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U.S. Securities and Exchange Commission
Washington, D.C.
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal year ended April 30, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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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(Name of small business issuer in its charter)
Kansas 48-1099142
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 West 89th Street, Overland Park, Kansas 66214
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (913) 495-2600
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $15,944,000
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The aggregate market value of the voting stock held by non-affiliates
of the issuer on June 1, 1999, based upon the average bid and ask prices for
such stock on that date was $4,182,187. The number of shares of Common Stock of
the issuer outstanding as of June 1, 1999 was 2,230,500.
Documents incorporated by reference:
- Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held September 21, 1999, are incorporated
by reference into Part III.
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Part I
Item 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DESCRIPTION
Airport Systems International, Inc. (the Company) engages in the design,
manufacture, marketing and installation of ground-based navaids and visual aids,
which include airfield lighting and airfield signage. Navaids provide enroute
and approach to landing guidance to aircraft, allowing them to safely navigate
and land in poor visibility conditions. Navaids are required by the United
States Federal Aviation Administration ("FAA") and the International Civil
Aviation Organization ("ICAO") regulations at all airports in the world that
conduct all-weather operations. Visual aids are used to direct aircraft along
runways, taxiways and to terminals.
The Company's revenues are generated principally from sales of its products and
services to government agencies internationally and in the United States. The
products are sold directly to such agencies or through prime contractors for
integration into systems procured by those agencies. The Company's sales are
largely dependent upon government construction and procurement contracts. The
majority of the Company's revenues in any single quarter is typically derived
from relatively few customers and quarterly revenue will, therefore, fluctuate
based on a number of factors, including the timing and magnitude of orders,
customer installation schedules, and political and economic factors.
Sales are typically made pursuant to fixed price contracts and cost overruns, if
any, are assumed by the Company. Historically, the Company has not had any
contracts which have required significant product development efforts, however,
the Company may, in the future, enter into fixed price contracts which require
significant product development efforts. See "Certain Factors That May Effect
Future Results - Dependence on Fixed Price Contracts."
Generally, the time from when an order is accepted until the first equipment is
shipped is approximately one to three months. Training is normally completed
during the production of the equipment. Final acceptance of the installed
equipment (and thus completion of the installation portion of the contract)
normally occurs two to four months after the equipment is shipped. Installation
time can vary, however, with weather and site conditions, and the progress of
other portions of the construction project into which the Company's products are
incorporated. The Company generally provides a limited product warranty with its
equipment. Warranty costs are tracked by the Company and have historically not
varied materially from management's estimates.
The Company was incorporated in Kansas on May 1, 1991, and completed an initial
public offering on November 30, 1993. In that offering, 1,550,000 shares of
common stock were sold, including an over-allotment of 150,000 shares, 700,000
shares being sold by the Company and 850,000 shares being sold by certain
existing stockholders.
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(B) BUSINESS OF THE COMPANY
Products, Markets and Distribution
The Company's primary products are Instrument Landing Systems (ILS), Very High
Frequency Omni-Range Transmitters (VOR), Distance Measuring Equipment (DME), and
Airfield Lighting and Signage. ILS, VOR, and DME's are generally referred to as
navaids. Navaid products, such as those manufactured by the Company, are an
integral part of the air traffic control system used worldwide for navigation of
aircraft operating in Instrument Meteorological Conditions (IMC) under
Instrument-flight Rules (IFR). Signals generated by these products are received
by electronic avionics equipment installed in all aircraft equipped for IFR. The
avionics include cockpit displays which provide navigational guidance to the
pilot. Most navaids are radio frequency devices which use measurement of angles
and distance to establish aircraft position coordinates.
An ILS system provides the close-in navigation support to an aircraft during the
approach to landing phase. An ILS consists of three separate navaids: the
localizer provides lateral guidance to the left and right of the runway
centerline; the glide-slope provides vertical guidance above and below a
glidepath which intersects the runway touchdown point at about a three degree
angle; and between one and three marker beacon transmitters which provide an
indication of the aircraft's position at specific points on the approach path.
The Company manufactures and sells null reference and capture effect ILS
configurations, offering both single and dual transmitters. The null reference
configuration is less expensive, while the capture effect configuration is used
when difficult terrain conditions are present near the runway. Single
transmitter systems prevail in the United States, while dual systems are
generally required at international sites to provide redundancy.
An ILS is certified for use according to criteria which specify the applicable
landing decision height which is required for a particular approach procedure.
Decision height is that point above the approach end of the runway at which the
pilot must either establish positive visual contact with the runway, or execute
a missed approach. Category I ILS permits a landing decision height of 200 feet;
Category II ILS permits a landing decision height of 100 feet; and Category III
ILS permits a landing decision height of 50 feet or less. The Company produces
Category I, II, and III ILS.
VOR, in combination with DME, provide the principal means for enroute navigation
currently used in the air traffic control system. A VOR located either at an
airport or at enroute points between airports provides a line of bearing from a
ground station to an aircraft based on 360 specific radials (each radial
representing a point on the compass). Position accuracy is a function of range
from the ground station, since a VOR provides angular bearings with an accuracy
of plus or minus one degree. The Company offers both conventional and doppler
effect VOR. A doppler effect VOR typically is used where difficult terrain
conditions can affect signal quality.
A DME provides distance measurement from the aircraft to the DME with an
accuracy of approximately 500 feet. A DME uses a pulsed system, like radar, in
which the ground-based DME station replies with a pulse to an interrogating
signal received from an aircraft. The distance is computed by measuring the time
between signals. The Company manufactures and sells a low power DME for use at
airports and a high power DME for use enroute. A DME can be used in place of
marker beacons in an ILS to provide distance information to the pilot.
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The Company announced in July of 1998 that it had signed a marketing and
manufacturing agreement with Idman Airfield Products ("Idman"), a manufacturer
of airport lighting products based in Finland. Idman, a wholly owned subsidiary
of Philips Electronics, N.V., manufactures a complete line of airport lighting
including approach, taxiway and runway lights, precision approach path indicator
(PAPI), as well as control equipment. Under the terms of the agreement, the
Company has exclusive marketing and manufacturing rights for these products in
North and South America and non-exclusive distribution rights in a number of
other major international markets. During fiscal 1999, the Company obtained FAA
certification for Idman's elevated runway and taxiway lights. In July, 1999
Idman's PAPI (Precision Approach Path Indicator) was certified by the FAA.
Airfield signage is used to direct aircraft along runways, taxiways, and to
terminals. The signs offer value-added design features, which reduce airfield
activity disruption, and readily adapt to all categories and sizes of airports.
The signs incorporate a unique two-post swinging design, which reduces damage
from jet blasts and lowers installation costs when compared with traditional
fixed-position signs.
The Company serves three primary markets: international; United States
non-federal; and the United States government.
The international market consists of all sales where the installation of the
Company's products is outside the United States. Almost all countries have civil
aviation authorities which regulate the airways within their borders and procure
equipment for their air traffic control systems and airports. The Company sells
either directly to these international organizations through a network of
representatives and distributors, or through prime contractors. The Company has
over 33 independent sales representatives covering over 31 countries. The
Company's international sales were 80% and 75%, of total sales for the fiscal
years ended April 30, 1999, and 1998, respectively.
The United States non-federal market is comprised primarily of state and local
governmental entities which have responsibility for airport development,
improvement and management. The Company either contracts directly with the
governmental entity constructing or improving an airport for the navaids portion
of the project, or acts as a subcontractor to a prime contractor. The Company's
United States non-federal sales were 17% and 13%, of total sales for the fiscal
years ended April 30, 1999, and 1998, respectively.
The United States government market includes all governmental agencies, which
have a need for navaid products for installation in the United States. The
primary customer for Airport Systems in this market is the FAA. The Company's
sales to the United States Government were approximately 3% and 12%, of total
sales for the fiscal periods ended April 30, 1999, and 1998, respectively. The
Company has, to date, approached this market as both a subcontractor and direct
provider.
Competition
The Company competes against several large multi-national companies which
provide a broad spectrum of products and which serve a wide customer base. Most
contracts in the navaid and sign
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markets are awarded through a sealed bid or competitive request for proposal
process. The principal competitive factors in these markets are (i) product
conformance with FAA and ICAO specifications, (ii) quality of product
manufactured and ease of customer usability and maintenance, (iii) delivery
time, (iv) customer training and support, and (v) price. To date, the
international and United States non-federal markets have accounted for a
substantial portion of the Company's revenues. It is the Company's belief that
significant barriers to entry into the markets for its existing products are
presented by the difficulty and expense of developing the products and obtaining
FAA and international approvals.
The Company's principal navaid competitor in the United States non-federal
market is Airsys ATM (previously Wilcox Electric Company), which is, to the
Company's knowledge, the only other United States manufacturer of ground-based
navaids of the type sold by the Company that has products certified for use in
projects partially funded by the Airport Improvement Program (AIP). Airsys ATM
is a joint venture, approximately 60% owned by Thomson CSF and 40% owned by
Siemens A. G., a German defense and electronics company.
Internationally, the Company has competed against several navaids suppliers,
including Airsys ATM and the navigation aids division of Alcatel, a French
aerospace and communications company. In 1998, as part of a larger transaction
between Alcatel and Thomson CSF, the navigational aids division of Alcatel was
acquired by Thomson CSF and merged into Airsys ATM. As a result of this merger
the Company only has one competitor which has a full line of navigational aid
products. In addition, the Company competes against several other smaller
companies, none of which carry a full line of products.
The Company has several visual aids competitors both domestically and
internationally. Domestically, the Company's primary competitors are ADB Alnaco
(a division of Siemens A.G.), Crouse Hinds (a division of Cooper Industries),
Honeywell and Standard Signs, Inc. (a privately held company). Internationally,
the Company competes primarily against Siemens ADB and local indigenous sign
manufacturers.
Sources and Availability of Raw Materials and Principle Suppliers
Raw materials used in the manufacture of the Company's products are readily
available from a number of sources in the United States.
