than the Executive Committee there were no active standing committees of
the Board of Directors during that fiscal year. During that fiscal year the
Board of Directors 'per meeting' fee for each director who is not a full time
employee of the Company was $750. Pursuant to this arrangement each of the
directors, other than Mr. McGuire, received $4,500. In addition, during the
fiscal year ended March 31, 1999 (i) Mr. Loring for services as Chairman of the
Board and the Executive Committee received $25,000 and $29,500 respectively and
he received $15,000 for services with respect to the Enigma transaction and
certain other matters, and (ii) Mr. Amster for his services on the Executive
Committee received $29,500. During the fiscal year ended March 31, 1998 Mr.
Loring received $25,000 for services as Chairman of the Board and Messrs. Amster
and Loring each received $29,500 for services with respect to the Executive
Committee.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number and percentage of shares of
the Company's common stock beneficially owned as of May 27, 1999 by persons who
are known (based on the Company's review of Forms 13G and 13D delivered to the
Company) by the Company to be the beneficial owners of more than 5% of the
Company's outstanding common stock as of that date, and the directors of the
Company and its chief executive officer, and all officers and directors of the
Company as a group. For purposes of this Report, beneficial ownership is defined
in accordance with Rule 13d-3 of the Securities and Exchange Commission to mean
generally the power to vote or dispose of shares, regardless of any economic
interest therein. The persons listed have direct sole voting power and direct
sole dispositive power with respect to all shares set forth in the table unless
otherwise specified in the footnotes to the table.
14
<PAGE>
<TABLE>
<CAPTION>
Beneficial Holders Of More Than 5% Of Common Stock
----------------------------------------------------------------------------------------------------
Amount and Nature
of Beneficial Percentage(1)
Name and Address of Beneficial Owners Ownership Of Class
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Howard Amster(2) 1,209,311(2) 21.48%
205 Express Street
Plainview, New York 11803
----------------------------------------------------------------------------------------------------
William Costaras 336,184 5.97%
22674 Halburton Road
Beachwood, Ohio 44122
----------------------------------------------------------------------------------------------------
FMR, Corp. (3) 565,723(3) 10.05%
82 Devonshire Street
Boston, Massachusetts 02109
----------------------------------------------------------------------------------------------------
Herzog, Heine, Geduld, Inc. 606,004 10.76%
26 Broadway
New York, New York 10004
----------------------------------------------------------------------------------------------------
John C. Loring(4) 2,180,263(4) 38.73%
205 Express Street
Plainview, New York 11803
----------------------------------------------------------------------------------------------------
Officer and Director Holdings Of Common Stock
----------------------------------------------------------------------------------------------------
Amount and Nature
of Beneficial Percentage(1)
Name and Address of Beneficial Owners Ownership Of Class
----------------------------------------------------------------------------------------------------
Howard Amster(2) 1,209,311(2) 21.48%
----------------------------------------------------------------------------------------------------
John C. Loring(4) 2,180,263(4) 38.73%
----------------------------------------------------------------------------------------------------
Michael McGuire(5) 242,975(5) 4.32%
----------------------------------------------------------------------------------------------------
Mark Schindler 1,449 *
----------------------------------------------------------------------------------------------------
David S. Zlatin 10,262 *
----------------------------------------------------------------------------------------------------
Wayne Miller 44,000 *
----------------------------------------------------------------------------------------------------
All Other Officers 35,000 *
----------------------------------------------------------------------------------------------------
All Officers and Directors as a group (9 persons) 3,723,260 66.14%
----------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Based on 5,629,277 shares outstanding.
(2) Includes 73,886 shares owned by his spouse, the beneficial ownership of
which he disclaims.
(3) 565,723 shares are beneficially owned by Fidelity Equity Income Fund, its
wholly owned subsidiary.
(4) Includes 271,970 shares owned by his spouse's IRA, the beneficial ownership
of which he disclaims.
(5) Includes 90,537 shares owned by his spouse's IRA, the beneficial ownership
of which he disclaims.
15
<PAGE>
Item 12. Certain Relationships and Related Transactions.
During the Fiscal Year ended March 31, 1999, in July 1998, in order to
fund a business acquisition the Company privately placed 1,200,000 initially
(and still) unregistered shares of Astrex common stock with its Chairman of the
Board and certain members of his family at twenty five cents a share for a total
consideration of $300,000. At that time the per share market price of registered
Astrex common stock was reported to have been 11/32 bid and 7/16 asked. The
subscription agreement provided among other things that in the event the Company
did not make a rights offering on similar terms to substantially all its
shareholders by November 1998 (which in fact did not occur) then the Company
would have an option, but not the obligation to buy back the 1,200,000 shares
during February 1999 for $318,000 (which, if the private placement/option was
viewed as a loan would have suggested a 10% interest rate on an annualized
basis). In February 1999 the Board of Directors, without the participation in
any way of Mr. Loring, determined that it would not be in the best interests of
the Company to exercise the Company's option for those 1,200,000 shares.
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page No.
-------------------- --------
<S> <C>
Reports of Independent Certified Public Accountants F-1- F-2
Consolidated Balance Sheet as of March 31, 1999 F-3
Consolidated Statements of Operations for the years ended March 31, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity F-5
for the years ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended March 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7-F-15
</TABLE>
16
<PAGE>
(a)(3) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as
part of this report.
<TABLE>
<CAPTION>
Previously Filed and Incorporated
Exhibit Description by reference or Filed Herewith
- ------- ----------- ------------------------------
<S> <C> <C>
3 (a) Certificate of Incorporation of Astrex, Inc., as amended Filed as Exhibit 3(a) to the Form 10-QSB
(a Delaware corporation) of the Company for the quarter ended
September 30, 1997
3 (b) By-Laws of Astrex, Inc., as amended Filed as Exhibit 3(b) to the Form 10-QSB
of the Company for the quarter ended
September 30, 1996
10(a) Amended and Restated Credit and Security Agreement Filed as Exhibit 10(c) to the Form
(Revolver) between Astrex, Inc. and Fleet National 10-QSB of the Company for the quarter
Bank dated August 31, 1998 ended September 30, 1998
10 (b) Amendment No. 1 To Credit and Security Agreement between Filed as Exhibit 10(d) to the Form
Astrex, Inc. and Fleet National Bank dated August 31, 1998 10-QSB of the Company for the quarter
ended September 30, 1998
10(c) Appendix A to Credit and Security Agreement (Revolver) Filed as Exhibit 10(b) to the Form
between Astrex, Inc. and Fleet National Bank dated July 9, 10-QSB of the Company for the quarter
1997 ended September 30, 1997
10(d) Pledge Agreement between Astrex, Inc. and Fleet National Filed as Exhibit 10(c) to the Form
Bank dated July 9, 1997 10-QSB of the Company for the quarter
ended September 30, 1997
10(e) Revolving Credit Promissory Note between Astrex, Inc. and Filed as Exhibit 10(d) to the Form
Fleet National Bank dated July 9, 1997 10-QSB of the Company for the quarter
ended September 30, 1997
10(f) Guaranty Agreement between AVest, Inc. and Fleet National Filed as Exhibit 10(e) to the Form
Bank dated July 9, 1997 10-QSB of the Company for the quarter
ended September 30, 1997
10(f) Guaranty Agreement between T.F. Cushing, Inc. and Fleet Filed as Exhibit 10(f) to the Form
National Bank dated July 9, 1997 10-QSB of the Company for the quarter
ended September 30, 1997
10(g) Guaranty Confirmation Agreement between T.F. Cushing, Inc. Filed as Exhibit 10(d) to the Form
and Avest, Inc. and Fleet National Bank dated August 31, 1998 10-QSB of the Company for the quarter
ended September 30, 1998
10(h) Purchase and Option Agreement between Astrex, Inc., Enigma Energy Filed as Exhibit 10(a) to the Form 10-QSB
Company and Members dated June 6, 1998 of the Company for the quarter ended June 30,
1998
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Previously Filed and Incorporated
Exhibit Description by reference or Filed Herewith
- ------- ----------- ------------------------------
<S> <C> <C>
10(i) Subscription and Stock Purchase Agreement between Astrex, Filed as Exhibit 10(b) to the Form
Inc. and John C. Loring and Elizabeth S. Loring dated July 10-QSB of the Company for the quarter
15, 1998 ended June 30, 1998
21 Subsidiaries of the registrant Filed as Exhibit 21 to Form 10-KSB/A-1
of the Company for the year ended March
31, 1998
27 Financial Data Schedule Filed herewith
</TABLE>
(b) No Current Reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Report. It might be noted however that a
Form 8-K was filed by the Company on April 5, 1999 reporting a change in the
Company's Certifying Accountant, see Item 8 "Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure".
