1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 15, 2000 (February 7, 2000)
- ------------------------------------
AIRPORT SYSTEMS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
KANSAS 0-22760 48-1099142
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
11300 West 89th Street, Overland Park, Kansas 66214
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913)-495-2614
--------------
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
2
ITEM 2. 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 stock of Sellers. The total consideration for the
acquisition of common stock 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 common
share, and a warrant granting KCEP the right to purchase 45,635 shares of ASII
common stock for $150,596 ($3.30 per share). ASII used 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 the Sellers, the Asset Purchase
Agreement with KHC, the 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.
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
1. Report of Ernst & Young LLP, Independent Auditors
2. DCI, Inc. and KHC of Lenexa, L.L.C. Combined Balance Sheets -
September 30, 1999 and December 31, 1998.
3. DCI, Inc. and KHC of Lenexa, L.L.C. - Combined Statements of
Income - Nine month period ended September 30, 1999 and the
year ended December 31, 1998.
4. DCI, Inc. and KHC of Lenexa, L.L.C. - Combined Statements of
Stockholders' Equity - Nine month period ended September 30,
1999 and the year ended December 31, 1998.
5. DCI, Inc. and KHC of Lenexa, L.L.C. - Combined Statements of
Cash Flows - Nine month period ended September 30, 1999 and
the year ended December 31, 1998.
6. DCI, Inc. and KHC of Lenexa, L.L.C. - Notes to Combined
Financial Statements - September 30, 1999 and December 31,
1998.
4
COMBINED FINANCIAL STATEMENTS
DCI, INC. AND KHC OF LENEXA, L.L.C.
FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1999 AND THE YEAR
ENDED DECEMBER 31, 1998
WITH REPORT OF INDEPENDENT AUDITORS
5
DCI, Inc. and KHC of Lenexa, L.L.C.
Combined Financial Statements
For the nine-month period ended
September 30, 1999 and the year
ended December 31, 1998
CONTENTS
Report of Independent Auditors..............................................1
Audited Combined Financial Statements
Combined Balance Sheets.....................................................2
Combined Statements of Income...............................................4
Combined Statements of Stockholders' Equity.................................5
Combined Statements of Cash Flows...........................................6
Notes to Combined Financial Statements......................................7
6
Report of Independent Auditors
The Boards of Directors
DCI, Inc. and KHC of Lenexa, L.L.C.
We have audited the accompanying combined balance sheets of DCI, Inc. and KHC of
Lenexa, L.L.C. (collectively, the Company) as of September 30, 1999 and December
31, 1998, and the related statements of income, stockholders' equity and cash
flows for the nine-month period ended September 30, 1999 and the year ended
December 31, 1998. The financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of DCI, Inc. and KHC of
Lenexa, L.L.C. as of September 30, 1999 and December 31, 1998, and the results
of their operations and their cash flows for the nine-month period ended
September 30, 1999 and the year ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
January 5, 2000
7
DCI, Inc. and KHC of Lenexa, L.L.C.
Combined Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------------------
ASSETS
Current assets:
Cash $ 100 $ 26,610
Restricted cash and temporary investments 1,371,733 1,401,118
Investments 3,891 570,561
Accounts receivable, net of allowance for doubtful
accounts of $10,000 in 1999 and $30,000 in 1998 1,263,286 1,125,378
Inventories 1,868,013 1,984,088
Deferred income taxes 415,471 160,000
Other 1,306 592
---------------------------
Total current assets 4,923,800 5,268,347
Property and equipment, net 2,654,297 2,727,947
Deferred income taxes -- 73,375
Intangible assets:
Bond issuance costs, net of accumulated amortization of
$5,120 in 1999 and $1,587 in 1998 89,349 92,882
License agreement, net of accumulated amortization of
$3,704 in 1999 and $1,204 in 1998 46,296 48,796
Goodwill, net of accumulated amortization of
$1,852 in 1999 and $602 in 1998 23,148 24,398
Other 4,369 4,635
---------------------------
Total assets $7,741,259 $8,240,380
===========================
8
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 380,368 $ 895,000
Accounts payable 487,990 986,850
Accrued expenses 979,430 647,525
Investment margin account -- 201,530
Notes payable to stockholders 61,692 163,092
Current portion of long-term debt 183,624 197,833
---------------------------
Total current liabilities 2,093,104 3,091,830
Long-term debt, less current portion 3,546,665 3,658,401
Deferred income taxes 64,099 --
Stockholders' equity:
Common stock - $1 par value:
Authorized shares - 500
Issued and outstanding shares - 300 300 300
Additional paid-in capital 8,700 8,700
Retained earnings 2,028,391 1,481,149
---------------------------
Total stockholders' equity 2,037,391 1,490,149
===========================
Total liabilities and stockholders' equity $7,741,259 $8,240,380
===========================
See accompanying notes.
