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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22760
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AIRPORT SYSTEMS INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
Kansas 48-1099142
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11300 West 89th Street
Overland Park, Kansas 66214
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(address of principal executive offices)
(913)492-0861
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the previous 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common stock, $0.01 par value - 2,578,913 shares outstanding as of September 1,
2000
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED JULY 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURE PAGE 13
</TABLE>
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Airport Systems International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000
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<S> <C> <C>
Assets
Current assets:
Cash & cash equivalents $ 68 $ --
Accounts receivable, net 5,766 5,812
Inventories, net 7,419 7,988
Other current assets 275 230
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Total current assets 13,528 14,030
Property and equipment, at cost 6,521 6,403
Accumulated depreciation and amortization (2,193) (2,049)
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4,328 4,354
Restricted cash 1,246 1,288
Cost in excess of net assets acquired, net 1,833 1,868
Other assets 194 268
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Total assets $ 21,129 $ 21,808
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,332 $ 1,968
Accrued expenses 2,688 2,939
Notes payable to bank 4,494 4,340
Current portion of long-term debt 679 679
Income taxes payable 155 154
Other current liabilities 0 0
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Total current liabilities 9,348 10,080
Long-term debt, less current portion 5,286 5,371
Deferred income taxes 0 0
Stockholders' equity:
Common stock 26 26
Additional paid-in capital 8,003 8,003
Accumulated deficit (1,534) (1,672)
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Total stockholders' equity 6,495 6,357
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Total liabilities and stockholders' equity $ 21,129 $ 21,808
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</TABLE>
NOTE: The balance sheet at April 30, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
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Airport Systems International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
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2000 1999
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(Restated)
<S> <C> <C>
Sales $ 6,229 $ 2,770
Cost of products sold 4,269 2,060
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Gross margin 1,960 710
Selling, general and administrative expenses 1,586 931
Research and development expenses 20 328
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Operating income (loss) 354 (549)
Interest expense (216) (44)
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Income (loss) before income taxes 138 (593)
Provision (benefit) for income taxes 0 0
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Net income (loss) $ 138 ($ 593)
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Income (loss) per share:
Basic $ 0.05 ($ 0.26)
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Diluted $ 0.05 ($ 0.26)
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</TABLE>
See notes to condensed consolidated financial statements.
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Airport Systems International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
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2000 1999
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(Restated)
<S> <C> <C>
Operating activities:
Net income (loss) $ 138 $ (593)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 186 84
Changes in operating assets and liabilities:
Accounts receivable, net 46 2,557
Inventories, net 569 (528)
Accounts payable (636) (109)
Accrued expenses and customer deposits (251) (197)
Other, net (44) 574
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Net cash used in operating activities 8 1,788
Investing activities:
Purchases of property and equipment (117) (42)
Change in other assets 67 0
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Net cash used in investing activities (51) (42)
Financing activities:
Net borrowings (repayments) on note payable to bank 154 (1,325)
Principal payments on long-term debt (85) (5)
Borrowing on long-term debt and capital lease
obligations 0 0
Change in restricted cash 42 0
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Net cash provided by (used in) financing activities 111 (1,330)
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Net decrease in cash and cash equivalents 68 416
Cash and cash equivalents at beginning of period 0 88
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Cash and cash equivalents at end of period $ 68 $ 504
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 179 $ 23
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Income taxes $ -- $ 25
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</TABLE>
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 2000
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements of
Airport Systems International, Inc. (the Company) include the accounts of the
Company and its wholly owned subsidiaries, DCI, Inc. (DCI) and ASII
International, Inc., a foreign sales corporation incorporated in Barbados. All
intercompany balances and transactions have been eliminated. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended July 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended April 30, 2001. For further information, refer to
the consolidated financial statements and footnotes included in the Airport
Systems International Inc. and Subsidiaries annual report on Form 10-KSB for the
year ended April 30, 2000.
2. Notes Payable to Banks
The Company has a line of credit agreement with a bank which expires August 8,
2001. The agreement allows for borrowings up to a maximum of $8,000,000 at an
interest rate of prime plus 50 basis points (9.50% at July 31, 2000). The line
is secured by accounts receivable, inventory, and equipment. Borrowings
outstanding under the line of credit totaled $4,494,000 at July 31, 2000.
