SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File No. 001-12739
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-2327381
--------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1810 N.E. 144TH STREET
NORTH MIAMI, FLORIDA 33181
---------------------------------------------- -----------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (305) 944-7710
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's Common Stock, as of
November 8, 2000, is 3,681,391 shares.
Transitional Small Business Disclosure Format (check one)
Yes [X] No [ ]
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
INDEX
Part I. Financial Information
Page
----
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999......................................3
Condensed Consolidated Statements of Income for the three months
and nine months ended September 30, 2000 and 1999 (unaudited)..........4
Condensed Consolidated Statement of Shareholders' Equity for the
nine months ended September 30, 2000 (unaudited).......................5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited)..........................6
Notes to Condensed Consolidated Financial Statements...................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................11
Part II. Other Information
Item 1. LEGAL PROCEEDINGS.....................................................16
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................16
Item 3. DEFAULTS UPON SENIOR SECURITIES.......................................16
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.....................16
Item 5. OTHER INFORMATION.....................................................16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K......................................16
2
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
(unaudited)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash....................................................... $ 1,246,266 $ 1,601,770
Accounts receivable, net of allowance for doubtful accounts
of $105,000 at September 30, 2000 and $60,000 at December 31,
1999....................................................... 4,354,899 3,058,018
Inventories................................................ 7,286,731 5,688,914
Income tax receivable...................................... 8,442 38,187
Due from related parties................................... -- 448,684
Prepaid expenses and other current assets.................. 273,321 170,591
-----------------------------------------------------------------------------------------------------------------
Total current assets.......................................... 13,169,659 11,006,164
Property and equipment, net................................... 515,665 492,208
Intangible assets............................................. 1,832,955 907,979
Deferred tax asset............................................ 26,320 21,380
Other assets.................................................. 59,430 60,435
-----------------------------------------------------------------------------------------------------------------
Total Assets.................................................. $15,604,029 $12,488,166
=================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities
Notes payable.............................................. $ 2,463,000 $ 2,409,471
Accounts payable........................................... 4,032,788 2,382,798
Accrued expenses........................................... 873,549 778,431
Income taxes payable....................................... 112,433 272,661
Customer deposits and other................................ 387,137 381,675
Other current liabilities.................................. 226,416 127,706
-----------------------------------------------------------------------------------------------------------------
Total current liabilities..................................... 8,095,323 6,352,742
Long term liabilities......................................... 141,925 228,758
-----------------------------------------------------------------------------------------------------------------
Total Liabilities............................................. 8,237,248 6,581,500
-----------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, $.001 par value; 1,000,000 shares
authorized; none issued.................................... -- --
Common stock, $.001 par value; 20,000,000 shares authorized;
issued and outstanding: 3,681,391 shares at September 30,
2000 and 3,233,921 shares at December 31, 1999............. 3,681 3,234
Paid-in capital............................................ 10,655,235 9,615,501
Deficit.................................................... (2,573,368) (3,181,922)
Cumulative foreign currency translation
adjustment................................................. (718,767) (530,147)
-----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY.................................... 7,366,781 5,906,666
-----------------------------------------------------------------------------------------------------------------
$15,604,029 $12,488,166
=================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales.................................... $7,767,625 $7,333,762 $ 21,587,619 $20,008,899
Operating expenses
Cost of sales............................. 4,825,020 4,671,109 13,237,565 11,852,511
Selling, general and administrative
expenses.................................. 2,595,133 2,349,872 7,442,871 7,012,867
--------------------------------------------------------------------------------------------------------------------------
Total operating expenses..................... 7,420,153 7,020,981 20,680,436 18,865,378
--------------------------------------------------------------------------------------------------------------------------
Income from Operations....................... 347,472 312,781 907,183 1,143,521
