SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2002 | ||
| OR | ||
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File No. 001-12739
AESP, INC.
(Exact name of registrant as specified in its charter)
| FLORIDA | 59-2327381 | |
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| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| 1810 N.E. 144TH STREET NORTH MIAMI, FLORIDA |
Z33181 | |
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| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (305) 944-7710
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is on accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The number of shares of the registrant’s Common Stock outstanding as of November 11, 2002 is 4,796,721 shares.
AESP, Inc. and Subsidiaries
INDEX
| Page | ||||||
| Part I. Financial Information | ||||||
| Item 1. | FINANCIAL STATEMENTS | |||||
| Condensed Consolidated Balance Sheets at December 31, 2001 and September 30, 2002 (unaudited) | 3 | |||||
| Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2002 and 2001 (unaudited) | 4 | |||||
| Condensed Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2002 (unaudited) | 5 | |||||
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (unaudited) | 6 | |||||
| Notes to Condensed Consolidated Financial Statements (unaudited) | 7 | |||||
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 | ||||
| Item 3. |
QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK |
21 | ||||
| Item 4. | CONTROLS AND PROCEDURES | 22 | ||||
| Part II. Other Information | ||||||
| Item 1. | LEGAL PROCEEDINGS | 23 | ||||
| Item 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS | 23 | ||||
| Item 3. | DEFAULTS UPON SENIOR SECURITIES | 23 | ||||
| Item 4. | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS | 23 | ||||
| Item 5. | OTHER INFORMATION | 23 | ||||
| Item 6. | EXHIBITS AND REPORTS ON FORM 8-K | 23 | ||||
2
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2002 | December 31, 2001 | ||||||||
| (unaudited) | |||||||||
Current Assets |
|||||||||
Cash |
$ | 664 | $ | 1,288 | |||||
Accounts receivable, net of allowance
for doubtful accounts of $331 at
September 30, 2002 and $233 at December
31, 2001 |
3,873 | 4,094 | |||||||
Inventories |
5,492 | 5,930 | |||||||
Income tax receivable |
135 | 148 | |||||||
Due from employees |
89 | 31 | |||||||
Prepaid expenses and other current assets |
369 | 211 | |||||||
Total current assets |
10,622 | 11,702 | |||||||
Property and equipment, net |
572 | 580 | |||||||
Goodwill, net |
640 | 643 | |||||||
Deferred tax assets |
94 | 78 | |||||||
Assets of business transferred under
contractual arrangement |
695 | 732 | |||||||
Investment in marketable equity securities |
171 | 270 | |||||||
Other assets |
120 | 200 | |||||||
TOTAL ASSETS |
$ | 12,914 | $ | 14,205 | |||||
Liabilities and Shareholders’ Equity |
|||||||||
Current Liabilities |
|||||||||
Line of Credit |
$ | 1,806 | $ | 1,546 | |||||
Bank loan payable |
783 | 456 | |||||||
Accounts payable |
3,959 | 5,163 | |||||||
Accrued expenses |
597 | 1,058 | |||||||
Income taxes payable |
104 | 52 | |||||||
Customer deposits and other |
1,286 | 449 | |||||||
Due to shareholders |
— | 152 | |||||||
Other current liabilities |
472 | 270 | |||||||
Total current liabilities |
9,007 | 9,146 | |||||||
Long term liabilities |
9 | 30 | |||||||
TOTAL LIABILITIES |
9,016 | 9,176 | |||||||
Shareholders’ Equity |
|||||||||
Preferred stock, $.001 par value; 1,000
shares authorized; none issued |
— | — | |||||||
Common stock, $.001 par value; 20,000
shares authorized; issued: 4,797 and
4,407 shares at September 30, 2002 and
December 31, 2001, respectively |
5 | 4 | |||||||
Paid-in capital |
12,525 | 12,198 | |||||||
(Deficit) |
(8,101 | ) | (6,684 | ) | |||||
Deferred Compensation |
(126 | ) | — | ||||||
Accumulated other comprehensive loss |
(405 | ) | (489 | ) | |||||
TOTAL SHAREHOLDERS’ EQUITY |
3,898 | 5,029 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 12,914 | $ | 14,205 | |||||
See accompanying notes to condensed consolidated financial statements.