Dependence on One or a Few Major Customers
The Company had sales to two customers which, in the aggregate, accounted for
47% of total sales in fiscal 1999, and sales to two customers which accounted
for 46% of total sales in fiscal 1998. Because of the nature of the Company's
business, it is possible that future revenues could be dependent on one or a few
major customers.
Patents, Trademarks, Licenses
The Company holds no United States or foreign patents. The Company's only
trademark is the "AIRPORT SYSTEMS" name and design which is registered with the
United States Patent and Trademark office. The Company's material intellectual
property consists of drawings, plans, software,
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specifications and engineering and manufacturing know how which the Company
maintains as confidential proprietary information. In November, 1992, the
Company paid Fernau Avionics, Ltd. $217,225 for an irrevocable, fully
transferrable, non-exclusive perpetual royalty-free license to manufacture, sell
and maintain products using DME technology owned by FAL, replacing an earlier
license agreement. In addition, the Company has been granted a full
manufacturing license to the current design with the ability to make future
enhancements to the product that resulted from joint work with Interstate
Electronics Corporation (Interstate) for the development and sale of DGPS
equipment. The Company also has a license to manufacture certain airfield
lighting products from Idman Oy as discussed under Products, Markets and
Distributions.
Government Approvals
All navigation aids to be installed in the United States, whether purchased by
airport owners, local or state governments or the FAA, require FAA and United
States Federal Communications Commission ("FCC") approval. The Company has
received all applicable approvals for the products it sells in the United
States.
FAA approval takes different forms depending on how the equipment is procured.
When the FAA purchases equipment it typically issues a detailed specification
describing the functional performance requirements and the design and production
methods. FAA design and production requirements historically have contained more
detailed specifications than those required in the international and United
States non-federal markets, resulting in products which are more costly to
produce.
Local or state governments typically procure equipment in accordance with the
technical requirements of FAA Federal Airways Regulations ("FAR") Part 171. FAR
Part 171 is a functional performance requirement which does not include specific
design and construction methods. Because no design or construction
specifications are required to be met, products sold in the United States
non-federal market cost less than similar products procured by the FAA. The
types of ILS, VOR and DME sold by the Company in the United States non-federal
market have been approved in accordance with FAR Part 171 by the FAA.
In addition, certain local or state airport projects for which the Company
contracts are partially funded by the AIP, a United States government trust-fund
program funded by airport user fees. When ILS or DME equipment is procured under
a program funded by the AIP, the buyer of the equipment typically transfers
ownership, maintenance and operation of the equipment to the FAA after
installation is complete. There is an additional FAA approval process required
for AIP funded contracts which requires demonstration that the FAA can
successfully maintain and operate the equipment. The Company's 1100 model ILS
and DME products are approved by the FAA for AIP funded contracts. The Company
expects the FAA to approve its Model 2100 ILS for AIP projects by the end of the
second quarter of fiscal 2000. To the Company's knowledge, Airsys ATM is the
only other company in the United States with approval to supply ILS and DME
equipment for AIP funded contracts.
The ICAO is a United Nations chartered organization which establishes
international standards for navigation equipment, and member countries' navaids
must conform with ICAO functional standards. Equipment for international
procurement normally is tested after installation to insure conformance with
ICAO standards. In some cases, international programs may require proof of FAA
FAR 171 approval prior to bid.
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Effect of Existing or Probable Governmental Regulations on the Business
The Company is subject to federal, state and local regulations concerning the
environment, occupational safety and health. The Company has not experienced any
difficulty in complying with such regulations, and compliance has not had a
material impact on the Company's business or its financial results.
Research and Development
During fiscal 1999, approximately 52% of the Company's engineering staff time
was spent on research and development activities, none of which was borne by the
customer. In fiscal 1998, the amount of engineering time spent on research and
development was 53%, none of which was borne by the customer.
Total Number of Employees
At April 30, 1999, the Company had 103 full time employees. Of these, 54 are
engaged in manufacturing, 9 in sales and marketing, 16 in engineering, 6 in
quality assurance and 18 in administration. The Company's employees are not
represented by a labor organization.
Certain Factors That May Effect Future Results
This annual report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In addition, from time
to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
the Company with the Securities and Exchange Commission, press releases or oral
statements made by or with the approval of an authorized executive officer of
the Company. Forward-looking statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate,"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. Actual results could differ materially from those projected or
suggested in any forward-looking statements as a result of a wide variety of
factors and conditions, including, but not limited to, the factors summarized
below and the factors and conditions which are described under the headings
"Backlog," and "Quarterly Results" in the discussion of "Results of Operations"
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations under Item 6 of this Form 10-KSB, as well as those which
have been included in other documents the Company files from time to time with
the Securities and Exchange Commission, including the Company's quarterly
reports on Form 10-QSB and current reports on Form 8-K, and holders of the
Company's securities are specifically referred to these documents with regard to
the factors and conditions that may affect future results. The reader or
listener is cautioned that the Company does not have a policy of updating or
revising forward-looking statements and thus he or she
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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.
Emerging Technology - The Company's products are based upon proven ground-based
radio technology which has been the standard for navaids worldwide and is the
technology used in the vast majority of navaids currently in service. However,
currently there are potentially competitive technologies being procured or
actively considered by the FAA, ICAO and civil aviation authorities around the
world, the most significant of which is Global Positioning Satellite Navigation
Systems (GPS). Based on future FAA, ICAO and other civil aviation authorities'
actions with regard to satellite technologies, the long-term ability of the
Company to compete successfully will depend in large measure on its ability to
acquire or develop products which are compatible with technological changes and
advances in the navaids industry. While the emergence of GPS navigation
technologies may impact the Company's business, plans currently in development
at the FAA call for a substantial infrastructure of the Company's current
products to remain in place for the foreseeable future as an augmentation and
risk reducing backup to GPS. When standards for GPS based landing systems are
firmly defined and a market develops, the Company may elect to invest in the
modification of the GPS landing system developed in conjunction with Interstate,
or to develop a new design. Standards and market development is not expected to
be finalized for at least three years.
Competition - The Company is in direct competition with one other supplier of
navaids in the United Sates. This competitor, Airsys ATM (formerly Wilcox
Electric, Inc.), is a joint venture between Thomson-CSF, a French defense and
electronics company partially owned by the French government, and Siemens A.G.,
a German defense and electronics company. Both Thomson-CSF and Siemens A.G. have
substantially greater resources than the Company, and Airsys ATM has been, for
many years, the principal supplier of ILS equipment to the FAA. Additionally, in
the international market, there are several foreign competitors for one or more
of the products produced by the Company. See "Business of the Company -
Competition."
Dependence on FAA Approvals - The Company's products used in the United States'
national airspace system have been approved by the FAA. These approvals are
required in order for the Company to sell its navaids to public use airports in
the United States. Furthermore, although not specifically required, FAA approval
of the Company's navaids is a very strong selling point in international sales.
While the Company has no reason to expect withdrawal of FAA approvals of the
Company's navaids, withdrawal of any such approvals would have an adverse impact
on the ability of the Company to sell its products both domestically and
internationally. See "Business of The Company - Government Approvals."
Product Liability - The Company currently carries a $50 million product
liability insurance policy, however, it is possible that judgment(s) in an
amount greater than the policy limits could be awarded in the event the
Company's equipment was found to have been a contributing cause to an aircraft
crash. Any judgment in excess of the Company's product liability insurance
limits could have a material adverse effect on the Company.
The United States Dollar Exchange Rates - The Company competes internationally
with competitors from Europe and Japan and is thus subject to the effects of
changes in United States dollar exchange rates. Prior to 1999, this had not had
an adverse effect on the Company's international competitiveness. Should the
United States dollar gain strength against the currencies of its principal
competitors, it
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could impede the marketing of the Company's products by making them relatively
more expensive in international markets compared to competitors' products. The
Company's contracts are denominated in United States dollars.
International Currency Devaluations - The current economic difficulties in
Southeast Asia that have resulted in tighter monetary and fiscal policies
following the currency devaluations in Indonesia, Thailand, Korea, Malaysia and
the Philippines have had and will for the foreseeable future, have an impact on
the Company's operations.
While the Company has reallocated its marketing resources to other regions of
the world, the Company is susceptible to currency devaluations in these other
regions. Further currency devaluations and tighter monetary and fiscal policy
may make the Company's products too expensive in these international markets and
delay funding of government programs.
Dependence on Key Personnel - The future success of the Company is highly
dependent upon several executive officers. The Company has signed employment
agreements with two executives and has purchased key executive life insurance on
five executive officers. There can be no assurance the loss of any one of these
individuals would not have a material adverse effect on the Company's operations
or profits. See "Executive Officers of the Company."
Possible Volatility of Stock Price - Company's Trading Volume Historically
Limited - The trading price of the Common Stock could be subject to significant
fluctuations in response to announcements of developments related to the
Company's business, the Company's financial results, general conditions in the
industry, the United States dollar exchange rates and the general economy.
Historically, the trading volume of the Company's Common Stock on the NASDAQ
National Market and the American Stock Exchange has been limited.
Dependence on Fixed-Price Contracts - Sales are typically made pursuant to fixed
price contracts and cost overruns, if any, are assumed by the Company. Revenues
from fixed-price contracts are recognized using percentage-of-completion units
of delivery method. Revisions in revenue and profit estimates are reflected in
the period in which the conditions that require the revision become known and
are estimable. Therefore, adjustments for profits or losses may have a material
effect on results for the quarter in question. The risks inherent in fixed-price
contracts include the forecasting of costs and schedules, while the recognition
of contract revenues relates to delivery of equipment and completion of contract
services.
Competitive Bidding - Airport Systems generally obtains its contracts through
the process of competitive bidding. There can be no assurance that the Company
will continue to be successful in having its bids accepted or, if accepted, that
awarded contracts will generate sufficient revenues to result in profitability
for the Company. To the extent actual costs exceed the projected costs on which
bids or contract prices were based, the Company's profitability could be
materially adversely affected.