9
DCI, Inc. and KHC of Lenexa, L.L.C.
Combined Statements of Income
NINE-MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
-----------------------------
Net sales $ 6,105,069 $ 7,599,531
Cost of sales 3,207,349 4,374,932
-----------------------------
Gross profit 2,897,720 3,224,599
Selling, general and administrative expenses 1,815,764 2,647,427
-----------------------------
Operating income 1,081,956 577,172
Other income (expense):
Interest expense (204,186) (195,279)
Interest income 46,255 25,028
Other, net 17,180 68,447
-----------------------------
(140,751) (101,804)
-----------------------------
Income before income taxes 941,205 475,368
Provision for income taxes 393,963 130,721
=============================
Net income $ 547,242 $ 344,647
=============================
See accompanying notes.
10
DCI, Inc. and KHC of Lenexa, L.L.C.
Combined Statements of Stockholders' Equity
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
-----------------------------------------------------------
Balance at January 1, 1998 300 $300 $8,700 $1,136,502 $1,145,502
Net income -- -- -- 344,647 344,647
-----------------------------------------------------------
Balance at December 31, 1998 300 300 8,700 1,481,149 1,490,149
Net income -- -- -- 547,242 547,242
===========================================================
Balance at September 30, 1999 300 $300 $8,700 $2,028,391 $2,037,391
===========================================================
See accompanying notes.
11
DCI, Inc. and KHC of Lenexa, L.L.C.
Combined Statements of Cash Flows
NINE-MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------------------
OPERATING ACTIVITIES
Net income $ 547,242 $ 344,647
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 209,421 184,843
Deferred income taxes (117,997) (154,042)
Net change in unrealized gains on investments 117,788 (88,462)
Realized gains on investments (131,026) --
Proceeds from sales of investments 579,908 49,245
Changes in operating assets and liabilities, net
of the Colt Technology
Corporation acquisition:
Accounts receivable, net (137,908) (480,133)
Inventories 116,075 (881,905)
Other current assets (714) 25,017
Accounts payable (498,860) 463,254
Accrued expenses 331,905 86,211
------------------------------
Net cash provided by (used in) operating activities 1,015,834 (451,325)
INVESTING ACTIVITIES
Purchase of license agreement -- (50,000)
Purchases of property and equipment (128,222) (1,274,304)
Purchase of certain assets of Colt Technology
Corporation -- (865,000)
Change in restricted cash and temporary investments 29,385 (1,401,118)
------------------------------
Net cash used in investing activities (98,837) (3,590,422)
FINANCING ACTIVITIES
Bond issuance costs -- (94,469)
Net draws (repayments) on investment margin account (201,530) 201,530
Proceeds received from note payable 2,695,766 915,000
Principal payments on note payable (3,210,398) (120,000)
Proceeds from issuance of notes payable to stockholders 4,000 151,109
Principal payments on notes payable to stockholders (105,400) (163,460)
Proceeds from issuance of long-term debt 25,000 3,311,225
Principal payments on long-term debt (150,945) (161,905)
------------------------------
Net cash provided by (used in) financing activities (943,507) 4,039,030
------------------------------
Net decrease in cash (26,510) (2,717)
Cash at the beginning of period 26,610 29,327
------------------------------
Cash at the end of period $ 100 $ 26,610
==============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 206,134 $ 182,007
==============================
Income taxes $ 306,829 $ 49,061
==============================
See accompanying notes.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of DCI, Inc. (DCI) and
KHC of Lenexa, L.L.C. (KHC) (collectively, the Company), as the companies have
mutual ownership, common management and common business activities. All
significant intercompany balances and transactions have been eliminated in
combination.
