UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the quarterly period ended October 31, 2008.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to ______________.
Commission File Number 0-22760
ELECSYS CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
Kansas 48-1099142
------ ----------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
846 N. Mart-Way Court
Olathe, Kansas 66061
(Address of principal executive offices)
(913) 647-0158
(Registrant's telephone number, including area code)
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 preceding 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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ( ) Accelerated filer ( )
Non-accelerated filer ( ) Smaller reporting company (X)
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ( ) No (X)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common stock, $0.01 par value -
3,295,937 shares outstanding as of December 5, 2008.
Page 1
ELECSYS CORPORATION AND SUBSIDIARIES
FORM 10-Q
Quarter Ended October 31, 2008
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Consolidated Financial Statements
Condensed Consolidated Statements of Operations -
Three months and six months ended October 31, 2008 and 2007 (Unaudited) 3
Condensed Consolidated Balance Sheets -
October 31, 2008 (Unaudited) and April 30, 2008 4
Condensed Consolidated Statements of Stockholders' Equity -
Six months ended October 31, 2008 (Unaudited) and the year ended April 30, 2008 5
Condensed Consolidated Statements of Cash Flows -
Six months ended October 31, 2008 and 2007 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 24
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 35
ITEM 4T. Controls and Procedures 35
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 36
ITEM 1A. Risk Factors 36
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
ITEM 3. Defaults Upon Senior Securities 36
ITEM 4. Submission of Matters to a Vote of Security Holders 36
ITEM 5. Other Information 36
ITEM 6. Exhibits 37
Signatures 38
Exhibit Index 39
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements.
Elecsys Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
October 31, October 31,
--------------------------- ---------------------------
2008 2007 2008 2007
------------ ----------- ----------- ------------
Sales $7,202 $5,602 $12,766 $10,389
Cost of products sold 4,314 3,806 7,927 7,078
------------ ----------- ----------- ------------
Gross margin 2,888 1,796 4,839 3,311
Selling, general and administrative expenses 2,017 1,656 3,672 2,817
------------ ----------- ----------- ------------
Operating income 871 140 1,167 494
Financial income (expense):
Interest expense (107) (127) (224) (229)
Other income, net 1 3 1 17
------------ ----------- ----------- ------------
(106) (124) (223) (212)
------------ ----------- ----------- ------------
Net income before income taxes 765 16 944 282
Income tax expense 341 6 411 98
------------ ----------- ----------- ------------
Net income $424 $10 $533 $184
============ =========== =========== ============
Net income per share information:
Basic $0.13 $0.00 $0.16 $0.06
Diluted $0.12 $0.00 $0.15 $0.05
Weighted average common shares outstanding:
Basic 3,293 3,285 3,290 3,284
Diluted 3,452 3,458 3,450 3,467
See Notes to Condensed Consolidated Financial Statements.
Page 3
Elecsys Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
October 31, 2008 April 30, 2008
------------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $401 $357
Accounts receivable, less allowances of $321
and $303, respectively 2,639 3,757
Inventories, net 5,690 6,207
Prepaid expenses 83 75
Deferred taxes 779 781
------------------- ----------------
Total current assets 9,592 11,177
Property and equipment, at cost:
Land 1,737 1,737
Building and improvements 3,395 3,395
Equipment 3,547 3,490
------------------- ----------------
8,679 8,622
Accumulated depreciation (2,510) (2,249)
------------------- ----------------
6,169 6,373
Goodwill 1,414 1,544
Intangible assets, net 1,844 1,927
Other assets, net 75 77
------------------- ----------------
Total assets $19,094 $21,098
=================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,623 $2,051
Accrued expenses 1,547 2,042
Income taxes payable 593 564
Note payable to bank 2,258 3,836
Current maturities of long-term debt 321 309
------------------- ----------------
Total current liabilities 6,342 8,802
Deferred taxes 315 311
Long-term debt, less current maturities 3,707 3,870
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; issued and outstanding - none -- --
Common stock, $.01 par value, 10,000,000 shares
authorized; issued and outstanding - 3,295,937 at
October 31, 2008 and 3,285,437 at April 30, 2008 33 33
Additional paid-in capital 9,199 9,117
Accumulated deficit (502) (1,035)
------------------- ----------------
Total stockholders' equity 8,730 8,115
------------------- ----------------
Total liabilities and stockholders' equity $19,094 $21,098
=================== ================
See Notes to Condensed Consolidated Financial Statements.