Other income (expense)
Interest.................................. (74,456) (80,951) (186,286) (191,703)
Other..................................... (12,416) (29,542) 96,511 72,267
--------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes................... 260,600 202,288 817,408 1,024,085
Provision for income taxes................... 59,718 58,766 208,854 176,117
--------------------------------------------------------------------------------------------------------------------------
Net Income................................... $200,882 $143,522 $608,554 $847,968
--------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share.............. $0.05 $0.05 $0.18 $ 0.27
Diluted earnings per common share............ $0.05 $0.04 $0.15 $ 0.24
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Paid-In Comprehensive Comprehensive Stockholders
Stock Capital Deficit Income Income Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $3,234 $9,615,501 $ (3,181,922) $ (530,147) -- $5,906,666
Net Income 608,554 608,554 608,554
Issuance of common stock in
connection with exercise of
stock options 153 443,303 -- -- -- 443,456
Shares issued in connection
with acquisition of Lanse 294 596,431 -- -- -- 596,725
Cumulative foreign currency
translation adjustment -- -- -- (188,620) (188,620) (188,620)
---------
Comprehensive income $ 419,934
-----------------------------------------------------------------------------------------
Balance at September 30, 2000 $3,681 $10,655,235 $ (2,573,368) $ (718,767) $7,366,781
=========================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30, 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 608,554 $ 847,968
Adjustments to reconcile net income to net cash used in operating
activities:
Provision for losses on accounts receivable 45,000 49,960
Depreciation and amortization 182,163 121,659
Amortization of goodwill 102,740 95,385
(Increase) decrease, net of acquired business, in:
Accounts receivable (1,140,752) (400,337)
Inventories (1,384,826) (320,719)
Income tax receivable 29,745 9,976
Prepaid expenses and other current assets (84,881) 49,381
Deferred tax assets (4,940) 9,045
Other assets 1,005 (57,825)
Increase (decrease), net of acquired business, in:
Accounts payable and accrued expenses 1,196,733 (765,704)
Income taxes payable (166,897) 67,945
Other liabilities 98,710 67,094
Customer deposits 5,462
Deferred tax liability -- 27,624
-------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (512,184) (198,548)
-------------------------------------------------------------------------------------------------------------
Investing Activities:
Acquisitions of businesses, net of cash acquired (369,760) 40,361
Additions to property and equipment (122,201) (39,468)
Collection of loans due from related parties 448,684 --
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (43,277) 893
-------------------------------------------------------------------------------------------------------------
Financing Activities:
Net payments on borrowings (54,879) (81,338)
Bank overdraft -- (67,632)
Net proceeds from the exercise of stock options 443,456 95,250
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 388,577 (53,720)
-------------------------------------------------------------------------------------------------------------
Net decrease in cash (166,884) (251,375)
Effect of exchange rate changes on cash (188,620) (98,125)
Cash, beginning of period 1,601,770 1,407,106
-------------------------------------------------------------------------------------------------------------
Cash, end of period $ 1,246,266 $ 1,057,606
=============================================================================================================
Supplemental information:
Cash paid for:
Interest $ 186,286 $ 191,703
Taxes $ 98,300 $ 108,172
Common stock issued for acquisition $ 596,725 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation The accompanying unaudited condensed
consolidated financial statements have been
prepared in accordance with generally
accepted accounting principles for interim
financial information and with the
instructions to Form 10-QSB. Accordingly,
they do not include all of the information
and footnotes required by generally accepted
accounting principles for complete financial
statements. In the opinion of management,
all adjustments (consisting of normal
recurring accruals) considered necessary for
a fair presentation have been included.
Operating results for the nine-month period
ended September 30, 2000 are not necessarily
indicative of the results that may be
expected for the year ended December 31,
2000. The condensed consolidated balance
sheet information for December 31, 1999 was
derived from the audited consolidated
financial statements included in the
Company's Form 10-KSB. For further
information, refer to the consolidated
financial statements and footnotes thereto
included in the Company's Annual Report on
Form 10-KSB for the year ended December 31,
1999.
2. Notes Payable The line of credit agreement requires the
Company to comply with certain covenants
including limitations on further borrowings
and dividend payments. As of September 30,
2000, the Company was in compliance with all
of the aforementioned benchmarks and ratios.
3. Acquisition In May 2000, the Company completed the
acquisition of Lanse AS, a Norway
manufacturer and distributor of networking
hardware, for a purchase price of $736,095
in cash (including expenses) and 294,170
shares of the Company's common stock (valued
at $597,000). This acquisition was accounted
for under the purchase method, whereby the
purchase price was allocated to the
underlying assets and liabilities based on
their estimated fair values. The excess cost
over net assets acquired amounted to
approximately $1.0 million. This amount is
being amortized over fifteen years.