FORMATION AND NATURE OF BUSINESS
DCI designs, manufactures and markets both standard and customized panel
instruments as well as liquid crystal displays (LCD) throughout the United
States. DCI also provides customized contract manufacturing, micro assembly and
design engineering services. Panel instruments are sold directly to end users as
well as equipment manufacturers for applications in all major industries. LCDs
are also sold to equipment manufacturers in a variety of industries including
the military. The Company's contract manufacturing service includes both build
to order and turnkey products of their own design, utilizing a variety of
technologies. Micro assembly utilizes wire bonded chip on board and chip on
glass technology in addition to surface mount and thick film technology to
produce miniature LCD modules and electronic assemblies.
KHC is a limited liability company which is wholly-owned by the stockholders of
DCI. KHC owns and leases to DCI its principal manufacturing facility. KHC
conducts no other operations.
ACQUISITION
In April 1998, the Company purchased substantially all of the assets and
operations of the contract electronic assembly manufacturing division of Colt
Technology Corporation. The acquisition was accounted for as a purchase and,
accordingly, the accompanying financial statements include the results of
operations of the acquired business from the date of acquisition. The assets
acquired were recorded at their estimated fair values as of the date of
acquisition. The cost of the acquisition totaled $865,000.
Aggregate purchase price in excess of the acquired assets, which amounted to
$25,000, has been classified as goodwill and is being amortized using the
straight-line method over 15 years.
13
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following supplemental pro forma financial information presents the combined
historical results of operations of the Company and Colt Technology Corporation
as though the acquisition had occurred at the beginning of 1998. The pro forma
information is unaudited and not necessarily indicative of the results of the
Company that would have occurred had the acquisition occurred at the beginning
of 1998 nor are they necessarily indicative of future results.
YEAR ENDED
DECEMBER 31,
1998
------------
(Unaudited)
Revenues $7,850,000
Net income 399,000
RESTRICTED CASH AND TEMPORARY INVESTMENTS
As more fully described in Note 4, the Company issued Industrial Revenue Bonds
totaling $2,570,000 during 1998. The unexpended proceeds from the Industrial
Revenue Bonds have been classified as restricted cash and temporary investments
in the accompanying combined balance sheets since certain amounts have been
invested in highly liquid securities. All such cash and temporary investments
are reserved for future equipment additions.
INVESTMENTS
Investment securities have been classified as trading securities and are
"marked-to-market" with the resulting realized and unrealized gains and losses
included in earnings. Realized gains and losses are determined by the specific
identification method. Market adjustments, fees, interest and gains or losses on
the sale of trading securities are considered to be a normal part of operations
and are included in other income.
INVENTORIES
Inventories are carried at the lower of cost, determined using the first-in,
first-out (FIFO) method, or market.
14
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the following estimated useful lives:
YEARS
----------
Land improvements 15-20
Building and improvements 31.5-40
Machinery and equipment 5-10
Office furniture, fixtures and equipment 5-10
Vehicles 5
INTANGIBLE ASSETS
Certain costs incurred in connection with the issuance of the Industrial Revenue
Bonds have been capitalized and are being amortized using the straight-line
method over 20 years, the life of the related bonds.
The Company has recorded a certain technology license at cost and is amortizing
such cost over 15 years, the life of the related license.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the liability method is used in accounting for income taxes, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the combined
financial statements and related footnotes. Actual results could differ from
those estimates.
15
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable consist of obligations of manufacturers in a variety of
industries. The Company generally does not require collateral or other security
on its accounts when trade credit is granted. Credit risk is controlled by
management through credit limits and credit approvals. Credit losses are
provided for in the Company's combined financial statements and have generally
been within management's expectations.
CONCENTRATIONS
The Company had net sales amounting to 36% and 14% of total net sales from one
customer for the nine-month period ended September 30, 1999 and the year ended
December 31, 1998, respectively. At September 30, 1999 and December 31, 1998,
53% and 28%, respectively, of the Company's accounts receivable were due from
this customer.
ADVERTISING
Advertising costs, which are expensed as incurred, totaled approximately $69,000
and $154,000 for the nine-month period ended September 30, 1999 and the year
ended December 31, 1998, respectively.
