U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
________________________________________
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-3344
_______
ASTROSYSTEMS, INC.
_____________________________________________________________________
(Name of small business issuer in its charter)
Delaware 13-5691210
______________________________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1220 Market Street, Suite 603, Wilmington, DE 19801
______________________________________________ ___________________
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (302) 652-3115
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
________________________________________ _______________________________
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
______________________________________
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES....X.... NO..........
Check if no disclosure of delinquent filers in response to Item
405 of Regulation S-B is 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.
YES....X.... NO..........
The Registrant's revenues for fiscal year ended June 30, 1997
were $0.
The aggregate market value of the Registrant's Common Stock held
by nonaffiliates of the Registrant is $1,856,793 (as of October 1, 1997).
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS):
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act after the distribution of securities under a plan
confirmed by a court. YES .......... NO ...N/A...
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the Registrant's Common Stock
is 5,827,603 (as of August 15, 1997).
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
_______________________
(a) Business Development.
_____________________
(1) General. Prior to February 7, 1996, Astrosystems,
Inc. (the "Company") had three operating divisions: Behlman
Electronics, Inc. ("Behlman"), a wholly-owned subsidiary of the
Company which produced commercial AC power supplies, the Defense
Electronics Division which designed and manufactured power conversion
devices and the Industrial Automation Division which produced
industrial control products.
Since its inception the Company's primary business had
been in defense electronics. The Company's revenues decreased every
year since fiscal year 1992 from $18,100,000 in the fiscal year ended
June 30, 1992 to $12,300,000 in the fiscal year ended June 30, 1995.
The decline was primarily due to a continuing decline in defense
budgets and severe price competition from lower cost geographical
areas and corporate consolidations. In addition, high fixed overhead
costs necessitated by defense contracts coupled with a declining
business base were tending to make the company non-competitive. The
Company attempted to offset this decline by increasing sales for its
commercial and industrial products and although the results showed
some promise, they were not expected to be sufficient.
In view of the decline described above, the Board of
Directors (the "Board") considered various alternatives for maximizing
the Company's value and decided that a planned liquidation was in the
best interest of the stockholders. In the opinion of the Board, the
Company's common stock historically had traded at a discount from the
net value of its assets and the liquidation would allow the Company to
distribute its real tangible value. A Plan of Complete Liquidation
and Dissolution (the "Plan") for the Company was therefore submitted
to the stockholders and approved on February 2, 1996. Pursuant to the
Plan, the Company consummated the sale of the assets of its three
operating divisions, as described below (see "Asset Purchase
Agreements").
Since February 2, 1996, the Company has been engaged in
implementing the Plan. Some of its ongoing activities are: 1)
implementing the asset purchase agreements (see "Asset Purchase
Agreements" below); 2) relocating the Company to Delaware (see "Other
Matters" below); 3) distributing benefit plan funds; 4) completing
open contracts and collecting accounts receivable; 5) negotiations and
litigation regarding final price determination for the asset sales;
6) engaging a new auditor (see "Other Matters" below); 7) determining
and implementing the distribution; 8) realizing stockholder value
for the solar cell license and AstroPower assets (see "Solar Cell
Assets" below) and 9) preparing federal and state tax returns, SEC
filings and additional federal and state filings necessary for the
dissolution process.
On June 30, 1997, the Company declared an initial cash
distribution of $5.00 per share to stockholders of record as of August
15, 1997. On September 8, 1997, the distribution was made. No date
has been set for further distributions. Under the terms of the Plan,
the Company has until February 2, 2000 to complete the liquidation by
making distributions directly to its stockholders or to a liquidating
trust.
(2) Asset Purchase Agreements. Effective February 6,
1996, pursuant to a certain Asset Purchase Agreement dated as of
January 11, 1996 (the "Orbit Agreement") by and among the Company,
Behlman, Orbit International Corp. ("Orbit") and Cabot Court, Inc.
("Cabot"), a wholly-owned subsidiary of Orbit, the Company sold to
Cabot certain assets of its Defense Electronics Division and Behlman
sold to Cabot certain of its assets for an aggregate purchase price of
$3,706,700. The purchase price is subject to adjustment based upon a
valuation of the transferred inventory and equipment as of the closing
date. Pursuant to the Orbit Agreement, a portion of the purchase
price is being held in escrow to provide for indemnification claims
that Cabot may assert against the Company or Behlman thereunder. As of
June 30, 1997, the amount in escrow was approximately $773,000. On
August 21, 1997, approximately $276,000 was released to the Company.
The value of certain inventory items under the Orbit
Agreement currently is being disputed along with a number of other
items such as warranty costs. However, the Company does not believe
that the final result will materially affect Net Assets in
Liquidation.
Effective February 7, 1996, pursuant to an Asset Purchase
Agreement of such date by and between the Company and North Atlantic
Instruments, Inc. ("North Atlantic"), the Company sold to North
Atlantic certain assets of its Industrial Automation Division for a
purchase price of $704,500. The purchase price is subject to
adjustment based upon a valuation of the transferred inventory and
equipment as of the closing date.
(3) Solar Cell Assets. In 1983, the Company acquired
a 16-year license (the "License") from the University of Delaware
covering a new process for the manufacture of solar cells. In
connection with the acquisition of the License, the Company issued a
$20,000,000 nonrecourse note (the "Note"), originally due in 1993 and
bearing interest at the rate of 14% per year. The Note is secured by
the Company's rights under the License and is to be paid prior to its
due date solely on the basis of 4% of sales of products developed by
this process, subject to certain minimum quarterly payments of $11,250
to $12,500. To date, there have been no amounts paid under the Note
other than the minimum quarterly payments. Concurrently with the
grant of the License, a sublicense for the process was given to
AstroPower, Inc. ("AstroPower"), a company engaged in photovoltaic
research and production. An amendment to the license agreement
extended its term to 2006; concurrently, the due date of the Note was
extended to May 1999. The Company, for financial reporting purposes,
has not recorded the Note.
The Company currently owns 32.3% of the common stock of
AstroPower. Assuming certain convertible preferred stock is converted
into common stock by stockholders of AstroPower other than the
Company, the Company's interest in AstroPower would be reduced to
22.3%. The Company has a zero basis in its AstroPower common stock.
There is currently no public market for the AstroPower Common Stock
and there are certain restrictions on the transferability of such shares.
AstroPower historically has incurred losses; however, AstroPower was
profitable in the first half of 1997. AstroPower recently received
$5,000,000 in convertible note financing from a major corporation to
assist in the funding of a new manufacturing facility. AstroPower is
currently exploring other financing options, including an initial public
offering, to finance further expansion. However, there can be no assurances
that AstroPower will continue to be profitable or that it will be successful
in obtaining future financing. The Board, in its sole discretion, will
consider placing the Company's AstroPower common stock as well as the
License into a liquidating trust or will seek such alternate method or
methods of sale, disposition or distribution as will maximize stockholder
value.
(4) Other Matters. On December 18, 1996, the Company's
independent auditor, Richard A. Eisner & Company LLP, resigned citing an
independence issue. The Company instituted a search for a new auditor and
in June 1997, Grant Thornton LLP was retained. The Company filed its Form
10-KSB for the fiscal year ended June 30, 1996 with unaudited financials.
Due to the unaudited nature of such filing and the fact that the Company
was in liquidation, NASDAQ removed the Company from listing on its stock
market. The Company's stock continues to be publicly traded on the NASD
OTC Electronic Bulletin Board.
The Company vacated its manufacturing and office space in Lake
Success, New York, prior to June 30, 1996, in accordance with the terms of
its lease. The Company relocated to a new office in Wilmington, Delaware.
The Company is a corporation originally incorporated in the
State of New York in 1959. In April, 1987, the Company changed its state
of incorporation to Delaware.
(b) Business of Issuer. Since February 2, 1996, the Company's sole
business has been the implementation of its Plan of Complete Liquidation
and Dissolution.
