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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22760
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AIRPORT SYSTEMS INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
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<S> <C>
Kansas 48-1099142
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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11300 West 89th Street
Overland Park, Kansas 66214
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(address of principal executive offices)
(913)492-0861
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the previous 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 ( )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, $0.01 par value - 2,230,500 shares outstanding as of March 1, 1998
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
FORM 10-QSB
QUARTER ENDED JANUARY 31, 1998
INDEX
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Page
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PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURE PAGE 12
EXHIBIT INDEX 13
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PART I. - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
JANUARY 31, APRIL 30,
1998 1997
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(In thousands)
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 1,946 $ 3,122
Accounts receivable, net 6,862 7,534
Inventories, net 4,955 4,717
Other current assets 354 186
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Total current assets 14,117 15,559
Property and equipment, at cost 3,246 3,037
Accumulated depreciation and amortization 1,598 1,329
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1,648 1,708
Cost in excess of net assets acquired, net 1,209 1,264
Other assets 36 63
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Total assets $ 17,010 $18,593
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 1,815 $ 2,511
Accrued expenses 3,874 4,303
Notes payable to bank -- 600
Current portion of long-term debt 26 26
Other current liabilities (39) 422
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Total current liabilities 5,676 7,862
Long-term debt, less current portion 1,182 1,195
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 7,218 7,293
Retained earnings 2,912 2,221
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Total stockholders' equity 10,152 9,536
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Total liabilities and stockholders' equity $ 17,010 $18,593
======== =======
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NOTE: The balance sheet at April 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(UNAUDITED)
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<CAPTION>
Three Months Ended Nine Months Ended
January 31 January 31
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales $ 6,482 $ 3,636 $18,402 $ 12,804
Cost of products sold 4,779 2,584 13,019 8,929
------- ------- ------- --------
Gross margin 1,703 1,052 5,383 3,875
Selling, general and administrative expenses 1,130 853 3,341 2,921
Research and development expenses 335 265 1,054 712
------- ------- ------- --------
Operating income (loss) 239 (66) 988 242
Other income (expense):
Interest expense (25) (26) (30) (77)
Other, net 24 (62) 60 (9)
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Income (loss) before income taxes 238 (154) 1,018 156
Provision (benefit) for income taxes 88 (56) 328 58
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Net income (loss) $ 150 ($ 98) $ 691 $ 98
======= ======= ======= ========
Income (loss) per share:
Basic $ 0.07 ($ 0.04) $ 0.31 $ 0.04
======= ======= ======= ========
Diluted $ 0.06 ($ 0.04) $ 0.29 $ 0.04
======= ======= ======= ========
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See notes to condensed consolidated financial statements.
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
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1998 1997
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(In thousands)
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OPERATING ACTIVITIES:
Net income $ 691 $ 99
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 351 364
Loss on sale of equipment -- 3
Changes in operating assets and liabilities:
Accounts receivable, net 672 (801)
Inventories, net (238) (679)
Accounts payable (696) (225)
Accrued expenses (423) 886
Other, net (631) 329
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Net cash used in operating activities (273) (24)
INVESTING ACTIVITIES:
Purchase of short-term investments (2,567) (997)
Liquidation of short-term investments 2,567 997
Proceeds from sale of property and equipment -- 15
Purchases of property and equipment (209) (114)
Additions to other assets
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Net cash used in investing activities (209) (99)
FINANCING ACTIVITIES:
Principal payments on notes payable to banks (1,400) (570)
Borrowing on notes payable to banks 800 570
Payments on long-term debt and capital lease
obligations (19) (17)
Buyback of outstanding Warrants (75) --
Proceeds from exercise of stock options -- 7
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Net cash used in financing activities (695) (10)
Net decrease in cash and cash equivalents (1,176) (132)
Cash and cash equivalents at beginning of period 3,122 621
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Cash and cash equivalents at end of period $ 1,946 $ 489
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 83 $ 79
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Income taxes $ 790 $ 49
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 1998
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements of
Airport Systems International, Inc. (the Company) include the accounts of the
Company and its wholly owned subsidiary, ASII International, Inc., a foreign
sales corporation incorporated in Barbados. All intercompany balances and
transactions have been eliminated. The 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 three months and nine months ended January
31, 1998 are not necessarily indicative of the results that may be expected for
the year ended April 30, 1998. For further information, refer to the
consolidated financial statements and footnotes included in the Airport Systems
International Inc. and Subsidiary annual report on Form 10-KSB for the year
ended April 30, 1997.
2. Earnings Per Share
The company adopted Financial Accounting Standards No. 128 (FAS 128), "Earnings
Per Share" in the third quarter of fiscal 1998. Share and per share amounts for
all periods have been restated to comply with FAS 128.
3. Notes Payable to Banks
During September, 1997, the Company amended its line of credit to provide for
maximum borrowings of $6,000,000, at an interest rate of prime (8.50% at January
31, 1998), secured by accounts receivable, inventory, and equipment. The
agreement matures in September, 1998. There were no borrowings at
January 31, 1998.
