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FORM 10-QSB/A-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1996
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Commission File Number 1-2982
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ANCOR COMMUNICATIONS, INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-1569659
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6130 Blue Circle Drive Minnetonka, Minnesota 55343
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(Address of principal executive offices) (Zip code)
Registrant's Telephone number, including area code (612) 932-4000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [_]
8,505,092
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(Number of shares of common stock of the
registrant outstanding as of May 10, 1996)
Transitional Small Business Issuer format: Yes [_] No [X]
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ANCOR COMMUNICATIONS, INCORPORATED
FORM 10-QSB/A-1
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996
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PART I - FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995 3
Statements of Operations for the three
month periods ended March 31, 1996
and 1995 (unaudited) 4
Statements of Cash Flows for the three
month periods ended March 31, 1996
and 1995 (unaudited) 5
Notes to Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
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2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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ANCOR COMMUNICATIONS, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 0 $ 251,475
Short-term investments 9,134,241 1,300,178
Accounts receivable 2,227,551 1,822,883
Inventories 1,383,187 819,760
Other current assets 174,581 180,848
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Total current assets 12,919,560 4,375,144
Equipment, net of accumulated depreciation 1,439,077 1,140,899
Patents, Prepaid Royalties, and Other Assets,
net of accumulated amortization 256,466 256,982
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TOTAL ASSETS $14,615,103 $ 5,773,025
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 1,554,620 $ 1,540,000
Accounts payable 961,674 838,689
Accrued liabilities 366,714 435,264
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Total current liabilities 2,883,008 2,813,953
Long-term Debt, less current maturities 235,956 199,653
Shareholders' Equity (Note 2)
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares; issued and outstanding
10,300 shares in 1996 and none issued in 1995 $ 10 ---
Additional paid-in capital, preferred stock $ 9,578,990 ---
Common stock, par value $.01 per share,
authorized 12,000,000 shares; issued and outstanding
8,276,352 Shares in 1996 and 8,273,426 shares in 1995 82,764 82,734
Additional paid-in capital, common stock 14,670,681 14,656,203
Accumulated deficit (12,836,306) (11,979,519)
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Total shareholders' equity 11,496,139 2,759,418
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,615,103 $ 5,773,025
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</TABLE>
See Notes to Financial Statements
3
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ANCOR COMMUNICATIONS, INCORPORATED
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1996 1995
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<S> <C> <C>
Net Sales $1,415,766 $ 611,531
Cost of Sales 764,501 420,539
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Gross Profit 651,265 190,992
Operating Expenses
Selling, general and administrative 773,657 595,799
Research and development 742,619 630,869
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Total operating expenses 1,516,276 1,226,668
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Operating loss (865,011) (1,035,676)
Other income (expense)
Interest expense (30,797) (41,112)
Other, net 39,021 16,456
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Net Loss $ (856,787) $(1,060,332)
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Net loss per common share $ (0.10) $ (0.16)
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Weighted average common and
common equivalent shares
outstanding 8,274,442 6,745,602
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</TABLE>
See Notes to Financial Statements
4
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ANCOR COMMUNICATIONS, INCORPORATED
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1996 1995
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (856,787) $(1,060,332)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 66,805 66,806
Changes in current assets and liabilities:
Accounts receivable (404,668) 425,626
Notes receivable 0 240,000
Inventories (563,427) 86,024
Other current assets 6,267 (79,016)
Accounts payable 122,985 (327,776)
Accrued liabilities (68,550) 105,435
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Net cash used in operating activities (1,697,375) (543,233)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of equipment (304,468) (83,131)
Short-term investments (7,834,063) 588,564
Purchase of other assets 0 (83,613)
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Net cash provided by (used in) investing activities (8,138,531) 421,820
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 0 90,000
Loan repayments (9,077) (38,721)
Proceeds from preferred stock issuance 9,579,000 0
Proceeds from common stock issuance
and exercise of options 14,508 1,873
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Net cash provided by financing activities 9,584,431 53,152
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Net decrease in cash (251,475) (68,261)
Cash, at beginning of period 251,475 93,148
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Cash, at end of period $ 0 $ 24,887
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Supplemental Schedule of Noncash Investing and
Financing Activities:
Equipment acquired under capital lease $ 60,000 $ 0
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</TABLE>
See Notes to Financial Statements
5
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ANCOR COMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, the interim financial statements include all
adjustments necessary for a fair presentation of the results of operations for
the interim periods presented. Operating results for the three and nine months
ended March 31, 1996 are not necessarily indicative of the operating results to
be expected for the year ending December 31, 1996.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
condensed or omitted.
NOTE 2 - EQUITY FINANCING
Subsequent to the fiscal year end, the Board of Directors designated 1,100
shares of the Company's authorized preferred stock as Series A Preferred Stock.
This stock has a stated value of $10,000 per share, with an 8 percent per annum
conversion premium. The holders of Series A Preferred Stock are not entitled to
receive dividends.
On March 7, 1996, the Company sold 1,030 shares of Series A Preferred Stock
through a private placement at its stated value of $10,000 per share. Total net
proceeds from this private placement were $9,579,000, after reduction for
commissions and issuance costs of $721,000. Each holder of Series A Preferred
Stock will be able to convert their preferred shares into shares of common
stock, in cumulative increments of one-third of preferred shares held, after
April 21, 1996, June 5, 1996, and July 20, 1996, and until February 23, 1999, at
which time each outstanding preferred share will automatically be converted to
common stock. Each share of Series A Preferred Stock is convertible into common
stock based on its stated value of $10,000, plus an 8 percent annualized premium
for the period for which the Series A is held, divided by a conversion price.
