<PAGE> 1
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 31,1999
------------------------------------
( )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.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Kansas 48-1099142
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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,
1999.
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
FORM 10-QSB
QUARTER ENDED JANUARY 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
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 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
EXHIBIT INDEX 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, April 30,
1999 1998
(In thousands)
(Unaudited) (Note)
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash & cash equivalents $ 227 $ 2,449
Accounts receivable, net 4,308 6,156
Inventories, net 5,286 5,261
Other current assets 91 152
-------- --------
Total current assets 9,912 14,018
Property and equipment, at cost 3,432 3,303
Accumulated depreciation and amortization (1,873) (1,687)
-------- --------
1,560 1,616
Cost in excess of net assets acquired, net 1,166 1,221
Other assets -- --
-------- --------
Total assets $ 12,637 $ 16,854
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 805 $ 1,280
Accrued expenses 1,935 3,836
Notes payable to bank 50 --
Current portion of long-term debt 20 19
Other current liabilities (574) 80
-------- --------
Total current liabilities 2,236 5,214
Long-term debt, less current portion 1,170 1,184
Deferred income taxes 15 15
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 7,218 7,218
Retained earnings 1,976 3,201
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Total stockholders' equity 9,216 10,441
-------- --------
Total liabilities and stockholders' equity $ 12,637 $ 16,854
======== ========
</TABLE>
NOTE: The balance sheet at April 30, 1998 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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
---------------------- -----------------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Sales $ 4,080 $ 6,482 $ 12,048 $18,402
Cost of products sold 3,366 4,779 9,187 13,019
------- ------- -------- -------
Gross margin 714 1,703 2,861 5,383
Selling, general and administrative expenses 1,088 1,130 3,332 3,341
Research and development expenses 419 335 1,413 1,054
------- ------- -------- -------
Operating income (loss) (793) 239 (1,883) 988
Other income (expense):
Interest expense (30) (6) (45) 4
Other, net 3 5 16 27
------- ------- -------- -------
Income (loss) before income taxes (820) 238 (1,912) 1,018
Provision (benefit) for income taxes (295) 88 (687) 328
------- ------- -------- -------
Net income (loss) $ (525) $ 150 $ (1,225) $ 691
======= ======= ======== =======
Income (loss) per share:
Basic $ (0.24) $ 0.07 $ (0.55) $ 0.31
Diluted $ (0.24) $ 0.06 $ (0.55) $ 0.29
</TABLE>
See notes to condensed consolidated financial statements.
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
---------------------------
1999 1998
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(In thousands)
<S> <C> <C>
Operating activities:
Net income (loss) $(1,225) $ 691
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 339 351
Changes in operating assets and liabilities:
Accounts receivable, net 1,848 672
Inventories, net 12 (238)
Accounts payable (473) (696)
Accrued expenses and customer deposits (1,940) (423)
Other, net (592) (631)
------- -------
Net cash used in operating activities (2,031) (274)
Investing activities:
Purchase of short-term investments -- -2567
Liquidation of short-term investments -- 2567
Purchases of property and equipment (228) (209)
Additions to other assets -- --
------- -------
Net cash used in investing activities (228) (209)
Financing activities:
Net repayments on note payable to bank (250) (1,400)
Borrowings on notes payable to bank 300 800
Principal payments on long-term debt (13) (18)
Buyback of outstanding warrants (75)
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Net cash used in financing activities 37 (693)
------- -------
Net decrease in cash and cash equivalents (2,222) (1,176)
Cash and cash equivalents at beginning of period 2,449 3,122
------- -------
Cash and cash equivalents at end of period $ 227 $ 1,946
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 67 $ 83
======= =======
Income taxes $ -- $ 790
======= =======
</TABLE>
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 1999
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 nine months ended January 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1999. 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, 1998.
2. Notes Payable to Banks
The Company has a line of credit agreement with a bank which expires September
1, 2000. The agreement allows for borrowings up to a maximum of $6,000,000, at
an interest rate of either LIBOR plus 250 basis points (5.6% at October 31,
1998) or prime (8.0% at October 31, 1998), secured by accounts receivable,
inventory, and equipment. The company had borrowings on the line of credit
totaling $50,000 for working capital purposes.
4. 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
the quarter ended January 31, 1999, have been restated to comply with FAS 128.
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The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended January 31, Ended January 31,
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net Income (loss) $ (525,000) $ 150,000 $(1,225,000) $ 691,000
Denominator:
Denominator for basic
earnings per share - weighted
average shares 2,230,500 2,230,500 2,230,500 2,230,500
Effect of dilutive securities:
Employee stock options -- 200,000 -- 2,000
Denominator for diluted
earnings per share -
adjusted weighted average
shares with assumed
conversions 2,230,500 2,430,500 2,230,500 2,422,500
Earnings per share - Basic $ (0.24) $ 0.07 $ (0.55) $ 0.31
Earnings per share - Dilutive $ (0.24) $ 0.06 $ (0.55) $ 0.29
</TABLE>
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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
10QSB for the quarters ended July 31, 1998 and October 31, 1998 and the Form
10-KSB for the year ended April 30, 1998. 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 1999 were $4.1 million compared to $6.5
million for the third quarter of fiscal 1998. Sales for the first nine months of
fiscal 1999 were $12 million compared to $18.4 million for the first nine months
of fiscal 1999. The decrease in sales for both the quarter and year to date is
due to a decrease in units shipped as a result of a lower beginning backlog
compared to the same period of fiscal 1998 as well as lower bookings than the
same period as last year, as discussed in the Backlog section.