18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Astrex, Inc.
We have audited the accompanying consolidated balance sheet of Astrex, Inc. and
subsidiaries (the "Company") as of March 31, 1999 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Astrex,
Inc. and subsidiaries as of March 31, 1999 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
May 27, 1999
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Astrex, Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Astrex, Inc. and subsidiaries for the
year ended March 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of Astrex, Inc. and
subsidiaries and their cash flows for the year ended March 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
Jericho, New York
May 15, 1998
F-2
<PAGE>
Astrex, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
March 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 2,000
Accounts receivable (net of allowance for doubtful
accounts of $79,000) 1,892,563
Inventory 4,440,112
Prepaid expenses and other current assets 65,073
----------
Total current assets 6,399,748
FIXED ASSETS, NET 706,495
INVESTMENTS 139,830
----------
$7,246,073
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 979,181
Accrued liabilities 579,175
Current portion of capital lease obligations 46,016
-----------
Total current liabilities 1,604,372
CAPITAL LEASE OBLIGATIONS 31,618
LONG-TERM DEBT 2,412,768
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, Series A - par value $5 per share; authorized,
200,000 shares; issued, none -
Preferred stock, Series B - par value $.01 per share; authorized,
10,000,000 shares; issued, none -
Common stock - par value $.01 per share; authorized, 15,000,000
shares; issued and outstanding, 6,542,863 shares 65,429
Additional paid-in-capital, net 3,901,707
Accumulated deficit (504,881)
Treasury stock - 913,586 shares, at cost (264,940)
-----------
3,197,315
----------
$7,246,073
==========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
Astrex, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
------------------------------
1999 1998
---------- -----------
Net sales 14,373,403 $14,263,651
Cost of sales 11,112,958 10,938,301
---------- ----------
Gross profit 3,260,445 3,325,350
Selling, general and administrative expenses 3,120,462 2,888,645
----------- -----------
Income from operations 139,983 436,705
Write-down of investment (232,500) -
Interest expense (115,452) (103,225)
Other income, net 29 46
--------------- ---------------
Income (loss) before provision
for income taxes (207,940) 333,526
Provision for income taxes 28,413 11,525
------------- -------------
Net income (loss) $ (236,353) $ 322,001
============ ============
Net income (loss) per share:
Basic $(.05) $.07
==== ===
Diluted $(.05) $.06
==== ===
Weighted-average common shares and common
equivalent shares outstanding
Basic 5,181,572 4,965,036
========= =========
Diluted 5,181,572 5,099,269
========= =========
F-4
The accompanying notes are an integral part of these statements.