Additional Financing Requirements - The Company has available to it a total of
$6 million under its current bank facility, subject to collateral availability.
At April 30, 1999 the Company had cash advances on its bank facility of $1. 3
million, as well as $3.6 of standby letters of credit. At April 30, 1999, the
Company had $6 million of collateral availability, leaving $1.1 million
available under the
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bank facility. The financing requirements of all of the various opportunities it
is currently considering could exceed this. This includes working capital to
meet current and future contract obligations, line of credit capacity in order
to issue additional standby letters of credit, as well as funding for product
expansion either through acquisition or internal development. The extent of such
total capital requirements cannot be quantified at this time since many of these
opportunities are at an early stage of consideration. In order to fully fund all
such projects, the Company may need to issue debt or equity securities or engage
in other financing activities. There can be no assurance such financing will be
available on favorable terms or on a timely basis, if at all. Any issuance of
equity securities by the Company may result in a dilution of shareholders'
equity. In addition, additional debt may have an adverse impact on operating
results.
Item 2. DESCRIPTION OF PROPERTY
Real Estate. The Company conducts all of its operations from its facility at
11300 West 89th Street in Overland Park, Kansas, which consists of approximately
50,000 square feet. Approximately 26,000 square feet is used for manufacturing,
approximately 17,000 is used for engineering and training, while the remaining
7,000 square feet is used for administration and marketing. The building and the
seven acres on which it is located are owned by the Company, subject to a
mortgage due June, 2011. The principal balance of the mortgage at April 30,
1999, was $1,186,000 with a final payment of approximately $788,200 due at
maturity assuming no prepayments. The Company believes its existing facility
provides adequate capacity for growth for the foreseeable future. No specific
plans have been formed at the present time for expanding the facility, however,
the Company believes it has a range of suitable alternatives for future
expansion.
The Company conducts production of airfield signage as well as some navaids
production from a leased facility at 8920 Bond in Overland Park, Kansas, which
consists of approximately 7,200 square feet. The Company has a two year
renewable lease for this facility. The Company believes this facility will
provide adequate capacity for the remaining lease term.
Manufacturing and Engineering Equipment. The Company's manufacturing equipment,
including automatic lead forming/cutting and wave solder capability, is suitable
for its low volume electronics production. Through-hole components are manually
placed with the assistance of semi-automatic component insertion equipment.
Surface mount components are manually placed and attached. The test department
is equipped with general purpose and automatic test equipment such as network
analyzers, spectrum analyzers and vector voltmeters. Hot mock-up test beds are
used to ensure subassembly functionality, with all navaid assemblies tested
environmentally in a temperature chamber. The Company's engineering department
is equipped with state of the art design and test equipment, including advanced
computer-aided design systems, radio frequency signal modeling software and
necessary test and design equipment.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any lawsuits, but is subject to contract disputes
arising in the ordinary course of business, which the Company believes will not
have, either individually or in the aggregate, a material adverse effect on the
Company's business.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders, through a
solicitation of proxies or otherwise, during the fourth quarter of the Company's
fiscal year ended April 30, 1999.
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Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Stock Trading - The Company's common stock trades on the American Stock Exchange
under the symbol ASY. Prior to June 3, 1999, the Company traded on the Nasdaq
National Market under the symbol ASII.
Common Stock Price Range and Dividend Information - The prices in the table
below represent the high and low sales prices for Airport Systems common stock
as reported by the Nasdaq National Market. No cash dividends have been declared.
As of April 30, 1999, Airport Systems had approximately 2,000 stockholders based
on the number of holders of record and an estimate of the number of individual
participants represented by security position listings.
<TABLE>
<CAPTION>
1999 High Low
------- -------
<S> <C> <C>
First Quarter $ 5 3/4 $ 4 3/4
Second Quarter 4 7/8 2 7/8
Third Quarter 3 1/8 1 13/16
Fourth Quarter 2 5/8 1 3/4
For the Year 5 3/4 1 3/4
1998 High Low
------- -------
First Quarter $ 8 1/8 $ 5 7/8
Second Quarter 9 6 1/2
Third Quarter 10 7 1/2
Fourth Quarter 7 5/8 4 3/4
For the Year 10 4 3/4
</TABLE>
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the years indicated, certain income statement
data:
<TABLE>
<CAPTION>
Year Ended Year Ended
April 30,1999 April 30, 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Sales $ 15,944 100.0% $ 23,846 100.0%
Cost of products sold 12,623 79.2% 16,631 69.7%
-------- ------ ------- ------
Gross margin 3,321 20.8% 7,215 30.3%
Selling, general and administrative expenses 4,383 27.5% 4,255 17.8%
Research and development expenses 1,900 11.9% 1,491 6.3%
Asset impairment 1,299 8.1% --
-------- ------ ------- ------
Operating income (loss) (4,261) (26.7)% 1,469 6.2%
Interest expense (119) (.6)% (107) (.4)%
Other income, net 48 .1% 116 .4%
-------- ------ ------- ------
Income before income taxes (4,332) (27.2)% 1,478 6.2%
Provision for income taxes (779) (4.9)% 498 2.1%
-------- ------ ------- ------
Net income $ (3,553) (22.3)% $ 980 4.1%
======== ====== ======= ======
</TABLE>
Sales in 1999 were $15.9 million, or 33% lower than sales in 1998. Of the $15.9
million, approximately $7.5 million, or 47%, represented deliveries to two
customers. The decrease in sales compared to 1998 was due to a decrease in the
number of units shipped primarily as a result of lower beginning year backlog
and decreased bookings during the year.
Gross margin was $3.3 million, or 21% of sales, down approximately 54% from $7.2
million, or 30% of sales, in 1998. Gross margin decreased due to decreased
sales, higher production and installation costs associated with the Company's
new design instrument landing system (ILS) and under-utilized manufacturing
capacity. In addition, there has been a softening of the navaids market since
late fall of 1997 due primarily to the economic difficulties experienced in
Southeast Asia. This has led to lower prices as a result of increased
competition over fewer procurement opportunities.
Page 12
<PAGE> 14
Selling, general and administrative ("SG&A) expenses increased $128,000, or 3%
in 1999, reflecting an increase in costs attributable to increased marketing
efforts related to the introduction of new product line and the expanding
marketing efforts to other geographic markets. SG&A expenses, as a percent of
sales, increased to 28% in 1999 from 18% in 1998 reflecting increased marketing
costs and lower sales.
Research and development expenses increased $409,000, or 27% in 1999 reflecting
continued work on enhancements to the Company's current product line which
includes its Category II/III Instrument Landing System (ILS). In addition, the
Company incurred costs to obtain Federal Aviation Administration (FAA)
certification of its airfield lighting products. During 1999, the Company
completed substantially all research and development efforts on the Category
II/III ILS. The FAA granted type certification for the system in July 1999. The
Company expects to incur additional expenses to make minor enhancements to its
ILS in fiscal 2000. The Company has received certification for its elevated
lights and precision approach path indicator (PAPI). Additional expense will be
incurred in fiscal 2000 to make additional enhancements to its airfield lighting
line to meet competitive and regulatory requirements. With the completion of the
Category II/III ILS and the progress made on the airfield lighting line, the
Company expects a reduced level of research and development activities in fiscal
2000.
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," the
Company evaluated the recoverability of the long-lived assets (primarily
goodwill) of the signage product line. While the signage line will continue to
be an important part of the Company's overall product development strategy, the
market demand for signs has been significantly lower than originally expected.
Additional investments in the product line will also be required to meet
regulatory and competitive demands. In the fourth quarter of 1999, concurrent
with the Company's annual planning process, the Company determined the signage
line's estimated future undiscounted cash flows were below the carrying value of
the related long-lived assets (including goodwill), resulting in a non-cash
write-down of goodwill of $1,118,000. In addition, the Company wrote off
inventory and fixed assets related to the signage line totaling $181,000. In
determining the amount of the impairment charges that were made, the Company
developed its best estimate of future operating cash flows. Undiscounted cash
flows were compared to the carrying value of the assets to ascertain that an
impairment had occurred. Estimated future cash flows, excluding interest
charges, then were discounted using a 15% discount rate. Sales were estimated to
remain unchanged from fiscal 1999 levels, and gross margins were held constant
as a percent of sales. Gross margins were reduced for projected investments in
product design and production equipment. These projections resulted in
discounted cash flows that supported the amounts recorded. These projections
were prepared solely to determine the appropriate amount of write-off, based on
assumptions management believed to be reasonable at the time; however, no
assurance can be given that such projections will be accurate.
Other income, net decreased $68,000 in 1999, due primarily to decreased interest
income from lower average cash and investment balances as compared to 1998.
The Company's effective income tax rate declined to approximately 18% in 1999
compared to approximately 34% for 1998 due primarily to valuation reserves
established against deferred tax assets.
Page 13
<PAGE> 15
These deferred tax assets related primarily to net operating loss carry
forwards, tax credit carry forward, and the write-off of goodwill related to the
asset impairment discussed above. The net operating losses will be used to
offset future taxable income.
As a result of the above, the net loss for 1999 was $3,553,000 or 22% of sales,
compared to net income of $980,000, or 4% of sales, in 1998.
Backlog
The following table sets forth the domestic and international backlog
as of the dates indicated:
<TABLE>
<CAPTION>
(In Thousands) April 30, 1999 April 30, 1998
----------------- ------------------
<S> <C> <C> <C> <C>
Domestic $1,123 22.9% $ 1,328 12.6%
International $3,779 77.1% $ 9,246 87.4%
------ ------ ------- ------
TOTAL $4,902 100.0% $10,574 100.0%
</TABLE>
The Company's backlog decreased $5.7 million or 54% to $4.9 million at April 30,
1999, compared to $10.6 million at April 30, 1998. Approximately 51% of the
backlog at April 30, 1999 consisted of two contracts. Of the April 30, 1999
backlog, 31% represents a contract with a major U.S. air traffic control
contractor for the delivery of multiple ILS systems into South America while 20%
of the backlog represents a contract with the Republic of Cambodia for
communication equipment, training and installation services. All of the backlog
at April 30, 1999 is expected to be completed and shipped in fiscal 2000.