3
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended | Nine Months ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net sales |
$ | 6,888 | $ | 6,406 | $ | 21,169 | $ | 21,128 | |||||||||
Operating expenses |
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Cost of sales |
5,000 | 4,413 | 14,904 | 15,166 | |||||||||||||
Selling, general and
administrative expenses |
2,681 | 2,739 | 7,717 | 7,748 | |||||||||||||
Total operating expenses |
7,681 | 7,152 | 22,621 | 22,914 | |||||||||||||
Loss from operations |
(793 | ) | (746 | ) | (1,452 | ) | (1,786 | ) | |||||||||
Other income (expense): |
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Interest, net |
(53 | ) | (63 | ) | (151 | ) | (209 | ) | |||||||||
Other |
130 | 40 | 250 | 66 | |||||||||||||
Loss before income taxes |
(716 | ) | (769 | ) | (1,353 | ) | (1,929 | ) | |||||||||
Provision for income taxes |
(6 | ) | 18 | 64 | 10 | ||||||||||||
Net loss |
$ | (710 | ) | $ | (787 | ) | $ | (1,417 | ) | $ | (1,939 | ) | |||||
Net loss per common share |
$ | (0.15 | ) | $ | (0.18 | ) | $ | (0.31 | ) | $ | (0.50 | ) | |||||
Net loss per common share
assuming dilution |
$ | (0.15 | ) | $ | (0.18 | ) | $ | (0.31 | ) | $ | (0.50 | ) | |||||
See accompanying notes to condensed consolidated financial statements.
4
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
| Accumulated Other | ||||||||||||||||||||||||||||
| Deferred | Comprehensive | Comprehensive | Total Shareholders | |||||||||||||||||||||||||
| Common Stock | Paid-In Capital | Deficit | Compensation | Income (Loss) | Income (Loss) | Equity | ||||||||||||||||||||||
Balance at January 1, 2002 |
$ | 4 | $ | 12,198 | $ | (6,684 | ) | — | $ | (489 | ) | — | $ | 5,029 | ||||||||||||||
Net loss |
(1,417 | ) | (1,417 | ) | (1,417 | ) | ||||||||||||||||||||||
Conversion of debt |
1 | 151 | 152 | |||||||||||||||||||||||||
Stock issued for services |
— | 176 | (126 | ) | 50 | |||||||||||||||||||||||
Investment in marketable
equity securities, net of
tax |
(96 | ) | (96 | ) | (96 | ) | ||||||||||||||||||||||
Cumulative foreign
currency translation
adjustment |
— | — | — | — | 180 | 180 | 180 | |||||||||||||||||||||
| $ | (1,333 | ) | ||||||||||||||||||||||||||
Balance at September 30,
2002 |
$ | 5 | $ | 12,525 | $ | (8,101 | ) | $ | (126 | ) | $ | (405 | ) | $ | 3,898 | |||||||||||||
See accompanying notes to condensed financial statements.
5
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Operating Activities: |
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Net loss |
$ | (1,417 | ) | $ | (1,939 | ) | |||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
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Provision, net for losses on accounts receivable |
31 | 138 | |||||||||
Depreciation and amortization |
211 | 166 | |||||||||
Amortization of goodwill |
— | 166 | |||||||||
Provision for impairment of intangible assets |
— | 331 | |||||||||
Provision for inventory obsolescence |
157 | 779 | |||||||||
Stock for services |
50 | — | |||||||||
(Increase) decrease, net of acquired business, in: |
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Accounts receivable |
(73 | ) | (502 | ) | |||||||
Inventories |
1,169 | 747 | |||||||||
Income tax receivable |
37 | 23 | |||||||||
Prepaid expenses and other current assets |
(142 | ) | (28 | ) | |||||||
Other assets |
118 | — | |||||||||
Increase (decrease), net of acquired business, in: |
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Accounts payable and accrued expenses |
(1,963 | ) | (548 | ) | |||||||
Income taxes payables |
22 | (230 | ) | ||||||||
Customer deposits and other |
655 | (6 | ) | ||||||||
Net cash (used in) operating activities |
(1,145 | ) | (903 | ) | |||||||
Investing Activities: |
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Net cash used in acquisitions |
— | (394 | ) | ||||||||
Additions to property and equipment |
(212 | ) | (189 | ) | |||||||
Collection (issuance) of loans due from employees |
(2 | ) | 5 | ||||||||
Collection on note receivable from sale of Ukrainian subsidiary |
18 | 33 | |||||||||
Net cash (used in) investing activities |
(196 | ) | (545 | ) | |||||||
Financing Activities: |
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Net proceeds (payments) on borrowings |
587 | (813 | ) | ||||||||
Proceeds from sale of stocks and warrants, net |
— | 956 | |||||||||
Net cash provided by financing activities |
587 | 143 | |||||||||
Net decrease in cash |
(754 | ) | (1,305 | ) | |||||||
Effect of exchange rate changes on cash |
130 | (25 | ) | ||||||||
Cash, at beginning of period |
1,288 | 1,769 | |||||||||
Cash, at end of period |
$ | 664 | $ | 439 | |||||||
Supplemental information: |
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Cash paid for: |
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Interest |
$ | 151 | $ | 209 | |||||||
Taxes |
$ | 93 | $ | 197 | |||||||
Non-cash transactions: |
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Common stock issued for acquisition |
— | $ | 427 | ||||||||
Note in exchange for sale of business |
— | $ | 772 | ||||||||
Note issued for acquisition |
— | 213 | |||||||||
Conversion of debt to equity |
$ | 152 | — | ||||||||
Common stock issued for investment services |
$ | 176 | — | ||||||||
See accompanying notes to condensed consolidated financial statements.
6
AESP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | </ |