<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
---------------------------
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ________________
Commission file number 0-22760
-----------------------------------------
AIRPORT SYSTEMS INTERNATIONAL, INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Kansas 48-1099142
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11300 West 89th Street
Overland Park, Kansas 66214
---------------------------------------------
(address of principal executive offices)
(913)495-2614
-----------------------------------
(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 on March 1, 2000
<PAGE> 2
AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
FORM 10-QSB
QUARTER ENDED JANUARY 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 Operation 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 11
Item 5a - Acquistion or Disposition of Assets 11
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
EXHIBIT INDEX 14
</TABLE>
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
January 31, 2000 April 30, 1999
---------------- --------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents $ 225 $ 152
Accounts receivable, net 6,774 5,968
Inventories, net 4,379 3,947
Other current assets 320 690
-------- --------
Total current assets 11,698 10,757
Property and equipment, at cost 3,437 3,232
Accumulated depreciation and amortization (1,942) (1,696)
-------- --------
1,494 1,536
Other assets 140 30
-------- --------
Total assets $ 13,332 $ 12,323
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,321 $ 1,085
Accrued expenses 1,798 1,828
Notes payable to bank 2,000 1,325
Current portion of long-term debt 20 20
-------- --------
Total current liabilities 5,139 4,258
Long-term debt, less current portion 1,155 1,177
Stockholders' equity:
Common stock 22 22
Additional paid-in capital 7,218 7,218
Accumulated deficit (202) (352)
-------- --------
Total stockholders' equity 7,038 6,888
-------- --------
Total liabilities and stockholders' equity $ 13,332 $ 12,323
======== ========
</TABLE>
NOTE: The balance sheet at April 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31 JANUARY 31
---------------------- ------------------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Sales $4,292 $4,080 $13,167 $12,048
Cost of products sold 3,047 3,367 9,253 9,187
------ ------ ------- -------
Gross margin 1,245 713 3,914 2,861
Selling, general and administrative expenses 979 1,087 2,840 3,331
Research and development expenses 188 419 776 1,413
------ ------ ------- -------
Operating income (loss) 78 (793) 298 (1,883)
Other income (expense):
Interest expense (62) (30) (148) (45)
Other, net (0) 3 (0) 16
------ ------ ------- -------
Income (loss) before income taxes 16 (820) 150 (1,912)
Provision (benefit) for income taxes 0 (295) 0 (687)
------ ------ ------- -------
Net income (loss) $ 16 ($ 525) $ 150 ($1,225)
====== ====== ======= =======
Income (loss) per share:
Basic $0.01 ($0.24) $ 0.07 ($ 0.55)
======= ======= ======= =======
Diluted $0.01 ($0.24) $ 0.06 ($ 0.55)
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
---------------------
2000 1999
----- -------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income (loss) $ 150 ($1,225)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 137 339
Changes in operating assets and liabilities:
Accounts receivable, net (806) 1,848
Inventories, net (393) 12
Accounts payable 236 (473)
Accrued expenses (75) (1,940)
Other, net 370 (592)
----- -------
Net cash used in operating activities (381) (2,031)
INVESTING ACTIVITIES:
Purchases of property and equipment (204) (228)
----- -------
Net cash used in investing activities (204) (228)
FINANCING ACTIVITIES:
Short-term borrowings from bank 675 300
Net repayments on note payable to bank 0 (250)
Principal payments on long-term debt (16) (13)
----- -------
Net cash provided by (used in) financing activities 659 37
Net increase (decrease) in cash and cash equivalents 73 (2,222)
Cash and cash equivalents at beginning of period 152 2,449
----- -------
Cash and cash equivalents at end of period $ 225 $ 227
===== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 70 $ 67
===== =======
Income taxes $ 0 $ 0
===== =======
</TABLE>
See notes to condensed consolidated financial statements
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AIRPORT SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 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 subsidiary, ASII International, Inc., a foreign
sales corporation incorporated in Barbados. All intercompany balances and
transactions have been eliminated. The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended January 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 2000. For further information, refer to the consolidated financial
statements and footnotes included in the Airport Systems International Inc. and
Subsidiary annual report on Form 10-KSB for the year ended April 30, 1999.