The decrease in backlog, as compared to April 30, 1998, is primarily the result
of bookings not keeping pace with shipments. Bookings for the year totaled $10.5
million, down $4.9 million or 32% from 1998 bookings of $15.4 million. The
economic difficulties experienced in Southeast Asia, which began in fiscal 1998,
continued to impact the overall demand for navaids throughout 1999, thus
significantly contributing to the decline in orders during 1999. In reaction to
this, the Company shifted its focus from Southeast Asia to other geographic
regions. Though there was no noticeable positive growth resulting from these
changes in 1999, the Company expects this, combined with completion of the CAT
II/III ILS and the addition of the airfield lighting line will increase its
geographic penetration in its markets as well as improve its competitive
position on future tenders. Because of this, the Company is optimistic about its
ability to capture additional market share in the future. 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.
Quarterly Results
The following table sets forth selected unaudited financial information for the
Company for the four fiscal quarters of the year ended April 30, 1999. This
unaudited information has been prepared on the same basis as the annual
financial statements contained elsewhere in this Annual Report and, in the
opinion of the Company, reflects all adjustments necessary for a fair
presentation thereof:
Page 14
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands) July 31, October 31, January 31, April 30,
1998 1998 1998 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
Sales $4,727 $ 3,241 $ 4,080 $ 3,896
Gross margin 1,577 568 714 462
Operating income (loss) 22 (1,115) (793) (1,076)
Net income (loss) $ 14 $ (714) $ (525) $(2,328)
Gross margin % 33.4 % 17.5% 17.5 % 12.4%
</TABLE>
The Company has experienced quarterly fluctuations in operating results and
anticipates these fluctuations will continue. Fluctuations in quarterly sales
are caused by a number of factors, including the timing of contract awards,
delivery schedules, construction or funding delays, customers' budget cycles,
changes in procurement patterns and shifting political and economic factors of
the Company's customers. Profitability on contracts also will vary depending
upon the product mix, the geographical location of the customer, the market
served and the pricing strategies of competitors.
Inflation
The effect of inflation on the Company has not been significant over the past
several years. However, an extended period of inflation could be expected to
have an impact on the Company's earnings by causing interest rates, as well as
material and labor rates to increase faster than prices could be increased on
new contracts.
Liquidity and Capital Resources
Net cash of $3.4 million was used by operations in 1999 compared to $277,000
provided in 1998. The decrease was principally the result of the net loss for
the year and decreases in accrued expenses and customer deposits, partially
offset by decreases in inventory and accounts receivable, reflecting lower sales
levels. Accrued expenses were down principally due to reduction in commission
payable and accrued contract costs. This reflected the reduction in backlog and
reduced sales. Customer deposits were down reflecting the reduction in backlog
and the low level of bookings.
Cash used in investing activities was $282,000 for 1999 compared to $258,000 in
1998 reflecting an consistent level of purchases of fixed assets.
Cash provided by financing activities was $1.3 million in 1999 compared to
$692,000 used in financing activities in 1998. The increase is due primarily to
increased borrowings on the Company's bank line of credit.
Page 15
<PAGE> 17
The Company expects it will meet 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
the existing line of credit facility.
New Accounting Pronouncements and Other
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998 and is required to be adopted in years beginning after
June 15, 2000, as amended by SFAS No. 137. The Statement permits early adoption
as of the beginning of any fiscal quarter. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. This Statement is effective for the
Company's fiscal 2002 financial statements. The Company has not yet determined
what the effect of SFAS No. 133 will be on the earnings and financial position
of the Company.
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 and was
funded through working capital.
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 are expected to 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.
Page 16
<PAGE> 18
Forward Looking Comments
The discussions set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other statements 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 Securities and Exchange
Commission filings. The reader is cautioned 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 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 13, pages F1 through F19 immediately following.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the Company's independent
accountants on accounting or financial disclosure matters.
Page 17
<PAGE> 19
Part III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the Company's Directors required by Item 9 will be
set forth in the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders and such information is incorporated herein by reference.
The information relating to Section 16(a) Beneficial Ownership Reporting
Compliance will be set forth in the Company's Proxy Statement for its 1999
Annual Meeting of Shareholders and such information is incorporated herein by
reference.
The information relating to the Company's Executive Officers, as required by
Item 9, is set forth in the following table and description of backgrounds:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Keith S. Cowan 45 President, Chief Executive Officer and Director
Thomas C. Cargin 44 Vice President-Finance and Administration, Secretary and Director
Anthony G. Bommarito 47 Vice President-Engineering
Michael M. Warner 45 Vice President-Business Development
John R. Wharton 57 Vice President-Sales
Gregory C. Brand 49 Vice President-Field Operations and Training
Wayne S. Howard 59 Vice President-Indonesia Programs
Ronald E. Peck 38 Vice President-Manufacturing
</TABLE>
Each of the executive officers is a full-time employee of the Company. Set forth
below are descriptions of the backgrounds of the executive officers of the
Company.
Keith S. Cowan has served as President and a Director of the Company since
September, 1991, and as Chief Executive Officer of the Company since August,
1993. Prior to joining the Company, Mr. Cowan was an employee of the Teledyne
Controls Division of Teledyne, Inc. for more than five years, last serving as
Vice President, Airport and Instrumentation Products. Mr. Cowan has over 25
years of system engineering, project management and corporate experience in the
development, manufacturing and sale of electronic systems. He is also a licensed
pilot holding an instrument rating.
Thomas C. Cargin has served as Vice President-Finance and Administration of the
Company since December, 1991, as its Secretary since March, 1993, and as a
Director of the Company since October, 1993. Prior to joining the Company, Mr.
Cargin was a partner in the accounting firm of Ifft & Barber since 1989 and
prior to that was an employee of DYMON, Inc., a specialty chemical manufacturer
Page 18
<PAGE> 20
located in Kansas City, Kansas, since 1983, last serving as Vice President of
Finance and Chief Financial Officer. Mr. Cargin is a Certified Public Accountant
with over 22 years of public accounting and private industry accounting
experience. He is also a licensed pilot holding an instrument rating.
Anthony G. Bommarito has served as Vice President-Engineering of the Company
since June, 1998. Prior to joining the Company, Mr. Bommarito was an employee of
Airsys ATM, Inc. (formerly Wilcox Electric), for more than 18 years, last
serving as Director of Engineering and Product Development. Mr. Bommarito has
over 26 years in engineering experience.
Michael M. Warner has served as Vice President-Business Development since
January, 1995. Prior to that, he held the position of Director-Business
Development with Harris Corporation from 1993 to 1995. From 1982 to 1993 he held
various positions with Hughes Aircraft Company, last serving as Manager, New
Business Development. He has over 17 years experience in marketing and managing
air traffic control systems projects.
John R. Wharton has served as Vice President-Sales of the Company since May,
1991. Prior to joining the Company, Mr. Wharton was employed by Aviation
Systems, Inc., since 1988, last serving as Vice President of Marketing, and
prior thereto by Wilcox for over 20 years. Mr. Wharton has over 35 years
experience in marketing airport navigation aids both in the United States and
internationally.
Gregory C. Brand has served as Vice President-Field Operations and Training
since May, 1997. Prior to that, he was Manager of Field Services since
September, 1996. Prior to joining the Company, Mr. Brand was an employee of
Wilcox Electric, Inc. Mr. Brand has over 22 years experience in field
installation and program management.
Wayne S. Howard has served as Vice President-Indonesia Programs since January,
1997. Prior to that he was Vice President of Manufacturing Operations of the
Company since March, 1994. Prior to joining the Company, Mr. Howard was an
employee of New Bedford Panoramics Corporation for more than five years, last
serving as Manufacturing Manager. Mr. Howard has over 31 years of electronic
components manufacturing and program management experience.
Ronald E. Peck has served as Vice President of Manufacturing since May, 1999.
Prior to that he served as Vice President of Quality since May, 1998 and
Director of Quality since April 1997. Prior to joining the Company, Mr. Peck was
an employee of Raytheon Company, last serving as a Principal Quality Assurance
Engineer. Mr. Peck has over 16 years of quality assurance experience.
Item 10. EXECUTIVE COMPENSATION
The information required by Item 10 will be set forth in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders and such
information is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 11 will be set forth in the Company's
definitive Proxy Statement for
Page 19
<PAGE> 21
its 1999 Annual Meeting of Shareholders and such information is incorporated
herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no transactions of the type required to be disclosed by Item 12.
Part IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors ............................................ F1
Consolidated Balance Sheets as of April 30, 1999 and 1998 ................. F2
Consolidated Statements of Operations for each of the two
years in the period ended April 30, 1999 ............................. F4
Consolidated Statements of Stockholders' Equity for each
of the two years in the period ended April 30, 1999 .................. F5
Consolidated Statements of Cash Flows for each of the two
years in the period ended April 30, 1999 ............................. F6
Notes to Consolidated Financial Statements for the two
years ended April 30, 1999 ........................................... F8
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(b) Exhibits: The following exhibits have been previously filed or are
being filed herewith, and are numbered in accordance with Item 601 of
Regulation S-B:
NUMBER DESCRIPTION
------ -----------
3.1 ARTICLES OF INCORPORATION
The amended Articles of Incorporation of the Company
dated September 14, 1994, attached as Exhibit 3.1
pages 19-55 of the Company's Form 10-KSB, filed July
31, 1995 with the Securities and Exchange Commission
is incorporated herein by reference.
Page 20
<PAGE> 22
NUMBER DESCRIPTION
------ -----------
3.2 BY-LAWS
The Restated By-Laws of the Company dated October 1,
1993, attached as Exhibit 3.2, of the Company's
Registration Statement, Form SB-2, filed November 29,
1993 with the Securities and Exchange Commission, are
incorporated herein by reference.