<PAGE>
Astrex, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Common stock,
par value $.01 per share Additional Deferred
-------------------------- paid-in compen-
Shares Amount capital sation
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, April 1, 1997 5,375,363 $53,754 $3,620,876 $(22,134)
Treasury stock acquisition (913,586) - - -
Amortization of deferred compensation - - 7,320
Shares forfeited under deferred
compensation arrangement (2,500) (25) (517) 542
Net income - - - -
-------------- ----------- ---------------- ------------
Balance, March 31, 1998 4,459,277 53,729 3,620,359 (14,272)
Amortization of deferred compensation - - - 7,320
Shares issued to fund Enigma
transaction 1,200,000 12,000 288,000 -
Shares forfeited under deferred
compensation arrangement (30,000) (300) (6,210) 6,510
Net loss - - - -
-------------- ----------- ---------------- ------------
Balance, March 31, 1999 5,629,277 $65,429 $3,902,149 $ (442)
========= ====== ========= =========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Accu-
mulated Treasury
deficit stock Total
---------------- ------------- ------------
<S> <C> <C> <C>
Balance, April 1, 1997 $(590,529) $ - $3,061,967
Treasury stock acquisition - (264,940) (264,940)
Amortization of deferred compensation - - 7,320
Shares forfeited under deferred
compensation arrangement - - -
Net income 322,001 - 322,001
-------- -------------- ----------
Balance, March 31, 1998 (268,528) (264,940) 3,126,348
Amortization of deferred compensation - - 7,320
Shares issued to fund Enigma
transaction - - 300,000
Shares forfeited under deferred
compensation arrangement - - -
Net loss (236,353) - (236,353)
--------- -------------- -----------
Balance, March 31, 1999 $(504,881) $(264,940) $3,197,315
======== ======== =========
</TABLE>
F-5
The accompanying notes are an integral part of this statement.
<PAGE>
Astrex, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (236,353) $ 322,001
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 92,596 99,174
Amortization of deferred stock compensation 7,320 7,320
Write-down of investment 232,500 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (390,808) 82,477
(Increase) decrease in inventory (1,057,249) (69,640)
(Increase) decrease in prepaid expenses and other
current assets (3,245) 5,646
(Decrease) increase in accounts payable (5,495) 116,835
Increase (decrease) in accrued liabilities 244,966 (148,344)
------- --------
Net cash provided by (used in) operating activities (1,115,768) 415,469
---------- --------
Cash flows from investing activities:
Capital expenditures (26,819) (30,877)
Investments (322,330) (50,000)
----------- --------
Net cash used in investing activities (349,149) (80,877)
----------- --------
Cash flows from financing activities:
Proceeds (repayments) of loan payable 1,212,768 (26,133)
Proceeds from issuance of common stock 300,000 -
Principal payments under capital lease obligations (47,851) (43,519)
Purchase of treasury stock - (264,940)
-------------- --------
Net cash provided by (used in) financing activities 1,464,917 (334,592)
--------- --------
NET CHANGE IN CASH - -
Cash, beginning of year 2,000 2,000
----------- ----------
Cash, end of year $ 2,000 $ 2,000
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $117,649 $95,431
======= ======
Income taxes $ 14,350 $32,657
======== ======
</TABLE>
F-6
The accompanying notes are an integral part of these statements.
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
NOTE A - DESCRIPTION OF BUSINESS
Astrex, Inc. and subsidiaries (the "Company") sells, assembles, and
distributes electronic parts and components in one business segment.
Approximately 81% of the Company's sales consist of connectors that connect
a wire or group of wires to another wire or group of wires. The other
products sold by the Company, which comprise the remaining 19% of sales,
are devices that control or regulate the flow of electricity to or within
components. The Company's largest markets include the defense, aerospace,
industrial and computer industries, which sales are worldwide with a
concentration in the Northeast and Mid-Atlantic states.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements is as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Astrex, Inc.
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated.
The Company has an 8% equity interest in a limited liability company and an
8.52% interest in a limited partnership ("nonequity affiliates"). These
investments are accounted for by the cost method, whereby the Company's
interest in the net income of these affiliates is recognized upon the
receipt of cash distributions. Such investments are reflected in
"Investments" in the consolidated balance sheet at March 31, 1999.
Financial Instruments and Business Concentrations
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts receivable.
Concentration of credit risk with respect to accounts receivable is
generally mitigated due to the large number of entities comprising the
Company's customer base and their dispersion across geographic areas and
industries. The Company routinely addresses the financial strength of its
customers and, as a consequence, believes that its accounts receivable
credit risk exposure is limited. No single customer accounted for more than
10% of the Company's sales and accounts receivable in 1999 and 1998.