4. Earnings Per Share
Under SFAS No. 128, basic earnings per share is calculated by dividing income
available to common stockholders by the weighted average common shares
outstanding. Diluted earnings per share includes the effect of all potentially
dilutive securities, including stock options. A reconciliation of the numerators
and the denominators of the basic and diluted per-share computations is as
follows:
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<TABLE>
<CAPTION>
Three Months Ended
July 31, July 31,
2000 1999
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(restated)
<S> <C> <C>
Numerator:
Net income (loss) $ 138,000 $ (593,000)
Denominator:
Denominator for basic
earnings per share - weighted
average shares 2,579,000 2,230,500
Effect of dilutive securities:
Employee stock options 148,000 -0-
Denominator for diluted
earnings per share -
adjusted weighted average
shares with assumed
conversions 2,727,000 2,230,500
Earnings (loss) per share - Basic $ 0.05 $ (0.26)
Earnings (loss) per share - Dilutive $ 0.05 $ (0.26)
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Airport Systems International, Inc. (the "Company" or "Airport Systems"),
together with its subsidiaries, is a designer and manufacturer of electronic
components, sub-assemblies and systems and a marketer of electronic contract
assembly services. Airport Systems, as the parent company, along with its
wholly-owned subsidiary, DCI, Inc. (DCI) operates two business segments,
aerospace and electronic components manufacturing (ECM). The aerospace unit is
operated through Airport Systems while the ECM unit is operated through DCI. The
aerospace unit designs, manufactures and installs ground-based radio navigation
and landing systems (navaids) and airfield lighting. Its customers consist of
civil aviation authorities in the United States and throughout the world. The
ECM unit manufactures custom liquid crystal display (LCD) devices as well as
panel meter and heat-seal equipment. In addition, the unit also provides
contract manufacturing services. Its products are used in aerospace, medical,
industrial and home applications. Sales are made primarily to customers within
the United States.
In February, 2000, the Company acquired all of the issued and outstanding stock
of DCI in exchange for $1,234,000 in cash, 150,000 shares of its common stock
(valued at $239,000) and a four year promissory note in the amount of
$1,248,000. In connection with this acquisition, DCI immediately acquired
certain assets and assumed certain liabilities of KHC of Lenexa, L.L.C. (KHC)
which was owned by the shareholders of DCI. DCI paid $1,290,000 in cash as
consideration for the net assets acquired from KHC.
Until the acquisition of DCI, the Company operated in one business segment. The
following summarized financial information is being presented to assist the
reader in understanding the impact DCI had on operations in the three months
ended July 31:
<TABLE>
<CAPTION>
2000 1999
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INTER-
AEROSPACE ECM SEGMENT TOTAL TOTAL
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(restated)
<S> <C> <C> <C> <C> <C>
Sales $4,509 $1,885 $(165) $6,229 $ 2,770
Gross Margin 1,198 770 (8) 1,960 710
% of Sales 27% 41% 31% 26%
Operating Income (loss) 278 84 (8) 354 (549)
</TABLE>
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which,
among other guidance, clarifies certain conditions to be met in order to
recognize revenue. After reexamining the terms underlying certain transactions
of the aerospace unit, the Company determined that revenue related to these
transactions, which was recorded in the preceding quarters of fiscal 2000,
should be
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reversed. In view of the cumulative effect of the unrecorded adjustment on the
fiscal year 2000 results, as well as future periods, the Company restated its
quarterly consolidated financial statements for the quarter ended July 31, 1999.
The restatements were required to reverse sales that the Company recorded as
bill and hold sales when the manufacturing process was substantially complete,
but before the rights of ownership of the equipment, factory acceptance tests
and the physical delivery of the underlying equipment had occurred. The restated
financial statements reflect sales when final delivery of the underlying
equipment occurred. As these adjustments relate to the timing of revenue
recognition, all reversals have been or will be recognized in later periods. The
aggregate effect of the adjustment on fiscal 2000 was to reduce revenue and net
income by $1.5 million and $579,000 respectively. The effect of the adjustment
in the quarter ended July 31, 1999 was to reduce revenue and net income by $1.5
million and $677,000 ($0.30 per share) respectively. A number of the units were
delivered to customers (with related revenues of $1.1 million and gross margins
of $423,000) in the first quarter of fiscal 2001, with the balance expected to
be delivered in fiscal 2001. The financial statements and related notes set
forth in this Form 10Q-SB reflect all such restatements.
