SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1998
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C> <C> <C>
Florida 001-12739 59-2327-381
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(State or other (Commission File (I.R.S. Employer
jurisdiction Number) Identification
of incorporation) No.)
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1810 N.E. 144th Street
North Miami, Florida 33181
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(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 944-7710
N/A
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(Former name or former address, if changed since last report)
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Item 5. OTHER EVENTS
On January 11, 1999, the Company announced that Slav Stein and Roman
Briskin, the Company's principal executive officers, agreed to the conversion of
two promissory notes, as amended, which Messrs. Stein and Briskin own of record,
in the outstanding aggregate principal amount of $1,439,125, into shares of the
Company's common stock. The conversion of the notes was effective as of December
31, 1998 and, as a consequence of the conversion, the Company issued an
aggregate of 799,514 shares of the Company's common stock to Messrs. Stein and
Briskin. The conversion of the notes pursuant to the terms of such instruments,
as amended, resulted in annual interest savings to the Company of approximately
$136,700 and increased the Company's stockholders' equity by the principal
amount of the notes (to $8,262,480 at September 30, 1998, on a pro-forma basis).
The conversion price of the notes represented a 31% premium over the
closing price of the Company's common stock on Friday, January 8, 1999 and a 22%
premium over the average closing price of the common stock over the 30 trading
days prior to the conversion.
The Company also announced that it recently delivered a letter to all
of its shareholders dated December 31, 1998 describing the status of the
Company's operations in Russia and in the Ukraine. A copy of such letter is
attached hereto as Exhibit 99.1 and is hereby incorporated by reference into
this Current Report.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
99.1 Letter to Shareholders dated December 31, 1998.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
By: /S/ SLAV STEIN
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Slav Stein, Chief Executive Officer and
President
Dated: January 21, 1999
3
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INDEX TO EXHIBITS
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
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99.1 Letter to Shareholders dated December 31, 1998.
4
EXHIBIT 99.1
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1810 NE 144TH STREET
NORTH MIAMI, FL 33181
PHONE: (305) 944-7710
FACSIMILE: (305) 652-8489
December 31, 1998
TO OUR STOCKHOLDERS:
We are writing to advise you about the Company's activities, and to discuss with
you how we have been handling the significant issues which the Company has
recently faced.
As you are aware, the Company has operations in the United States, Germany,
Norway and Sweden. We also sell our products through exclusive distributors in
Russia and the Ukraine (as described below, the Company has acquired its
Ukrainian distributor effective October 30, 1998). While our operations continue
to grow, a serious problem has arisen in Russia, which has had an adverse impact
on the Company.
In the summer of 1998, it became clear to us that the Russian economy was in
substantial trouble. This caused two problems to occur. First, it made our
products very expensive to sell in Russia. Second, it became impossible for our
Russian distributor to make payments to us for the amounts which they owed to
us.
As a result of these factors, we have ceased shipping products to our Russian
distributor. We have also written down both the accounts receivable due to the
Company from our Russian distributor, as well as the value of certain inventory
which the Company has been holding to sell to its Russian distributor. This
one-time charge of $2.1 million severely impacted operating results for the
three and nine-month periods ended September 30, 1998, and will adversely impact
our operating results for the 1998 fiscal year. We are, of course, working
closely with our Russian distributor and if and when the Russian economy
recovers, we hope to be able to again do business with our Russian distributor
and to recover some of this one-time charge. Until then we will be working with
our Russian distributor on a prepaid basis.
We are presently taking steps to both increase our sales and to reduce our
costs. On the sales front, we are working hard to replace the revenues which we
had previously received from sales to our Russian distributor (which accounted
for approximately 15% of our 1997 sales). In that regard, we
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To Our Stockholders
December 31, 1998
Page 6
are refocusing our sales efforts both in the United States and in Western
Europe. While the steps we are taking will not overcome the impact of the loss
of sales to our Russian distributor overnight, we believe that over the next few
months we will see increases in our sales which will make up for the sales we
have lost.
We are also working hard to reduce our costs wherever possible, without
sacrificing our ability to service our existing and future customers. We have
already made selected reductions in our work force. We also intend to close one
of our bonded warehouses in Western Europe and to, on a number of fronts, reduce
our other operating costs. We believe that by taking these steps we can return
our Company to profitability sometime during the first half of 1999.
We are also pleased to advise you that the Company acquired its Ukrainian
distributor on October 30, 1998 for a purchase price amount equal to the amount
which our Ukrainian distributor owed to the Company at that date (approximately
$1,050,000). While the Ukrainian economy has been impacted by many of the same
problems currently being experienced in Russia, such problems have not been as
severe in the Ukraine. Further, while in the short term this acquisition will
not add significantly to our operating revenues, we believe that this
acquisition allows us to control our future growth in the Ukrainian market,
which we view as a market with significant potential for future growth.
We remain very optimistic about the Company and about its future potential to
grow and flourish. While we have gone through some trying times, we continue to
believe that the Company has a strong future. We are working hard to make the
Company an industry leader in the connectivity and networking industries.
If we can be of assistance, we hope you will call upon us.
/s/ Slav Stein, President
SAFE HARBOR DISCLOSURE UNDER THE 1995 SECURITIES LITIGATION REFORM ACT. THIS
LETTER CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED HEREIN. FOR INFORMATION REGARDING FACTORS WHICH COULD IMPACT
THE COMPANY'S FUTURE PERFORMANCE, SEE THE COMPANY'S FILINGS WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION.