2. INVENTORIES
Inventories at September 30, 1999 and December 31, 1998 consist of the
following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
-----------------------------------
Raw materials $ 1,481,712 $ 1,711,916
Work-in-process 432,952 440,177
Finished goods 143,465 34,014
Allowance for obsolescence (190,116) (202,019)
===================================
$ 1,868,013 $ 1,984,088
===================================
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3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 and December 31, 1998 consist of
the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------------------
Land and improvements $ 665,021 $ 665,021
Building and improvements 912,572 912,572
Machinery and equipment 1,738,106 1,690,219
Office furniture, fixtures and equipment 104,810 91,798
Vehicles 144,159 109,826
Construction in process 32,990 --
-------------------------------
3,597,658 3,469,436
Less accumulated depreciation 943,361 741,489
-------------------------------
$2,654,297 $2,727,947
===============================
4. LONG-TERM DEBT
Long-term debt as of September 30, 1999 and December 31, 1998 consists of the
following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------------------
Industrial revenue bond, variable interest rate (3.95% as of
September 30, 1999), due in annual principal payments
ranging from $100,000 to $200,000 commencing October 2000
and continuing until maturity in October 2018,
collateralized by property and equipment and restricted
cash and temporary investments totaling $1,371,733 at
September 30, 1999 as well as an irrevocable letter of
credit in favor of the Bond Trustee up to a maximum
amount of $2,599,573 through September 2001. $2,570,000 $2,570,000
17
4. LONG-TERM DEBT (CONTINUED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------------------
Note payable to bank, interest at 8.11%, payable in monthly
installments of $11,285, including interest. During May
2001, the interest rate will be adjusted to the weekly
Treasury bill rate plus 2.5%; final payment is due in
April 2003, secured by inventory, accounts receivable and
certain equipment. $ 610,105 $ 672,818
Note payable to bank, interest at 8.2%, payable in monthly
installments of $5,039, including interest; final payment
is due in November 2002, secured by certain equipment. 171,715 205,149
Note payable to bank, interest at 9%, payable in monthly
installments of $1,943, including interest; final payment
of principal and accrued interest is due in January 2002,
secured by a first mortgage on certain real property and
the personal guarantees of the Company's stockholders. 170,478 176,355
Note payable to bank, interest at 7.67%, payable in monthly
installments of $1,751, including interest; final payment
due in January 2012, secured by a second mortgage on
certain real property and the personal guarantees of the
Company's stockholders. 158,145 164,027
Note payable to Small Business Administration, interest at
7.81%, payable in monthly installments of $3,087,
including interest; final payment due in February 2001,
secured by certain equipment and the personal guarantees
of the Company's stockholders. 11,764 37,918
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4. LONG-TERM DEBT (CONTINUED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------------------
Various notes collateralized by certain property and
equipment with interest rates ranging from 8% to 8.75%.
Payable in monthly installments totaling $1,896,
including interest; final payments due between October
1999 and March 2001. $ 38,082 $ 29,967
-------------------------------
Total long-term debt 3,730,289 3,856,234
Less current portion 183,624 197,833
-------------------------------
$3,546,665 $3,658,401
===============================
Pursuant to the terms of the bond agreement, the Company is subject to various
restrictive covenants which, among other things, require the maintenance of
certain financial performance ratios, require a minimum of $1.2 million in
tangible net worth (as defined) and adhere to certain limitations on
indebtedness.
The aggregate amounts of principal to be paid on long-term debt during each of
the next five years ending September 30 and thereafter are as follows:
2000 $ 183,624
2001 279,380
2002 528,976
2003 338,759
2004 335,310
Thereafter 2,064,240
==========
$3,730,289
==========
5. NOTE PAYABLE
The Company has available a $1,000,000 line-of-credit agreement. Interest on the
line of credit is payable monthly at 0.5% over prime (9% at September 30, 1999).
Unpaid principal and outstanding accrued interest is due in May 2000. The line
of credit is secured by accounts receivable, inventories and the personal
guarantees of the Company's stockholders. At September 30, 1999 and December 31,
1998, $380,368 and $895,000, respectively, were outstanding under the line of
credit.