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The discussions set forth in this Form 10-QSB may contain forward-looking
comments based on current expectations that involve a number of risks and
uncertainties. Actual results could differ materially from those projected or
suggested in the forward-looking comments. The difference could be caused by a
number of factors, including, but not limited to the factors and conditions
which are described under the headings "Results of Operations," and "Backlog,"
as well as the competitive and pricing pressures related to all contracts,
either already in the Company's backlog, or which the Company is pursuing.
Further information on the factors that could affect the Company's financial
results are included in the Company's other SEC filings, including the Form
10-QSB for the quarters ended July 31, 1997 and October 31, 1997, and the Form
10-KSB for the year ended April 30, 1997. The reader is cautioned that the
Company does not have a policy of updating or revising forward-looking
statements and thus he or she should not assume that silence by management of
the Company over time means that actual events are bearing out as estimated in
such forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1998 increased 78.3%, to $6.5 million from
$3.6 million for the third quarter of fiscal 1997. Sales for the first nine
months of fiscal 1998 increased 43.7%, to $18.4 million from $12.8 million for
the same period in fiscal 1997. The increase in sales for both periods is due to
an increase in units shipped as a result of a higher beginning backlog compared
to the same period of fiscal 1997.
Gross margin increased to $1.7 million (or 26.3% of sales) in the third quarter
of fiscal 1998 compared to $1.1 million (or 28.9% of sales) in the third quarter
of fiscal 1997. Gross margin for the first nine months of fiscal 1998 totaled
$5.4 million (or 29.3% of sales) compared to $3.9 million (or 30.3% of sales)
for the first nine months of fiscal 1997. The decrease in gross margin as a
percentage of sales during both periods compared to the respective periods in
fiscal 1997 reflects the shipment of contracts with lower than expected gross
margins as well as the establishment of reserves for additional costs on
installation contracts. Economic difficulties being experienced in Southeast
Asia had an impact on the mix of contracts that shipped in the 3rd quarter and
contributed to the lower gross margins. The Company expects gross margins to
continue to fluctuate due to the timing and mix of contract awards and delivery
of product and services.
Selling, general, and administrative expenses increased during the third quarter
to $1.1 million (17.4% of sales) from $853,000 (23.5% of sales) in the third
quarter of fiscal 1997. For the first nine months of fiscal 1998, selling,
general, and administrative expenses increased $420,000 from $2.9 million (22.8%
of sales) in fiscal 1997 to $3.3 million (18.2% of sales) over the same period
of fiscal 1998. The increase in dollar terms reflects growth associated with
increased
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sales, backlog, and international marketing opportunities. The decrease as a
percent of sales is attributable to economies of scale associated with higher
sales as certain costs are fixed in nature.
Research and development expenses increased during the third quarter to $335,000
from $265,000 in the third quarter of fiscal 1997. In the first nine months,
research and development expenses increased $342,000 to $1.1 million from
$712,000 for the first nine months of fiscal 1997. The increase for both periods
is a result of increased labor and expenses related to programs designed to
enhance the current product line which includes the new Category II/III
Instrument Landing System.
Interest expense decreased $1,000 for the third quarter and $47,000 for the
first nine months compared to the respective periods in the prior year due to a
decrease in the average debt obligations outstanding compared to the prior year
period.
The Company's estimated provision for income taxes amounted to 37.0% and 32.2%
for the third quarter and first nine months respectively. In the prior year
comparative periods the provision (benefit) for income taxes amounted to (36.4%)
and 36.9%, or ($56,000) and $58,000, for the third quarter and first nine months
of fiscal 1997. The increase was primarily due to the increase in pre-tax income
for the third quarter and first nine months of fiscal 1998 while the decrease in
the effective tax rate for the first nine months was due to reductions in the
income tax provision resulting from previously over-accrued income taxes in
fiscal 1997.
Net income for the third quarter was $150,000, compared with a fiscal 1997 third
quarter net loss of $98,000. For the first nine months, net income was $691,000,
compared with net income of $98,000 for the first nine months of fiscal 1997.
The increase in net income is primarily due to increased sales and gross margin,
as previously mentioned.
BACKLOG
The Company's backlog was $12.3 million at January 31, 1998, compared to $7.4
million at January 31, 1997, and $19.2 million at April 30, 1997. Approximately
69% of the backlog at January 31, 1998, was represented by three contracts. The
contracts call for providing navaid equipment and services to Indonesia (48% of
backlog), South America (12% of backlog) and a domestic airport authority in the
United States (9% of backlog). The Company expects to ship approximately $4.4
million of the total backlog through the end of the fiscal year while the
remaining $9.6 million will be completed and shipped in the subsequent fiscal
year.
The decline in backlog, as compared to April 30, 1997, is the result of bookings
not keeping pace with shipments during the first nine months of the fiscal year.
This is primarily the result of the shipping schedules imposed by the Indonesia
and Federal Aviation Administration contracts. During the third quarter, the
Company's bookings included awarded contracts to supply navaids and services for
projects in South America, North Africa, the Middle East and North America.
