UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2003 |
| ( ) | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-12739
AESP, INC.
| FLORIDA (State or other jurisdiction of incorporation or organization) |
59-2327381 (IRS Employer Identification No.) |
| 1810 N.E. 144th STREET NORTH MIAMI, FLORIDA (Address of Principal Executive Offices) |
33181 (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 ( )
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ( ) No (x)
On November 10, 2003, the registrant had 6,043,596 outstanding shares of its common stock, par value $.001 per share.
AESP, INC. AND SUBSIDIARIES
INDEX
| Page | ||||||||||
PART I. FINANCIAL INFORMATION |
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| Item 1. | FINANCIAL STATEMENTS. |
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Condensed Consolidated Balance Sheets at September 30, 2003
(unaudited) and December 31, 2002 |
3 | |||||||||
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 2003 and 2002 (unaudited) |
4 | |||||||||
Condensed Consolidated Statement of Shareholders’ Equity for
the nine months ended September 30, 2003 (unaudited) |
5 | |||||||||
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2003 and 2002 (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. |
22 | ||||||||
| Item 4. | CONTROLS AND PROCEDURES. |
22 | ||||||||
PART II. OTHER INFORMATION |
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| 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. |
24 | ||||||||
FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED THEREBY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO THE FOLLOWING: THE COMPANY’S ABILITY TO OBTAIN SUFFICIENT WORKING CAPITAL TO MEET ITS CURRENT AND FUTURE REQUIREMENTS, THE COMPANY’S ABILITY TO COMPLETELY REFINANCE ITS U.S. LINE OF CREDIT, COMPETITION FROM OTHER MANUFACTURERS AND DISTRIBUTORS OF CONNECTIVITY AND NETWORKING PRODUCTS BOTH NATIONALLY AND INTERNATIONALLY; THE BALANCE OF THE MIX BETWEEN ORIGINAL EQUIPMENT MANUFACTURER SALES (WHICH HAVE COMPARATIVELY LOWER GROSS PROFIT MARGINS WITH LOWER EXPENSES) AND NETWORKING AND INTERNATIONAL SALES (WHICH HAVE COMPARATIVELY HIGHER GROSS PROFIT MARGINS WITH HIGHER EXPENSES) FROM PERIOD TO PERIOD; THE COMPANY’S DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING AND ASSEMBLY OF PRODUCTS AND THE ABSENCE OF SUPPLY AGREEMENTS; ECONOMIC FACTORS THAT AFFECT THE MARKET FOR TECHNOLOGY PRODUCTS; THE U.S. AND EUROPEAN ECONOMIES GENERALLY AND COMPANY’S ABILITY TO FINANCE AND INTEGRATE FUTURE ACQUISITIONS. THESE AND ADDITIONAL FACTORS ARE DISCUSSED HEREIN AND IN THE COMPANY’S FORM 10-K FOR THE 2002 FISCAL YEAR (THE “FORM 10-K”). THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN AND THEREIN INVOLVE AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY’S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR OPERATING), ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENT. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
2
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| September 30, 2003 | December 31, 2002 | ||||||||
| (unaudited) | |||||||||
Assets |
|||||||||
Current Assets |
|||||||||
Cash |
$ | 548 | $ | 1,226 | |||||
Accounts receivable, net of allowance for doubtful accounts of $290
at September 30, 2003 and $242 at December 31, 2002 |
4,372 | 4,347 | |||||||
Inventories |
4,991 | 5,500 | |||||||
Due from employees |
46 | 35 | |||||||
Prepaid expenses and other current assets |
392 | 372 | |||||||
Total current assets |
10,349 | 11,480 | |||||||
Property and equipment, net |
584 | 646 | |||||||
Goodwill |
643 | 643 | |||||||
Deferred tax assets |
135 | 144 | |||||||
Assets of business transferred under contractual arrangement |
637 | 682 | |||||||
Investment in marketable equity securities |
— | 129 | |||||||
Other assets |
397 | 122 | |||||||
TOTAL ASSETS |
$ | 12,745 | $ | 13,846 | |||||
Liabilities and Shareholders’ Equity |
|||||||||
Current Liabilities |
|||||||||
Lines of credit |
$ | 2,951 | $ | 2,457 | |||||
Accounts payable |
5,193 | 4,499 | |||||||
Accrued expenses |
345 | 928 | |||||||
Accrued salaries and benefits |
590 | 769 | |||||||
Income taxes payable |
14 | 233 | |||||||
Customer deposits and other |
554 | 820 | |||||||
Current portion of long-term debt |
30 | 34 | |||||||
Total current liabilities |
9,677 | 9,740 | |||||||
Long term debt, less current portion |
72 | 11 | |||||||
TOTAL LIABILITIES |
9,749 | 9,751 | |||||||
Shareholders’ Equity |
|||||||||
Preferred stock, $.001 par value; 1,000 shares authorized; none issued |
— | — | |||||||
Common stock, $.001 par value; 20,000 shares authorized; issued 6,044 shares at September 30, 2003 and 5,984 at December 31, 2002 |
6 | 6 | |||||||
Paid-in capital |
13,466 | 13,466 | |||||||
(Deficit) |
(10,021 | ) | (8,975 | ) | |||||
Deferred compensation |
(14 | ) | (93 | ) | |||||
Accumulated other comprehensive loss |
(441 | ) | (309 | ) | |||||
TOTAL SHAREHOLDERS’ EQUITY |
2,996 | 4,095 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 12,745 | $ | 13,846 | |||||
See accompanying notes to condensed consolidated financial statements.