19
6. INCOME TAXES
The Company's provision for income taxes consists of the following:
NINE-MONTH
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------------------
Current tax expense:
Federal $ 470,376 $ 284,763
State 41,584 --
-------------------------------
Total current tax expense 511,960 284,763
Deferred tax expense (benefit):
Federal (135,497) (154,042)
State 17,500 --
-------------------------------
Total deferred tax benefit (117,997) (154,042)
-------------------------------
$ 393,963 $ 130,721
===============================
The difference between the reported provision for income taxes and the amount of
tax determined by applying the federal statutory income tax rate to income
before taxes is reconciled as follows:
NINE-MONTH PERIOD ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
--------------------------------------------------
AMOUNT RATE AMOUNT RATE
--------------------------------------------------
Income tax expense at federal
statutory rate $ 320,009 34.0% $ 161,625 34.0%
State tax expense, net 46,590 5.0 14,458 3.0
State tax credits earned -- -- (45,000) (9.5)
State tax credits forfeited 80,985 8.6 -- --
Valuation of temporary
differences (59,372) (6.3) -- --
Other 5,751 0.6 (362) --
--------------------------------------------------
$ 393,963 41.9% $ 130,721 27.5%
==================================================
20
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes. Significant components of deferred tax
assets and liabilities are presented below:
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------------------
Deferred tax assets:
Accounts receivable $ -- $ 5,000
Inventory 356,983 185,000
Accrued expenses 58,488 10,000
State tax credits -- 98,375
----------------------------
Total deferred tax assets 415,471 298,375
Deferred tax liabilities:
Property and equipment 64,099 25,000
Unrealized gains on investments -- 40,000
----------------------------
Total deferred tax liabilities 64,099 65,000
----------------------------
Net deferred tax assets $351,372 $233,375
============================
As a result of certain employment reductions during 1999, the Company was
required to forfeit approximately $81,000 of state tax credits previously
earned. In connection therewith, the Company's temporary differences have been
revalued using a higher tax rate and, accordingly, its deferred tax assets and
liabilities have been adjusted.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the combined balance sheets for cash,
restricted cash and temporary investments, long-term debt and the note payable
approximate their fair values at the combined balance sheet dates.
21
8. RELATED-PARTY TRANSACTIONS
In connection with the formation of the Company, the Company entered into
various long-term notes payable to the stockholders which totaled $61,692 and
$163,092 at September 30, 1999 and December 31, 1998, respectively. The notes
bear interest at 8% and are due on demand. Interest expense related to such
notes amounted to $6,744 and $13,541 for the nine-month period ended September
30, 1999 and the year ended December 31, 1998, respectively. Interest payable to
the stockholders at September 30, 1999 and December 31, 1998 amounted to $2,881
and $2,175, respectively.
9. PROFIT SHARING PLAN
The Company sponsors a 401(k) and profit sharing plan which covers substantially
all employees of the Company. Pursuant to the terms of the plan, the employees
may contribute up to 15% of their annual compensation to the plan, subject to
Internal Revenue Code maximum limitations. The Company may match a portion of
the employee contributions based on a discretionary percentage of the employee's
contribution as determined annually by the Company's Board of Directors. During
the nine months ended September 30, 1999 and the year ended December 31, 1998,
the Company contributed $45,408 and $16,228, respectively, to the plan.
10. YEAR 2000 (UNAUDITED)
The Company completed an assessment and made appropriate modifications to its
operations and products for year 2000 compliance considerations. The year 2000
project cost was minimal. The Company believes that the year 2000 issue will not
pose significant operational problems to its computer systems, customers,
vendors or products. However, if third parties are unable to meet their
obligations to the Company because of third-party year 2000 compliance issues,
the year 2000 issue could have a material impact on the operations of the
Company.
11. SUBSEQUENT EVENT
Subsequent to September 30, 1999, the stockholders of DCI and KHC have each
entered into an agreement to sell all of their outstanding capital stock in DCI
and the net assets of KHC to an unrelated party for approximately $4.3 million.
The transactions are expected to close during the first quarter of fiscal 2000.
22
(b) Pro Forma Financial Information
1. Unaudited Pro Forma Combined Statement of Operations for the
year ended April 30, 1999 for Airport Systems International,
Inc. (ASII) and the year ended January 31, 1999 for DCI, Inc.
and KHC of Lenexa, L.L.C. (DCI).
2. Unaudited Pro Forma Combined Statements of Income for six
months ended October 31, 1999 for ASII and the six months
ended September 30, 1999 for DCI.
3. Notes to Unaudited Pro Forma Combined Statements of
Operations.
4. Unaudited Pro Forma combined Balance Sheet at October 31, 1999
for ASII and at September 30, 1999 for DCI.
5. Notes to Unaudited Pro Forma Combined Balance Sheet.
Airport Systems International, Inc.