(1) Special Features of Government Contracts. In accordance
with the asset purchase agreements governing the asset sales, certain
government contracts previously awarded to the Company were novated to the
purchasers. Under the standard terms of the novation agreements, the
Company remains jointly liable with the purchasers for performance under
these contracts. In addition, a number of contracts were not novated and
the Company has subcontracted performance under these contracts to the
purchaser of its defense-related assets. Management does not believe that
the final results of these transactions will have a material effect on the
Company's Net Assets in Liquidation.
(2) Solar Cell License. The Company has a license covering
a new process for the manufacture of solar cells (see "Solar Cell Assets"
under Item 1(a) above).
(3) Environmental Regulation Compliance. The Company is of
the belief that compliance with federal, state and local provisions which
may have been enacted or adopted regulating the discharge of materials into
the environment, or otherwise relating to the protection of the
environment, will have no material effect on the Company's assets.
(4) Number of Employees. The Company currently has four
employees, three of whom are full time employees. Management believes its
relations with its employees are good. No employees are represented by a
collective bargaining agreement.
Item 2. Description of Property.
________________________
The Company's office is located in Wilmington, Delaware, where
the Company occupies approximately 1,100 square feet of usable space. The
premises are leased from an unaffiliated party through May 31, 1999 at an
annual rental of approximately $23,000, which includes common area
maintenance and real estate taxes.
Item 3. Legal Proceedings.
__________________
There are no material pending legal proceedings to which
the Company or any of its subsidiaries is a party or of which any of their
property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders.
____________________________________________________
On May 28, 1997, the Company held an annual meeting of
stockholders at which a board of five directors was elected. The number of
affirmative votes and negative votes with regard to the foregoing were as
follows:
Voted for Withheld Proxy
Nominee Election to vote for Election
______________________ _________ ____________________
Seymour Barth 3,958,567 41,886
Gilbert H. Steinberg 3,958,807 41,646
Elliot J. Bergman 3,957,567 42,886
Elliot D. Spiro 3,957,567 42,886
Walter Steinberg 3,957,857 42,596
PART II
Item 5. Market for Common Stock and Related Stockholder Matters.
________________________________________________________
(a) The Company's Common Stock is traded in the over-the-counter
market (symbol: ASTR). The following table sets forth the quarterly high
and low bid prices for the last two fiscal years. The quotations set forth
below represent interdealer quotations (which exclude retail markups,
markdowns and commissions) and do not necessarily reflect actual
transactions.
Bid
___
Quarterly Period High Low
________________ ____ ___
July 1995 - September 1995 $6 1/8 $4 1/2
October 1995 - December 1995 6 1/2 4 1/8
January 1996 - March 1996 6 1/8 5 5/8
April 1996 - June 1996 6 7/8 5 1/2
July 1996 - September 1996 6 3/8 5 3/8
October 1996 - December 1996 6 5 3/8
January 1997 - March 1997 5 1/2 4 3/4
April 1997 - June 1997 5 5/8 5
The quotations set forth above represent quarterly periods prior
to payment by the Company of the liquidating distribution discussed below and
do not reflect market prices following the distribution.
(b) The number of stockholders of record of the Registrant's Common
Stock, par value $.10 per share, as of June 30, 1997 was 851.
(c) On June 30, 1997, the Company declared an initial liquidating
distribution of $5.00 per share in cash to stockholders of record as of
August 15, 1997. The distribution was paid on September 8, 1997. Although
the Company has not established a firm timetable for additional
liquidating distributions to stockholders, the Company will, subject to
exigencies inherent in winding up the Company's business, make such
distributions consistent with maximizing stockholder value. The actual
amount and timing of, and record date for, all additional distributions
will be determined by the Board of Directors, in its sole discretion, and
will depend in part upon the Board's determination as to whether particular
assets are to be distributed in kind or otherwise disposed of, and the
amounts deemed necessary by the Board to pay or provide for all the
Company's liabilities and obligations.
The quotations set forth above represent quarterly periods
prior to payment of the liquidating distribution by the Company and do not
reflect market prices following the distribution.
Item 6. Management's Discussion and Analysis or Plan of Operation.
__________________________________________________________
The Board of Directors adopted, and the stockholders approved
on February 2, 1996, a Plan of Complete Liquidation and Dissolution (the
"Plan") of the Company. See "Plan of Complete Liquidation and Dissolution"
below. Since that date, the Company has been operating under the Plan and
its financial reporting is being made in accordance with the liquidation
basis of accounting. Therefore, the following discussion relates to
financial statements presented on a liquidation basis since statements
presented on a going concern basis are no longer material to stockholder
value.
Liquidity, Capital Resources and Impact of Inflation.
_____________________________________________________
The Company announced on March 26, 1996 a Board of Directors
authorization for the repurchase of up to 500,000 shares of Common Stock to
be made from time to time through open market and privately negotiated
transactions (in addition to the 500,000 shares previously authorized on
October 23, 1992). To date, 676,404 shares have been repurchased.
The repurchase authorization remains in force and the Company
will, from time to time, repurchase shares in accordance with applicable law
when it is consistent with maximizing stockholder distributions under the
Plan.
Statement of Net Assets in Liquidation.
_______________________________________
Pursuant to the Plan, the Company consummated the sales of the
assets of its three operating units (Military Division, Behlman Electronics
subsidiary and Industrial Automation Division) as of February 7, 1996. The
exact amount of the proceeds to the Company of such sales is dependent upon
a final fixed asset and inventory valuation. The value of certain
inventory items is being disputed; however, the Company does not believe
that the final result will affect materially Net Assets in Liquidation. In
connection with the sale of the Military and Behlman operations, $500,000
of the purchase price currently is being held in escrow to provide for
certain indemnification claims that the buyer may assert against the
Company under the sale agreement.
The Company has set aside, as Accrued expenses/Contingency
reserve, an amount believed to be adequate for payment of all expenses and
other known liabilities as well as likely and quantifiable contingent
obligations, including potential tax obligations. Any portion of the
contingency reserve which the Company determines is no longer required will
be made available for distribution to its stockholders. In the event that
the Accrued expenses/Contingency reserve account is not adequate for payment
of the Company's expenses and liabilities, each stockholder could be held
liable for pro rata payments to creditors in an amount not to exceed the
stockholder's prior distributions from the Company. The Company has
therefore adopted a conservative policy in retaining sufficient assets to
insure against any unforeseen and non-quantifiable contingencies.
Statement of Changes in Net Assets in Liquidation.
__________________________________________________
From June 30, 1996 to June 30, 1997 there was a decrease in
Net Assets in Liquidation of $28,972,000 due primarily to the declaration
of the initial liquidating distribution.
Plan of Complete Liquidation and Dissolution.
_____________________________________________
On February 2, 1996, the stockholders of the Company approved a
Plan of Complete Liquidation and Dissolution for the Company. Pursuant to
the Plan, the Company has sold its three operating units and intends to
sell such of its remaining assets as are not to be distributed in kind to
its stockholders. The Company intends to provide for payment of all
expenses, liabilities and obligations of the Company and liquidate via
distributions to stockholders.
On June 30, 1997, the Board declared a distribution to
stockholders of record as of August 15, 1997, which was paid September 8,
1997. The Board has not yet established the precise amount of any further
distributions pursuant to the Plan. The actual amount and timing of, and
record date for, all such distributions will be determined by the Board of
Directors, in its sole discretion, and will depend in part upon the Board's
determination as to whether particular assets are to be distributed in kind
or otherwise disposed of, and the amounts deemed necessary by the Board to
pay or provide for all the Company's liabilities and obligations.
Item 7. Financial Statements.
