**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

| **(Mark One)**                                                                                                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                   |   |   |
| **ý**                                                                                                                                                                                                                                             |   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934.** |
|                                                                                                                                                                                                                                                   |   |   |
| **For the quarterly period ended June 30, 2003**                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                   |   |   |
| **OR**                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                   |   |   |
| **o**                                                                                                                                                                                                                                                  |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                   |   |   |
| **For the transition period from                     to                   ** |
|                                                                                                                                                                                                                                                   |   |   |
| **Commission file number  1-4530**                                                                                                                                                                                                                |

 

**ASTREX, INC.**

(Exact name of small business issuer as specified in its charter)

 

| **Delaware**                                                    |   | **13-1930803**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |
| **205 Express Street, Plainview, New York   11803**   |
| (Address of principal executive offices)                        |
|                                                            |
| **(516) 433-1700**                                              |
| (Issuer’s telephone number, including area code)           |

 

 

(Former name, former address and former fiscal year, if changed sincelast report)

 

Check  whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ýNo o

 

**APPLICABLE ONLY TOCORPORATE ISSUERS**

 

State the number of sharesoutstanding of each of the registrant’s classes of common stock, as of thelatest practicable date.  As of  July 31, 2003 common shares outstanding were  5,698,005(does not include ConvertiblePreferred Stock).

 

Transitional Small BusinessDisclosure Format  (check one)       Yes o    No ý

 

 

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**ASTREX, INC.**

 

**INDEX**

 
| ***PART I:  Financial  Information***                                         |
|------------------------------------------------------------------------------------|
|                                                                               |
| **Item 1.  Financial Statements:**                                            |
|                                                                               |   |
|                                                                               | Consolidated  Balance SheetsJune  30, 2003 (unaudited) and March 31, 2003 |
|                                                                               |   |
|                                                                               | Consolidated Statements of Earnings (unaudited)Three months ended June 30, 2003 and 2002 |
|                                                                               |   |
|                                                                               | Consolidated Statements of Cash Flows (unaudited)Three months ended June 30, 2003 and 2002 |
|                                                                               |   |
|                                                                               | Notes to Consolidated Financial Statements  (unaudited) |
|                                                                               |   |
| **Item 2.   Management’s Discussion and Analysis or Plan of Operations** |
|                                                                               |   |
| **Item  3.  Controls and Procedures**                                         |
|                                                                               |   |
| ***PART II:  Other  Information***                                            |
|                                                                               |   |
| **Item 6.  Exhibits  and Reports on Form 8-K**                                |
|                                                                               |   |
| **Signatures**                                                                     |
|                                                                               |   |
| **Certifications  of Periodic Reports**                                            |

 

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**PART I - Financial Information**

 

**ASTREX, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                                                                                                  |   | **June 30, 2003**        |      | **March 31, 2003** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|-----------|--------------------|--------|
|                                                                                                                                                                                                                  |   | **(Unaudited)**          |      |               |   |
|                                                                                                                                                                                                                  |   | **(000’s) Omitted** |      |
| Current Assets:                                                                                                                                                                                                       |   |                     |      |               |   |
| Cash                                                                                                                                                                                                                  |   | $                        | 1         |               | $      | 2 |   |
| Accounts receivable (net of  allowance for doubtful accounts of $68 at June 30, 2003 and $68 at March 31,  2003)                                                                                                      |   | 1,666                    |      | 1,614              |   |
| Inventory                                                                                                                                                                                                             |   | 4,337                    |      | 4,492              |   |
| Prepaid expenses and other  current assets                                                                                                                                                                            |   | 224                      |      | 99                 |   |
| Deferred tax asset                                                                                                                                                                                                    |   | 290                      |      | 290                |   |
| Total current assets                                                                                                                                                                                                  |   | 6,518                    |      | 6,497              |   |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| Property, plant and equipment  (net of accumulated depreciation of $787 at June 30, 2003 and $764 at March  31, 2003)                                                                                                 |   | 813                      |      | 755                |   |
| Investments                                                                                                                                                                                                           |   | 50                       |      | 50                 |   |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| **Total Assets**                                                                                                                                                                                                      |   | **$**                    | **7,381** | ** **         | **$**  | **7,302** | ** ** |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| Current Liabilities:                                                                                                                                                                                                  |   |                     |      |               |   |
| Accounts payable                                                                                                                                                                                                      |   | 1,037                    |      | 635                |   |
| Accrued liabilities                                                                                                                                                                                                   |   | 196                      |      | 477                |   |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| Total current liabilities                                                                                                                                                                                             |   | 1,233                    |      | 1,112              |   |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| Long-term debt                                                                                                                                                                                                        |   | 1,394                    |      | 1,403              |   |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| Shareholders’ Equity:                                                                                                                                                                                            |   |                     |      |               |   |
| Preferred Stock, Series A -  issued, none                                                                                                                                                                             |   | —                   |      | —             |   |
| Convertible Preferred Stock,  Series B - $.01 par value; authorized, 10,000,000; 1,628,156 and 1,676,835  shares issued and outstanding at June 30, 2003 and March 31, 2003  (liquidation preference of $.25 a share) |   | 17                       |      | 17                 |   |
| Common Stock - par value $.01  par value; authorized, 15,000,000 shares; issued, 6,853,139 and 6,804,460 at  June 30, 2003 and March 31, 2003                                                                         |   | 68                       |      | 68                 |   |
| Additional paid-in capital                                                                                                                                                                                            |   | 3,923                    |      | 3,923              |   |
| Retained earnings                                                                                                                                                                                                     |   | 1,084                    |      | 1,117              |   |
| Treasury stock, at cost  (1,162,086 shares at June 30, 2003 and   March 31, 2003)                                                                                                                                |   | (338                     | )         | (338               | )      |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| Total shareholders’ equity                                                                                                                                                                                       |   | 4,754                    |      | 4,787              |   |
|                                                                                                                                                                                                                  |   |                     |      |               |   |
| **Total  liabilities and shareholders’ equity**                                                                                                                                                                  |   | **$**                    | **7,381** |               | **$**  | **7,302** | ** ** |

 

See accompanying notes to unauditedconsolidated financial statements.

 

1

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**ASTREX, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OFEARNINGS**

**(Unaudited)**

 
|                                                                             |   | **THREE MONTHS ENDED  JUNE 30,** |    |
|----------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                             |   | **2003**                         |    | **2002** |   |
|                                                                             |   | **(000’s) Omitted**         |    |
|                                                                             |   |                             |    |   |   |
| Net sales                                                                        |   | $                                | 3,345   |   | $ | 3,753 |   |
| Cost of sales                                                                    |   | 2,563                            |    | 2,805 |   |
|                                                                             |   |                             |    |   |   |
| Gross profit                                                                     |   | 782                              |    | 948 |   |
|                                                                             |   |                             |    |   |   |
| Selling, general and  administrative expenses                                    |   | 800                              |    | 797 |   |
|                                                                             |   |                             |    |   |   |
| Earnings (loss) from  operations                                                 |   | (18                              | )       | 151 |   |
|                                                                             |   |                             |    |   |   |
| Interest expense, net                                                            |   | 9                                |    | 14 |   |
|                                                                             |   |                             |    |   |   |
| Earnings (loss) before  provision for income taxes                               |   | (27                              | )       | 137 |   |
|                                                                             |   |                             |    |   |   |
| Provision for income taxes                                                       |   | 6                                |    | 8 |   |
|                                                                             |   |                             |    |   |   |
| **Net earnings  (loss)**                                                         |   | **$**                            | **(33** | **)** | **$** | **129** | ** ** |
|                                                                             |   |                             |    |   |   |
| Per share data for the three  months ended June 30, 2003 and 2002 is as follows: |   |                             |    |   |   |
| Weighted average common shares  and common equivalent shares outstanding:        |   |                             |    |   |   |
| Basic                                                                            |   | 5,678,615                        |    | 5,607,459 |   |
| Diluted                                                                          |   | 5,678,615                        |    | 7,340,658 |   |
|                                                                             |   |                             |    |   |   |
| Net earnings (loss) per share:                                                   |   |                             |    |   |   |
| Basic                                                                            |   | $                                | (0.01   | ) | $ | 0.02 |   |
|                                                                             |   |                             |    |   |   |
| Diluted                                                                          |   | $                                | (0.01   | ) | $ | 0.02 |   |

 

See accompanying notes to unauditedconsolidated financial statements.

 

2

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**ASTREX, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Unaudited)**