F-7
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE B (continued)
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"), "Fair
Value of Financial Instruments," requires disclosure of the estimated fair
value of an entity's financial instrument assets and liabilities. The
Company's principal financial instrument consists of a line of credit and
term loan facility, expiring April 30, 2002, with one participating bank.
The Company believes that the carrying amount of such debt approximates the
fair value as the interest rate approximates the current prevailing
interest rate.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. The Company's top 4 suppliers
accounted for 44% and 47% of purchases for the years ended March 31, 1999
and 1998, respectively. There can be no assurance that, in the event a
supplier cancels its distributor agreement with the Company, the Company
will be able to replace the sales with sales of other products.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period.
Revenue Recognition
The Company recognizes revenue as products are shipped and title passes to
customers. Right of return exists only for damaged products.
Inventory
Inventory, consisting principally of finished goods, is stated at the lower
of cost or market. Cost is determined using the first-in, first-out method.
Long-Lived Assets
The Company monitors the recoverability of long-lived assets, including
investments and fixed assets, based on estimated use factors such as future
asset utilization, business climate and future undiscounted cash flows
expected to result from the use of the related assets or realized upon
sale. The Company's policy is to write down assets to their net recoverable
amount in the period when it is determined that the carrying amount of the
asset is not likely to be recoverable.
F-8
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE B (continued)
Fixed Assets
Depreciation of fixed assets is computed by the straight-line method over
the estimated useful lives of the assets. Equipment held under capital
leases is amortized on the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
Advertising
Advertising costs are expensed as incurred and totaled $26,000 and $12,000
for the years ended March 31, 1999 and 1998, respectively.
Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and net
operating loss carryforwards for which income tax expenses or benefits are
expected to be realized in future years. A valuation allowance has been
established to reduce deferred tax assets as it is more likely than not
that all, or some portion, of such deferred tax assets will not be
realized. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Income (Loss) Per Common Share
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," replaced the calculation of primary and fully diluted
earnings (loss) per share with basic and diluted earnings per share.
Pursuant to SFAS No. 128, earnings (loss) per common share is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of shares outstanding during the period. Diluted earnings
per share reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock. For the fiscal
year ended March 31, 1999, there is no difference between basic and diluted
net loss per share. Potential common shares from stock options, warrants or
convertible preferred stock are excluded in computing basic and diluted net
loss per share for 1999 as their effects would be antidilutive.
The following table sets forth the reconciliation of the weighted average
number of common shares:
1999 1998
----------- -------
Basic 5,181,572 4,965,036
Effect of dilutive securities - 134,233
---------------- ----------
Diluted 5,181,572 5,099,269
========= =========
F-9
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE C - FIXED ASSETS
Fixed assets consist of the following:
Estimated
useful life
-----------
Land - $ 128,836
Building and improvements 30 years 570,282
Equipment, furniture and fixtures 5 to 10 years 448,566
----------
1,147,684
Less accumulated depreciation 441,189
---------
$ 706,495
==========
Included in equipment, furniture and fixtures are assets recorded under
capitalized leases at March 31, 1999 for $70,748.
NOTE D - LOANS PAYABLE
The Company's collateralized lending agreement with its bank (the
"Agreement"), expiring July 1999, provides the Company with a line of
credit equal to 85% of its eligible accounts receivable and 25% of its
eligible net inventory but not to exceed $2,500,000 with interest payable
monthly at short-term fixed rate borrowings for fixed amounts at LIBOR plus
2% or daily borrowing at the bank's prime rate or a mixture of the two.
Under this facility, the 205 Express Street property is subject to a
negative pledge rather than a mortgage, as was provided in the previous
loan agreement. On August 31, 1998, the Agreement was amended to increase
maximum availability under its line of credit from $2,500,000 to
$3,500,000. Borrowings under this facility bear interest at LIBOR plus
1-1/2% at March 31, 1999.
F-10
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE D (continued)
On May 14, 1999, the Agreement was further amended, reducing the maximum
availability from $3,500,000 to $3,150,000 through April 30, 2002 and
providing a term loan of $850,000, collateralized by a mortgage on the 205
Express Street property with a maturity date of April 2002. The new
Agreement contains certain financial covenants, relating to the maintenance
of various financial ratios and restrictions on the payment of dividends by
the Company. Debt outstanding at March 31, 1999, amounted to $2,412,768 and
has been classified according to the repayment terms of this amended
Agreement.