7
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
The following unaudited pro forma
information presents the results of
operations of the Company and its
subsidiaries as if this acquisition had
occurred on January 1, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Net sales $22,915,742 $22,679,318
Net income 606,646 984,891
Net income per common share 0.17 0.28
Net income per common share - assuming
dilution 0.15 0.26
</TABLE>
4. Earnings Per Share The following reconciles the components of
the earnings per share (EPS) computation:
<TABLE>
<CAPTION>
For the three months ended
September 30, 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per
common share
Net income
available to
common
shareholders $200,882 3,681,921 $0.05 $143,522 3,155,825 $0.05
Effect of
dilutive
Securities:
Exercisable
options to
purchase shares
of common stock 524,845 308,821
Net income
available to
common
shareholders
plus assumed
conversions $200,882 4,206,766 $0.05 $143,522 3,464,646 $0.04
</TABLE>
8
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
<TABLE>
<CAPTION>
For the nine months ended
September 30, 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per
common share
Net income
available to
common
shareholders $608,554 3,475,256 $0.18 $847,968 3,187,312 $0.27
Effect of
dilutive
Securities:
Exercisable
options to
purchase shares
of common stock 479,144 316,807
Net income
available to
common
shareholders
plus assumed
conversions $608,554 3,954,400 $0.15 $847,968 3,504,119 $0.24
</TABLE>
Options to purchase 1,613,050 shares of
common stock are outstanding and held by
various employees, officers, directors and
consultants of the Company. Of this amount,
155,400 shares were not included in the
computation of diluted EPS as the options'
exercise price was greater than the average
market price of the common shares.
Warrants to purchase 1,080,000 shares of
common stock were outstanding during 1999
and 2000, but are not included in the
computation of diluted EPS as the warrants'
exercise price is greater than the average
market price of the common shares.
Currently, 920,000 of these warrants entitle
the holder to purchase one share of common
stock at $6.90 per share, 80,000 of
these warrants entitle the holder to
purchase one share of common stock at $7.065
per share, and 80,000 of these warrants
entitle the holder to purchase one share of
common stock at $7.80 per share. All of
these warrants are exercisable through
February 12, 2002.
9
<PAGE>
Advanced Electronic Support Products
and Subsidiaries
5. New Accounting Pronouncement In March, 2000 the Financial Accounting
Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44),
Accounting for Certain Transactions
Involving Stock Compensation. Interpretation
44 provides criteria for the recognition of
compensation expense in certain stock-based
compensation arrangements. Interpretation 44
became effective July 1, 2000.
Interpretation 44 did not have an impact on
the Company's consolidated financial
statements.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-QSB CONTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH ARE INTENDED TO BE
COVERED BY THE SAFE HARBORS CREATED THEREBY. THESE FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
COMPETITION FROM OTHER MANUFACTURERS AND DISTRIBUTORS OF CONNECTIVITY AND
NETWORKING PRODUCTS BOTH NATIONALLY AND INTERNATIONALLY; THE BALANCE OF THE MIX
BETWEEN ORIGINAL EQUIPMENT MANUFACTURER SALES (WHICH HAVE COMPARATIVELY LOWER
GROSS PROFIT MARGINS WITH LOWER EXPENSES) AND NETWORKING AND INTERNATIONAL SALES
(WHICH HAVE COMPARATIVELY HIGHER GROSS PROFIT MARGINS WITH HIGHER EXPENSES) FROM
PERIOD TO PERIOD; AND THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR
MANUFACTURING AND ASSEMBLY OF PRODUCTS AND THE ABSENCE OF SUPPLY AGREEMENTS.
THESE AND ADDITIONAL FACTORS ARE DISCUSSED HEREIN AND IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR 1999 (THE "FORM 10-KSB"). THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN AND THEREIN INVOLVE AND ARE SUBJECT TO KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S
ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER
FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR OPERATING), ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENT. INVESTORS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE INFORMATION SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION" IN THE FORM 10-KSB.
Results of Operations
For the nine months ended September 30, 2000, the Company had net sales
of $21.6 million, an increase of $1.6 million or 7.9% over net sales of $20.0
million for the nine months ended September 30, 1999. For the quarter ended
September 30, 2000, the Company had net sales of $7.8 million, an increase of
$.4 million or 5.9% over net sales of $7.3 million for the quarter ended
September 30, 1999.
11
<PAGE>
Contributing to the overall increase in sales were increases in
domestic OEM sales, which were up 37% or $1.2 million for the first nine months
of 2000 compared to the first nine months of 1999, and up 35% or $365,000 for
the third quarter of 2000 compared to the third quarter of 1999. Networking
sales increased by $275,000 or 4.4% for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999, and unchanged for the
third quarter of 2000 compared to the third quarter of 1999.
International sales increased by 11.8% or $1.2 million for the nine
months ended September 30, 2000 compared to the nine months ended September 30,
1999, and up 19.1% or 663,000 for the third quarter of 2000 compared to the
third quarter of 1999. Most of the increase for both the nine and three month
periods were due to the addition of Lanse AS' sales offset, in part by, reduced
sales due to a decline in the value of European currencies compared to the U.S.
dollar. Since the Company's international subsidiaries' sales are converted into
U.S. dollars for consolidated financial reporting, their local currency sales
have been adversely impacted by the strengthening U.S. dollar from period to
period, since sales in units have actually increased from period to period.