 
|                                                                                                     |   | **FOR THE THREE MONTHS ENDED JUNE 30,** |       |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                                                     |   | **2003**                                |       | **2002** |   |
|                                                                                                     |   | **(000’s) Omitted**                |       |
|                                                                                                     |   |                                    |       |   |   |
| Cash flows from operating  activities:                                                                   |   |                                    |       |   |   |
| Net earnings (loss)                                                                                      |   | $                                       | (33        | ) | $ | 129 |   |
| *Adjustments  to reconcile net earnings (loss) to net cash provided by (used in) operating  activities:* |   |                                    |       |   |   |
|                                                                                                     |   |                                    |       |   |   |
| Depreciation and amortization                                                                            |   | 23                                      |       | 17 |   |
| Amortization of deferred stock  compensation                                                             |   | —                                  |       | 1 |   |
| *Changes in  assets and liabilities:*                                                                    |   |                                    |       |   |   |
| Decrease/(increase) in  accounts receivable, net                                                         |   | (52                                     | )          | 232 |   |
| Increase in prepaid expenses  and other current assets                                                   |   | (125                                    | )          | (183 | ) |
| Decrease/(increase) in  inventory                                                                        |   | 155                                     |       | (64 | ) |
| Decrease in non-current assets                                                                           |   | —                                  |       | 4 |   |
| Increase (decrease) in  accounts payable                                                                 |   | 402                                     |       | (194 | ) |
| Decrease in accrued  liabilities                                                                         |   | (281                                    | )          | (88 | ) |
|                                                                                                     |   |                                    |       |   |   |
| **Net cash  provided by (used in) operating activities**                                                 |   | **89**                                  | ** ** | **(146** | **)** |
|                                                                                                     |   |                                    | ** ** |   | ** ** |
| Cash flows from investing  activities:                                                                   |   |                                    |       |   |   |
| Purchases of property and  equipment                                                                     |   | (81                                     | )          | (20 | ) |
|                                                                                                     |   |                                    |       |   |   |
| **Net cash used in investing activities**                                                                |   | **(81**                                 | **)**      | **(20** | **)** |
|                                                                                                     |   |                                    |       |   |   |
| Cash flows from financing  activities:                                                                   |   |                                    |       |   |   |
| Proceeds from loans payable,  net                                                                        |   | (9                                      | )          | 165 |   |
|                                                                                                     |   |                                    |       |   |   |
| **Net cash  (used in) provided by financing activities**                                                 |   | **(9**                                  | **)**      | **165** | ** ** |
|                                                                                                     |   |                                    | ** ** |   | ** ** |
| Net change in cash                                                                                       |   | (1                                      | )          | (1 | ) |
|                                                                                                     |   |                                    |       |   |   |
| Cash - beginning of period                                                                               |   | 2                                       |       | 4 |   |
|                                                                                                     |   |                                    |       |   |   |
| Cash - end of period                                                                                     |   | $                                       | 1          |   | $ | 3 |   |

 

See accompanying notes to unauditedconsolidated financial statements.

 

3

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**ASTREX, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

 

NOTE A -UNAUDITED FINANCIAL STATEMENTS

 

The consolidated balance sheet of Astrex, Inc. (“Astrex” or the“Company”) as of June 30, 2003, the consolidated statements of earnings for thethree months ended June 30, 2003 and 2002 and the consolidated statements ofcash flows for the three months ended June 30, 2003 and 2002, have beenprepared by the Company without audit. In the opinion of management, all adjustments (which include onlynormally recurring adjustments) necessary to present fairly the financialposition, results of operations and cash flows at June 30, 2003 (and for allperiods presented) have been made.

 

Certaininformation and note disclosures, normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America, have been condensed or omitted.  It is suggested that these consolidatedfinancial statements be read in conjunction with the financial statements andnotes thereto included in the Annual Report on Form 10-KSB for the year endedMarch 31, 2003 filed by the Company. The results of operations for the periods ended June 30, 2003 and 2002are not necessarily indicative of the operating results for the respective fullyears.

 

NOTE B –EARNINGS PER COMMON SHARE/SHAREHOLDERS’ EQUITY

 

The following table sets forththe reconciliation of the weighted average number of common shares:

 
|                                                         |   | **Three  months ended  June 30,** |   |
|--------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                         |   | **2003**                          |   | **2002** |   |
|                                                         |   | **(Unaudited)**                   |   | **(Unaudited)** |   |
| Basic                                                        |   | 5,678,615                         |   | 5,607,459 |   |
| Effect of Series B Convertible  Preferred Stock              |   | —                            |   | 1,693,199 |   |
| Effect of  dilutive securities (non-vested restricted stock) |   | —                            |   | 40,000 |   |
| Diluted                                                      |   | 5,678,615                         |   | 7,340,658 |   |

 

For the threemonths ended June 30, 2003, 1,640,594 shares of Series B Preferred Stock wereexcluded from the calcualtion of diluted loss per share as their inclusionwould have been anti-dilutive.

 

During thethree months ended June 30, 2003 and 2002, 48,679 and 7,335 shares of Series BConvertible Preferred Stock were converted into shares of the Company’s CommonStock.

 

4

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NOTE C –ACCOUNTING FOR STOCK BASED COMPENSATION

 

In December2002, the FASB issued SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure” which addresses financial accountingand reporting for recording expenses for the fair value of stock options. SFAS148 provides alternative methods of transition for a voluntary change to fairvalue based method of accounting for stock-based employee compensation.Additionally, SFAS 148 requires more prominent and more frequent disclosures infinancial statements about the effects of stock-based compensation. Theprovisions of this Statement are effective for fiscal years ending afterDecember 15, 2002, with early application permitted in certain circumstances.The interim disclosure provisions are effective for financial reportscontaining financial statements for interim periods beginning after December15, 2002.  The adoption of thisstatement has not had any impact on the Company’s financial position or resultsof operations as the Company does not have any awards for stock-based compensationoutstanding as of June 30, 2003.

