<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 October 31, 1999
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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.
(Exact name of small business issuer as specified in its charter)
Kansas 48-1099142
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(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) 495-2614
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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
December 1, 1999
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
FORM 10-QSB
QUARTER ENDED OCTOBER 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 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 14
EXHIBIT INDEX 15
</TABLE>
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 31, 1999 April 30, 1999
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(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 190 $ 152
Accounts receivable, net 7,203 5,968
Inventories, net 4,196 3,947
Other current assets 165 690
-------- --------
Total current assets 11,754 10,757
Property and equipment, at cost 3,398 3,232
Accumulated depreciation and amortization (1,863) (1,696)
-------- --------
1,535 1,536
Cost in excess of net assets acquired, net 0 0
Other assets 30 30
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Total assets $ 13,319 $ 12,323
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,384 $ 1,085
Accrued expenses 1,981 1,828
Notes payable to bank 1,750 1,325
Current portion of long-term debt 20 20
Other current liabilities 0
-------- --------
Total current liabilities 5,135 4,258
Long-term debt, less current portion 1,162 1,177
Deferred income taxes 0 0
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 7,218 7,218
Accumulated deficit (218) (352)
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Total stockholders' equity 7,022 6,888
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Total liabilities and stockholders' equity $ 13,319 $ 12,323
======== ========
</TABLE>
NOTE: The balance sheet at April 30, 1999 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.
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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 Six Months Ended
October 31 October 31
--------------------- ---------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Sales $ 4,624 $ 3,241 $ 8,875 $ 7,968
Cost of products sold 3,341 2,673 6,205 5,823
------- ------- ------- -------
Gross margin 1,283 568 2,670 2,145
Selling, general and administrative expenses 930 1,173 1,861 2,244
Research and development expenses 261 510 589 994
------- ------- ------- -------
Operating income (loss) 92 (1,114) 220 (1,093)
Other income (expense):
Interest expense (42) (23) (86) (47)
Other, net 0 23 0 46
------- ------- ------- -------
Income (loss) before income taxes 50 (1,114) 134 (1,094)
Provision (benefit) for income taxes 0 (402) 0 (394)
------- ------- ------- -------
Net income (loss) $ 50 $ (713) $ 134 $ (700)
======= ======= ======= =======
Income (loss) per share:
Basic $ 0.02 $ (0.32) $ 0.06 $ (0.31)
======= ======= ======= =======
Diluted $ 0.02 $ (0.32) $ 0.06 $ (0.31)
======= ======= ======= =======
</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>
SIX MONTHS ENDED
OCTOBER 31,
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1999 1998
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(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income (loss) $ 134 $ (700)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 167 220
Changes in operating assets and liabilities:
Accounts receivable, net (1,235) 1,999
Inventories, net (248) (901)
Accounts payable 299 (150)
Accrued expenses and customer deposits 153 (1,403)
Other, net 525 (368)
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Net cash used in operating activities (205) (1,303)
INVESTING ACTIVITIES:
Purchase of short-term investments 0 0
Liquidation of short-term investments 0 0
Purchases of property and equipment (166) (362)
Additions to other assets 0
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Net cash used in investing activities (166) (362)
FINANCING ACTIVITIES:
Short-term borrowings from bank 425
Net repayments on note payable to bank 0
Principal payments on long-term debt (16) (9)
Borrowing on long-term debt and capital lease
obligations 0 0
Proceeds from exercise of stock options 0 0
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Net cash provided by (used in) financing activities 409 (9)
Net increase (decrease) in cash and cash equivalents 38 (1,674)
Cash and cash equivalents at beginning of period 152 2,449
------- -------
Cash and cash equivalents at end of period $ 190 $ 775
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 47 $ 40
======= =======
Income taxes $ 0 $ 65
======= =======
</TABLE>
See notes to condensed consolidated financial statements
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 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 six months ended October 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 2000. 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, 1999.
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, at the Company's option, either Libor plus 250 basis points
(8.68% at October 31, 1999) or prime plus 25 basis points (9.5% at October
31,1999), secured by accounts receivable, inventory and equipment. Borrowings at
October 31, 1999 were $1,750,000.
4. Earnings Per Share
Under SFAS No, 128, basic earnings per share is calculated by dividing income
available to common stockholders by weighted average common shares outstanding.