ProForma Combined Statements of Operations and Balance Sheet
On February 7, 2000, ASII purchased all of the outstanding shares of
common stock of DCI. Immediately following the acquisition of its common stock,
DCI acquired certain assets of KHC. ASII reports on a fiscal year basis ending
April 30, while DCI reported on a calendar year basis. The Unaudited Pro Forma
Combined Statements of Operations include the fiscal year ended April 30, 1999
for ASII and the fiscal year ended January 31, 1999 for DCI and includes the six
months ended October 31, 1999 for ASII and the six months ended September 30,
1999 for DCI. For the Unaudited Pro Forma Statements of Operations, the
acquisition of DCI and debt incurrences and repayments are treated as if they
had taken place at the beginning of the earliest period presented. The Unaudited
Pro Forma Combined Balance Sheet at October 31, 1999 includes ASII's Balance
Sheet as of that date and DCI's balance sheet as of September 30, 1999 and
treats the acquisition as if it had taken place on October 31, 1999. In
accordance with SEC requirements, the Unaudited Pro Forma Statements of Income
include only the results of ongoing operations. The results of DCI for the
months of February and March, 1999 are not included in the Unaudited Pro Forma
Statements of Income because of the differing year ends presented for ASII and
DCI. DCI's sales and net income for the months of February and March, 1999 were
approximately $1,607,000 and $176,000 respectively.
The following unaudited pro forma combined financial information should
be read in conjunction with ASII's historical statements, as reported in ASII's
annual report on Form 10-KSB and quarterly reports on Form 10-QSB, and of DCI as
reported in the form 8-K filed February 7, 2000 and in this filing on the Form
8-K/A. The pro forma information is based on estimated pro forma adjustments,
which are subject to change. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the acquisition of
DCI been consummated in accordance with the assumptions set forth above, nor it
is necessarily indicative of future operating results or financial position.
23
UNAUDITED PROFORMA COMBINED STATEMENT OF OPERATIONS
Year-Ended April 30, 1999 for ASII and
Year-Ended January 31, 1999 for DCI
---------------------------------------------------------------------------------
Historical
----------------------------------
Proforma
Description ASII DCI Adjustments Notes Combined
------------- ---------------------------------------------------------------
Sales $ 15,944 $ 7,967 $ - $ 23,911
Cost of Goods Sold 12,623 4,523 - 17,146
---------------- -------------------------------- ----------------
Gross Margin 3,321 3,444 - 6,765
S, G, and A Expenses 4,383 2,662 156 (1),(2) 7,201
Research and Development 1,900 - - 1,900
Asset Impairment 1,299 - - 1,299
---------------- -------------------------------- ----------------
Operating Income (loss) (4,261) 781 (156) (3,636)
Other Income (Expense)
Interest Expense (119) (226) (335) (3) (680)
Interest Income 48 33 - 81
Misc Income - 210 - 210
Misc Expense - (127) - (127)
---------------- -------------------------------- ----------------
Income (loss) Before Taxes (4,332) 672 (491) (4,151)
Income Tax Provision (779) 199 - (580)
---------------- -------------------------------- ----------------
Net Income $ (3,553) $ 472 $ (491) $ (3,572)
================ ================================ ================
Basic Earnings Per Share $ (1.59) $ (1.39)
Basic Weighted Average O/S 2,230 2,578
Diluted Earnings Per Share $ (1.59) $ (1.39)
Average Shares O/S 2,230 2,578
24
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Six Months Ended October 31, 1999 for ASII
and Six Months Ended September 31, 1999 for DCI, Inc.
---------------------------------------------------------------------------------
Historical
----------------------------------
Proforma
Description ASII DCI Adjustments Notes Combined
------------- ---------------------------------------------------------------
Sales $ 8,875 $ 3,580 $ - $12,455
Cost of Goods Sold 6,205 1,852 - 8,057
--------------- -------------------------------- -----------
Gross Margin 2,670 1,727 - 4,397
S, G, and A Expenses 1,861 1,215 30 (1),(2) 3,106
Research and Development 589 - - 589
--------------- -------------------------------- -----------
Operating Income (loss) 220 512 (30) 702
Other Income (Expense)
Interest Expense (86) (194) (61) (3) (341)
Interest Income - 50 - 50
Misc Income - - - -
Misc Expense - 20 - 20
--------------- -------------------------------- -----------
Income (loss) Before Taxes 134 388 (91) 431
Income Tax Provision - 127 (127) (4) (0)
--------------- -------------------------------- -----------
Net Income $ 134 $ 262 $ 36 $ 432
=============== ================================ ===========
Basic Earnings Per Share $ 0.06 $ 0.17
Basic Weighted Average O/S 2,230 2,578
Diluted Earnings Per Share $ 0.06 $ 0.16
Average Shares O/S 2,383 2,731
25
Notes To Pro Forma Combined Statements of Operations
(1) Adjustment to eliminate DCI's historical depreciation and amortization
to reflect new depreciation and goodwill, computed using the
straight-line method over the following useful lives:
Cost Years
-------------------------------------- -----
Buildings and improvements 30
Equipment, furniture and fixtures and
transportation equipment 5
Goodwill 15
Capitalized acquisition and loan costs 3 - 15
(2) Adjustment to reflect reduced compensation paid to officers of DCI as a
result of the acquisition.