 

NOTE D – LOANSPAYABLE

 

The Companycollateralized lending agreement with its bank (the “Agreement”), as amended,provides the Company with a line of credit, sercured by substantially all ofthe assets of the Company, equal to 85% of its eligible accounts receivable and25% of its eligible net inventory up to a maximum of $3,150,000, through April2005, and provides a term loan of $850,000 collateralized by a mortgage on the205 Express Street property, with a maturity date of April 2005.  Neither the line of credit not the term loanrequires any principal repayments prior to the April 2005 maturity date.  Interest is payable monthly at short-term,fixed-rate borrowings, for fixed amounts at LIBOR plus 1-1/2%, or dailyborrowing at the bank’s prime rate or a mixture of the two.  The weighted average interest rate on theloans outstanding at June 30, 2003 was 2.83%. Debt outstanding under the Agreement at June 30, 2003, amounted to$1,394,000, which was comprised of $544,000 on the line of credit and $850,000 onthe term loan.  At June 30, 2003, theCompany had approximately $1,900,000 available for future borrowings under theAgreement.  The Agreement containscertain financial covenants relating to the maintenance of various financialratios and restrictions on the payment of dividends by the Company.

 

5

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At June 30,2003, the Company was not in compliance with certain of the financial covenantscontained in the Agreement.  A waiverfor those defaults was obtained from the bank on August 4, 2003.  Pursuant to the terms of the waiver, therelevant financial covenants were waived as of June 30, 2003, and reset as ofSeptember 30, 2003, December 31, 2003 and March 31, 2004 such that the Companyexpects to be (but cannot assure that it will be) in compliance at futuremeasurement dates in the fiscal year ending on March 31, 2004.  As a result no reclassifications or otheradjustments have been made to long term debt as of June 30, 2003.

 

NOTE E –RECENTLY ISSUED ACCOUNTING STANDARDS

 

In June 2001,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143,“Accounting for Assets Retirement Obligations” (“SFAS No. 143”).  SFAS No.143 addresses financial and reporting obligations associated with the retirementof intangible long-lived assets and the associated asset retirementcosts.  It applies to legal obligations associated with retirement oflong-lived assets that result from acquisition, construction, developmentand/or the normal operation of long-lived assets, except for certainobligations of lessees.  SFAS No. 143 is effective for financialstatements issued for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 has not had a material impact on the financialposition and results of operations of the Company.

 

6

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In April 2002,the FASB issued Statement of Financial Accounting Standards No. 145 (“SFAS No.145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB StatementNo. 13, and Technical Corrections.”  SFAS No. 145 eliminates the currentrequirement that gains and losses on debt extinguishment must be classified asextraordinary items in the income statement. Instead, such gains and losseswill be classified as extraordinary items only if they are deemed to be unusualand infrequent, in accordance with the current criteria for extraordinaryclassification. Additionally, any gain or loss on extinguishment of debt thatwas classified as an extraordinary item in prior periods presented that doesnot meet the criteria in APB Opinion No. 30 for classification as anextraordinary item shall be reclassified. In addition, SFAS No. 145 eliminatesan inconsistency in lease accounting by requiring that modifications of capitalleases that result in reclassification as operating leases be accounted forconsistent with sale- leaseback accounting rules.  SFAS No. 145 alsocontains other nonsubstantive corrections to authoritative accountingliterature.  The changes related to debt extinguishment will be effectivefor fiscal years beginning after May 15, 2002, and the changes related to leaseaccounting were effective for transactions occurring after May 15, 2002. Theadoption of SFAS No. 145 has not had a material impact on the financialposition and results of operations of the Company.

 

In April 2003,the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS No.149”), “Amendment of Statement 133 on Derivative Instruments and HedgingActivities,” which amends and clarifies financial accounting and reporting forderivative instruments, including certain derivative instruments embedded inother contracts and for hedging activities under SFAS No. 133. SFAS No. 149 iseffective for contracts entered into or modified after June 30, 2003 except forthe provisions that were cleared by the FASB in prior pronouncements.  TheCompany is currently evaluating the effect of the adoption of SFAS No. 149 onits financial position and results of operations.

 

In May 2003,the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS No.150”), “Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity.”  This statement establishes standards forhow an issuer classifies and measures in its statement of financial positioncertain financial instruments with characteristics of both liabilities andequity.  In accordance with the standard, financial instruments thatembody obligations for the issuer are required to be classified as liabilities.This Statement shall be effective for financial instruments entered into ormodified after May 31, 2003 and otherwise shall be effective at the beginningof the first interim period beginning after June 15, 2003. The Company iscurrently evaluating the effect of the adoption of SFAS No. 150 on itsfinancial position and results of operations.

 

7

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In January2003, the FASB issued FASB Interpretation No. 46 “Consolidation of VariableInterest Entities.”  In general, a variable interest entity is acorporation, partnership, trust, or any other legal structure used for businesspurposes that either (a) does not have equity investors with voting rights or(b) has equity investors that do not provide sufficient financial resources forthe entity to support its activities.  A variable interest entity oftenholds financial assets, including loans or receivables, real estate or otherproperty.  A variable interest entity may be essentially passive or it mayengage in activities on behalf of another company.  Until now, a companygenerally has included another entity in its consolidated financial statementsonly if it controlled the entity through voting interests.  FIN No. 46changes that by requiring a variable interest entity to be consolidated by acompany if that company is subject to a majority of the risk of loss from thevariable interest entity’s activities or entitled to receive a majority of theentity’s residual returns or both.  FIN No. 46’s consolidationrequirements apply immediately to variable interest entities created oracquired after January 31, 2003.  The consolidation requirements apply toolder entities in the first fiscal year or interim period beginning after June15, 2003.  Certain of the disclosure requirements apply to all financialstatements issued after January 31, 2003, regardless of when the variableinterest entity was established.  The adoption of FIN No. 46 has not had amaterial impact on the Company’s consolidated financial condition or results ofoperations.