_____________________
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
____
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Statements of Net Assets
(Liquidation Basis) F-3
Consolidated Statements of Changes in Net Assets
(Liquidation Basis) F-4
Consolidated Statement of Operations (Going
Concern Basis) F-5
Consolidated Statement of Changes in Stockholders'
Equity (Going Concern Basis) F-6
Consolidated Statement of Cash Flows (Going
Concern Basis) F-7
Notes to Consolidated Financial Statements
(Liquidation Basis) F-8 - F-20
Notes to Consolidated Financial Statements
(Going Concern Basis) F-21 - F-26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Astrosystems, Inc.
We have audited the accompanying consolidated statements of net assets
(liquidation basis) of Astrosystems, Inc. (a Delaware corporation) and its
subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related
consolidated statements of changes in net assets (liquidation basis) for
the year ended June 30, 1997 and the period February 3, 1996 to June 30,
1996. In addition, we have audited the accompanying consolidated statement
of operations (going concern basis) of Astrosystems, Inc. and its
subsidiaries for the period July 1, 1995 to February 2, 1996, and the
related consolidated statements of changes in stockholders' equity (going
concern basis) and cash flows (going concern basis) for the period then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits
provide a reasonable basis for our opinion.
As described in Note A to the financial statements, the stockholders of
Astrosystems, Inc. approved a plan of liquidation on February 2, 1996, and
the Company sold its operating businesses shortly thereafter. As a result,
the Company has changed its basis of accounting for periods subsequent to
February 2, 1996 from a going concern basis to a liquidation basis.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of the Company's
operations and its consolidated cash flows for the period from July 1, 1995
to February 2, 1996, its consolidated net assets in liquidation as of June
30, 1997 and 1996, and the changes in its consolidated net assets in
liquidation for the year ended June 30, 1997 and for the period from
February 3, 1996 to June 30, 1996, in conformity with generally accepted
accounting principles applied on the bases described in the preceding
paragraph.
GRANT THORNTON LLP
Melville, New York
August 22, 1997 (except for Note B, as to
which the date is September 29, 1997)
F-2
<PAGE>
Astrosystems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF NET ASSETS
(LIQUIDATION BASIS)
June 30, June 30,
ASSETS 1997 1996
__________ __________
Cash and cash equivalents $33,911,000 $22,781,000
U.S. Government securities 5,978,000 16,866,000
Loans to officers 3,698,000 2,826,000
Other assets 1,187,000 1,891,000
__________ ___________
44,774,000 44,364,000
LIABILITIES
Liquidation distribution payable 29,138,000 -
Deferred income taxes 5,400,000 5,735,000
Accrued expenses/contingency reserve 4,739,000 4,160,000
__________ __________
Net assets in liquidation $ 5,497,000 $34,469,000
=========== ==========
Number of common and common equivalent shares
outstanding 5,827,600 5,963,000
=========== ==========
Net assets in liquidation per share $1.39 $6.27
==== ====
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Astrosystems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS)
Period from
February 3,
Year ended 1996 to
June 30, June 30,
1997 1996
___________ ___________
Net assets in liquidation - beginning of period $ 34,469,000 $31,356,000
Liquidation distributions declared June 30, 1997 (29,138,000)
Increase in estimated liquidation values of net
assets over liabilities 166,000 3,113,000
___________ __________
Net assets in liquidation - end of period $ 5,497,000 $34,469,000
=========== ==========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Astrosystems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(GOING CONCERN BASIS)
Period from July 1, 1995 to February 2, 1996
Sales $ 4,385,000
__________
Cost of sales 4,048,000
Selling, general and administrative expenses 2,208,000
Issuance of compensatory stock options 3,125,000
__________
9,381,000
__________
Loss from operations (4,996,000)
Interest income 1,213,000
__________
Loss before taxes on income (3,783,000)
Deferred income tax benefits 1,389,000
__________
NET LOSS $(2,394,000)
==========
Net loss per common share $(.52)
====
Weighted average common shares
outstanding 4,548,755
=========
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Astrosystems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(GOING CONCERN BASIS)
Period from July 1, 1995 to February 2, 1996
Common stock
_________________
Number Additional
of Par paid-in Retained
shares value capital earnings Total
_________ ________ __________ ___________ ___________
Balance -
July 1, 1995 4,581,727 $458,000 $6,848,000 $27,016,000 $34,322,000
Net loss for
the period (2,394,000) (2,394,000)
Shares issued
to retirement
plan 14,647 1,000 76,000 77,000
Replacement of
stock options 3,125,000 3,125,000
Purchase and
retirement of
shares (65,500) (6,000) (386,000) (392,000)
________ _______ ________ _________ _________
Balance -
February 2, 1996 4,530,874 $453,000 $9,663,000 $24,622,000 $34,738,000
========= ======= ========= ========== ==========
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Astrosystems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(GOING CONCERN BASIS)
Period from July 1, 1995 to February 2, 1996
Cash flows from operating activities
Net loss $ (2,394,000)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 124,000
Compensatory stock options 3,125,000
Shares issued to retirement plan 77,000
Deferred income tax benefits (1,389,000)
Changes in operating assets and liabilities
Decrease in accounts receivable 2,759,000
Increase in inventories (285,000)
Increase in prepaid expenses, other current
assets and other assets (141,000)
Increase in accounts payable 17,000
Decrease in taxes payable (1,000)
Decrease in accrued payroll, employee
benefits and other accrued liabilities (242,000)
_________
Net cash provided by operating activities 1,650,000
_________
Cash flows from investing activities
Sale and maturities of marketable securities 2,870,000
Purchases of marketable securities (1,942,000)
Acquisition of equipment (42,000)
Distribution from investment 71,000
________
Net cash used in investing activities 957,000
________
Cash flows from financing activities
Purchase and retirement of common shares (392,000)
________
Net cash used in financing activities (392,000)
________
Net increase in cash and cash equivalents 2,215,000
Cash and cash equivalents, beginning of year 13,119,000
__________
Cash and cash equivalents, end of period $15,334,000
==========
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
_____________________________________________
A Plan of Complete Liquidation and Dissolution (the "Plan") was adopted by
the Company's Board of Directors on October 26, 1995 and approved by the
holders of a majority of the Company's outstanding shares of common stock
on February 2, 1996. The Plan provides for: (1) the payment of or
provision for all of the Company's liabilities and obligations, (2) the
distribution to the Company's shareholders in kind or of the proceeds from
sale or other disposition of all of the Company's assets, (3) the transfer
of any remaining assets to a liquidating trust by February 2, 2000, if
applicable, and (4) the dissolution of the Company.
The Board of Directors is currently unable to predict the precise amount or
timing of any future distributions pursuant to the Plan. The actual amount
and timing of, and record date for, all distributions will be determined by
the Board of Directors, in its sole discretion, and will depend in part
upon the Board's determination as to whether particular assets are to be
distributed in kind or otherwise disposed of, and the amounts deemed
necessary by the Board to pay or provide for all the Company's liabilities
and obligations. See Note E - Liquidating Distribution.
The Company has adopted the liquidation basis of accounting for all periods
subsequent to February 2, 1996. Under the liquidation basis of accounting,
assets are stated at their estimated net realizable values and liabilities
are stated at their anticipated settlement amounts. Therefore, historical
financial information is not comparable to the liquidation period financial
information.
On February 3, 1996, the net adjustment required to convert from the going
concern (historical cost) basis to the liquidation basis of accounting was
a decrease in carrying value of the net assets of $3,382,000. Adjustments
in the carrying value of the net assets are as follows:
Estimated shut-down costs to be incurred during
period of liquidation, net of interest income
and estimated tax benefit $1,919,000
Minimum payments on nonrecourse obligation 163,000
Reserve for other contingencies 1,300,000
_________
Net decrease in carrying value to adjust
to liquidation basis of accounting $3,382,000
=========
F-8
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE A (continued)
______
The consolidated statements of net assets and net assets in liquidation as
of and for the period ended June 30, 1996 have been restated from balances
previously reported to properly reflect deferred income tax liabilities.
The adjustments resulted in a decrease in deferred tax liabilities of
$1,106,000 and $883,000 at February 3, 1996 and June 30, 1996, respectively.