(3) Interest expense was adjusted to reflect the following:
Year-ended Six Months Ended
January 31, September 30,
Desciption 1999 1999
--------------------------------- ----------- ----------------
Interest expense on new debt (a) $ 680 $ 341
Elimination of interest expense on
ASII debt (119) (86)
Elimination of interest expense on
Old DCI debt (226) (194)
----- -----
Total $ 335 $ 61
===== =====
(a) Interest expense on new debt is computed as follows:
Interest Expense
-----------------------------
Average Year-ended Six Months Ended
------------------ January 31, September 30,
Debt Instrument Principal Rate 1999 1999
--------------- --------- ---- ---- ----
Note Payable -
Bank $2,823 8.69% $245 $123
ASII Mortgage 1,195 7.94 95 48
Sr. Bank Debt 1,041 8.69 90 45
Industrial Revenue
Bond 2,520 3.95 100 50
Subordinated debt 1,598 9.37 150 75
---- ----
Total $680 $341
==== ====
15
26
(4) Income tax expense was adjusted to reflect the expected application of
DCI taxable income to losses accumulated by ASII in prior periods had
the transaction occurred at the beginning of the period/.
27
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT OCTOBER 31, 1999 FOR AIRPORT SYSTEMS INTERNATIONAL, INC.
AND AT SEPTEMBER 30, 1999 FOR DCI, INC.
-----------------------------------------------------------
HISTORICAL PRO FORMA
-----------------------------------------------------------
PRO FORMA
ASII DCI, INC. ADJUSTMENTS NOTES COMBINED
-----------------------------------------------------------
Assets
Current assets:
Cash & cash equivalents $ 190 $ -- $ -- $ 190
Restricted cash and temporary investments -- 1,376 $ -- 1,376
Accounts receivable, net 7,203 1,263 -- 8,466
Inventories, net 4,196 1,868 (60)(1) 6,004
Other current assets 165 417 -- 582
----------------------------------------- ---------
Total current assets 11,754 4,924 (60) 16,618
Property and equipment, at cost 3,398 3,598 (485)(1) 6,511
Accumulated depreciation and amortization (1,863) (943) 943 (1,863)
----------------------------------------- ---------
1,535 2,655 458 4,648
Cost in excess of net assets acquired, net -- 23 1,796 1,819
Other assets 30 139 582 751
----------------------------------------- ---------
Total assets $ 13,319 $ 7,741 2,776 $ 23,837
========================================= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,384 $ 488 $ -- $ 1,872
Accrued expenses 1,981 979 427 (3) 3,387
Notes payable to bank 1,750 380 1,662 (4) 3,792
Current portion of long-term debt 20 184 496 (5),(6) 700
Other current liabilities -- 62 (62)(1) --
----------------------------------------- ---------
Total current liabilities 5,135 2,093 2,523 9,751
Long-term debt, less current portion 1,162 3,547 5 (5) 4,714
Deferred income taxes -- 64 -- 64
Sub-ordinated long-term debt -- -- 1,448 (6) 1,448
Stockholders' equity:
Common stock 22 1 3 (7) 26
Additional paid-in capital 7,218 8 826 (7) 8,052
Retained earnings (accumulated deficit) (218) 2,028 (2,028)(7) (218)
----------------------------------------- ---------
Total stockholders' equity 7,022 2,037 (1,199) 7,860
----------------------------------------- ---------
Total liabilities and stockholders' equity $ 13,319 $ 7,741 $ 2,777 $ 23,837
========================================= =========
28
Notes to Unaudited Pro Forma Combined Balance Sheet
(1) Adjustment to restate reported assets acquired and liabilities assumed
at estimated fair market value.