 

In November2002, the Emerging Issues Task Force reached a consensus opinion of EITF 00-21,“Revenue Arrangements with Multiple Deliverables”.  That consensusprovides that revenue arrangements with multiple deliverables should be dividedinto separate units of accounting if certain criteria are met.  Theconsideration of the arrangement should be allocated to the separate units ofaccounting based on their relative fair values, with different provisions ifthe fair value is contingent on delivery of specified items or performanceconditions.  Applicable revenue criteria should be considered separatelyfor each separate unit of accounting.  EITF 00-21 is effective for revenuearrangements entered into in fiscal periods beginning after June 15,2003.  Entities may elect to report the change as a cumulative effectadjustment in accordance with APB Opinion 20, “Accounting Changes.”  TheCompany is still evaluating the impact of the adoption of EITF 00-21 on itsfinancial statements.

 

8

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OR OPERATIONS

 

**RESULTS OF OPERATIONS**

 

The Companyengages in the sale, assembly, and distribution of electronic parts andcomponents, principally connectors that link electronic componentstogether.  The connectors generallyconsist of a shell, insert, contacts and adaptive hardware.  The Company’s largest markets include thedefense, aerospace, industrial and computer industries, which sales are tocustomers worldwide with a concentration of customers in the Northeast andMid-Atlatic states.

 

Loss fromoperations before provision for income taxes for the three months ended June30, 2003 was approximately $27,000 as compared with earnings of $137,000 forthe three months ended June 30, 2002. This decrease is principally the result of the lower sales volume andmargins.  As a result, net loss for thethree months ended June 30, 2003 was $33,000 as compared with net income of$129,000 for the comparable three month period in the prior year.  These results are reflective of the severeeconomic downturn that continues in the electronics industry. Future resultsare somewhat dependent on the recovery in the overall electronic componentmarket,  although the Company’snon-reliance on any one market segment helps mitigate any future negativeimpact.

** **

While theCompany’s business is not seasonal, it is subject to factory productionschedules (both of its suppliers as well as its customers).  Such production schedules generally resultin reductions in activity during pre-scheduled holiday (December) and vacation(July/August) factory shut downs.

 

Salesdecreased by approximately $408,000 or 10.9%, for the three months ended June30, 2003, from the comparable three month period in 2002. To a significantextent “Sales” reflect the shipping of past confirmed orders (i.e. “backlog”)as opposed to the placement of orders during the quarter (i.e. “bookings”).During the three months ended June 30, 2003, backlog increased approximately1.2% with confirmed but unshipped orders at June 30, 2003 of approximately$2,889,000 as compared to approximately $2,855,000 at March 31, 2003. Bookingsfor the quarter ended June 30, 2003 decreased by approximately 8% as comparedto the same quarter in 2002, $3,359,000 in 2003 compared to $3,642,000 in 2002.

** **

The Company’sgross margin declined to 23.4% for the three months ended June 30, 2003 as  compared to 25.3% for the same period lastyear.  Margins declined due to thehighly competitive marketplace wherein the Company will occasionally takeorders at less than historical margins in order to preserve or increasemarketshare.  During the three monthperiod ended June 30, 2003, gross margin dollars decreased primarily as aresult of the lower sales volume discussed above.

 

9

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Selling,general and administrative expenses increased slightly to $800,000 for thethree months ended June 30, 2002 from $797,000 for the three months ended June30, 2002.  The Company continues toreduce expenses wherever possible, however, during the quarter ended June 30,2003, reductions in payroll were more that offset by higher insurance andadvertising costs.

 

Interestexpense decreased by approximately $5,000 or 35.7% for the three months endedJune  30, 2003 as compared to theprevious three month periods ended June 30, 2002 due to a reduction in interestrates as well as a reduction in outstanding borrowings by the Company.

 

The provisionfor income taxes for the three months ended June 30, 2003 and 2002 consistsprincipally of state and local taxes.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Companygenerated approximately $89,000 from its operating activities during the threemonths ended June 30, 2003.  The componentsof working capital can fluctuate at any point in time due to vendor shippingschedules, payment terms offered by suppliers as well as the shipping andpayment schedules of our customers. At June 30, 2003, the Company had workingcapital of $5,285,000 and its stockholders’ equity was $4,754,000.  The Company believes that its presentworking capital, cash generated from operations and amounts available under theloan agreement will be sufficient to meet its cash needs during the next year.