The impact of these adjustments on the Company's financial results as
originally reported is summarized below:
As As
reported restated
____________ ___________
Deferred income tax liability
February 3, 1996 $ 7,957,000 $ 6,851,000
June 30, 1996 6,618,000 5,735,000
Net assets in liquidation
February 3, 1996 30,250,000 31,356,000
June 30, 1996 33,586,000 34,469,000
Increase in estimated liquidation values
of net assets over liabilities
Period from February 3, 1996 to
June 30, 1996 3,336,000 3,113,000
Net assets in liquidation per share
June 30, 1996 $6.14 $6.27
In addition, for comparative purposes, certain prior year amounts have been
reclassified to conform to the current year presentation.
The Company has set aside, as Accrued expenses/contingency reserve, an
amount believed to be adequate for payment of all expenses and other
known liabilities, as well as likely and quantifiable contingent
obligations, including potential tax obligations. A portion of the
Accrued expenses/contingency reserve is a reserve for other
contingencies, aggregating $1,250,000 at June 30, 1997, which will be made
available for distribution to stockholders when the Company determines
F-9
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE A (continued)
______
it is no longer required. In the event that the reserve for other
contingencies is not adequate for payment of the Company's expenses and
liabilities, each stockholder could be held liable for pro rata payments to
creditors in an amount not to exceed the stockholder's prior distributions
from the Company.
The valuation of assets and liabilities necessarily requires many estimates
and assumptions, and there are substantial uncertainties in carrying out
the provisions of the Plan. The actual value of any liquidating
distributions will depend upon a variety of factors including, among
others, the actual market prices of any securities distributed in kind, the
proceeds from the sale of any of the Company's assets and the actual timing
of distributions. The valuations presented in the accompanying statement
of net assets in liquidation represent estimates, based on present facts
and circumstances, of the estimated realizable values of assets, net of
liabilities and estimated costs associated with carrying out the provisions
of the Plan. The actual values and costs could be higher or lower than the
amounts recorded.
NOTE B - LOANS TO OFFICERS
__________________________
Loans made to officers of the Company aggregated $3,698,000 and $2,826,000
at June 30, 1997 and 1996, respectively, and bear interest at the rate of
6% per annum. In July 1997, the Company advanced an additional $1,934,200
to the officers, which amount also bears interest at the rate of 6% per
annum. All outstanding balances due from such officers were repaid as of
September 29, 1997.
F-10
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE C - OTHER ASSETS
______________________
Other assets consist of the following:
June 30, June 30,
1997 1996
___________ ___________
Accounts receivable - net $ 228,000 $ 374,000
Cash surrender value of life insurance - 272,000
Due from purchasers of assets (Note H) 594,000 594,000
Due from related party (1) 96,000 57,000
Prepaid insurance 26,000 51,000
Accrued interest and dividends 97,000 340,000
Long-term investment (2) 113,000 169,000
Other 33,000 34,000
__________ __________
$1,187,000 $1,891,000
========= =========
1. At June 30, 1997 and 1996, the Company owns approximately 32.3% of the
common stock of AstroPower, Inc. Assuming certain convertible
preferred stock is converted to common stock, the Company's interest
in AstroPower, Inc. would be reduced to 22.3% and 22.7% at June 30,
1997 and 1996, respectively. Such investment was accounted for by the
equity method and, accordingly, the Company recorded its share in the
losses of this entity as a reduction of its investment. This
investment was fully written down to zero in prior years. At June 30,
1997, management estimated the fair value of this investment to be
zero. Further, prior amounts due in the form of a promissory note are
stated at their estimated realizable value.
2. The long-term investment represents an investment in a venture limited
partnership and is recorded at its fair value.
NOTE D - ACCRUED EXPENSE/CONTINGENCY RESERVE
______________________________________________
Accrued expenses at June 30, 1997 and 1996 include estimates of costs to be
incurred in carrying out the Plan. The actual costs could vary
significantly from the related provisions due to uncertainty related to the
length of time required to complete the Plan and complexities and
contingencies which may arise.
F-11
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE D (continued)
______
Existing liabilities at June 30, 1997 and 1996 consist of:
1997 1996
___________ ___________
Accounts payable, accrued expenses and
miscellaneous $ 2,187,000 $ 1,384,000
Minimum payments on nonrecourse
obligation 100,000 150,000
Shutdown costs and estimated operating
costs (including compensation) to
administer the Plan through dissolution 3,122,000 4,048,000
Estimated interest income (696,000) (1,182,000)
Estimated tax benefit of losses through
dissolution (1,224,000) (1,540,000)
Reserve for other contingencies 1,250,000 1,300,000
___________ ___________
$ 4,739,000 $ 4,160,000
=========== ===========
Accounts payable, accrued expenses and miscellaneous consist of deferred
compensation payable to the officers of the Company, commissions payable,
customer balances, accrued professional fees and other accrued liabilities.
The Company has set aside, as reserve for other contingencies, an amount
believed to be adequate for payment of likely and quantifiable contingent
obligations, including potential tax obligations. Any portion of the
reserve for other contingencies which the Company determines is no longer
required will be made available for distribution to its stockholders. In
the event that the reserve for other contingencies account is not adequate
for payment of the Company's expenses and liabilities, each stockholder
could be held liable for pro rata payments to creditors in an amount not to
exceed the stockholder's prior distributions from the Company.
F-12
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE E - LIQUIDATING DISTRIBUTION
_________________________________
Pursuant to the Plan, the Company will distribute pro rata to the Company's
stockholders all of its remaining property and assets, including the
proceeds of any sale, exchange or disposition, except such property or
assets as are required for paying or making provision for the claims and
obligations of the Company. Such distributions may occur all at once or in
a series of distributions and may be in cash or in kind, in such manner,
and at such time or times, as the Board of Directors may determine.
On June 30, 1997, the Board of Directors declared a liquidating
distribution to holders of record of the Company's common stock on August
15, 1997, payable September 8, 1997, in the amount of $5.00 per share.
NOTE F - NET ASSETS IN LIQUIDATION PER SHARE
____________________________________________
Number of common shares for net assets in liquidation per share assumes the
exercise of all dilutive stock options. At June 30, 1997 and 1996,
dilutive options aggregated 716,765 and 712,765, respectively, with an
average exercise price of approximately $2.88 for both years. The effect
of these options is shown below:
June 30, June 30,
1997 1996
__________ __________
Number of common and common
equivalent shares - outstanding 5,827,600 5,963,000
========= =========
Net assets in liquidation $5,497,000 $34,469,000
Proceeds from the exercise of dilutive
stock options 2,070,000 2,056,000
Estimated tax benefit of compensatory
stock options 545,000 846,000
_________ __________
Adjusted net assets in liquidation $8,112,000 $37,371,000
========= ==========
Net assets in liquidation per share $1.39 $6.27
==== ====
F-13
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE G - CHANGES IN NET ASSETS IN LIQUIDATION
_____________________________________________
Changes in net assets in liquidation represent changes since adoption of
the Plan of Complete Liquidation and Dissolution on February 2, 1996. The
changes in the estimated liquidation values of net assets over liabilities
are as follows:
Period from
Year ended February 3, 1996
June 30, to June 30,
1997 1996
___________ __________
Proceeds from exercise of stock options - $ 2,737,000
Additional interest earned on cash and $ 1,683,000 353,000
cash equivalents
Purchase of common stock (768,000) (1,028,000)
Change in the estimate of shut-down costs (635,000) (165,000)
Goodwill, net - 786,000
Change in the estimate of tax benefit (216,000) 388,000
Change in the estimate of contingent 50,000 -
liabilities
Other adjustments 52,000 42,000
___________ _________
Increase in estimated liquidation $ 166,000 $ 3,113,000
values of net assets over liabilities =========== =========
NOTE H - SALE OF OPERATING ASSETS
_________________________________
As of February 7, 1996, all of the Company's operating assets were sold to
two purchasers. The purchase prices are subject to adjustment based upon a
final valuation of the transferred inventory and equipment. Pursuant to
one of the purchase agreements, $1,000,000 of the purchase price of
$3,706,700 was being held in escrow to provide for indemnification claims
that may be asserted against the Company. At June 30, 1997, the amount
held in escrow was reduced to approximately $773,000. On August 21, 1997,
approximately $276,000 was released to the Company.