NOTE E - INCOME TAXES
The provision for income tax expense for the years ended March 31, 1999 and
1998 consists principally of state and local income taxes. Federal income
tax expense in 1998 has been offset by the utilization of net operating
loss carryforwards available to the Company.
Total income tax expense (benefit) for 1999 and 1998 differed from the
amounts computed by applying the United States Federal income tax rate of
34% to income before income taxes as a result of the following:
1999 1998
-------------- -----------
Computed "expected" tax (benefit)/expense $ (71,000) $ 113,500
State income taxes, net 18,700 11,525
Other (9,287) -
Utilization of net operating loss
carryforwards - (113,500)
Valuation allowance 90,000 -
--------- --------
$ 28,413 $ 11,525
========= =========
F-11
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE E (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March
31, 1999 and 1998 are presented below:
1999 1998
------------- ----------
Deferred tax assets
Net operating loss and other carryforwards $ 2,171,000 $ 2,040,000
Inventory 603,000 751,000
Write-down of investment 93,000 -
Bad debts 32,000 32,000
Other 21,000 -
------------ ---------
Total gross deferred tax assets 2,920,000 2,823,000
Less valuation allowance (2,859,000) (2,769,000)
---------- ---------
61,000 54,000
Deferred tax liabilities
Depreciation and other (61,000) (54,000)
------------ ----------
$ - $ -
============ =========
Primarily due to competitive pricing pressures in the Company's industry
and their potential impact on operating results, the Company does not
believe that it is more likely than not that it will utilize its deferred
tax assets. As a result, the Company established a valuation allowance
against its net deferred tax assets at March 31, 1999. The amount of
deferred tax assets and corresponding valuation allowance increased by
$90,000 during the year ended March 31, 1999.
At March 31, 1999, the Company has a net operating loss carryforward
available for Federal income tax purposes of approximately $6,380,000,
expiring through 2019. Pursuant to Section 382 of the Internal Revenue Code
of 1986, as amended, and Section 383 of the Code, utilization of net
operating loss carryforwards will be limited in future years due to a prior
year change in ownership of the Company.
F-12
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE F - RETIREMENT PLAN
The Company has a defined contribution plan which is qualified under
Section 401(k) of the Internal Revenue Code. All regular full-time
employees are eligible for voluntary participation upon completing one year
of service and having attained the age of twenty-one. The Company retains
the right to make optional contributions for any plan year. Employer
contributions to the plan amounted to $0 and $22,355 for fiscal 1999 and
1998, respectively.
NOTE G - IMPAIRMENT OF ASSETS
On July 20, 1998 the Company entered into an agreement with Enigma Energy
Company, L.L.C. ("Enigma") and its members to purchase an 8% equity
interest in Enigma with an option ("Option") to purchase the remaining
equity interest at a later date. The purchase price for the 8% equity
interest in Enigma and the Option was $300,000 ( $225,000 attributed to the
equity interest and $75,000 attributed to the Option). In order to fund
this transaction, the Company privately placed 1,200,000 initially
unregistered shares of Astrex Common Stock with its Chairman of the Board
and his family at twenty five cents per share for a total consideration of
$300,000. The Private Placement Agreement provided in part that if the
Company did not make a rights offering of registered shares on similar
terms by November 1998, which it did not, then the Company would have the
option of repurchasing those privately placed shares. At March 31, 1999,
the Company did not exercise this option. On December 15, 1998, the Company
determined, in light of Enigma's post-1998 drilling results and the
depressed energy market, that it would not exercise the Option. As a
consequence of this decision, the Company recognized an impairment charge
of $232,500 for the year ended March 31, 1999 with $150,000 of the total
charge recorded in the fourth quarter of fiscal 1999 with respect to this
asset.