 

The Company’sprincipal credit facility (“Line”) is a collateralized borrowing agreement witha bank, which was entered into on July 9, 1997.  This line includes a line of credit, with borrowings based oneligible accounts receivable and inventory, and, since May 14, 1999, a termloan collateralized by a mortgage on the 205 Express Street property.  The line is secured by substantially all ofthe Company’s assets and expires on April 30, 2005.

 

10

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On June 30,2003, the Company had outstanding borrowings of $1,394,000, which included$544,000 on the line of credit and $850,000 on the term loan. Approximately$1,900,000 is available for future borrowing under the line of credit portionof the line at June 30, 2003.  The Companyhas an option under the Line to fix a portion or portions of the loan balanceat the currently prevailing LIBOR rate for terms ranging from 30 to 180days.  As of June 30, 2003,  in order to take advantage of thehistorically low interest rates currently available, the Company had $1,350,000of the loan balance (including the long-term amount of $850,000) fixed at LIBORrates. The weighted average interest rate on the loans outstanding at June 30,2003 was 2.83%.  The Company’srelationship with its secured lender is satisfactory and the Company believesthat the lending arrangement will be adequate for the foreseeable future.  The Agreement contains certain financialcovenants relating to the maintenance of various financial ratios andrestrictions on the payment of dividends by the Company.

 

At June 30,2003, the Company was not in compliance with certain of the financial covenantscontained in the Agreement.  A waiverfor those defaults was obtained from the bank on August 5, 2003.  Pursuant to the terms of the waiver, therelevant financial covenants were waived as of June 30, 2003, and reset as ofSeptember 30, 2003, December 31, 2003 and March 31, 2004 such that the Companyexpects to be (but cannot assure that it will be) in compliance at futuremeasurement dates in the fiscal year ending March 31, 2004.  As a result no reclassifications or otheradjustments have been made to long term debt as of June 30, 2003.

 

The Companycurrently has no significant commitments for capital expenditures.

 

During thelast fiscal year, management continued to take steps to improve its revenuebase and control costs.  In addition, toregularly reviewing its cost structure, management is continuously reviewingits product lines and exploring ways to offer new product lines and expand itscustomer base.  There is no assurancethat management’s plans will be successful.

 

You shouldalso carefully consider the risks relating to our business and our common andpreferred stock, together with other information described elsewhere in thisQuarterly Report on Form 10-QSB and our Annual Report on Form 10-KSB.  Such risks include, but are not limited to,a potential continuation of our net loss, possible continuing default under ourLine, possible failure of our suppliers to deliver parts for assembly, our  customers failing to continue to order fromus, our Common Stock trades very thinly on the Over-the-Counter ElectronicBulletin Board, our preferred stock does not trade due to restrictions ontransfer, our business is highly competitive and the downturn in theelectronics industry may continue.

 

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The followingtable presents the Company’s expected cash requirements for contractualobligations outstanding as of June 30, 2003:

 
|                                |   | **Total** |      | **Due as of  6/30/04** |   | **Due as of  6/30/05 and  6/30/06** |   |
|-------------------------------------|--------|-----------|-----------|------------------------|--------|-------------------------------------|--------|
|                                |   |      |      |                   |   |                                |   |
| Line of Credit (1)                  |   | $         | 544,000   |                   |   |                                | $      | 544,000 |   |
| Long-Term Debt                      |   | 850,000   |      |                   |   | 850,000                             |   |
|                                |   |      |      |                   |   |                                |   |
| Operating Leases                    |   | 39,000    |      | $                      | 30,000 |                                | 9,000  |   |
| Total Contractual Cash  Obligations |   | $         | 1,433,000 |                   | $      | 30,000                              |   | $ | 1,403,000 |   |

 

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| (1) |   | The Company  maintains a credit facility that, as amended in April 2002, provides for  borrowings of up to $3,150,000, primarily based upon eligible accounts  receivable and inventory, as defined therein.  Approximately $2,400,000 is available under the line of  credit portion of the line, of which  $544,000 is outstanding at June 30, 2003.   The credit facility expires in April 2005. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**RECENTLYISSUED ACCOUNTING STANDARDS**

 

In June 2001,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143,“Accounting for Assets Retirement Obligations” (“SFAS No. 143”).  SFAS No.143 addresses financial and reporting obligations associated with theretirement of intangible long-lived assets and the associated asset retirementcosts.  It applies to legal obligations associated with retirement oflong-lived assets that result from acquisition, construction, developmentand/or the normal operation of long-lived assets, except for certainobligations of lessees.  SFAS No. 143 is effective for financialstatements issued for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 has not had a material impact on the financialposition and results of operations of the Company.

 

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In April 2002,the FASB issued Statement of Financial Accounting Standards No. 145 (“SFAS No.145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASBStatement No. 13, and Technical Corrections.”  SFAS No. 145 eliminates thecurrent requirement that gains and losses on debt extinguishment must beclassified as extraordinary items in the income statement. Instead, such gainsand losses will be classified as extraordinary items only if they are deemed tobe unusual and infrequent, in accordance with the current criteria forextraordinary classification. Additionally, any gain or loss on extinguishmentof debt that was classified as an extraordinary item in prior periods presentedthat does not meet the criteria in APB Opinion No. 30 for classification as anextraordinary item shall be reclassified. In addition, SFAS No. 145 eliminatesan inconsistency in lease accounting by requiring that modifications of capitalleases that result in reclassification as operating leases be accounted forconsistent with sale- leaseback accounting rules.  SFAS No. 145 alsocontains other nonsubstantive corrections to authoritative accountingliterature.  The changes related to debt extinguishment will be effectivefor fiscal years beginning after May 15, 2002, and the changes related to leaseaccounting were effective for transactions occurring after May 15, 2002. Theadoption of SFAS No. 145 has not had a material impact on the financialposition and results of operations of the Company.

 

In April 2003,the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS No.149”), “Amendment of Statement 133 on Derivative Instruments and HedgingActivities,” which amends and clarifies financial accounting and reporting forderivative instruments, including certain derivative instruments embedded inother contracts and for hedging activities under SFAS No. 133. SFAS No. 149 iseffective for contracts entered into or modified after June 30, 2003 except forthe provisions that were cleared by the FASB in prior pronouncements.  TheCompany is currently evaluating the effect of the adoption of SFAS No. 149 onits financial position and results of operations.

 

In May 2003,the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS No.150”), “Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity.”  This statement establishes standards forhow an issuer classifies and measures in its statement of financial positioncertain financial instruments with characteristics of both liabilities andequity.  In accordance with the standard, financial instruments thatembody obligations for the issuer are required to be classified as liabilities.This Statement shall be effective for financial instruments entered into ormodified after May 31, 2003 and otherwise shall be effective at the beginningof the first interim period beginning after June 15, 2003. The Company iscurrently evaluating the effect of the adoption of SFAS No. 150 on its financialposition and results of operations.

 

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In January2003, the FASB issued FASB Interpretation No. 46 “Consolidation of VariableInterest Entities.”  In general, a variable interest entity is acorporation, partnership, trust, or any other legal structure used for businesspurposes that either (a) does not have equity investors with voting rights or(b) has equity investors that do not provide sufficient financial resources forthe entity to support its activities.  A variable interest entity oftenholds financial assets, including loans or receivables, real estate or otherproperty.  A variable interest entity may be essentially passive or it mayengage in activities on behalf of another company.  Until now, a companygenerally has included another entity in its consolidated financial statementsonly if it controlled the entity through voting interests.  FIN No. 46changes that by requiring a variable interest entity to be consolidated by acompany if that company is subject to a majority of the risk of loss from thevariable interest entity’s activities or entitled to receive a majority of theentity’s residual returns or both.  FIN No. 46’s consolidationrequirements apply immediately to variable interest entities created oracquired after January 31, 2003.  The consolidation requirements apply toolder entities in the first fiscal year or interim period beginning after June15, 2003.  Certain of the disclosure requirements apply to all financialstatements issued after January 31, 2003, regardless of when the variableinterest entity was established.  The adoption of FIN No. 46 has not had amaterial impact on the Company’s consolidated financial condition or results ofoperations.

 

In November2002, the Emerging Issues Task Force reached a consensus opinion of EITF 00-21,“Revenue Arrangements with Multiple Deliverables”.  That consensusprovides that revenue arrangements with multiple deliverables should be dividedinto separate units of accounting if certain criteria are met.  Theconsideration of the arrangement should be allocated to the separate units ofaccounting based on their relative fair values, with different provisions ifthe fair value is contingent on delivery of specified items or performance conditions. Applicable revenue criteria should be considered separately for each separateunit of accounting.  EITF 00-21 is effective for revenue arrangementsentered into in fiscal periods beginning after June 15, 2003.  Entitiesmay elect to report the change as a cumulative effect adjustment in accordancewith APB Opinion 20, “Accounting Changes.”  The Company is stillevaluating the impact of the adoption of EITF 00-21 on its financialstatements.

 

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ITEM 3.CONTROLS AND PROCEDURES

 

Within the 90day period prior to the filing of this Periodic Report on Form 10-QSB, theCompany’s management, including the Chief Executive Officer and Chief FinancialOfficer, conducted an evaluation (the “Evaluation”) of the effectiveness of thedesign and operation of its disclosure controls and procedures, as defined inRule 13a-14(c) of the Securities Exchange Act of 1934.