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
A specimen stock certificate representing shares of
the common stock, par value $.01 per share, attached
as Exhibit 4.1 of the Company's Registration
Statement, Form SB-2, filed November 29, 1993 with
the Securities and Exchange Commission, is
incorporated herein by reference.
10 MATERIAL CONTRACTS
(a) Teaming agreement between Airport Systems
International, Inc. and Interstate
Electronics Corporation (Portions omitted
pursuant to a request for confidential
treatment) attached as exhibit 10.1 of the
Company's Form 10-QSB, filed March 17, 1995
with the Securities and Exchange Commission,
is incorporated herein by reference.
(b) A copy of the warrant issued by the Company
to Fahnestock & Company, Inc., attached as
Exhibit 4.7 of the Company's Registration
Statement, Form SB-2, filed November 29,
1993 with the Securities and Exchange
Commission, is incorporated herein by
reference.
(c) Restated 1991 Stock Option Plan attached as
Exhibit 10.5 of the Company's Registration
Statement, Form SB-2, filed November 29,
1993 with the Securities and Exchange
Commission, is incorporated herein by
reference.
(d) Stock Option Agreement dated September 3,
1991, by and between the Company and Keith
S. Cowan, as amended, attached as Exhibit
10.6 of the Company's Registration
Statement, Form SB-2, filed November 29,
1993 with the Securities and Exchange
Commission, is incorporated herein by
reference.
(e) Stock Option Agreement dated January 15,
1992, by and between the company and Thomas
C. Cargin, attached as Exhibit 10.7 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
Page 21
<PAGE> 23
NUMBER DESCRIPTION
------ -----------
(f) Stock Option Agreement dated January 15,
1992, by and between the Company and John C.
Roos, attached as Exhibit 10.8 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(g) Stock Option Agreement dated January 15,
1992, by and between the Company and John R.
Wharton, attached as Exhibit 10.9 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(h) Stock Option Agreement dated June 25, 1993,
by and between the Company and Keith S.
Cowan, attached as Exhibit 10.11 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(i) Stock Option Agreement dated June 25, 1993,
by and between the Company and Thomas C.
Cargin, attached as Exhibit 10.12 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(j) Stock Option Agreement dated June 25, 1993,
by and between the Company and John C. Roos,
attached as Exhibit 10.13 of the Company's
Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and
Exchange Commission, is incorporated
herein by reference.
(k) Stock Option Agreement dated June 25, 1993,
by and between the Company and John R.
Wharton, attached as Exhibit 10.14 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(l) Stock Option Agreement dated October 1,
1993, by and between the Company and Keith
S. Cowan, attached as Exhibit 10.15 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
Page 22
<PAGE> 24
NUMBER DESCRIPTION
------ -----------
(m) Stock Option Agreement dated October 1,
1993, by and between the Company and Thomas
C. Cargin, attached as Exhibit 10.16 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(n) Stock Option Agreement dated October 1,
1993, by and between the Company and John C.
Roos, attached as Exhibit 10.17 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(o) Stock Option Agreement dated October 1,
1993, by and between the Company and John R.
Wharton, attached as Exhibit 10.18 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(p) Stock Option Agreement dated October 1,
1993, by and between the Company and Barry
L. Harris, attached as Exhibit 10.19 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(q) Stock Option Agreement dated April 15, 1994,
by and between the Company and Wayne Howard,
attached as Exhibit 10 of the Company's Form
10-KSB, filed July 28, 1994 with the
Securities and Exchange Commission, is
incorporated herein by reference.
(r) Stock Option agreement dated January 23,
1995, by and between the Company and Michael
M. Warner, attached as exhibit 10.1 of the
Company's Form 10-QSB, filed March 17, 1995
with the Securities and Exchange Commission,
is incorporated herein by reference.
(s) Employment Agreement dated June 22, 1993, by
and between the Company and Keith S. Cowan,
attached as Exhibit 10.1 of the Company's
Registration Statement, Form SB-2, filed
November 29, 1993 with the Securities and
Exchange Commission, is incorporated
herein by reference.
Page 23
<PAGE> 25
NUMBER DESCRIPTION
------ -----------
(t) Employment Agreement dated October 11, 1993,
by and between the Company and Thomas C.
Cargin, attached as Exhibit 10.2 of the
Company's Registration Statement, Form SB-2,
filed November 29, 1993 with the Securities
and Exchange Commission, is incorporated
herein by reference.
(u) Covenant Not To Compete Agreement dated
March 20, 1997, By and between the Company
and Michael M. Warner, attached as Exhibit
10.(u) of the Company's Form 10-KSB, filed
July 31, 1997 with the Securities and
Exchange Commission, is incorporated herein
by reference.
(v) Stock Option Agreement dated February 13,
1997, by and between the Company and Karl B.
Gemperli, attached as Exhibit 10.(v), of the
Company's Form 10-KSB, filed July 31, 1997
with the Securities and Exchange Commission,
is incorporated herein by reference.
(w) Sales contract by and between the Company
and the Government of Indonesia attached as
Exhibit 5 of the Company's Form 8-K, filed
November 15, 1996 with the Securities and
Exchange Commission, is incorporated herein
by reference.
(x) Employment Agreement dated June 12, 1998, by
and between the Company and Anthony G.
Bommarito, attached as Exhibit 10.1 of the
Company's Form 10-QSB filed September 14,
1998, is incorporated herein by reference.
(y) Distribution Agreement between Idman OY and
the Company, attached as Exhibit 10.2 of the
Company's Form 10-QSB filed September 14,
1998, is incorporated herein by reference.
(z) Stock Option Agreement dated September 15,
1998, by and between the Company and Michael
J. Meyer, attached as Exhibit 10.1 of the
Company Form 10-QSB, filed December 15,
1998, with the Securities and Exchange
Commission is incorporated herein by
reference.
(aa) Stock Option Agreement dated September 15,
1998, by and between the Company and Walter
H. Stowell, attached as Exhibit 10.2 of the
Company's Form 10-QSB, filed December 15,
1998, with the Securities and Exchange
Commission is incorporated herein by
reference.
(bb) Stock Option Agreement dated September 15,
1998, by and between the Company and Robert
D. Taylor, attached as Exhibit 10.3 of the
Company's Form 10-QSB, filed December 15,
1998, with the Securities and Exchange
Commission is incorporated herein by
reference.
(cc) Amendment of the Company's Restated 1991
Stock Option Plan, increasing the number
of shares of Common Stock subject to option
thereunder from 375,000 shares to 475,000
approved by the shareholders at the annual
stockholders meeting held September 15,
1999.
Page 24
<PAGE> 26
11. STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
13. ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED APRIL
30, 1999 (only those portions of such Annual Report to
Shareholders which are specifically incorporated by reference
into this Form 10-KSB shall be deemed filed with the
Commission)
21. SUBSIDIARIES OF THE COMPANY
27. FINANCIAL DATA SCHEDULE (for SEC use only)
(c) REPORTS ON FORM 8-K: None
Page 25
<PAGE> 27
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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.
By: /s/ Keith S. Cowan
-------------------------------------
Keith S. Cowan
President and Chief Executive Officer
Date: July 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/ Keith S. Cowan Date: July 28, 1999
- -----------------------------------------
Keith S. Cowan
President, and Director
(Chief Executive Officer)
/s/ Thomas C. Cargin Date: July 28, 1999
- -----------------------------------------
Keith S. Cowan
Director
(Vice President-Finance and
Administration, Principal Financial
Officer, and Secretary)
/s/ Michael J. Meyer Date: July 28, 1999
- -----------------------------------------
Michael J. Meyer
Director
/s/ David G. Gatchell Date: July 28, 1999
- -----------------------------------------
David G. Gatchell
Director
Page 26
<PAGE> 28
EXHIBIT INDEX
Number Description
------ -----------
10.cc AMENDMENT OF THE COMPANY'S RESTATED 1991 STOCK OPTION PLAN
11. STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
13. ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED APRIL
30, 1999 (only those portions of such Annual Report to
Shareholders which are specifically incorporated by reference
into this Form 10-KSB shall be deemed filed with the
Commission)
21. SUBSIDIARIES OF THE COMPANY
27. FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
Page 27
<PAGE> 1
EXHIBIT 10.cc
RESTATED
AIRPORT SYSTEMS INTERNATIONAL, INC.
1991 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or the
Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Airport Systems International, Inc., a Kansas
corporation.
(e) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Consultant" shall mean any person who is engaged by the Company or
any subsidiary to render consulting services and is compensated for such
consulting services or any other person determined by the Board to have
performed services for or on behalf of the Company which merits the grant of an
Option, and any director of the Company whether compensated for such services or
not; provided that if and in the event the Company registers any class of any
equity security pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the term Consultant shall thereafter not
include directors who are not compensated for their services or are paid only a
director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not
<PAGE> 2
more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(i) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422A of the Code.
(j) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an Option.
(m) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(n) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this Restated 1991 Stock Option Plan.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 375,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall become
available for future grant or sale under the Plan.
2
<PAGE> 3
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors may
appoint a Committee consisting of not less than two members of the
Board of Directors to administer the Plan on behalf of the Board of
Directors, subject to such terms and conditions as the Board of
Directors may prescribe. Once appointed, the Committee shall continue
to serve until otherwise directed by the Board of Directors. Members
of the Board who are either eligible for Options or have been granted
Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan, except that no
such member shall act upon the granting of an Option to himself, but
any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with
respect to the granting of Options to him.