At June 30, 1997, the Company has recorded a receivable aggregating
approximately $594,000 based upon the Company's valuation of inventory sold.
The value of certain inventory items is currently being disputed; however,
the Company does not believe that the final agreed-upon valuation will have
a material effect on the value of the net assets in liquidation.
F-14
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE I - CONTINGENCIES AND COMMITMENTS
______________________________________
1. In June 1996, the Company terminated its lease of office and factory
space in Lake Success, New York. The Company now leases office space
in Wilmington, Delaware, and is obligated for minimum annual rentals
as follows:
Year ending June 30,
1998 $23,000
1999 21,000
______
$44,000
======
The last year's lease payment has been paid in advance by the Company.
This prepaid rent is included in other assets in the accompanying
consolidated statement of net assets at June 30, 1997.
Rent expense was approximately $23,000 and $76,600 during the year
ended June 30, 1997 and the period February 3, 1996 to June 30, 1996,
respectively.
2. Employment contracts with the officers of the Company provide for
minimum annual total compensation of approximately $748,000. In the
event of death or disability of the Company's principal officers while
employed, the contracts call for payments of 50% of compensation paid
in the preceding fiscal year for the three years following such event.
In June 1996, each of the Company's officers was given three years'
notice, as required by the employment agreements, of the termination of
his employment agreement with the Company.
3. The Company and its three principal officers were parties to a stock
retirement agreement which required the Company, upon the death of any
of these officers, to purchase 30% of his holdings of the Company's
common stock at a price equal to the greater of the average market
price over the last six months or the book value. The Company had life
insurance policies on the lives of the aforementioned officers to fund
substantially all of its obligations in the event of their death.
During the fiscal year ended June 30, 1997, this stock retirement
agreement was terminated by the Company's Board of Directors and,
accordingly, the associated life insurance policies were cancelled.
F-15
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE I (continued)
4. In accordance with the asset purchase agreements governing the asset
sales, certain government contracts previously awarded to the Company
were novated to the purchasers. Under the standard terms of the
novation agreements, the Company remains jointly liable with the
purchasers for performance under these contracts. In addition, a
number of contracts were not novated and the Company has subcontracted
performance under these contracts to the purchaser of its defense-
related assets. Management does not believe that the final results of
these transactions will have a material effect on the value of the net
assets in liquidation.
5. The Company is a party to various litigations that arose in the
ordinary course of its prior business. On the basis of information
furnished by counsel and others, management believes that none of these
litigations will have a material effect on the value of the net assets
in liquidation.
6. In 1983, the Company acquired a sixteen-year license from the
University of Delaware covering a new process for the manufacture of
solar cells. In connection with the acquisition of the aforementioned
license, the Company issued a $20,000,000 nonrecourse note originally
due in 1993 and bearing interest at 14% per annum. The note is secured
by the Company's rights under the license and is to be paid prior to
its due date solely on the basis of 4% of sales of products developed
by this process, subject to certain minimum quarterly payments of
$11,250 to $12,500. An amendment to the license agreement extended the
term of the license agreement to 2006 as well as extended the due date
of the note to May 1999. The Company made quarterly payments of
$49,000 and $22,000 during the year ended June 30, 1997 and the period
February 3, 1996 to June 30, 1996, respectively.
The Company, for financial reporting purposes, has not recorded the
note and has provided for expected payments pursuant to the license
agreement. No payments based on sales were required to be made through
June 30, 1997.
7. The Company has a profit-sharing plan which provides benefits upon
retirement, death, incapacity or separation of eligible employees.
There were no profit-sharing expenses for the year ended June 30, 1997
and during the period from February 3, 1996 to June 30, 1996.
F-16
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE I (continued)
______
8. The Company maintains a Retirement Savings Plan which allows
participants to make contributions by salary reductions pursuant to
Section 401(k) of the Internal Revenue Code of 1986. The Company is
obligated to make contributions (either in cash or Company stock) equal
to 50% of the employees' contribution. At June 30, 1997, the Company
owed the Retirement Savings Plan 7,404 shares of its common stock,
which it valued at $39,000. Employees vest immediately in their
contribution and in the Company's contribution.
NOTE J - STOCK OPTIONS AND OTHER STOCK TRANSACTIONS
___________________________________________________
The Company's 1991 Stock Option Plan provides for the granting of options
to purchase up to 1,500,000 shares of its common stock to eligible
employees, nonemployee directors, consultants and advisors. The fair value
and pro forma effects on the Company's net assets in liquidation and net
assets in liquidation per share are not presented, as the fair value of the
options granted (determined pursuant to Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation") has no effect
on the liquidation basis consolidated financial statements.
A summary of stock option activity related to the Company's stock option
plan is as follows:
Weighted
Number Option average Number of
of price exercise shares
shares per share price exercisable
_______ _____________ ________ ___________
Outstanding at
February 3, 1996 507,300 $2.88 - $4.00 $3.58 504,675
=======
Exercised (467,300) $2.88 - $4.00 $3.62
_______
Outstanding at
June 30, 1996 40,000 $2.88 - $4.00 $3.04 40,000
Exercised - -
_______ _______
Outstanding at
June 30, 1997 40,000 $2.88 - $4.00 $3.04 40,000
======= =======
During the period February 3, 1996 to June 30, 1996, options for the
purchase of 499,998 shares were exercised, which options were granted other
than pursuant to the Company's stock option plan. These options had a
weighted average exercise price of $3.08.
F-17
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE J (continued)
______
On September 10, 1996, the Company granted its two outside directors 4,000
options to purchase shares of the Company's common stock at an option price
of $3.50 per share. These options were not granted pursuant to the
Company's stock option plan.
At June 30, 1997, there were outstanding 676,765 nonincentive stock
options, which options were granted other than pursuant to the Company's
stock option plan. These options had a weighted average exercise price of
$2.88 and were exercised in July 1997. See Note B - Loans to Officers.
In March 1996, the Company announced that its Board of Directors
authorized the purchase of up to 500,000 shares of its common stock, under
a stock repurchase program. (This repurchase program was in addition to
the 500,000 shares previously authorized on October 23, 1993.) The
purchases may be made by the Company from time to time at the Company's
discretion. During the year ended June 30, 1997 and the period February 3,
1996 to June 30, 1996, the Company purchased 123,877 and 170,000 shares of
its common stock, respectively, for aggregate consideration of approximately
$771,000 and $1,009,000, respectively.
NOTE K - TAXES ON INCOME
________________________
All income tax accounts have been restated to reflect the liquidation basis
of accounting. Upon any distribution of its property to its shareholders,
the Company will generally recognize a gain or loss as if the distributed
property were sold to the shareholders at its fair market value. The
Company will provide shareholders and the Internal Revenue Service with a
statement of the amount of cash distributed to its shareholders and its
best estimate as to the value of any property distributed to them during
the year. There can be no assurance that the Internal Revenue Service will
not challenge the tax characterization of any such distribution, including
such valuation. As a result of such a challenge, the amount of gain or
loss recognized by the Company and/or its shareholders might be changed.
In addition, the Company's income tax returns for certain years remain
subject to examination. Accordingly, additional assessments of income
taxes are possible.
F-18
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE K (continued)
______
The deferred tax liability is as follows:
June 30, June 30,
1997 1996
__________ __________
Deferred tax liability
Difference between financial reporting
and tax bases of University of Delaware
note $11,669,000 $12,180,000
__________ __________
Deferred tax (asset)
Utilization of net operating loss carry-
forward (4,994,000) (5,415,000)
Utilization of compensation deduction (1,048,000) (847,000)
Other (227,000) (183,000)
__________ __________
(6,269,000) (6,445,000)
__________ __________
Net deferred tax liability $ 5,400,000 $ 5,735,000
========== ==========
Deferred taxes result from temporary differences in the recognition of
revenue and expense for tax and financial reporting purposes. The
principal sources of these differences were net operating loss
carryforwards, compensation expenses and amortization and accrued interest
relating to the license from the University of Delaware (see Note I).
F-19
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Liquidation Basis Statements - Notes to Financial Statements
NOTE K (continued)
______
At June 30, 1997, the Company had available net operating loss
carryforwards for income tax reporting purposes as follows:
Net operating Expiring in
loss year ending
Period ended carryforwards June 30,
____________ _____________ ___________
June 30, 1990 $ 1,302,000 2005
June 30, 1991 3,252,000 2006
June 30, 1993 596,000 2008
June 30, 1994 605,000 2009
June 30, 1995 525,000 2010
June 30, 1996 7,662,000 2011
June 30, 1997 325,000 2012
__________
$14,267,000
==========
F-20
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Going Concern Basis Statements - Notes to Financial Statements
NOTE L - DESCRIPTION OF BUSINESS
________________________________
Until February 2, 1996, the Company was engaged in the manufacture and sale
of electronic and electromechanical devices for measurement, display,
control and power input.
NOTE M - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
___________________________________________________
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Material intercompany transactions and
account balances have been eliminated in consolidation.
2. Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
3. Revenue and Revenue Recognition
Until February 2, 1996, the Company was engaged in the manufacture and
sale of electronic and electromechanical devices for measurement,
display, control and power input. The Company recorded its sales when
the manufacturing process was substantially complete and, accordingly,
accrued all additional costs required to complete the units.
The Company's warranty on commercial sales was normally 90 days, except
for certain products and customers where the warranty was one year.
The warranty provisions on military sales were normally negotiated for
each major contract. Warranty expense had been minimal in recent
years.
4. Income Taxes
Deferred income taxes are recognized for temporary differences between
the financial statement and income tax bases of assets and liabilities
and loss carryforwards for which income tax benefits are expected to be
realized in future years. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the
enactment date.
F-21
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Going Concern Basis Statements - Notes to Financial Statements
NOTE M (continued)
______
5. Net Loss Per Share
Net loss per share is based upon the weighted average number of common
stock outstanding during the period from July 1, 1995 to February 2,
1996. Average common equivalent shares (stock options) outstanding
have not been included, as the computation would not be dilutive.
6. 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. Actual results could differ from
those estimates.
NOTE N - CONTINGENCIES AND COMMITMENTS
______________________________________
1. The Company has a profit-sharing plan which provides benefits upon
retirement, death, incapacity or separation of eligible employees.
There were no profit-sharing expenses for the period July 1, 1995 to
February 2, 1996.
2. The Company has a Retirement Savings Plan which allows participants to
make contributions by salary reduction pursuant to section 401(k) of
the Internal Revenue Code of 1986. The Company is obligated to make
contributions (either in cash or Company stock) equal to 50% of the
employees' contribution. The Company's contributions to the plan for
the period July 1, 1995 to February 2, 1996 consisted of the Company's
common stock which it valued at $58,000. Employees vest immediately in
their contribution and in the Company's contribution.
3. During the period July 1, 1995 to February 2, 1996, the Company and its
three principal officers were parties to a stock retirement agreement
which required the Company, upon the death of any of these officers, to
purchase 30% of his holdings of the Company's common stock at a price
equal to the greater of the average market price over the last six
months or the book value. The Company had life insurance policies on
the lives of the aforementioned officers to fund substantially all of
its obligations in the event of their death.
F-22
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Going Concern Basis Statements - Notes to Financial Statements
NOTE N (continued)
______
4. In 1983, the Company acquired a 16-year license from the University of
Delaware covering a new process for the manufacture of solar cells. In
connection with the acquisition of the aforementioned license, the
Company issued a $20,000,000 nonrecourse note originally due in 1993
and bearing interest at 14% per annum. The note is secured by the
Company's rights under the license and is to be paid prior to its due
date solely on the basis of 4% of sales of products developed by this
process, subject to certain minimum quarterly payments of $11,250 to
$12,500. An amendment to the License Agreement extended the term of
the license agreement to 2006 as well as extended the due date of the
note to May 1999. For the period July 1, 1995 to February 2, 1996,
the Company paid $23,000 in quarterly payments.
The Company, for financial reporting purposes, has not recorded the
note and will charge operations with any actual payments made to the
University of Delaware. No payments based on sales were required to be
made through February 2, 1996. To the extent that any lump-sum payment
is made, the license cost would be amortized from that date forward,
thus matching the cost of the license against sales from that date
forward.
5. The Company was obligated for minimum annual rentals under leases for
office and factory space. Total rent expense aggregated $279,000 for
the period July 1, 1995 to February 2, 1996.
6. Employment contracts with the officers of the Company provided for
minimum annual total compensation of approximately $748,000. In the
event of death or disability of the Company's principal officers while
employed, the contracts called for payments of 50% of compensation paid
in the preceding year for the three years following such event.
NOTE O - LONG-TERM INVESTMENTS
______________________________
The Company owns 32.2% of the common stock of AstroPower, Inc. Assuming
certain convertible preferred stock is converted to common stock, the
Company's interest in AstroPower, Inc. would be reduced to 22.7%. Such
investment was accounted for by the equity method and, accordingly, the
Company recorded its share in the losses of this entity as a reduction of
its investment. This investment was fully written down to zero in prior
years.
F-23
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Going Concern Basis Statements - Notes to Financial Statements
NOTE P - STOCK OPTIONS
The Company's 1991 Stock Option Plan provides for the granting of options
to purchase up to 1,500,000 shares of its common stock to eligible
employees, nonemployee directors, consultants and advisors.
A summary of stock option activity related to the Company's stock option
plan is as follows:
Weighted
Number Option average Number of
of price exercise shares
shares per share price exercisable
_______ _____________ ________ ___________
Outstanding at
July 1, 1995 1,644,597 $2.88 - $4.00 $3.21 1,334,222
=========
Cancelled or expired (1,137,297) $2.88 - $3.33 $3.05
_______
Outstanding at
February 2, 1996 507,300 $2.88 - $4.00 $3.58 504,675
========= =========
As of February 2, 1996, options for the purchase of 989,500 shares were
available for future grant.
On December 14, 1995, 101,184 stock options at an average price of $2.96
per share expired. On January 11, 1996, 480,732 and 555,381 incentive
stock options and nonincentive stock options, respectively, were cancelled
by mutual consent. In consideration for such cancellation and to replace
the expired options, the Company issued, on January 11, 1996, 1,172,763
nonincentive stock options at an average exercise price of $2.96 per share.