2. Notes Payable to Banks
The Company has a line of credit agreement with a bank which expires September
1, 2000. The agreement allows for borrowings up to a maximum of $6,000,000, at
an interest rate of, at the Company's option, either Libor plus 250 basis points
(8.68% at January 31, 2000) or prime plus 25 basis points (9.0% at January 31,
2000), secured by accounts receivable, inventory and equipment. Borrowings at
January 31, 2000 were $2,000,000.
4. Earnings Per Share
Under SFAS No, 128, basic earnings per share is calculated by dividing income
available to common stockholders by weighted average common shares outstanding.
Fully diluted earnings per share includes the effect of all potentially dilutive
securities, including stock options. A reconciliation of the numerators and the
denominators of the basic and diluted per-share computations is as follows:
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The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended January 31, Ended January 31,
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net Income (loss) $ 16,000 $(525,000) $ 150,000 $(1,225,000)
Denominator for basic
earnings per share - weighted
average shares 2,230,500 2,230,500 2,230,500 2,230,500
Effect of dilutive securities:
Stock options 152,305 -- 151,131 --
Denominator for diluted
earnings per share -
adjusted weighted average
shares with assumed conversions 2,382,805 2,230,500 2,381,631 2,230,500
Earnings (loss) per share - Basic $0.01 $(0.24) $0.07 $(0.55)
Earnings (loss) per share - Dilutive $0.01 $(0.24) $0.06 $(0.55)
</TABLE>
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 Forms
10QSB for the quarters ended July 31 and October 31, 1999 and the Form 10-KSB
for the year ended April 30, 1999. The reader is cautioned that the Company does
not have a policy of updating or revising forward-looking statements and thus he
or she should not assume that silence by management of the Company over time
means that actual events are bearing out as estimated in such forward-looking
statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 2000 were up 5% to $4.3 million compared
to $ 4.1 million in the third quarter of fiscal 1999. Sales for the first nine
months of fiscal 2000 were up 9% to $13.2 million compared to $12.0 million for
the first nine months of fiscal 1999. The increase in sales for both the quarter
and year to date is due to an increase in units shipped as a result of increased
orders compared to the same periods of fiscal 1999.
Gross margin for the third quarter of fiscal 2000 was 1.2 million (29% of sales)
compared to $714,000 (18% of sales) for the third quarter of fiscal 1999. Gross
margin for the first nine months of fiscal 2000 was $3.9 million (30% of sales)
compared to $2.9 million (24% of sales) for the first nine months of fiscal
1999. The higher gross margins reflect higher sales for both the quarter and the
nine months ended January 31, 2000, as well as higher prices received on
products sold, primarily the result of the shipment of spares parts contracts
and contracts sold on a sole source basis. In addition, the Company has
experienced lower production and installation costs related to its new
instrument landing system as compared to the same periods last year. The Company
has also experienced lower manufacturing costs per unit as a result of higher
sales volume. The Company expects gross margins to continue to fluctuate due to
the timing and mix of contract awards and delivery of products and services.
Selling, general, and administrative expenses decreased 10% to $979,000 from
$1.1 million during the third quarter of fiscal 2000 compared to the third
quarter of fiscal 1999. As a percent of sales, selling, general, and
administrative expenses decreased from 27% in the third quarter of fiscal 1999
to 23% in the third quarter of fiscal 2000. Selling, general, and administrative
expenses for the first nine months of fiscal 2000 decreased 15% to $2.8 million
from $3.3 million in the first nine months of fiscal 1999. As a percent of
sales, selling, general, and administrative expenses decreased from 28% in the
first nine months of fiscal 1999 to 22% in the first nine months of fiscal 2000.
The decrease, as a percent of sales, reflects the fact that though sales
increased in both periods over last year, selling, general and administrative
expenses decreased, due primarily to decreased marketing and administrative
expenses.
Research and development expenses decreased during the third quarter of fiscal
2000 to $188,000 from $419,000 in the third quarter of fiscal 1999. In the first
nine months of fiscal 2000, research and development expenses decreased to
$776,000 from $1,413,000 for the first nine months of fiscal 1999. The decrease
for both periods is a result of decreased labor and expenses related to
development work on the new Category II\III Instrument Landing System.