NOTE H - SHAREHOLDERS' EQUITY
The Company has a deferred compensation program for its employees. The
program began in April 1996 when the Company awarded 135,000 unregistered
shares of the Company's common stock to 19 employees, none of whom received
more than 15,000 shares. The employees must remain in the employ of the
Company until April 2000 or the shares received are forfeited. The fair
value of the shares granted of $29,295 is being amortized to selling,
general and administrative expenses over a four-year vesting period of
which 76,875 shares have vested at March 31, 1999. Amortization expense
amounted to $7,320 in both fiscal 1999 and 1998. Under the terms of the
agreement, 30,000 and 2,500 shares were forfeited in 1999 and 1998,
respectively.
F-13
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE H (continued)
In 1997, the Company made available for all interested employees the
opportunity to purchase a total of 150,000 unregistered shares of the
Company's common stock at thirty-one cents a share, a price substantially
reflective of the then trading price for registered shares. Pursuant
thereto, 17 employees purchased a total of 150,000 unregistered shares in
fiscal 1997. In the same year, the Company also purchased 913,586 shares of
its common stock for $264,940 from one of its principal shareholders. These
shares are being held as treasury shares.
NOTE I - CAPITAL LEASES
The Company finances the purchase of certain computer and telephone
equipment through capital leases. The Company's minimum future obligations
under these capital leases are as follows:
Year ending March 31,
2000 $51,209
2001 32,724
------
Total minimum lease payments 83,933
Less amount representing interest 6,299
-------
Present value of net minimum lease
payments (including current
portion of $46,016) $77,634
======
F-14
<PAGE>
Astrex, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999 and 1998
NOTE J - COMMITMENTS
1. Leases
The Company is obligated under noncancellable operating leases covering
office facilities and equipment through 2001. At March 31, 1999,
minimum annual future rental commitments under these leases are as
follows:
Year ending March 31,
2000 $57,000
2001 16,000
------
$73,000
=======
Rent expense (for leased property and equipment) included in selling,
general and administrative expenses for the years ended March 31, 1999
and 1998 was $93,430 and $89,330, respectively.
2. Purchase Commitment
As part of the Company's Franchise agreements with Hypertronics
Corporation, signed in November 1997, and Sumitomo Electric, signed in
June 1998, the Company agreed to pre-purchase a total of $84,000 in
inventory.
F-15
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASTREX, INC.
(Registrant)
by /s/ Michael McGuire
-------------------
Michael McGuire, Director,
President and Chief Executive Officer
(principal executive officer)
Dated: June 25, 1999
--------------
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
/s/ John C. Loring
- ------------------------------------- /s/ Michael McGuire
John C. Loring, Chairman of the Board -----------------------------
and Director Michael McGuire, Director,
President and Chief Executive
Officer
Dated: June 25, 1999 Dated: June 25, 1999
----------------- -----------------
/s/ Howard Amster s/ Mark Schindler
- ---------------------- -----------------------------
Howard Amster, Director Mark Schindler, Director
Dated: June 25, 1999
-----------------------
Dated: June 25, 1999
------------------
/s/ David S. Zlatin /s/ Lori A. Sarnataro
- ------------------------- -----------------------------
David S. Zlatin, Director Lori A. Sarnataro, CFO,
Executive Vice President,
Treasurer and Secretary
Dated: June 25, 1999 (principal financial and
----------------- accounting officer)
Dated: June 25, 1999
-----------------------
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements at March 31, 1999 (unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 1,972
<ALLOWANCES> (79)
<INVENTORY> 4,440
<CURRENT-ASSETS> 6,400
<PP&E> 1,148
<DEPRECIATION> (441)
<TOTAL-ASSETS> 7,246
<CURRENT-LIABILITIES> 1,604
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0
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<COMMON> 65
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<TOTAL-LIABILITY-AND-EQUITY> 7,246
<SALES> 14,373
<TOTAL-REVENUES> 14,373
<CGS> 11,113
<TOTAL-COSTS> 11,113
<OTHER-EXPENSES> 3,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> (208)
<INCOME-TAX> 28
<INCOME-CONTINUING> (236)
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<EPS-BASIC> (0.05)
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