(2) Goodwill was adjusted to eliminate $23 of existing DCI goodwill, and to
record the excess of purchase cost over the estimated fair value of the
DCI net assets acquired and liabilities assumed.
(3) Adjustments to Other assets include the capitalization of $582 of
financing and acquisition related costs, including $155 paid at closing
and $427 accrued at the time of closing.
(4) Notes payable to bank was adjusted to reflect $1,662 of new short-term
borrowings under the line for the purchase of DCI ($1,507) and payment
of transaction costs at the time of closing ($155).
(5) Long-term debt was adjusted to reflect the following:
Eliminate old DCI debt $ (3,547)
Proceeds from new senior debt 1,178
Assumption of industrial revenue bond 2,570
Increase in current maturities (196)
--------
Total adjustment to long-term debt $ 5
========
(6) Adjustment to reflect issuance of subordinated long-term debt.
(7) Adjustment to reflect the elimination of the former shareholder's
investment in DCI and additional stock issued in conjunction with the
transaction.
29
(c) EXHIBITS.
10.1 Asset Purchase Agreement, dated as of January 10, 2000, by and
among Airport Systems International, Inc., KHC of Lenexa,
L.L.C., Chris I. Hammond, Larry C. Klusman and William D.
Cook.*
10.2 Stock Purchase Agreement, dated as of January 10, 2000, by and
among Airport Systems International, Inc., DCI, Inc., Chris I.
Hammond, Larry C. Klusman and William D. Cook.*
10.3 Investment Agreement, dated February 7, 2000, by and between
KCEP Ventures II, L.P. and Airport Systems International,
Inc.*
10.4 Loan and Security Agreement, dated February 7, 2000, by and
among Airport Systems International, Inc., DCI, Inc. and Bank
of America, N.A.*
10.5 Registration Rights Agreement, dated February 7, 2000, by and
among Airport Systems International, Inc., Chris I. Hammond,
Larry C. Klusman and William D. Cook.*
10.6 Investor's Rights Agreement, dated February 7, 2000, by and
among Airport Systems International, Inc. and KCEP Ventures
II, L.P.*
10.7 10% Convertible Subordinated Debenture, due February 7, 2005,
dated February 7, 2000.*
10.8 Warrant.*
10.9 Letter of Credit, Loan and Security Agreement, dated February
7, 2000, by and among Airport Systems International, Inc.,
DCI, Inc. and Bank of America, N.A.8*
99.1 Press Release dated February 8, 2000.*
*Previously filed.
30
SIGNATURE
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 hereunto duly authorized.
Date: February 15, 2000
AIRPORT SYSTEMS INTERNATIONAL, INC.
By:
--------------------------------------
Thomas C. Cargin, Vice President of
Finance and Administration, Secretary
and Principal Accounting Officer
31
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
10.1 Asset Purchase Agreement, dated as of January 10, 2000, by and
among Airport Systems International, Inc., KHC of Lenexa,
L.L.C., Chris I. Hammond, Larry C. Klusman and William D.
Cook.*
10.2 Stock Purchase Agreement, dated as of January 10, 2000, by and
among Airport Systems International, Inc., DCI, Inc., Chris I.
Hammond, Larry C. Klusman and William D. Cook.*
10.3 Investment Agreement, dated February 7, 2000, by and between
KCEP Ventures II, L.P. and Airport Systems International,
Inc.*
10.4 Loan and Security Agreement, dated February 7, 2000, by and
among Airport Systems International, Inc., DCI, Inc. and Bank
of America, N.A.*
10.10 Registration Rights Agreement, dated February 7, 2000, by and
among Airport Systems International, Inc., Chris I. Hammond,
Larry C. Klusman and William D. Cook.*
10.11 Investor's Rights Agreement, dated February 7, 2000, by and
among Airport Systems International, Inc. and KCEP Ventures
II, L.P.*
10.12 10% Convertible Subordinated Debenture, due February 7, 2005,
dated February 7, 2000.*
10.13 Warrant.*
10.14 Letter of Credit, Loan and Security Agreement, dated February
7, 2000, by and among Airport Systems International, Inc.,
DCI, Inc. and Bank of America, N.A.8*
99.1 Press Release dated February 8, 2000.*
*Previously filed.