Fully diluted earnings per share includes the effect of all potentially dilutive
securities, including stock options. A reconciliation of the numerators and the
denominators of the basic and diluted per-share computations is as follows:
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The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Six Months
Ended October 31, Ended October 31,
1999 1998 1999 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net Income (loss) $ 50,000 $ (713,000) $ 134,000 $ (700,000)
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:
Stock options 157,897 -- 152,044 --
Denominator for diluted
earnings per share -
adjusted weighted average
shares with assumed
conversions 2,388,397 2,230,500 2,382,544 2,230,500
Earnings (loss) per share - Basic $ 0.02 $ (0.32) $ 0.06 $ (0.31)
Earnings (loss) per share - Dilutive $ 0.02 $ (0.32) $ 0.06 $ (0.31)
</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 quarter ended July 31, 1999 and the Form 10-KSB for the year ended
April 30, 1999. 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 second quarter of fiscal 2000 were up 43% to $4.6 million compared
to $ 3.2 million second quarter of fiscal 1999. Sales for the first six months
of fiscal 2000 were up 11% to $8.9 million compared to $8.0 million for the
first six months of fiscal 1999. The increase in sales for both the quarter and
year to date is due to an increase in units shipped as a result of increased
orders compared to the same period of fiscal 1999.
Gross margin for the second quarter of fiscal 2000 was 1.3 million (28% of
sales) compared to $568,000 (18%) for the second quarter of fiscal 1999. Gross
margin for the first six months of fiscal 2000 was $2.7 million (30% of sales)
compared to $2.1 million (27%) for the first six months of fiscal 1999. The
higher gross margins reflect higher sales for both the quarter and the six
months ended October 31, 1999, as well as the shipment of higher gross margin
contracts. In addition , the company has experienced lower production and
installation costs related to its new instrument landing system as compared to
the same periods last year. The company has also experienced lower manufacturing
costs as a result of higher sales volume. 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 decreased 21% to $930,000 from $
1.2 million during the second quarter of fiscal 2000 compared to the second
quarter of fiscal 1999. As a percent of sales, selling, general, and
administrative expenses decreased from 36% in the second quarter of fiscal 1999
to 20% in the second quarter of fiscal 2000. Selling, general, and
administrative expenses for the first six months of fiscal 2000 decreased 17% to
$1.8 million
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from $2.2 million compared to the first six months of fiscal 1999. As a percent
of sales, selling, general, and administrative expenses decreased from 28% in
the first six months of fiscal 1999 to 20% in the first six months of fiscal
2000. The decrease, as a percent of sales, reflects the fact that though sales
increased in both periods over last year, selling, general and administrative
expenses decreased, due primarily to decreased marketing and administrative
expenses.
Research and development expenses decreased during the second quarter of fiscal
2000 to $261,000 from $510,000 in the second quarter of fiscal 1999. In the
first six months of fiscal 2000 research and development expenses decreased to
$589,000 from $994,000 for the first six months of fiscal 1999. The decrease for
both periods is a result of decreased labor and expenses related to development
work on the new Category II\III Instrument Landing System. Expenditures made
during the first and second quarter of fiscal 2000 were primarily to obtain FAA
approval of the new system, variants of the new system and approval for FAA
maintenance takeover. Approval of the new system was obtained in the second
quarter of fiscal 2000, while approval of the variants and FAA maintenance take
over was obtained in the third quarter of fiscal 2000.
Interest expense increased from$23,000 to $42,000 for the first quarter of
fiscal 2000 compared to the first quarter of fiscal 1999, and from to $47,000 to
$86,000 for the first six months of fiscal 2000 due to an increase in the
average debt obligations outstanding compared to the prior year period. Other
income decreased to $0 from $23,000 for the second quarter of fiscal 2000, and
to $0 from $46,000 for the first six months of fiscal 2000, due to a decrease in
interest income resulting from lower average outstanding cash and investment
balances during the current year period compared to the prior year period.
No income tax provision was recorded for the second quarter and the first six
months of fiscal 2000, reflecting the use of net operating loss carryforwards
available to the Company. This compares to estimated tax benefits of $402,000
(36% of the loss before income taxes) and $394,000 (36% of the loss before
income taxes)recorded for the second quarter and first six months of fiscal
1999.
Net income for the second quarter of fiscal 2000 was $50,000, compared with a
fiscal 1999 second quarter net loss of $713,000. Net income for the first six
months of fiscal 2000 was $134,000, compared with net loss in the first six
months of fiscal 1999 of $700,000. The net income for the three months and six
months ended October 31, 1999 was due primarily to increased sales, higher gross
margins, decreased research and development expenses, and decreased selling,
general and administrative expenses, as previously mentioned.