Gross margin for the third quarter of fiscal 1999 was $714,000 (18% of sales)
compared to $1.7 million (26%) for the third quarter of fiscal 1998. Gross
margin for the first nine months of fiscal 1999 was $2.9 million (24% of sales)
compared to $5.4 million (29%) for the first nine months of fiscal 1998. The
lower gross margins reflect lower sales for both the quarter and the nine months
ended January 31, 1999 as well as higher production and installation costs
associated with the first new design instrument landing system (ILS) units
shipped during the second and third quarters, and lower prices as a result of
increased price competition. The higher production and installation costs
incurred on the initial ILS units shipped are typical for initial production
runs and installation of a new product design and the Company has seen and
expects to see costs on subsequent units return to expected levels. 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 remained unchanged during the
third quarter of fiscal 1999 at approximately $1.1 million compared to the third
quarter of fiscal 1998. As a percent of sales, selling, general, and
administrative expenses increased from 17% in the third quarter of fiscal 1998
to 27% in the third quarter of fiscal 1999. Selling, general, and
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administrative expenses remained unchanged during the first nine months of
fiscal 1999 at approximately $3.3 million compared to the first nine months of
fiscal 1998. As a percent of sales, selling, general, and administrative
expenses increased from 18% in the first nine months of fiscal 1998 to 28% in
the first nine months of fiscal 1999. The increase as a percent of sales
reflects increased expenditures by the Company to expand its airfield lighting
product line and marketing capabilities.
Research and development expenses increased during the third quarter to $419,000
from $335,000 in the third quarter of fiscal 1998. In the first nine months,
research and development expenses increased to $1,413,000 from $1,054,000 for
the first nine months of fiscal 1998. 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 and to obtain FAA certification of its airfield lighting product line.
Interest expense increased to $30,000 from $6,000 for the third quarter, and to
$45,000 from a $4,000 net interest income position in fiscal year 1998 for the
first nine months, due to an increase in the average debt obligations
outstanding compared to the prior year period.
The Company recorded an estimated tax benefit for the quarter of $295,000 (36%
of the loss before income taxes), compared to a tax provision of $88,000 (37% of
income before taxes) for the third quarter of fiscal 1998. For the first nine
months, the Company recorded a tax benefit of $687,000 (36% of the loss before
income taxes), compared to a tax provision of $328,000 (32% of income before
taxes). For both periods, the increase, as a percent of the income (loss) before
taxes reflects reduced benefits from the Company's Foreign Sales Corporation as
a result of lower international sales. The Company believes it is likely that
the tax benefits recorded will be realized due primarily to taxable income and
alternative minimum tax credits in prior carryback years and management's
expectation of future taxable income.
The net loss for the third quarter was $525,000, compared with a fiscal 1998
third quarter net income of $150,000. The net loss for the nine months was
$1,225,000, compared with net income in the first nine months of fiscal 1998 of
$691,000. The net losses for the three months and nine months ended January 31,
1999 were due primarily to decreased sales, increased production and
installation costs incurred on initial new design ILS units, and increased
research and development expenses related to the development of the Company's
new ILS product design and the introduction and certification of the Company's
airfield lighting product line, as previously mentioned.
BACKLOG
The Company's backlog was $7.9 million at January 31,1999, compared to $12.3
million at July 31, 1998, and $10.6 million at April 30, 1998. The Company
expects to ship approximately $5.0 million of the total backlog through the end
of fiscal 1999 with the remaining $2.9 million of
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backlog being completed and shipped in fiscal 2000.
The decline in backlog, as compared to April 30, 1998, is the result of bookings
not keeping pace with shipments. In particular, the backlog at April 30, 1998,
included approximately $4.9 million related to a $17.7 million contract signed
with the Republic of Indonesia in the fourth quarter of 1997. At January 31,
1999 the backlog related to this contract had decreased to $857,000. The decline
in bookings is primarily the result of the economic difficulties experienced in
Southeast Asia which resulted in delays in the award of contracts, and led many
civil aviation authorities in that region of the world to choose not to initiate
any new procurements. The Company, however, is encouraged by orders received
during the current quarter of over $5.8 million, the largest bookings quarter
since the fourth quarter of fiscal 1997. These orders came from several
geographic regions, including the United States, the Middle East and Southeast
Asia. The orders were for the Company's new ILS design as well as VOR's and
DME's.