The difference between the fair market value of the Company's common stock
on the date of the grant and the exercise price has been recorded as a
noncash charge in the accompanying consolidated statement of operations for
the period July 1, 1995 to February 2, 1996.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"); it applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for the
Plan. In accordance with APB No. 25, the Company recognizes compensation
cost unless the employee pays an amount that is at least equal to the
F-24
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Going Concern Basis Statements - Notes to Financial Statements
NOTE P (continued)
______
quoted market price of the stock at the measurement date. If the Company
had elected to recognize compensation expense based upon the fair value at
the grant dates for awards under this plan consistent with the methodology
prescribed by SFAS No. 123, the Company's reported net loss and net loss
per common share would be reduced to the pro forma amounts indicated below:
Period July 1, 1995
to February 2, 1996
___________________
Net loss
As reported $(2,394,000)
Pro forma $(2,722,000)
Net loss per common share
As reported $(.52)
Pro forma $(.59)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before July 1, 1995. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for the period July 1, 1995
to February 2, 1996: expected volatility of 0 percent; risk-free interest
rate of 5.19 percent, and expected life of one year. The weighted average
option fair value on the grant date was $2.81 for options issued during the
period July 1, 1995 to February 2, 1996. The assumptions made were
significantly influenced by the adoption by the Company's Board of
Directors, on October 26, 1995, of a Plan of Complete Liquidation and
Dissolution that was approved by the holders of a majority of the Company's
outstanding shares of common stock on February 2, 1996. See Note A - Basis
of Presentation and Summary of Significant Accounting Policies.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
F-25
<PAGE>
Astrosystems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1997 and 1996
Going Concern Basis Statements - Notes to Financial Statements
NOTE Q - TAXES ON INCOME
_______________________
The components of the deferred income tax benefit for the period July 1,
1995 to February 2, 1996 are as follows:
Federal $ 1,099,000
State 290,000
_______
$1,389,000
=========
A reconciliation between the Company's effective rate and the U.S. Federal
income tax rate for the period July 1, 1995 to February 2, 1996 is as
follows:
Statutory rate 34.0%
State taxes, net of Federal benefit 5.1
Other, net (2.4)
____
Actual tax rate 36.7%
F-26
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
_______________________________________________________________
On December 18, 1996, Richard A. Eisner & Company, LLP ("Eisner")
resigned as the independent public accountants for the Company since, as it
indicated, it was no longer independent with respect to the Company.
Eisner had served as the Company's independent public accountants since
1967.
Eisner's report on the Company's financial statements as of June
30, 1994 and 1995 and for the years then ended neither contain an adverse
opinion or a disclaimer of opinion nor is modified as to uncertainty, audit
scope or accounting principles.
During the fiscal years ended June 30, 1994 and 1995 and the
period from July 1, 1995 to December 18, 1996, there were no disagreements
with Eisner on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of such firm, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report.
On June 17, 1997, the Company engaged Grant Thornton LLP as its
independent public accountants with respect to the fiscal years ended June
30, 1996 and 1997. The engagement of Grant Thornton LLP was approved by
the Audit Committee of the Company.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Securities Exchange Act.
_____________________________________________________________
Year Became Positions held
Name a Director Age with Registrant
____________________ ___________ ___ _________________________
Seymour Barth 1959 69 President and Director
Gilbert H. Steinberg 1964 66 Vice President, Treasurer
and Director
Elliot J. Bergman 1964 71 Vice President, Secretary
and Director
Walter A. Steinberg 1989 70 Director
Elliot D. Spiro 1994 68 Director
The term of each Director extends until the next annual meeting
of the Company's stockholders and until his successor is elected and
qualified. The next annual meeting of stockholders is anticipated to be
held in the first half of 1998.
Seymour Barth has served as President of the Company since 1964
and as a Director of the Company since its inception in 1959.
Gilbert H. Steinberg has served as a Director, Vice President and
Treasurer of the Company since 1964.
Elliot J. Bergman has served as a Director, Vice President and
Secretary of the Company since 1964.
Walter A. Steinberg has been an independent engineering
consultant for more than the past five years and has served as a Director
of the Company since 1989.
Elliot D. Spiro has served as Chairman and Chief Executive
Officer of Branch Insurance Agency, a property/casualty and financial
services insurance agency, for more than the past five years and has served
as a Director of the Company since 1994.
There is no family relationship among any of the Company's
Directors and executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance.
________________________________________________________
To the Company's knowledge, based on a review of written
representations that no reports were required, during the fiscal year ended
June 30, 1997, all Section 16(a) filing requirements applicable to the
Company's officers, Directors and 10% stockholders were complied with.
Item 10. Executive Compensation.
______________________
(a) Summary Compensation Table.
__________________________
Annual Compensation Long-Term Compensation
___________________ ______________ ___________
Awards Payouts
__________________________
Shares
Name and Principal Underlying All Other
Position Year Salary Bonus Options Compensation
__________________ ____ ______ _____ __________ _____________
Seymour Barth 1997 $310,807 0 0 $71,088 (4)
President 1996 $310,807 0 390,921 (1) $6,262 (5)
1995 $309,518 0 0 $4,686 (6)
Elliot Bergman 1997 $218,716 0 0 $69,545 (4)
Vice President & 1996 $218,716 0 390,921 (2) $6,921 (5)
Secretary 1995 $217,830 0 0 $4,357 (6)
Gilbert Steinberg 1997 $218,716 0 0 $69,340 (4)
Vice President & 1996 $218,716 0 390,921 (2) $6,935 (5)
Treasurer 1995 $217,830 0 0 $4,357 (6)
(1) Issued concurrently with the cancellation of options for the
purchase of 371,607 shares.
(2) Issued concurrently with the cancellation of options for the
purchase of an equal number of shares.
(3) Issued concurrently with the cancellation of options for the
purchase of 374,769 shares.
(4) Includes 904 shares contributed by the Company to the accounts
of each of Messrs. Barth, Bergman and G. Steinberg for
Fiscal 1997 pursuant to the terms of its 401(k) Plan.
Also includes $66,342, $64,799 and $64,594 for Messrs. Barth,
Bergman and G. Steinberg, respectively, in connection with
the exercise of certain stock options at the Company's request.
(5) Represents 1,138, 1,254 and 1,256 shares contributed by the
Company to the accounts of Messrs. Barth, Bergman and
G. Steinberg, respectively, for Fiscal 1996 pursuant to the terms
of its 401(k) Plan.
(6) Represents 1,079, 1,030, and 1,030 shares contributed by the
Company to the accounts of Messrs. Barth, Bergman and
G. Steinberg, respectively, for Fiscal 1995 pursuant to the terms
of its 401(k) Plan.
The options which were cancelled for Messrs. Barth and Steinberg
were "incentive options" which required the exercise price to be ten
percent above market price. These were replaced by "nonqualified" options
and were, accordingly, repriced to market price at the time of the original
grant.
(b) Option Grants Table.
___________________
Inapplicable.
(c) Fiscal Year-End Option Value Table.
__________________________________
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Options at June 30, 1997
Name June 30, 1997 Exercisable/Unexercisable
__________________ _______________________ _________________________
Seymour Barth 224,255/0 $532,606/0
Elliot Bergman 224,255/0 $532,606/0
Gilbert Steinberg 224,255/0 $532,606/0
(d) Compensation of Directors.
Messrs. W. Steinberg and Spiro are entitled to receive $5,000 per
year for their services as a Director and an additional $500 for each
meeting of the Board held beyond a certain geographic range. No other
Directors receive compensation for their services as such.
On September 10, 1996, each of Messrs. W. Steinberg and Spiro was
granted options for the purchase of 2,000 shares of the Company's stock at
$3.50 per share.
(e) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
Stock Retirement Agreement
The Company and Messrs. Barth, G. Steinberg and Bergman were
parties to a Stock Retirement Agreement which required the Company, upon
the death of any of such persons, to purchase 30% of all shares of Common
Stock of the Company included in the gross estate of the deceased
stockholder at a price equal to the greater of the average market price of
such shares over the six months preceding the date of death or the book
value thereof.
In December 1996, the Stock Retirement Agreement and associated
term life insurance carried upon the lives of Messrs. Barth, G. Steinberg
and Bergman were cancelled.
Employment Agreements
In April 1994, the Company entered into Employment Agreements
with each of Messrs. Barth, G. Steinberg and Bergman which provided for,
among other things, the following: (i) minimum annual compensation of
$304,116 for Mr. Barth and $214,008 for each of Messrs. G. Steinberg and
Bergman (effective September 5, 1994, the annual compensation payable to
Messrs. Barth, G. Steinberg and Bergman was increased to $310,807, $218,716
and $218,716, respectively); (ii) a term ending upon the earliest to occur
of the following: (a) the employee's death or incapacity; (b) "cause", as
defined in the Employment Agreement; (c) at the election of the Company,
upon not less than three years' prior written notice to the employee; or
(d) at the election of the employee, upon not less than six months' prior
written notice to the Company; and (iii) in the event the employee's
employment shall terminate as a result of death or incapacity, the Company
would be obligated to make annual payments to the employee or his estate or
representative for a period of three years in an amount equal to 50% of the
compensation paid or payable to the employee with respect to the fiscal
year immediately preceding the fiscal year in which his employment
terminated.