BACKLOG
The Company's backlog was $1.8 million at October 31, 1999, compared to $6.1
million at October 31, 1998, and $4.9 million at April 30, 1999. Approximately
54% of the backlog at
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October 31, 1999, was represented by three contracts. The contracts call for
providing navaid and airfield lighting equipment and services to Asia (22% of
backlog), Mexico (21% of backlog) and the Carribean (11% of backlog). The
Company expects to ship substantially all the total backlog through the end of
fiscal 2000.
Though backlog has declined as compared to April 30, 1999, due to bookings not
keeping pace with shipments, orders for the first six months of fiscal 2000 are
up over the same period in fiscal 1999. The Company believes the increase in
bookings due to several factors. First, the demand for navaid products is
improving world wide, based upon the number size of opportunities it is
presently working on. This increase in demand appears to be driven by the
realization of the aviation community that GPS based landing systems will not,
at least in the near-term, be technically capable of replacing traditional ILS
systems as the primary means of approach to landing guidance systems. In
addition it appears that a basic network of VOR (very high omni-range)
transmitters will be required in the enroute navigation structure to augment and
support GPS based navigation systems. Second, the completion of the new Category
II/III ILS and the addition of the airfield lighting line has allowed the
Company to participate in more procurement opportunities in both its traditional
market, and new markets during fiscal 2000. The Company has also improved its
manufacturing processes allowing it to book and ship several orders received
during the second quarter of fiscal 2000. The Company believes this to be a
significant competitive advantage.
The Company's shift in geographic marketing focus, initiated in fiscal 1999, is
beginning to show positive results as the increase in orders experienced during
the first six months of fiscal 2000 consists primarily of orders from Europe,
Latin America and the Carribean. Though the Company is optimistic about its
prospects for the remainder of fiscal 2000, any delays and or cancellation of
procurement opportunities will negatively impact the Company's revenue during
the third and fourth quarters and could result in operating losses or breakeven
operating results in those quarters. The amount of net income, net losses or the
ability to achieve breakeven operating results, 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 $205,000 million was used by operations for the first six months of
fiscal 2000 compared to $613,000 used in the first six months of fiscal 1999.
The decrease in cash used was primarily due to net income for the year, as
compared to the net loss 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
(($506,000 compared to $823,000)).
Cash used in investing activities was $166,000 for the first six months of
fiscal 2000 compared to $362,000 used in the first six months of fiscal 1999.
The decrease is primarily the result of lower purchases of property and
equipment.
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Cash provided by financing activities was $409,000 in the first six months of
fiscal 2000 compared to cash used of $9,000 in the first six months of fiscal
1999, due primarily to increased short term borrowing.
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
borrowing under its existing revolving credit facility.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on
September 22, 1999. The following items were approved:
(a) Keith S. Cowan and Robert D. Taylor were re-elected as Class III
directors of the Company for a period of three years until the
2002 Annual Meeting of the Stockholders. For both Mr. Cowan and
Mr Taylor, 1,143,561 shares were voted for election with 26,285
withheld. Members of the Board continuing in office include the
Class I directors serving until the 2000 annual meeting, Thomas
C. Cargin and David D. Gatchell, and the Class II directors
serving until the 2001 annual meeting, Michael J. Meyer and
Walter H. Stowell, Jr.
(b) Appointment of Ernst & Young LLP as independent accountants was
approved with 1,167,846 shares voting for appointment 2,000
against.
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 October 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
December 10, 1999 /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
<TABLE>
<CAPTION>
Number Description Page
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<S> <C> <C>
27 Financial Data Schedule (SEC Use Only)
</TABLE>
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<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 OCTOBER 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
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 7,243
<ALLOWANCES> 40
<INVENTORY> 4,195
<CURRENT-ASSETS> 11,754
<PP&E> 3,398
<DEPRECIATION> 1,863
<TOTAL-ASSETS> 13,319
<CURRENT-LIABILITIES> 5,135
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,000
<SALES> 8,875
<TOTAL-REVENUES> 8,875
<CGS> 6,206
<TOTAL-COSTS> 6,206
<OTHER-EXPENSES> 2,450
<LOSS-PROVISION> 220
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 134
<INCOME-TAX> 0
<INCOME-CONTINUING> 134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