This conversion price is the lesser of $6.49 or 85 percent of the average
closing bid price of the Company's common stock for the five trading days
preceding the conversion date. On a pro forma basis, assuming a portion of the
proceeds had been used to repay certain term debt as provided for by the private
placement document, the 1996 loss per common share would remain at $(.10). This
computation presumes the conversion of a portion of the preferred shares and
repayment of debt as of the beginning of 1996.
6
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ITEM 2
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
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FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995.
The following table sets forth, for the periods indicated, certain statements of
operations data as a percentage of net sales.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
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1996 1995
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<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Goods Sold 54.0 68.8
Gross Profit 46.0 31.2
Operating Expenses:
Selling, general & admin. 54.6 97.4
Research & development 52.5 103.2
Total operating expenses 107.1 200.6
Operating loss (61.1) (169.4)
Other income (expense)
Interest expense (2.2) (6.7)
Other, net 2.8 2.7
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Net Loss (60.5)% (173.4)%
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</TABLE>
Net Sales. Net sales for the first quarter were approximately
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$1,416,000 an increase of 131.5% from the 1995 first quarter sales of
approximately $612,000. Fibre Channel product sales equaled approximately
$1,413,000 in the first quarter of 1996, an increase of $1,028,000 over the
approximately $385,000 in the 1995 first quarter, due to the increased
acceptance of Fibre Channel technology and Ancor's product line. Non-Fibre
Channel sales in the 1996 first quarter were $2,600 to the Navy for its non-
Fibre Channel communications network, compared with 1995 first quarter non-Fibre
Channel sales of approximately $227,000 which were mostly of Anderson Cornelius
products. These non-Fibre Channel defense communications and manufacturing data
collection businesses were ceased in 1995, and carry over sales from these
discontinued categories will not be significant in future quarters.
7
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Gross Profit. Gross profit in the first quarter of 1996 increased to
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$651,265, or 46.0% of sales, from $190,992, or 31.2% of sales, in the first
quarter of 1995. This increase was a result of overall higher sales levels and
greater amount of higher margin Fibre Channel sales than first quarter 1995.
Operating Expense. The Company's operating expenses for the first quarter
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of 1996 were approximately $1,516,000, or 107.1% of net sales, compared to
approximately $1,227,000, or 200.6% of net sales, in the first quarter of 1995.
While the percent to sales decreased in the first quarter of 1996, the dollar
increase in operating expense in the first quarter of 1996 was primarily due to
the addition of sales, engineering and management personnel resulting from the
Company's increased focus on the marketing of its Fibre Channel products.
Net Loss. Net loss equaled approximately $857,000 in the first quarter of
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the 1996, compared to a net loss of approximately $1,060,000 in the same period
of the prior year. The decrease in net loss in the first quarter of 1996 was
primarily due to higher sales. Interest expense in the first quarter of 1996
was lower than 1995 due to lower average borrowing. Interest income in the
first quarter of 1996 was above 1995 levels due to the higher level of short-
term investments in the 1996 period.
LIQUIDITY AND CAPITAL RESOURCES.
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The Company's cash, cash equivalents and short-term investments were
approximately $9,134,000 as of March 31, 1996, compared to approximately
$1,552,000 as of December 31, 1995. Cash flow used in operating activities
totaled approximately $1,697,000, primarily due to the operating loss as well as
increases in both accounts receivable and inventories which, in turn, were the
result of increased sales and increased stocking in preparation for upcoming
sales. Cash flow used in investing activities totaled approximately $8,139,000
as a result of purchasing short-term investments and, to a lesser extent,
equipment purchases. The short-term investments were purchased with the proceeds
from the issuance of convertible preferred stock. During the quarter the Company
completed an off shore private placement of 1,030 shares of convertible
preferred stock with a stated value of $10,000 per share, resulting in net
proceeds to the Company of approximately $9,500,000 after deducting selling
commissions and offering expenses. The proceeds of the offering will be used to
repay $1,500,000 of indebtedness to IBM due in June 1996, to fund sales and
marketing efforts to accelerate penetration of the Company's products into OEM,
system integrator and reseller accounts, to fund research and development
efforts needed to maintain technological leadership and broaden the Company's
product line and for working capital. Management believes its cash, cash
equivalents and short term investments will meet the needs of the company at
least through 1996.
8
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SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANCOR COMMUNICATIONS, INCORPORATED
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Dated: June 3, 1996 By /s/ STEPHEN C. O'HARA
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Stephen C. O'Hara
President &
Chief Executive Officer
Dated: June 3, 1996 By /s/ LEE B. LEWIS
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Lee B. Lewis
Vice President &
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 9,134,241
<RECEIVABLES> 2,277,550
<ALLOWANCES> (50,000)
<INVENTORY> 1,383,187
<CURRENT-ASSETS> 12,919,560
<PP&E> 2,867,932
<DEPRECIATION> (1,428,855)
<TOTAL-ASSETS> 14,615,103
<CURRENT-LIABILITIES> 2,883,008
<BONDS> 0
0
10
<COMMON> 82,764
<OTHER-SE> 11,413,365
<TOTAL-LIABILITY-AND-EQUITY> 14,615,103
<SALES> 1,415,766
<TOTAL-REVENUES> 1,415,766
<CGS> 764,501
<TOTAL-COSTS> 764,501
<OTHER-EXPENSES> 1,516,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,797
<INCOME-PRETAX> (856,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (856,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (856,787)
<EPS-PRIMARY> (0.104)
<EPS-DILUTED> (0.104)
</TABLE>