RESULTS OF OPERATIONS
Consolidated sales for the first quarter of fiscal 2001 were $6.2 million, up
from $2.8 million for the first quarter of fiscal 2000. DCI sales for the first
quarter of fiscal 2001 (after intercompany eliminations) totaled $1.7 million.
Airport Systems sales were $4.5 million for the first quarter of fiscal 2001, up
61% from $2.8 million for the comparable quarter of the previous year due to an
increase in the number of units shipped resulting from a higher beginning
backlog and higher level of orders compared to the same period of fiscal 2000.
Consolidated gross margin was $2.0 million, or 31% of consolidated sales, up
approximately 276% from $710,000, or 26% of consolidated sales in 2000.
Consolidated gross margin increased as a result of the acquisition of DCI, Inc.
and increased sales in the aerospace unit. DCI generated gross margins of
$770,000, or 41% of ECM sales.
Consolidated selling, general and administrative ("SG&A) expenses increased
$655,000 during the first quarter of fiscal 2001 compared to the first quarter
of fiscal 2000. SG&A expenses related to DCI totaled $686,000. Airport Systems'
SG&A expenses were $900,000 down $31,000 or 3% from fiscal 2000, reflecting cost
reductions initiated in the areas of administration and marketing personnel,
travel and other related costs. As a percent of sales, Airport Systems SG&A
expenses decreased from 33% to 19% primarily as a result of higher Airport
Systems sales.
Research and development expenses decreased $308,000 during the first quarter of
fiscal 2001, reflecting decreased labor and expenses related to development work
on the Company's Instrument Landing System (ILS). This development work was
substantially completed in fiscal 1999 and expenditures made during the first
quarter of fiscal 2000 were primarily to obtain FAA approval of the new system
(and certain variants of the new system), approval for FAA maintenance takeover,
and to reduce production costs. Approval of the new system was obtained in the
first quarter of fiscal 2000. The Company expects additional reductions in
research and development in fiscal year
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2001, with activities limited to product enhancements as well as obtaining
Category III certification of the new ILS from the FAA.
Interest expenses increased from $44,000 in the first quarter of fiscal 2000 to
$216,000 in the first quarter of fiscal 2001 due to higher average borrowings to
finance increased working capital, and the DCI acquisition as well as higher
average interest rates.
No income tax provision or benefit was recorded for the first quarter of fiscal
2001 and fiscal 2000 due primarily to net operating loss carry forwards
available to the Company.
As a result of the above, net income for the first quarter of fiscal 2001 was
$138,000 or 2% of sales, compared to a net loss of $593,000, or 21.0% of sales,
in the first quarter of fiscal 2000.
BACKLOG
Airport Systems' backlog increased $2.0 million to $3.7 million at July 31,
2000, compared to $1.7 million at July 31, 1999. Approximately 58% of the
backlog at July 31, 2000 consists of three contracts. Twelve percent of the
backlog represents a contract with a major U.S. air traffic control contractor
for the delivery of multiple ILS systems into South America, 30% of the backlog
represents a contract with the Airport Authority of Jamaica for navaid and
communication equipment, as well as civil works, training, flight check and
installation services and 16% of the backlog represents a contract to supply the
FAA with up to 15 DME's. Substantially all of the Airport Systems backlog at
July 31, 2000 is expected to be completed and shipped in fiscal 2001.
Airport Systems' backlog increased over the prior year's backlog of $1.7 million
due primarily to increased bookings. Bookings for the first quarter of fiscal
2001 totaled $2.7 million, up from bookings of $1.7 million in the same period
last year. The increase in bookings is due primarily to improving worldwide
demand for navaid products. This increase in demand is being driven by several
factors, specifically the delay in the implementation of a viable and reliable
GPS-based navigation system. Civil aviation authorities are beginning to once
again recognize navaids as a safe, low-cost and reliable air navigation system.
Accordingly, they are beginning to plan for and execute the procurement of
navaids to replace aged navigation systems, as well as to enhance and upgrade
their air traffic control capacity.