3
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net sales |
$ | 7,706 | $ | 6,888 | $ | 23,210 | $ | 21,169 | |||||||||
Operating expenses |
|||||||||||||||||
Cost of sales |
5,532 | 5,000 | 16,175 | 14,904 | |||||||||||||
Selling, general and administrative expenses |
2,619 | 2,681 | 8,173 | 7,717 | |||||||||||||
Total operating expenses |
8,151 | 7,681 | 24,348 | 22,621 | |||||||||||||
(Loss) from operations |
(445 | ) | (793 | ) | (1,138 | ) | (1,452 | ) | |||||||||
Other income (expense): |
|||||||||||||||||
Interest, net |
(65 | ) | (53 | ) | (153 | ) | (151 | ) | |||||||||
Other |
46 | 130 | 180 | 250 | |||||||||||||
(Loss) before income taxes |
(464 | ) | (716 | ) | (1,111 | ) | (1,353 | ) | |||||||||
Provision (benefit) for income taxes |
2 | (6 | ) | (77 | ) | 64 | |||||||||||
Net (loss) |
(466 | ) | (710 | ) | (1,034 | ) | (1,417 | ) | |||||||||
Preferred stock dividends |
— | — | 12 | — | |||||||||||||
Net (loss) applicable to common shareholders |
$ | (466 | ) | $ | (710 | ) | $ | (1,046 | ) | $ | (1,417 | ) | |||||
Net loss per common share |
$ | (0.08 | ) | $ | (0.15 | ) | $ | (0.18 | ) | $ | (0.31 | ) | |||||
Net loss per common share assuming dilution |
$ | (0.08 | ) | $ | (0.15 | ) | $ | (0.18 | ) | $ | (0.31 | ) | |||||
See accompanying notes to condensed consolidated financial statements.
4
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
(IN THOUSANDS)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||||||||||||||||||||
| Addit. | Other | Compre. | Share- | |||||||||||||||||||||||||||||||||||||||
| Shares | Par | Shares | Par | Paid-In | Defer. | Comprehensive | Income | holders’ | ||||||||||||||||||||||||||||||||||
| Outstand. | Value | Outstand. | Value | Capital | (Deficit) | Comp. | Income (Loss) | (Loss) | Equity | |||||||||||||||||||||||||||||||||
Balance at December 31, 2002 |
— | $ | — | 5,984 | $ | 6 | $ | 13,466 | $ | (8,975 | ) | $ | (93 | ) | $ | (309 | ) | $ | 4,095 | |||||||||||||||||||||||
Issuance of common stock, net |
60 | — | — | |||||||||||||||||||||||||||||||||||||||
Conversion of common stock |
230 | — | (230 | ) | — | — | ||||||||||||||||||||||||||||||||||||
Conversion of preferred stock |
(230 | ) | — | 230 | — | — | ||||||||||||||||||||||||||||||||||||
Net income (loss) |
(1,034 | ) | (1,034 | ) | (1,034 | ) | ||||||||||||||||||||||||||||||||||||
Amortization of deferred
compensation |
79 | 79 | ||||||||||||||||||||||||||||||||||||||||
Preferred dividends |
(12 | ) | (12 | ) | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income
(loss): |
||||||||||||||||||||||||||||||||||||||||||
Foreign currency
translation
adjustment, net of tax |
(132 | ) | (132 | ) | (132 | ) | ||||||||||||||||||||||||||||||||||||
| (1,166 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2003 |
— | $ | — | 6,044 | $ | 6 | $ | 13,466 | $ | (10,021 | ) | $ | (14 | ) | $ | (441 | ) | $ | 2,996 | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
AESP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
| Nine months ended September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Operating Activities: |
||||||||||
Net (loss) |
$ | (1,034 | ) | $ | (1,417 | ) | ||||
Adjustments to reconcile net (loss) to net cash used in operating activities: |
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Provision, net for losses on accounts receivable |
10 | 31 | ||||||||
Depreciation and amortization |
196 | 211 | ||||||||
Provision for inventory obsolescence |
— | 157 | ||||||||
Amortization of deferred compensation |
79 | 50 | ||||||||
Deferred income taxes |
10 | — | ||||||||
(Increase) decrease in: |
||||||||||
Accounts receivable |
111 | (73 | ) | |||||||
Inventories |
674 | 1,169 | ||||||||
Income tax receivable |
— | 37 | ||||||||
Prepaid expenses and other current assets |
89 | (142 | ) | |||||||
Other assets |
(268 | ) | 118 | |||||||
Increase (decrease) in: |
||||||||||
Accounts payable and accrued expenses |
(457 | ) | (1,963 | ) | ||||||
Income taxes payable |
(222 | ) | 22 | |||||||
Customer deposits and other |
(301 | ) | 655 | |||||||
Net cash (used in) operating activities |
(1,113 | ) | (1,145 | ) | ||||||
Investing Activities: |
||||||||||
Additions, net to property and equipment |
(108 | ) | (212 | ) | ||||||
Collection of loans due from employees |
(2 | ) | (2 | ) | ||||||
Collection on note receivable from sale of Ukrainian subsidiary |
45 | 18 | ||||||||
Net cash (used in) investing activities |
(65 | ) | (196 | ) | ||||||
Financing Activities: |
||||||||||
Net proceeds (payments) on borrowings |
534 | 587 | ||||||||
Payment of preferred stock dividends |
(12 | |||||||||