Lanse was acquired on May 31, 2000. Sales by Lanse during the three and nine
month periods were $635,000 and $902,000 respectively.
The Company's gross profit margin was 38.7% for the nine months ended
September 30 2000, compared to 40.8% for the nine months ended September 30,
1999, and was 37.8% for the third quarter of 2000 compared to 36.3% for the
third quarter of 1999. The primary reasons for the nine month decline in gross
profit margins is a reduction in gross margins from the Company's international
business from period to period due to the impact of increased domestic OEM
business, both in terms of absolute dollars and in terms of the percentage of
total sales. The third quarter 2000 gross margin was higher than the third
quarter 1999 gross margin due to OEM sales being lower relative to other revenue
for that particular quarter. As the Company has previously reported, OEM
business produces lower gross margins than either networking or international
business. However, internal costs and overhead, as reflected in selling, general
and administrative ("SG&A") expenses, are proportionately lower in OEM sales
which the Company believes offsets the intrinsically lower gross profit margin.
Thus, the mix from period to period of OEM sales versus networking and
international sales has and will continue to have an impact on the gross profit
margin for any particular period.
SG&A expenses increased by $.4 million, or 6.1%, to $7.4 million for
the nine months ended September 30, 2000, from $7.0 million for the nine months
ended September 30, 1999. For the quarter ended September 30, 2000, SG&A
expenses increased by 10.4% to $2.6 million, from $2.3 million for the
comparative 1999 period due primarily to the addition of Lanse AS' SG&A expenses
starting on May 31, 2000. SG&A expenses as a percentage of sales for the three
and nine months ended September 30, 2000 were 33.4% and 34.5%, respectively,
compared to 32.0% and 35.0%, respectively, for the three and nine months ended
September 30, 1999.
As a result of the aforementioned factors, income from operations for
the first nine months of 2000 was $.9 million a decrease of 20.7% over income
from operations of $1.1 million for the first nine months of 1999. Income from
operations for the three months ended
12
<PAGE>
September 30, 2000 was $.35 million, an increase of 11.1% over income from
operations of $.31 million for the three months ended September 30, 1999. Lanse
contributed approximately $3,000 and $14,000, respectively, to the 2000 nine and
three month income from operations.
Interest expense for the nine months ended September 30, 2000 was
$186,000, compared to $192,000 for the first nine months of 1999. Third quarter
2000 interest was $74,000 compared to $81,000 for the comparable 1999 period.
Interest in each 2000 period was lower due to somewhat lower borrowings in 2000
offset, in part, by higher interest rates from period to period.
Amortization of goodwill was $103,000 for the nine months ended
September 30, 2000, an increase of 8.4% over amortization of $95,000 for the
nine months ended September 30, 1999. This increase is primarily attributable to
amortization charges arising as a result of the acquisition of CCCI at the end
of March 1999 and of Lanse at the end of May 2000.
Other income and expense for the 2000 three and nine month periods were
due primarily to changes in currency exchange rates at September 2000 compared
to exchange rates at December 31, 1999. Taxes in both 2000 and 1999 were lower
due to available U.S. net operating loss carryforwards and carrybacks. The
effective tax rate was higher for the nine months ending September 30, 2000
compared to the 1999 period since more of the Company's income was derived from
its overseas operations during the 2000 period and the Company cannot utilize
its available U.S. net operating losses against foreign income to reduce its
overall tax liability. The Company's ability to take advantage of its U.S. net
operating loss carryforwards and carrybacks in future periods will depend on the
amount of the Company's U.S. sourced income derived in such future periods.
As a result of the foregoing factors, the Company had net income of
$609,000 for the nine months ended September 30, 2000, a decrease of 28.2% over
net income of $848,000 for the nine months ended September 30, 1999, and net
income of $201,000 for the quarter ended September 30, 2000, an increase of
39.6% over net income of $144,000 for the third quarter of 1999.
Basic earnings per share were $.18 per share for the nine months ended
September 30, 2000, compared to $.27 per share for the nine months ended
September 30, 1999. Diluted earnings per share were $.15 for the first nine
months of 2000, compared to diluted earnings per share of $.24 for the first
nine months of 1999. For the third quarter of 2000, basic earnings per share
were $.05, unchanged from the basic earnings per share for the third quarter of
1999. Fully diluted earnings per share were $.05 for the third quarter of 2000,
unchanged from diluted earnings per share of $.05 for the third quarter of 1999.