In June 1996, each of Messrs. Barth, G. Steinberg and Bergman was
given three years' notice, as required by the Employment Agreements, of the
termination of his Employment Agreement with the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
_______________________________________________________________
The following table sets forth, to the knowledge of the Company,
certain information regarding the Company's outstanding Common Stock
beneficially owned as of August 15, 1997 (i) by each person who is known by
the Company to own beneficially or exercise voting or dispositive control
over more than 5% of the Company's Common Stock, (ii) by each of the
Company's Directors, and (iii) by all executive officers and Directors as a
group:
Approximate
Name and Number of Shares Percentage of
Address of and Nature of Outstanding
Beneficial Owner Beneficial Ownership Shares
____________________ ____________________ _____________
Seymour Barth....... 1,438,530(1)(2) 24.7%(1)(2)
1220 Market Street
Suite 603
Wilmington, Delaware
Gilbert H. Steinberg 1,078,286(1) 18.5%(1)
1220 Market Street
Suite 603
Wilmington, Delaware
Elliot J. Bergman... 963,093(1)(3) 16.5%(1)(3)
1220 Market Street
Suite 603
Wilmington, Delaware
Morris Barth 335,849(4) 5.7%(4)
c/o Astrosystems, Inc.
1220 Market Street
Suite 603
Wilmington, Delaware
Elliot D. Spiro..... 12,100 *
71 South Central Avenue
Valley Stream, New York
Walter A. Steinberg. 2,000 *
111 Eddy Drive
Huntington Station, New York
All Directors and
executive officers 3,351,879(1)(2)(3) 57.5%(1)(2)(3)
as a group (5 persons)
* Less than 1%
(1) Includes for each of Messrs. Barth, G. Steinberg and Bergman
71,065 shares over which they have voting power as trustees under
the Company's 401(k) and profit-sharing plans (including 25,617,
23,226 and 21,528 shares allocated to the accounts of Messrs.
Barth, G. Steinberg and Bergman, respectively).
(2) Includes 250,000 shares held in trust for the benefit of Mr.
Barth's family, as to which trust Mr. Barth serves as co-trustee.
Excludes 110,000 shares held in trust for the benefit of Mr.
Barth's children, as to which shares Mr. Barth disclaims any
beneficial interest.
(3) Includes 225,000 shares held in various trusts for the benefit of
Mr. Bergman's family, as to which trusts Mr. Bergman serves as
co-trustee.
(4) Includes 300,000 shares held in various trusts for the benefit of
the descendants of Seymour Barth, as to which trusts Morris Barth
serves as co-trustee.
Item 12. Certain Relationships and Related Transactions.
______________________________________________
In June 1996, Messrs. Barth, G. Steinberg and Bergman exercised
stock options and each was loaned $912,498, payable, with interest at the
rate of 6% per annum, on December 31, 1997 or earlier demand by the
Company, for use in the exercise. The exercise of these options resulted
in tax benefits to the Company. Each of Messrs. Barth, G. Steinberg and
Bergman was later loaned an additional $292,515, payable, with interest at
the rate of 6% per annum, on December 31, 1997 or earlier demand by the
Company, in connection with the aforementioned exercise of stock options.
In July, 1997, each of the above mentioned individuals was
further loaned $644,733, payable, with interest at the rate of 6% per
annum, on September 30, 1997 or earlier demand by the Company, for use in
the exercise of additional stock options, the exercise of which resulted in
additional tax benefits to the Company.
All loans, including interest thereon, were repaid to the Company
in full as of September 29, 1997.
Item 13. Exhibits, List and Reports on Form 8-K.
______________________________________
(a) Exhibits:
________
(2) Plan of Complete Liquidation and Dissolution -
incorporated by reference to Exhibit A to Proxy
Statement of the Company dated January 12, 1996 with
respect to Annual Meeting of Stockholders held February
2, 1996 (File No. 0-3344).
(3) (a) Certificate of Incorporation and Certificate of
Amendment thereto - incorporated by reference to
Exhibit 3(a) to the Company's Annual Report on Form
10-KSB for its fiscal year ended June 30, 1993
(File No. 0-3344).
(b) Bylaws - incorporated by reference to Exhibit 3(b) to
the Company's Annual Report on Form 10-KSB for its fiscal
year ended June 30, 1993 (File No. 0-3344).
(10)(a) Lease with regard to AstroPower, Inc., Delaware premises
- incorporated by reference to Exhibit 10 to
the Company's Annual Report on Form 10-K for its fiscal
year ended June 30, 1990 (File No. 0-3344).
(b) 1991 Stock Option Plan - incorporated by reference to
Exhibit A to the Company's definitive Proxy Statement
dated December 12, 1990 (File No. 0-3344).
(c) Settlement Agreement with Internal Revenue Service -
incorporated by reference to Exhibit 10 to the Company's
Annual Report on Form 10-K for its fiscal year ended
June 30, 1991 (File No. 0-3344).
(d) Employment Agreement dated as of April 18, 1994 between
the Company and Seymour Barth - incorporated by reference
to Exhibit 10 to the Company's Annual Report on Form
10-KSB for its fiscal year ended June 30, 1994
(File No. 0-3344).
(e) Employment Agreement dated as of April 18, 1994 between
the Company and Elliot Bergman - incorporated by
reference to Exhibit 10 to the Company's Annual Report on
Form 10-KSB for its fiscal year ended June 30, 1994
(File No. 0-3344).
(f) Employment Agreement dated as of April 18, 1994 between
the Company and Gilbert H. Steinberg - incorporated by
reference to Exhibit 10 to the Company's Annual Report on
Form 10-KSB for its fiscal year ended June 30, 1994
(File No. 0-3344).
(g) Asset Purchase Agreement dated as of January 11, 1996 by
and among the Company, Behlman Electronics, Inc., Orbit
International Corp. and Cabot Court, Inc. - incorporated
by reference to Exhibit B to Proxy Statement of
the Company dated January 12, 1996 with respect to Annual
Meeting of Stockholders held February 2, 1996
(File No. 0-3344).
(21) Subsidiaries of the Company.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
___________________
Report on Form 8-K filed by the Company for an event dated
June 17, 1997 - Item 4 (File No. 0-3344).
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ASTROSYSTEMS, INC.
BY: /S/
____________________
Seymour Barth,
President
October 9, 1997
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.
President, Principal Executive
/S/ Officer and Director October 9, 1997
_____________________
Seymour Barth
Vice President, Secretary
/S/ and Director October 9, 1997
_____________________
Elliot J. Bergman
Vice President, Treasurer,
Principal Financial and
Accounting Officer and October 9, 1997
/S/ Director
______________________
Gilbert Steinberg
/S/ Director October 9, 1997
______________________
Elliot D. Spiro
/S/ Director October 9, 1997
_____________________
Walter Steinberg
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 33,911 22,781
<SECURITIES> 5,978 16,866
<RECEIVABLES> 228 374
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 44,774 44,364
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 44,774 44,364
<CURRENT-LIABILITIES> 31,325 1,384
<BONDS> 0 0
0 0
0 0
<COMMON> 5,227 5,963
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
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</TABLE>
EXHIBIT 21
SUBSIDIARIES
NAME STATE OF INCORPORATION
____ ______________________
Astrosub, Inc. Delaware
AstroPower, Inc. (1) Delaware
BEI Liquidating Corporation
(formerly named Behlman Electronics, Inc.) New York
(1) Registrant owns 32.3% of outstanding common stock