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These bookings totaled approximately $3.7 million of the total $4.3 million
booked during the third quarter. Other bids remained active at quarter end, but
the Company is unable to determine when or if the related contracts will be
awarded. The Company expects backlog and bidding activities as well as contract
awards to continue to fluctuate due to the size and timing of contract programs.
SOUTHEAST ASIA
The current economic difficulties in Southeast Asia, in particular Indonesia and
Thailand has and will for the foreseeable future, had an impact on the Company's
operations. The current difficulties are not, at this time having an impact on
the Indonesia contract currently in backlog. Work is progressing on the contract
satisfactorily, and because the financing for the project was established
through the Export Import Bank of the United States, the Company is assured of
payment for work completed. However, should the Republic of Indonesia default on
any of its obligations to the Export Import Bank, the Bank may suspend payments
on the contract, thus forcing the Company to stop work until such time as the
Company can be assured of receiving payment for work completed.
In response to this situation, the Company has begun to reallocate its marketing
resources to other regions of the world, in particular South America, Central
and Eastern Europe and China, and though the impact of these efforts will not be
immediate, the Company does not expect to see benefits in fiscal 1999. It is
important to note that not all of Southeast Asia is impacted as severely as
Indonesia and Thailand and that other countries in that region are planning
requirements for fiscal 1999.
As a result of the current situation, the Company has seen some programs for
which it was expecting to receive orders for and ship in the 3rd quarter, as
well as the 4th quarter, canceled or delayed. The Company expects the 4th
quarter to be profitable, but it will not compare favorably with last years 4th
quarter which was exceptionally strong due to the timing of shipments on the
Indonesia contract. The Company expects to see some softness in sales and
earnings in the first half of fiscal 1999 while marketing resources are
reallocated to other regions of the world.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $273,000 was used by operations for the first nine months of fiscal
1998 compared to $24,000 used in the first nine months of fiscal 1997. The
increase in cash used was due to the reduction of accounts payable through
payment of vendor trade balances and other accrued expenses and liabilities. The
increase in inventories was offset by the reduction in accounts receivable
through the first nine months of the fiscal year.
Cash used in investing activities was $209,000 for the first nine months of
fiscal 1998 compared
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to $99,000 used in the first nine months of fiscal 1997. The increase in cash
used is primarily the result of purchases of property and equipment exceeding
the amounts purchased in the prior period.
Cash used in financing activities was $695,000 in the first nine months of
fiscal 1998 compared to cash used of $10,000 in the first nine months of fiscal
1997. The increase was the result of the normal paydown of the Company's debt
obligations and also included the buyback of outstanding stock warrants for
$75,000 during the quarter.
The Company expects that it will meet its ongoing requirements for working
capital and capital expenditures from a combination of cash expected to be
generated from operations, existing cash and cash equivalents and available
borrowings under its existing revolving credit facility.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11.1 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant
during the three months ended January 31, 1998.
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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 thereunto duly authorized.
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
March 13, 1998 /s/ Thomas C. Cargin
- -------------- ---------------------------------------------------
Date Thomas C. Cargin, Vice President of Finance and
Administration, Secretary, and Principal Accounting
Officer
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EXHIBIT INDEX
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Number Description Page
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11.1 Computation of Earnings Per Share, filed herewith. 14
27 Financial Data Schedule (for SEC use only)
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EXHIBIT 11.1
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NET INCOME PER SHARE COMPUTATION
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<CAPTION>
Three Months Ended
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(In thousands, except per share data) January 31, 1998 January 31, 1997
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Net Income Shares EPS Net Income Shares EPS
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Basic $150 2,230 $0.07 ($98) 2,230 ($0.04)
Effect of dilutive securites -
options and warrants 200 0
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Diluted $150 2,430 $0.06 ($98) 2,230 ($0.04)
===== =====
</TABLE>
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<CAPTION>
Nine Months Ended
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January 31, 1998 January 31, 1997
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Net Income Shares EPS Net Income Shares EPS
<S> <C> <C> <C> <C> <C> <C>
Basic $691 2,230 $0.31 $98 2,230 $0.04
Effect of dilutive securites -
and warrants 192 170
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Diluted $691 2,422 $0.29 $98 2,400 $0.04
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AIRPORT
SYSTEMS INTERNATIONAL, INC. FORM 10-QSB FOR THE PERIOD ENDED JANUARY 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,946
<SECURITIES> 0
<RECEIVABLES> 6,862
<ALLOWANCES> 0
<INVENTORY> 4,955
<CURRENT-ASSETS> 14,117
<PP&E> 3,246
<DEPRECIATION> 1,598
<TOTAL-ASSETS> 17,010
<CURRENT-LIABILITIES> 5,676
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 7,128
<TOTAL-LIABILITY-AND-EQUITY> 17,010
<SALES> 6,482
<TOTAL-REVENUES> 6,482
<CGS> 4,779
<TOTAL-COSTS> 4,779
<OTHER-EXPENSES> 1,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 238
<INCOME-TAX> 88
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