(ii) Notwithstanding the foregoing subparagraph (i), if in any
event the Company registers any class of any equity security pursuant
to Section 12 of the Exchange Act, from the effective date of such
registration (the "Effective Date") until six months after the
termination of such registration (the "Termination Date"), any grants
of options to officers or directors shall only be made by the Board of
Directors; provided, however, that if any of the members of the Board
of Directors are eligible to participate in this Plan or any other
stock option or other stock plan of the Company or any of its
affiliates, or has been eligible at any time within the preceding
year, any grants of options to officers or directors of the Company
must be made by, or only in accordance with the recommendation of, a
Committee consisting of two or more directors, appointed by the Board
of Directors and having full authority to act in the matter, none of
whom is eligible to participate in this Plan or any other stock option
or other stock plan of the Company or any of its affiliates, or has
been eligible at any time within the preceding year. Once appointed,
the Committee shall continue to serve until otherwise directed by the
Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and (ii), from
time to time the Board of Directors may increase the size of the
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options or Nonstatutory Stock Options; (ii) to determine upon review of relevant
information and in accordance with Section 8(b) of the Plan, the fair market
value of the Common Stock; (iii) to determine the exercise price per share of
Options to be granted, which exercise price shall be determined in accordance
with Section 8(a) of the Plan; (iv) to determine the Employees or Consultants to
whom, and; the time or times at which, Options shall be granted and the number
of shares to be represented by each Option; (v) to interpret the Plan;
3
<PAGE> 4
(vi) to prescribe, amend and rescind rules and regulations relating to the Plan;
(vii) to determine the terms and provisions of each Option granted (which need
not be identical) and, with the consent of the holder thereof, modify or amend
each Option; (viii) to accelerate or defer (with the consent of the Optionee)
the exercise date of any Option, consistent with the provisions of Section 5 of
the Plan; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility.
(a) Options may be granted only to Employees and Consultants. Incentive
Stock Options may be granted only to Employees. An Employee or Consultant who
has been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options.
(b) To the extent that the aggregate fair market value of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such Incentive Stock Options shall be
treated as Nonstatutory Stock Options.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock
Option evidenced by an "Incentive Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall qualify as an
incentive stock option. Section 5(b) of the Plan shall not apply to any Option
evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall be a
Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to terminate
his employment or consulting relationship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Options. The term of each Incentive Stock Option shall be
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement. The term of each Option that
is not an Incentive Stock Option shall be determined by the Board and set forth
in the Option Agreement. However, in the case of an Incentive Stock Option
4
<PAGE> 5
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time may in the Incentive Stock Option Agreement.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of
the Company or, any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the fair market value per
Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the fair market value per
Share on the date of grant.
(ii) in the case of an Option granted on or after the effective
date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months
after the termination of such registration, the per Share exercise
price shall be no less than 100% of the fair market value per Share on
the date of grant.
(iii) In the case of Non-Statutory Stock Options, at any price
per share determined by the Board.
(b) Fair Market Value. The fair market value shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean of the
bid and asked prices (or the closing price per share if the Common Stock listed
on that National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System) of the Common Stock for the date of grant, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per Share shall be the closing price on
such exchange on the date of grant of the Option, as reported in The Wall Street
Journal.
(c) Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
be determined by the Board and may consist entirely of cash, check, other Shares
of Common Stock having a fair market value on the date
5
<PAGE> 6
of surrender equal to the aggregate exercise price of the Shares as to which
said option shall be exercised, or any combination of such methods of payment,
or such other consideration and method of payment for the issuance of Shares to
the extent permitted under K.S.A. Sections 17-6402, 17-6403 and 17-6407 of the
Kansas General Corporation Code. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise in the form required by the Nonstatutory or Incentive Stock Option
Agreement has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until. the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for purchase under the Option, by the number of Shares as to which the
Option is exercised.
10. Certain Events Affecting Exercisability of Incentive Stock Options.
(a) Termination of Status as an Employee or Consultant. With respect to
Incentive Stock Options, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant (as the case may be), such Optionee may, but
only within sixty (60) days (or such other period of time not exceeding three
(3) months as is determined by the Board, with such determination being made at
the time of grant of the Option) after such event of termination of an
Optionee's Continuous Status as an Employee or Consultant (as the case may be)
(but in no event later than the date of expiration of the term of such Incentive
Stock Option as set forth in the
6
<PAGE> 7
Incentive Stock Option Agreement), exercise his Incentive Stock Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Incentive Stock Option at
the date of such termination, or if he does not exercise such Incentive Stock
Option (which he was entitled to exercise) within the time specified herein, the
Incentive Stock Option shall terminate.
(b) Disability of Optionee. With respect to Incentive Stock Options,
notwithstanding the provision of Section 10(a) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant (as
the case may be) as a result of his total and permanent disability (as defined
in Section 22(e)(3) of the Code), he may, but only within six (6) months (or
such other period of time not exceeding twelve (12) months as is determined by
the Board, with such determination being made at the time of grant of the
Incentive Stock Option) from the date of termination (but in no event later than
the date of expiration of the term of such Incentive Stock Option as set forth
in the Incentive Stock Option Agreement), exercise his Incentive Stock Option to
the extent he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Incentive Stock Option at
the date of termination, or if he does not exercise such Incentive Stock Option
(which he was entitled to exercise) within the time specified herein, the
Incentive Stock Option shall terminate.
(c) Death of Optionee. With respect to Incentive Stock Options, in the
event of the death of an Optionee:
(i) who is at the time of his death an Employee or Consultant of
the Company and who shall have been in Continuous Status as an
Employee or Consultant since the date of grant of the Incentive Stock
Option, the Incentive Stock Option may be exercised, at any time
within nine (9) months following the date of death (but in no event
later than the date of expiration of the term of such Incentive Stock
Option as set forth in the Incentive Stock Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise
the Incentive Stock Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as an
Employee or Consultant six (6) months after the date of death, subject
to the limitation set forth in Section 5(b); or
(ii) which occurs within thirty (30) days (or such other period
of time not exceeding three (3) months as is determined by the Board,
with such determination being made at the time of grant of the
Incentive Stock Option) after the termination of Continuous Status as
an Employee or Consultant, the Incentive Stock Option may be
exercised, at any time within nine (9) months following the date of
death (but in no event later than the date of expiration of the term
of such Incentive Stock Option as set forth in the Incentive Stock
Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Incentive Stock Option by bequest
or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
7
<PAGE> 8
11. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been effected
without receipt of consideration. Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company,
the Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. Unless the
option agreement granting an Option to an Optionee specifically provides
otherwise, in the event that such successor corporation refuses to assume the
Option or to substitute an equivalent option, the Board shall, in lieu of such
assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable. The Board shall give
written notice to each holder of an Option of the pendency of the sale of
substantially all of the assets of the Company, a merger involving the Company
or the dissolution or liquidation of the Company not less than ten days prior to
such transaction. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
8
<PAGE> 9
13. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 18 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 12 of the
Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, any material increase in the benefit accruing to
participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 14(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 18 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As, a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being
9
<PAGE> 10
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
18. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 422A of the Code.
(b) If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 18(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
10
<PAGE> 11
(i) furnish in writing, to the holders entitled to vote for
the Plan substantially the same information which would be required (if
proxies to be voted with respect to approval or disapproval of the Plan
or amendment were then being solicited) by the rules and regulations in
effect under Section 14(a) of the Exchange Act at the time such
information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to
in subsection (i) hereof not later than the date on which such
information is first sent or given to shareholders.
19. Gender Reference. The words "he", "him" or "his" shall be deemed to
include the feminine and neuter gender of such words.
Adopted by the Board of Directors of Airport Systems International,
Inc. on October 1, 1993, and approved by the stockholders on October 18, 1993.
/S/ Thomas C. Cargin
-----------------------------------
Thomas C. Cargin, Secretary
11
<PAGE> 1
EXHIBIT 11
AIRPORT SYSTEMS INTERNATIONAL, INC.