The nature of the orders, as well as their geographic diversity leads the
Company to affirm the actions it has taken to invest in research and development
and in re-allocating its marketing resources to regions of the world outside of
Southeast Asia. The Company is nearing completion and certification of its new
ILS design and the certification of its airfield lighting product line is
progressing satisfactorily. Both of these products are expected to increase the
size of the markets served by the Company, as well as improve its competitive
position on future tenders. Orders received from Southeast Asia lead the Company
to be optimistic about the re-emergence of that region as a buyer of navigation
systems. The lower bookings levels experienced in the first half of the year,
however, will continue to negatively impact the Company's operating results
through the fourth quarter of fiscal 1999 and likely on into the first half of
fiscal 2000. Reductions in research and development expenses, as a result of
completing the majority of the new ILS product development during the fourth
quarter of fiscal 1999, as well as other cost reduction actions taken by the
Company is expected to lead to improvement in the fourth quarter operating
results, though a loss is still expected. The extent of the loss in the fourth
quarter of fiscal 1999 and the operating results for the first half of fiscal
2000 is difficult to ascertain due to uncertainties in the timing of the receipt
of orders. 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $2.0 million was used by operations in the first nine months of
fiscal 1999 compared to $274,000 used in the first nine months of fiscal 1998.
The increase in cash used was primarily due to the net loss for the year, as
compared to the net income of the prior year. This was offset by a lower use of
cash resulting from changes in working capital as compared to the prior year
(($1,145,000) compared to ($1,316,000)).
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Cash used in investing activities was $228,000 for the first nine months of
fiscal 1999 compared to $209,000 used in the first nine months of fiscal 1998.
The increase in cash used is primarily the result of increased purchases of
property and equipment.
Cash generated by financing activities was $37,000 in the first nine months of
fiscal 1999 compared to cash used of $693,000 in the first nine months of fiscal
1998. The increase in cash generated was the result of repayments made on the
Company's short-term note payable in the prior year period.
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.
YEAR 2000 DISCLOSURES
The Company has considered the impact of Year 2000 issues on its internal
computer systems and applications, and has developed a remediation plan. The
Company has completed the implementation of new internal software and hardware
and its internal computer systems do function properly with respect to dates in
the year 2000 and thereafter. The cost of the project was approximately
$165,000, of which approximately $125,000 was capitalized for the purchase of
new software and hardware, and $40,000 of which was expensed as incurred.
The Company has considered the impact of Year 2000 issues on the navigation and
landing systems it has sold and installed. The Company did a formal evaluation
and testing of certain of its equipment for the FAA, and an informal evaluation
and testing on its other equipment and found no Year 2000 issues critical to
flight safety. Some of the Company's older navigation and landing systems have
computers with programs written using two digits rather than four to define the
applicable year. As a result, those computer programs have time-sensitive
software that recognize a date using "00" as the year 1900 rather than the year
2000. No system failures will occur as a result of Year 2000 issues as
navigational guidance is not dependent on this function. The Company responds to
requests from its customers regarding Year 2000 issues as described herein and
does not believe it will incur any costs with regard to this issue which will be
material to the Company's consolidated financial statements.
The Company has considered the impact of Year 2000 issues on vendor/supplier
software as well as software imbedded in facility systems and has developed a
remediation plan. The Company is requiring certification from all significant
vendors that they will be Year 2000 compliant. The Company is inventorying all
facility systems for Year 2000 issues. In both cases, the Company will determine
the extent of any exposure to Year 2000 issues based upon responses from vendors
and suppliers and its' inventory of facility systems and develop corrective
action plans. The Company does not believe it will incur any costs with regard
to this issue which will be material to the Company's consolidated financial
statements.
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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 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 31,1999.
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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 17, 1999 /s/ Thomas C. Cargin
- ---------------------- ---------------------------------------------------
Date Thomas C. Cargin, Vice President of Finance and
Administration, Secretary, and Principal Accounting
Officer
Page 13
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EXHIBIT INDEX
Number Description
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27 Financial Data Schedule (SEC Use Only)
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AIRPORT
SYSTEMS INTERNATIONAL, INC. FORM 10-QSB FOR THE QUARTER ENDED JANUARY 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AS EXHIBIT 27 OF THE
AIRPORT SYSTEMS INTERNATIONAL, INC. FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 227
<SECURITIES> 0
<RECEIVABLES> 4,348
<ALLOWANCES> 40
<INVENTORY> 5,286
<CURRENT-ASSETS> 91
<PP&E> 3,432
<DEPRECIATION> 1,873
<TOTAL-ASSETS> 12,637
<CURRENT-LIABILITIES> 2,236
<BONDS> 1,170
0
0
<COMMON> 22
<OTHER-SE> 9,194
<TOTAL-LIABILITY-AND-EQUITY> 12,637
<SALES> 12,048
<TOTAL-REVENUES> 12,048
<CGS> 9,187
<TOTAL-COSTS> 13,932
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 1,912
<INCOME-TAX> 687
<INCOME-CONTINUING> (1,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,225)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