Expenditures made during the first nine months of fiscal 2000 were primarily to
obtain FAA approval of the new system, variants of the new system and approval
for FAA maintenance takeover. Approval of the new system was obtained in the
second quarter of fiscal 2000, while approval of the variants and FAA
maintenance take over was obtained in the third quarter of fiscal 2000.
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Interest expense increased from $30,000 to $62,000 for the third quarter of
fiscal 2000 compared to the third quarter of fiscal 1999, and from to $45,000 to
$148,000 for the first nine months of fiscal 2000 due to an increase in the
average debt obligations outstanding compared to the prior year period.
No income tax provision was recorded for the third quarter and the first nine
months of fiscal 2000, reflecting the use of net operating loss carryforwards
available to the Company. This compares to estimated tax benefits of $295,000
(36% of the loss before income taxes) and $687,000 (36% of the loss before
income taxes) recorded for the third quarter and first nine months of fiscal
1999.
Net income for the third quarter of fiscal 2000 was $16,000, compared with a
fiscal 1999 third quarter net loss of $525,000. Net income for the first nine
months of fiscal 2000 was $150,000, compared with net loss in the first nine
months of fiscal 1999 of $1,225,000. The net income for the three months and
nine months ended January 31, 2000 was due primarily to increased sales, higher
prices on units sold, decreased research and development expenses, and decreased
selling, general and administrative expenses, as previously mentioned.
BACKLOG
The Company's backlog was $1.7 million at January 31, 2000, compared to $7.9
million at October 31, 1999, and $4.9 million at April 30, 1999. Approximately
51% of the backlog at January 31, 2000, was represented by three contracts. The
contracts call for providing navaid equipment and services to Asia (15% of
backlog), South America (21% of backlog) and the Middle East (15% of backlog).
The Company expects to ship substantially all the total backlog through the end
of fiscal 2000.
The decline in backlog as compared to April 30, 1999, is due to delays in the
procurement cycle of domestic and international programs the Company is actively
pursuing. This includes delays in the release of requests for proposals as well
as the selection and award of contracts by civil aviation authorities. Delays of
this nature are not uncommon due to the size and scope of the program, and the
international nature of some of the programs.
Despite the procurement delays, the Company remains optimistic regarding the
prospects for navaids and airfield lighting products due to several factors.
First, the Company contiues to see improving world-wide demand for navaid
products, based upon the number, size and quality of opportunities on which it
is presently working. This increase in demand appears to be driven by the
realization of the aviation community that GPS based landing systems will not,
at least in the near-term, be technically capable of replacing traditional ILS
systems as the primary means of approach to landing guidance systems. In
addition it appears that a basic network of VOR (very high omni-range)
transmitters will be required in the enroute navigation structure to back-up GPS
based navigation systems. Second, the completion of the new Category II/III ILS
and the addition of the airfield lighting line has allowed the Company to
participate in more procurement
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opportunities in both its traditional market, and new markets during fiscal
2000. The Company has also improved its manufacturing processes allowing it to
book and ship several orders received during the second and third quarter of
fiscal 2000. The Company believes this to be a significant competitive
advantage.
Although the Company is optimistic about its prospects for the remainder of
fiscal 2000, any delays and or cancellation of procurement opportunities will
negatively impact the Company's revenue during the fourth quarter and into
fiscal 2001, and could result in operating losses or breakeven operating results
in those periods. The amount of net income, net losses or the ability to achieve
breakeven operating results, is difficult to ascertain due to uncertainties in
the timing of the receipt of orders. The Company expects backlog and bidding
activities as well as contract awards to continue to fluctuate due to the size
and timing of contract programs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of $381,000 was used by operations for the first nine months of fiscal
2000 compared to $2.0 million in the first nine months of fiscal 1999. The
decrease in cash used was primarily due to net income for the period, as
compared to the net loss of the prior period; lower use of cash resulting from
changes in working capital as compared to the prior year period ($668,000
compared to $1,145,000), offset by lower depreciation and amortization.
Cash used in investing activities was $204,000 for the first nine months of
fiscal 2000 compared to $228,000 used in the first nine months of fiscal 1999.
The decrease is the result of lower purchases of property and equipment.
Cash provided by financing activities was $659,000 in the first nine months of
fiscal 2000 compared to cash provided of $37,000 in the first nine months of
fiscal 1999, due primarily to increased short term borrowing.