Earnings per share for 2000 were impacted (compared to 1999) by a substantial
increase in weighted average shares outstanding from period to period and a
reduction in net income for the 2000 nine month period compared to the 1999 nine
month period. The increase primarily resulted from the issuance of 153,300
shares of the Company's common stock upon the exercise of stock options in early
2000 and the issuance by the Company in May 2000 of an additional 294,170 shares
of common stock in connection with the acquisition of Lanse AS.
13
<PAGE>
Liquidity & Capital Resources
Historically, the Company has financed its operations primarily with
cash flow from operations and with borrowings under its available lines of
credit.
At September 30, 2000, the Company's working capital was $5.1 million,
an increase of 9.0% over working capital of $4.7 million as of December 31,
1999. The principal causes of the increase were increases of approximately $1.3
million (42.4%) in accounts receivable, and approximately $1.6 million (28.1%)
in inventories, offset in part by an increase of approximately $1.7 million
(55.2%) in accounts payable and accrued expenses. At September 30, 2000, cash
had decreased approximately $356,000, or 22.3%, as the Company's net income was
applied to the aforementioned increases in current assets and to the payment of
the cash portion of the Lanse AS acquisition offset by increases in accounts
payable and proceeds received from sales of stock upon the exercise of options.
The aforementioned increases are also due in part to the acquisition of Lanse
and the inclusion of their current assets and liabilities in the Company's
September 30, 2000 consolidated balance sheet.
For the nine months ended September 30, 2000, $512,000 of cash was used
in operations. Net income of approximately $609,000 was applied to the
aforementioned increase in accounts receivable and inventories offset by
increases in accounts payable. Net cash used in investing activities was
$43,000, as cash was used in acquisitions and to purchase equipment offset by
the repayment of related party loans. Cash of $389,000 was generated in
financing activities which was used for payments on borrowings and for the Lanse
acquisition. As a result of the foregoing, the Company's cash position decreased
$167,000 between December 31, 1999 and September 30, 2000. That decrease,
combined with a decrease of $189,000 attributable to the effects of exchange
rate changes on cash, produced an overall decrease in cash of $356,000.
In September 2000, the Company renewed its $3.5 million line of credit
with a financial institution. Borrowings available under the line of credit,
which matures on September 23, 2001, bear interest at the rate of prime plus
one-half (.5) percent. Borrowings under the line of credit are based on specific
percentages of the Company's receivables and inventories. The line of credit is
secured by a lien on the Company's U.S. assets, including its U.S. accounts
receivable and inventories. The line of credit is also guaranteed by the
Company's principal stockholders, who have pledged 80% of the Company's common
stock which they own to secure their respective guarantees. Under the terms of
the loan agreement, the Company is required to comply with certain affirmative
and negative covenants and to maintain certain financial benchmarks and ratios
during future periods. As of September 30, 2000, the Company was in compliance
with all of the aforementioned benchmarks and ratios. As of September 30, 2000,
$2,463,000 was outstanding under the credit line and $548,000 was available
under the line of credit, based on applicable borrowing base formulas.
The Company believes that its internally generated cash flow from
operations, combined with its line of credit, will be sufficient to fund its
operations for the next twelve months.
The Company does not believe that inflation has had a material effect
on its financial condition or operating results for the last several years, as
the Company has historically been
14
<PAGE>
able to pass along increased costs in the form of adjustments to the prices it
charges to its customers.
New Accounting Pronouncement
In March, 2000 the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 44 (Interpretation 44), Accounting for Certain
Transactions Involving Stock Compensation. Interpretation 44 provides criteria
for the recognition of compensation expense in certain stock-based compensation
arrangements. Interpretation 44 became effective July 1, 2000. Interpretation 44
did not have an impact on the Company's consolidated financial statements.
15
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On August 4, 2000, the Company held its 2000 annual meeting of
stockholders. At the meeting, the stockholders elected the following
five persons to serve on the Company's Board of Directors until their
successors are elected and qualified: Slav Stein, Roman Briskin,
Leonard Sokolow, Terrence R. Diadone and William B. Coldrick. The
shares voted for and against each of the candidates for director were
as follows: (i) 3,246,092 shares were voted in favor of each nominee
for director; and (ii) 700 shares were voted against each nominee for
director.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed July 10, 2000 under Item 5.
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SIGNATURES
In accordance with 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, thereunto duly authorized.
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
Date: November 13, 2000 By: /s/ ROY RAFALCO
-------------------------------------------
Roy Rafalco, Chief Financial Officer
17
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Exhibit Index
Exhibit No. Exhibit Description
----------- -------------------
27.1 Financial Data Schedule