NET INCOME (LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------
APRIL 30, 1999 APRIL 30, 1998
----------------------------- ---------------------------
NET LOSS SHARES EPS NET INCOME SHARES EPS
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share . $(3,553) 2,230 $(1.59) $980 2,230 $0.44
Effect of stock option ... -- -- -- -- 191 $0.04
------- ----- ----- ---- ----- -----
Diluted earnings per share $(3,553) 2,230 $(1.59) $980 2,421 $0.40
</TABLE>
<PAGE> 1
Exhibit 13
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Airport Systems International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Airport Systems
International, Inc. and subsidiary (the Company) as of April 30, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Airport Systems
International, Inc. and subsidiary at April 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Kansas City, Missouri
June 24, 1999
F-1
<PAGE> 2
Airport Systems International, Inc. and Subsidiary
Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
APRIL 30,
1999 1998
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 93 $ 2,449
Accounts receivable, less allowances of $42
in 1999 and $51 in 1998 (Note 2) 5,968 6,156
Inventories (Notes 2 & 6) 4,007 5,261
Income taxes refundable (Note 7) 634 --
Prepaid expenses 55 152
-------- --------
Total current assets 10,757 14,018
Property and equipment, at cost (Notes 2, 3 and 6):
Land 224 224
Building and improvements 1,236 1,259
Equipment 1,773 1,820
-------- --------
3,233 3,303
Accumulated depreciation and amortization (1,696) (1,687)
-------- --------
1,537 1,616
Other assets, net 30 30
Cost in excess of net assets acquired (Note 6) -- 1,190
-------- --------
Total assets $ 12,324 $ 16,854
======== ========
</TABLE>
F-2
<PAGE> 3
Airport Systems International, Inc. and Subsidiary
Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
APRIL 30,
1999 1998
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (Note 2) $ 1,325 $ --
Accounts payable 1,096 1,280
Accrued expenses 1,456 1,795
Customer deposits 373 2,040
Income taxes payable -- 10
Deferred income taxes (Note 7) -- 70
Current portion of long-term debt (Note 3) 20 19
-------- -------
Total current liabilities 4,270 5,214
Long-term debt, less current portion (Note 3) 1,166 1,184
Deferred income taxes (Note 7) -- 15
Stockholders' equity (Note 5):
Common stock, $.01 par value:
Authorized shares - 5,000,000; Issued
and outstanding shares - 2,230,500 in
1999 and 1998 22 22
Additional paid-in capital 7,218 7,218
Retained earnings (accumulated deficit) (352) 3,201
-------- -------
Total stockholders' equity 6,888 10,441
-------- -------
Total liabilities and stockholders' equity $ 12,324 $16,854
======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 4
Airport Systems International, Inc. and Subsidiary
Consolidated Statements of Operations
(In thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1999 1998
---- ----
<S> <C> <C>
Sales $ 15,944 $ 23,846
Cost of products sold 12,623 16,631
-------- --------
Gross margin 3,321 7,215
Selling, general and administrative expenses 4,383 4,255
Research and development expenses 1,900 1,491
Asset impairment (Note 6) 1,299 --
-------- --------
Operating income (loss) (4,261) 1,469
Other income (expense):
Interest expense (119) (107)
Other income (net) 48 116
-------- --------
Income (loss) before income taxes (4,332) 1,478
Income tax provision (benefit) (Note 7) (779) 498
-------- --------
Net income (loss) $ (3,553) $ 980
======== ========
Basic earnings (loss) per common share $ (1.59) $ .44
======== ========
Basic weighted average common shares
outstanding 2,230 2,230
======== ========
Diluted earnings (loss) per common share $ (1.59) $ .40
======== ========
Diluted weighted average common shares
outstanding 2,230 2,421
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
Airport Systems International, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Common Paid-In (Accumulated Stockholders'
Stock Capital Deficit) Equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance at April 30, 1997 $22 $ 7,293 $ 2,221 $ 9,536
Net income -- -- 980 980
Repurchase of warrants -- (75) -- (75)
------ ------- ------- --------
Balance at April 30, 1998 22 7,218 3,201 10,441
Net loss -- -- (3,553) (3,553)
------ ------- ------- --------
Balance at April 30, 1999 $22 $ 7,218 $ (352) $ 6,888
====== ======= ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 6
Airport Systems International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended April 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(3,553) $ 980
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 420 472
Asset impairment 1,299 --
Gain on sale of equipment -- (15)
Deferred income taxes (85) 49
Changes in operating assets and liabilities:
Accounts receivable, net 188 1,377
Income taxes refundable (634) --
Inventories 1,086 (544)
Prepaid expenses 97 34
Accounts payable (184) (1,231)
Accrued expenses and customer deposits (2,006) (468)
Income taxes payable (10) (377)
------- -------
Net cash provided by (used in) operating activities (3,382) 277
INVESTING ACTIVITIES
Proceeds from sale of short-term investments -- 2,567
Purchases of short-term investments -- (2,567)
Purchases of property and equipment (282) (273)
Proceeds from sale of property and equipment -- 15
------- -------
Net cash used in investing activities (282) (258)
</TABLE>
F-6
<PAGE> 7
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
April 30,
1999 1998
---- ----
<S> <C> <C>
FINANCING ACTIVITIES:
Principal payments on long-term debt (17) (17)
Net borrowings (repayments) on note payable to bank 1,325 (600)
Repurchase of warrants -- (75)
------- -------
Net cash provided by (used in) financing activities 1,308 (692)
------- -------
Net decrease in cash and cash equivalents (2,356) (673)
Cash and cash equivalents at beginning of year 2,449 3,122
------- -------
Cash and cash equivalents at end of year $ 93 $ 2,449
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 111 $ 107
======= =======
Income taxes $ -- $ 827
======= =======
</TABLE>
See accompanying notes.
F-7
<PAGE> 8
1. Summary of Significant Accounting Policies
NATURE OF BUSINESS
Airport Systems International, Inc. and Subsidiary (the Company) designs,
manufactures, markets and installs ground-based aircraft radio navigation
equipment and airfield lighting, both of which are sold internationally and
domestically.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Airport Systems International, Inc. and its wholly owned subsidiary ASII
International, Inc. (a foreign sales corporation). All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and highly liquid investments with
original maturities of three months or less.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce foreign exchange
exposures. The Company maintains a control environment which includes policies
and procedures for risk assessment and for the approval, reporting and
monitoring of derivative financial instrument activities. The Company does not
hold or issue derivative financial instruments for trading purposes.
Foreign currency forward contracts are marked to market and gains and losses on
foreign currency forward contracts to hedge firm foreign currency commitments
are deferred and accounted for as part of the related foreign currency
transaction.
F-8
<PAGE> 9
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables and derivative financial
instruments. The Company grants credit to customers who meet the Company's
pre-established credit requirements. The Company generally requires foreign
customers to issue letters of credit which secure payment of their accounts
receivable balances. Credit losses are provided for in the Company's
consolidated financial statements and have been within management's
expectations. With respect to its derivative contracts, the Company is also
subject to credit risk of non-performance by counter parties. The counter
parties to these contracts are major financial institutions, and the Company
believes the risk of loss is remote.
REVENUE RECOGNITION
Generally, the Company generates revenues pursuant to contracts with its
customers, most of which are less than one year in duration. Revenue on the
Company's contracts is principally recognized using the percentage of
completion, units of delivery method.
INVENTORIES
Inventories are stated at the lower of cost, or market. Inventories valued using
the last-in, first-out (LIFO) method comprised 93% and 79% of consolidated
inventories at April 30, 1999 and 1998, respectively. Inventories not valued by
the LIFO method are valued using the first-in, first-out (FIFO) method. At April
30, 1999 and 1998, cost determined by using the LIFO method exceeded current
cost by approximately $582,000 and $571,000, respectively.
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
APRIL 30,
1999 1998
---- ----
<S> <C> <C>
(In Thousands)
Raw materials $ 2,562 $ 3,168
Work-in-process 1,084 1,794
Finished goods 361 299
-------- ---------
$ 4,007 $ 5,261
======== =========
</TABLE>
F-9
<PAGE> 10
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
----------- -----
<S> <C>
Building and improvements 30
Equipment 5
</TABLE>
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". The liability method provides deferred tax assets and liabilities
are recorded based upon the differences between the tax bases of assets and
liabilities and their carrying amount for financial reporting purposes, as
measured by the enacted tax rates which will be in effect when these differences
are expected to reverse.
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired relates to the acquisition of the
assets and operations of the airfield signage business in fiscal 1995 and
through fiscal 1998 was amortized on the straight-line method over 20 years.
(See Note 6)
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense charged
to operations amounted to $104,900 and $17,300 for the years ended April 30,
1999 and 1998, respectively.
F-10
<PAGE> 11
EARNINGS PER SHARE
Under SFAS No. 128, basic earnings per share is calculated by dividing income
available to common shareholders by the weighted average common shares
outstanding. Fully diluted earnings per share includes the effect of all
potentially dilutive securities, including stock options. The diluted earnings
per share excludes 148,833 shares issuable under outstanding stock options in
1999 since their effect was antidilutive. A reconciliation of the numerators and
the denominators of the basic and diluted per-share computations is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share) Year Ended Year Ended
April 30, April 30,
1999 1998
-----------------------------------------------------------------------------------------
Loss Shares Per Share Earnings Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic (loss) earnings per share $ (3,553) 2,230 $ (1.59) $ 980 2,230 $ .44
Effect of stock options -- -- -- -- 191 --
--------------------------------------------------------------------------------------
Diluted (loss) earnings per share $ (3,553) 2,230 $ (1.59) $ 980 2,421 $ .40
========= ====== ======= ====== ======= ======
</TABLE>
STOCK COMPENSATION
The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and the related interpretations because the alternative fair value
accounting provided for under SFAS No. 123 "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB No. 25, no
compensation expense is recognized since the exercise price of the Company's
stock options equals the market price of the underlying stock on the date of
grant.
LETTERS OF CREDIT
The Company has outstanding secured and unsecured letters of credit totaling
$3,562,000 and $3,762,000 at April 30, 1999 and 1998, respectively.
NEW ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998 and is required to be adopted in years beginning after
June 15, 2000, as amended by SFAS No. 137. The Statement permits early adoption
as of the beginning of any fiscal quarter. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair
F-11
<PAGE> 12
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value derivatives will either be offset against the change
in fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. This Statement is effective
for the Company's fiscal 2002 financial statements and is not expected to have a
significant effect on the Company's financial statements. The Company has not
yet determined what the effect of SFAS No. 133 will be on the earnings and
financial position of the Company.
SEGMENT REPORTING
During 1999, the Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which was issued in June 1997. This
Statement established new standards for the way public companies report
information about operating segments in annual financial statements and requires
those companies report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Except as discussed in Note 9, the Company does not believe it has
any reportable business segments.
2. NOTE PAYABLE TO BANK
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 (7.65% at April 30, 1999)
or prime (7.75% at April 30, 1999), secured by eligible accounts receivable,
inventory and equipment. Borrowings outstanding under the line of credit totaled
$1,325,000 at April 30, 1999. There were no outstanding borrowings under the
line of credit at April 30, 1998. The weighted average interest rate on short
term borrowings outstanding as of April 30, 1999 equaled 7.75%.
3. LONG-TERM DEBT
At April 30, 1999 and 1998, long-term debt consisted of a note payable with an
outstanding balance of $1,186,000 and $1,203,000, respectively. The note payable
bears interest, adjustable May 2001 and 2006, at the prior five-year Treasury
Index average plus 2.5% (7.94% at April 30, 1999), and is due in monthly
installments of $9,486, including interest, through June 2011 with a final
payment of approximately $788,000 due on that date. The note is secured by a
first mortgage on real property and improvements with a net book value of
$1,133,000 at April 30, 1999.
F-12
<PAGE> 13
The aggregate amount of principal to be paid on this note payable during each of
the next five years ending April 30 is as follows:
<TABLE>
<CAPTION>
Year (In Thousands)
---- --------------
<S> <C>
2000 $20
2001 22
2002 24
2003 26
2004 28
</TABLE>
Pursuant to the provisions of the Company's long-term debt and line of credit
agreements, the Company is subject to certain restrictive covenants which, among
other things, require the maintenance of certain financial ratios and minimum
levels of working capital.
4. OPERATING LEASES
The Company leases certain operating facilities and equipment under
noncancellable operating leases. Future minimum lease payments due under
noncancellable operating leases are $52,700 and $6,900 in 2000 and 2001,
respectively. Rent expense under all operating leases was $88,900 and $82,800
for the years ended April 30, 1999 and 1998, respectively.