Although the Company is optimistic about the prospects for both its aerospace
and ECM units, any delays and or cancellation of procurement opportunities,
particularly in its aerospace unit, will negatively impact the Company's revenue
in fiscal 2001, and could result in operating losses or breakeven operating
results. The amount of net income, net losses or the ability to achieve
breakeven operating results is difficult to ascertain due to uncertainties in
the timing of the receipt of orders. The Company expects backlog and bidding
activities as well as contract awards to continue to fluctuate due to the size
and timing of contract programs.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash of $8,000 was provided by operations for the first quarter of fiscal
2001 compared to $1.8 million provided by operation in the first quarter of
fiscal 2000. The decrease in cash provided was primarily due to decreases in
funds provided by the reduction in accounts receivable during the first quarter
of fiscal 2001 as compared to the same period in fiscal 2000. This was offset by
higher reductions in inventory, accounts payable and customer deposits as
compared to the same period in fiscal 2000. The smaller reduction in accounts
receivables was due primarily to completion in the first quarter of fiscal 2000
of a significant contract in Indonesia, and the collection of all amounts due
under the contract during that period. Inventories declined during the first
quarter due primarily to shipment of contracts during the first quarter.
Accounts payable declined due to reductions made in amounts due vendors during
the first quarter of fiscal 2001.
Cash used in investing activities was $51,000 for the first quarter of fiscal
2001 unchanged from $42,000 used in the first quarter of fiscal 2000.
Cash provided by financing activities was $111,000 in the first quarter of
fiscal 2001 compared to cash used of $1.3 million in the first quarter of fiscal
2000. The increase in cash provided was the result of net borrowings of $154,000
in the Company's line of credit in the first quarter of fiscal 2001 as compared
to net repayments of $1.3 million in the previous year period.
The Company expects that it will meet its ongoing requirements for working
capital and capital expenditures from a combination of cash expected to be
generated from operations, existing cash and cash equivalents and available
borrowings under its existing revolving credit facility.
FORWARD LOOKING COMMENTS
The discussions set forth in this Form 10-QSB may contain forward-looking
comments based on current expectations that involve a number of risks and
uncertainties. Actual results could differ materially from those projected or
suggested in the forward-looking comments. The difference could be caused by a
number of factors, including, but not limited to the factors and conditions
which are described under the headings "Results of Operations," and "Backlog,"
as well as the competitive and pricing pressures related to all contracts,
either already in the Company's backlog, or which the Company is pursuing.
Further information on the factors that could affect the Company's financial
results are included in the Company's other SEC filings, including the Form
10-KSB for the year ended April 30, 2000. The reader is cautioned that the
Company does not have a policy of updating or revising forward-looking
statements and thus he or she should not assume that silence by management of
the Company over time means that actual events are bearing out as estimated in
such forward-looking statements.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is now, and may from time to time in the future be, involved in
litigation in the ordinary course of its business that is not expected to have a
material adverse impact on the Company or its financial affairs.
Item 3. Defaults Upon Senior Securities
Under terms the First Amendment to the Loan and Security Agreement entered into
by the Company and its senior lender, the Company is prohibited from making
principle and interest payments to certain holders of subordinated debt.
Accordingly, the second quarterly payment of interest, and the first semi-annual
payment of principal (totaling $24,960 and $156,000 respectively), due July 31,
2000, was not made to the former stockholders of DCI, Inc. on the $1,248,000
promissory note issued by the Company at the time of the acquisition. In
addition, the second quarterly payment of interest ($12,500), due July 31, 2000,
was not made to Kansas City Equity Partners (KCEP) on the $500,000 subordinated
debenture issued by the Company at the time of acquisition of DCI, Inc. The
subordination agreements entered into between the Company's senior lender and
each of KCEP and the former DCI, Inc. stockholders significantly limit the
remedies now available to those junior debt holders. As soon as its operating
results permit, the Company plans to negotiate with its senior lender the
ability to make the debt payments that were due in July.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10 (ee) - First Amendment to Loan and Security
Agreement Exhibit 27 - Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
three months ended July 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
September 14, 2000 /s/ Thomas C. Cargin
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Date Thomas C. Cargin, Vice President of Finance
and Administration, Secretary, and Principal
Accounting Officer
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EXHIBIT INDEX
Number Description
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10 (ee) First Amendment to Loan and Security Agreement
27 Financial Data Schedule (SEC Use Only)