 

The Company’smanagement, including its Chief Executive Officer and Chief Financial Officer,does not expect that its disclosure controls and procedures will prevent allerror and all fraud.  A control system, no matter how well designed andoperated, can provide only reasonable, not absolute, assurance that the controlsystem’s objectives will be met.  Further, the design of a control systemmust reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs.  Because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the Company will be detected.  The inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple errors or mistakes.  Controls canalso be circumvented by the individual acts of some persons, by collusion oftwo or more people, or by management override of the controls.  The designof any system of controls is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential futureconditions.  Over time, controls may become inadequate because of changesin conditions or deterioration in the degree of compliance with its policies orprocedures.  Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

 

Based upon theEvaluation of disclosure controls and procedures, the Chief Executive Officerand Chief Financial Officer of the Company have concluded that, subject to thelimitations noted above, the Company’s disclosure controls and procedures wereeffective to ensure that material information relating to the Company and theCompany’s consolidated subsidiary would be made known to them by others withinthose entities to allow timely decisions regarding required disclosures. There have been no significant changes in internal controls, or in otherfactors that could significantly affect internal controls, subsequent to thedate the Chief Executive Officer and the Chief Financial Officer completedtheir evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

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CAUTIONARY LANGUAGE REGUARDINGFORWARD LOOKING STATEMENTS

 

When used herein, the words“believe,” “anticipate,” “think,” “intend,” “will be,” “expect” and similarexpressions identify forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995.  Such statements are notguarantees of future performance and involve certain risks and uncertaintiesdiscussed herein, which could cause actual results to differ materially fromthose in the forward-looking statements. Readers are cautioned not to place undue reliance on the forward-lookingstatements, which speak only as of the date hereof.  Readers are also urged carefully to review and consider thevarious disclosures made by the Company which attempt to advise interestedparties of the factors which affect the Company’s business, including, withoutlimitation, the disclosures made in the Company’s Annual Report on Form 10-KSBfor the fiscal year ended March 31, 2003 under the caption “Management’sDiscussion and Analysis of Financial Condition and Results of  Operation.”

 

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**PART II - OTHER INFORMATION**

 

Item 1.  Legal Proceedings.

none

 

Item 2.  Changes in Securities.

none

 

Item 3.  Default Upon Senior Securities.

none

 

Item 4.  Submission of Matters to a Vote of SecurityHolders.

 

none

 

Item 5.  Other Information

As of June 30,2003, the Company was in default of certain financial covenants required underits Line of Credit.  The bank has agreedto waive these defaults.  See a furtherexplanation of the default and waiver in the Liquidity and Capital Resourcessection of Management's Discussion or Plan of Operations (Item 2).

 

Item 6.  Exhibits and Reports on Form 8-K.

 

(A)          Exhibits

 
| **Exhibit** |   | **Description**                                                                                                                                      |   | **Previously Filed and Incorporated  by reference or Filed Herewith**                              |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                 |   |                                                                                               |
| 3 (a)       |   | Certificate  of Incorporation of Astrex, Inc., as amended (a Delaware corporation)                                                                   |   | Filed as  Exhibit 3(a) to the Form 10-QSB of the Company for the quarter ended  September 30, 1997 |
|        |   |                                                                                                                                                 |   |                                                                                               |
| 3 (b)       |   | By-Laws of  Astrex, Inc., as amended                                                                                                                 |   | Filed as  Exhibit 3(b) to the Form 10-QSB of the Company for the quarter ended  September 30, 1996 |
|        |   |                                                                                                                                                 |   |                                                                                               |
| 4           |   | Astrex, Inc.  Certificate of Designations, Preferences and Rights of Series B Convertible  Preferred Stock                                           |   | Filed as  Exhibit 4 to the Form 10-QSB of the Company for the quarter ended June 30,  2000         |
|        |   |                                                                                                                                                 |   |                                                                                               |
| 31.1        |   | Sarbanes  Oxley Section 302 (a) Certification of President and CEO                                                                                   |   | Filed  Herewith                                                                                    |
|        |   |                                                                                                                                                 |   |                                                                                               |
| 31.2        |   | Sarbanes  Oxley Section 302 (a) Certification of Chief Financial Officer                                                                             |   | Filed  Herewith                                                                                    |
|        |   |                                                                                                                                                 |   |                                                                                               |
| 32.1        |   | Certifications  of President and CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002       |   | Filed  Herewith                                                                                    |
|        |   |                                                                                                                                                 |   |                                                                                               |
| 32.2        |   | Certifications  of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed  Herewith                                                                                    |

 
| (B)    |   | Reports on  Form 8-K: |
|--------|--------|-----------------------|
|   |   |                  |
|   |   | None                  |

 

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SIGNATURES

 

In accordance with therequirements of Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf, thereunto duly authorized.

 

 
|   |            | ASTREX, INC.            |
|--------|-----------------|-------------------------|
|   |            |                    |
|   |            |                    |
| Date:  | August 8,  2003 |                    | By: | /s/ Michael  McGuire |   |
|   |            | Michael McGuire         |
|   |            | Director, President and |
|   |            | Chief Executive Officer |
|   |            |                    |   |
|   |            |                    |
| Date:  | August 8,  2003 |                    | By: | /s/ Joseph  Looney |   |
|   |            | Joseph Looney           |
|   |            | Chief Financial Officer |
|        |                 |                         |  |  |  |  |

 

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