5. STOCK OPTIONS AND WARRANTS
The Company has reserved 475,000 shares of common stock for issuance to
employees and consultants of the Company pursuant to the 1991 stock option plan
(the Plan) which the Company adopted in December 1991. According to the terms of
the Plan, both incentive stock options and non-qualified stock options to
purchase common stock of the Company may be granted to key employees of and
consultants to the Company, at the discretion of the Board of Directors.
Incentive stock options may not be granted at prices which are less than the
fair market value on the date of grant. Non-qualified options may be granted at
prices determined appropriate by the Board of Directors of the Company.
Generally, these options become exercisable and vest over one to five years and
expire within 10 years of the date of grant. At April 30, 1999 and 1998, options
to purchase 297,000 and 279,000 shares, respectively, were vested and
exercisable. Information with respect to options granted under the Plan is as
follows:
F-13
<PAGE> 14
<TABLE>
<CAPTION>
Shares Price
- ---------------------------------------------------------------------------------
<S> <C> <C>
OUTSTANDING AT APRIL 30, 1997 289,000 $0.34 -$ 8.75
Granted 5,000 5.63
Exercised -- --
Canceled -- --
-------- -------------
OUTSTANDING AT APRIL 30, 1998 294,000 0.34 - 8.75
Granted 35,000 3.25
Exercised -- --
Canceled 11,750 5.50 - 5.625
-------- -------------
OUTSTANDING AT APRIL 30, 1999 317,250 $0.34 - $8.75
======== =============
</TABLE>
The following table summarizes information about stock options outstanding at
April 30, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------- -------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- --------------------------------------
Range of exercise Number Weighted-average Weighted-average Number Weighted-average
prices outstanding at remaining exercise price exercisable exercise price
April 30, 1999 contractual life at April 30, 1999
- ------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
$0.34 178,500 2.8 years $0.34 178,500 $0.34
3.25 - 8.75 138,750 5.1 years 5.38 118,750 5.74
------- -------
$0.34 - $8.75 317,250 3.8 years $2.54 297,250 $2.50
======= =======
</TABLE>
The per share weighted-average fair value of stock options granted during 1999
and 1998 was $1.82 and $2.62, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998
-----------------------
<S> <C> <C>
Expected years until exercise 5 5
Risk-free interest rate 5.49% 6.0%
Expected stock volatility 59.3% 43.5%
Expected dividend yield 0% 0%
</TABLE>
F-14
<PAGE> 15
Since the Company applies APB Opinion No. 25 in accounting for its plans, no
compensation cost has been recognized in connection with stock options issued to
employees in the financial statements. Had the Company recorded compensation
expense based on the fair value method under FAS No. 123, the Company's net loss
and loss per share would have increased by approximately $42,800 or $.02 per
share in 1999 and the Company's net income and earnings per share on a diluted
basis would have been reduced by approximately $22,400 or $.01 per share in
1998.
Pro forma net income/loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation expense for stock options
under FAS No. 123 is not reflected in the pro forma net income/loss amounts
presented above, because compensation cost is reflected over the options'
vesting period of ten years for these options. Accordingly, the pro forma
amounts presented above are not necessarily representative of the effects on
reported net income or losses in future years.
In connection with the Company's initial public offering, the Company issued a
warrant that allowed the holder to purchase up to an aggregate of 75,000 shares
of common stock exercisable at a per share price of $12.30 through December
1998. The holder exercised certain rights under the warrant during fiscal 1998
that required the Company to repurchase the warrant at $1.00 per share.
6. ASSET IMPAIRMENT
In September, 1994, the Company purchased the airfield signage line from Vomar
International, Inc. for approximately $1,730,000 of which approximately
$1,458,000 was allocated to goodwill.
During 1999, pursuant to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of," the Company evaluated the recoverability
of the long-lived assets (primarily goodwill) of the signage product line. While
the signage line will continue to be an important part of the Company's overall
product development strategy, the market demand for signs has been significantly
lower, and is expected to continue to be lower than originally expected.
Additional investments in the product line will also be required to meet
regulatory and competitive demands. In the fourth quarter of 1999, concurrent
with the Company's annual planning process, the Company determined that the
signage line's estimated future undiscounted cash flows were below the carrying
value of the related long-lived assets, resulting in a non-cash write-off of
goodwill of $1,118,000. In addition, the Company wrote off inventory and fixed
assets related to the signage line totaling $181,000. In determining the amount
of the impairment charges that were made, the Company developed its best
estimate of future operating cash flows. Undiscounted cash flows were compared
to the carrying value of the assets to ascertain that an impairment had
occurred. Estimated future cash flows, excluding interest charges, then were
discounted using a 15% discount rate. Sales were estimated to remain consistent
with fiscal 1999 levels, and gross margins were held constant as a percent of
sales. Gross margins were reduced for projected investments in product design
and production equipment. These
F-15
<PAGE> 16
projections resulted in discounted cash flows that supported the amounts
recorded. These projections were prepared solely to determine the appropriate
amount of write-off, based on assumptions that management believed to be
reasonable at the time; however, no assurance can be given that such projections
will be accurate.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at April 30, 1999 and 1998 are
as follows:
F-16
<PAGE> 17
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Current:
Net operating loss carry forward $ 181 $ --
Alternative minimum tax and research and development
credit carry forward 177 --
Warranty accrual 69 43
Accrued expenses 280 154
Other 16 20
------- -----
723 217
Non-current:
Asset impairment and amortization of intangibles 456 38
------- -----
Total deferred tax assets 1,179 255
Deferred tax liabilities:
Current:
Basis differences in acquired assets (263) (287)
Non-current:
Basis differences in acquired assets (44) (53)
------- -----
Total deferred tax liabilities (307) (340)
------- -----
Net deferred tax asset (liability) 872 (85)
Valuation allowance $ (872) $ --
------- -----
Net deferred tax asset $ -- $ (85)
======= =====
</TABLE>
The income tax provision (benefit) for the years ended April 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- -------------- ---- ----
<S> <C> <C>
Current $ (694) $ 449
Deferred (85) 49
------ -----
Total $ (779) $ 498
====== =====
</TABLE>
F-17
<PAGE> 18
The income tax provision (benefit) differs from amounts computed at the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- -------------- ---- ----
<S> <C> <C>
Provision (benefit) at statutory rate $(1,473) $ 503
State income taxes, net of federal income tax effect (217) 65
Valuation allowance 872 --
Tax benefit from Foreign Sales
Corporation -- (76)
Other 39 6
------- -----
$ (779) $ 498
======= =====
</TABLE>
The change in valuation reserve, and the resulting lower effective income tax
rate, for the year ended April 30, 1999 is principally attributed to the effect
of amortization of intangibles, net operating loss carryforward and alternative
minimum tax and research and development credit carryforwards. At April 30,
1999, the Company has available net operating loss carry forwards of $464,000
which expire in fiscal year 2014.
8. FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash,
accounts receivable, accounts payable, note payable and long-term debt, as
reported in the accompanying consolidated balance sheets, approximates fair
value.
The Company has entered into foreign exchange forward contracts to hedge the
value of contract costs due international vendors that are denominated in a
foreign currency. The hedges used by the Company are directly related to firm
commitments and are not used for trading or speculative purposes. The foreign
exchange forward contracts have maturities at various dates through August 1999.
The Company had forward exchange contracts to buy $265,000 and $1,300,000 in
foreign currencies at April 30, 1999 and 1998 respectively. The net gain or loss
recorded to reflect the fair value of these contracts is recorded at maturity of
the contract. The deferred unrealized loss on the contracts using quoted spot
rates at April 30, 1999 and 1998 was $6,000 and $533,000 respectively.
9. SEGMENT INFORMATION
The Company had sales to two customers which accounted for 47% and 46% of total
sales for the year ended April 30, 1999 and 1998, respectively.
F-18
<PAGE> 19
The Company's export sales to foreign customers by primary geographic region and
in total are set forth below:
<TABLE>
<CAPTION>
(In Thousands) 1999 1998
- -------------- -----------------------------
<S> <C> <C>
Asia $ 11,214 $ 11,055
Africa and the Middle East 1,147 3,298
South America 278 2,326
Canada -- 1,152
Europe 105 69
Australia 4 1
Other -- 4
-------- --------
$ 12,748 $ 17,905
======== ========
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan which covers
substantially all full-time employees who have attained age 21 and completed six
months of service. Each qualified employee is entitled to make voluntary
contributions to the plan of up to 15% of their annual compensation subject to
Internal Revenue Code maximum limitations. The Company contributes 50% of each
employee's contribution up to a maximum of 6% of the employee's pay.
Participants in the plan may direct 50% of the Company's contribution into
mutual funds and money market funds, with the remaining 50% of the Company
contribution invested in common stock of the Company. Additionally, the Company
may make discretionary contributions to the plan. For the years ended April 30,
1999 and 1998, Company contributions to the plan amounted to approximately
$86,000 and $82,000, respectively.
F-19
<PAGE> 1
EXHIBIT 21
AIRPORT SYSTEMS INTERNATIONAL, INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
- ---------- ------------
<S> <C>
ASII International, Inc. Barbados, W.I.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AIRPORT
SYSTEMS INTERNATIONAL, INC. FORM 10-KSB FOR THE FISCAL YEAR ENDED APRIL 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AS ITEM 13A OF THE AIRPORT
SYSTEMS INTERNATIONAL, INC. FORM 10-KSB.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 6,010
<ALLOWANCES> 42
<INVENTORY> 4,007
<CURRENT-ASSETS> 689
<PP&E> 3,233
<DEPRECIATION> 1,696
<TOTAL-ASSETS> 12,324
<CURRENT-LIABILITIES> 4,270
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 6,866
<TOTAL-LIABILITY-AND-EQUITY> 12,324
<SALES> 15,944
<TOTAL-REVENUES> 15,944
<CGS> 12,623
<TOTAL-COSTS> 20,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> (4,332)
<INCOME-TAX> (779)
<INCOME-CONTINUING> (3,553)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,553)
<EPS-BASIC> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