The Company expects that it will meet its ongoing requirements for working
capital and capital expenditures from a combination of cash expected to be
generated from operations, existing cash and cash equivalents and available
borrowings under its existing revolving credit facility.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 5A. ACQUISITION OR DISPOSITION OF ASSETS
On February 7, 2000, Airport Systems International, Inc., a Kansas corporation
("ASII"), acquired all of the issued and outstanding shares of common stock,
$1.00 par value per share of DCI, Inc., a Kansas corporation ("DCI"), from its
stockholders, Chris I. Hammond, Larry C. Klusman and William D. Cook (the
"Sellers"). DCI is an electrical contract manufacturing company. ASII intends to
continue the operations of DCI.
ASII paid $1,234,000 in cash, issued 150,000 shares of its common stock and
delivered a four-year promissory note in the amount of $1,248,000 in
consideration for the common acquired from Sellers. The total consideration for
the acquisition from the Sellers was $2,819,500.
Immediately following the acquisition of the common stock of DCI, DCI acquired
certain assets of KHC of Lenexa, L.L.C., a Kansas limited liability company
("KHC"). KHC was owned by the Sellers and had a leasehold interest in certain
real property that was the subject of City of Lenexa, Kansas Variable Rate
Demand Industrial Development Revenue Bonds (DCI Project) Series 1998 totaling
$2,570,000 and other related documents (the "IRB Documents"). DCI paid
$1,290,000 in cash as consideration for the assets acquired from KHC. DCI also
assumed certain liabilities and obligations related to the IRB Documents.
The asset and stock acquisitions were financed through a Loan and Security
Agreement entered into by and among ASII, DCI and Bank of America, N.A. ("BOA")
as of February 7, 2000, providing, among other things, a revolving loan in the
amount of $8,000,000, term loans from BOA in the amount of $1,178,000 and an
irrevocable direct-pay letter of credit facility in the amount of $2,599,573.
On February 7, 2000, ASII also entered into a financing arrangement with KCEP
Ventures II, L.P. a Kansas limited partnership ("KCEP"). In connection with this
arrangement, ASII sold and issued to KCEP 198,413 shares of ASII common stock
for $500,000 ($2.52 per share), a convertible subordinated debenture in an
amount of $500,000 with a conversion price of $3.00 per share, and a warrant
granting KCEP the right to purchase 45,635 shares of ASII common stock for
$150,595.50 ($3.30 per share). ASII plans to use the proceeds from the sale of
the securities for general working capital purposes and to fund potential future
acquisitions in the electrical contract manufacturing business.
The Stock Purchase Agreement with Sellers, the Asset Purchase Agreement with
KHC, the
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Investment Agreement with KCEP, the Loan and Security Agreement with BOA and the
press release issued by ASII in connection with the acquisition and financing
are filed as exhibits to this report and are incorporated herein by reference.
The description of the acquisition and financing set forth herein does not
purport to be complete and is qualified by the provisions of the agreements
noted above and attached hereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K:
Form 8-K filed February 15, 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
March 10, 2000 /s/ Thomas C. Cargin
- ------------------------ ------------------------------------------------
Date Thomas C. Cargin, Vice President of Finance
and Administration, Secretary, and Principal
Accounting Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C>
27 Financial Data Schedule (SEC Use Only)
</TABLE>
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AIRPORT
SYSTEMS INTERNATIONAL, INC. FORM 10-QSB FOR THE QUARTER ENDED JANUARY 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AS EXHIBIT 27 OF THE
AIRPORT SYSTEMS INTERNATIONAL, INC. FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 225
<SECURITIES> 0
<RECEIVABLES> 6,814
<ALLOWANCES> 40
<INVENTORY> 4,379
<CURRENT-ASSETS> 11,696
<PP&E> 3,437
<DEPRECIATION> 1,942
<TOTAL-ASSETS> 13,332
<CURRENT-LIABILITIES> 5,139
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,036
<SALES> 13,167
<TOTAL-REVENUES> 13,167
<CGS> 9,253
<TOTAL-COSTS> 9,253
<OTHER-EXPENSES> 3,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 150
<INCOME-TAX> 0
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.06
</TABLE>