Page 4
Elecsys Corporation and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
Common Common Additional Total
Stock Stock Paid-In Accumulated Stockholders'
(# of shares) ($) Capital Deficit Equity
Balance at April 30, 2007 3,285 $33 $9,031 $(1,723) $7,341
Net income -- -- -- 688 688
Share-based compensation expense -- -- 86 -- 86
--------------- ----------- ------------ --------------- ----------------
Balance at April 30, 2008 3,285 33 9,117 (1,035) 8,115
Net income -- -- -- 533 533
Exercise of stock options 11 -- 41 -- 41
Share-based compensation expense -- -- 41 -- 41
--------------- ----------- ------------ --------------- ----------------
Balance at October 31, 2008 (unaudited)
3,296 $33 $9,199 $(502) $8,730
=============== =========== ============ =============== ================
See Notes to Condensed Consolidated Financial Statements.
Page 5
Elecsys Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended October 31,
----------------------------------
2008 2007
--------------- ---------------
Cash Flows from Operating Activities:
Net income $533 $184
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Share-based compensation expense 41 38
Depreciation 269 255
Amortization 83 79
Provision for doubtful accounts 33 57
Loss on disposal of equipment 1 --
Deferred income taxes 6 (23)
Changes in operating assets and liabilities:
Accounts receivable 1,082 (1,617)
Inventories 517 (452)
Accounts payable (295) (232)
Accrued expenses (495) (439)
Income taxes payable 29 --
Other (6) 41
--------------- ---------------
Net cash provided by (used in) operating activities 1,798 (2,109)
--------------- ---------------
Cash Flows from Investing Activities:
Purchases of property and equipment (67) (234)
Proceeds from sale of property and equipment 1 --
Acquisition, net of cash acquired -- (12)
Change in goodwill for purchase price adjustments -- (8)
--------------- ---------------
Net cash (used in) investing activities (66) (254)
--------------- ---------------
Cash Flows from Financing Activities:
Borrowings on note payable to bank 2,252 4,069
Principal payments on note payable to bank (3,830) (2,157)
Proceeds from exercise of stock options 41 --
Borrowings on long-term debt -- 550
Principal payments on long-term debt (151) (142)
--------------- ---------------
Net cash (used in) provided by financing activities (1,688) 2,320
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 44 (43)
Cash and cash equivalents at beginning of period 357 503
--------------- ---------------
Cash and cash equivalents at end of period $401 $460
=============== ===============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $223 $228
Cash paid during the period for income taxes 376 --
Page 6
Elecsys Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Acquisition of assets and assumed liabilities:
Receivables $(3) $882
Inventories -- 1,065
Intangibles -- 2,731
Change in Goodwill for purchase price adjustments (130) --
Accounts payable 133 (772)
Accounts payable due to Elecsys Corporation -- (2,194)
Accrued expenses -- (1,700)
--------------- ---------------
Total cash paid in acquisition, net of cash acquired $ -- $12
=============== ===============
See Notes to Condensed Consolidated Financial Statements.
Page 7
Elecsys Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
October 31, 2008
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
Elecsys Corporation (the "Company") is a publicly traded holding company
with three wholly owned subsidiaries, DCI, Inc. ("DCI"), NTG, Inc. ("NTG"), and
Radix Corporation ("Radix"). DCI provides electronic design and manufacturing
services for original equipment manufacturers ("OEMs") in the aerospace,
transportation, communications, safety, security and other industrial product
markets. DCI has specialized expertise and capabilities to design and
efficiently manufacture custom electronic assemblies which integrate a variety
of innovative display and interface technologies. NTG designs, markets, and
provides remote monitoring solutions for the gas and oil pipeline industry as
well as other industries that require remote monitoring. Radix develops, designs
and markets ultra-rugged handheld computers, peripherals and portable printers.
The markets served by its products include utilities, transportation logistics,
traffic and parking enforcement, route accounting/deliveries, and inspection and
maintenance.
The Company's sales are made primarily to customers within the United
States, but also include customers in Canada and several other international
markets.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, DCI, Radix and NTG. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Comprehensive Income
The Company has no components of other comprehensive income, therefore
comprehensive income equals net income.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value
Measurements ("SFAS 157"). SFAS 157 establishes a common definition for fair
value to be applied to U.S. GAAP, establishes guidance requiring use of fair
value, establishes a framework for measuring fair value, and expands disclosure
about such fair value measurements. FASB Staff Position No. SFAS 157-2 was
issued in February 2008. SFAS 157-2 delayed the application of SFAS 157 for
non-financial assets and non-financial liabilities, except items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, until fiscal years beginning after November 15, 2008. The Company is
required to adopt SFAS 157 in the first quarter of fiscal year 2010. The Company
believes that the financial impact, if any, of adopting SFAS 157 will
Page 8
not result in a material impact to its financial statements.
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), The Fair Value
Option for Financial Assets and Financial Liabilities. Under SFAS 159, the
Company may elect to report financial instruments and certain other items at
fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex hedge
accounting provisions of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, are not met. The Company adopted SFAS 159 as of May 1, 2008
and it did not result in a material impact to its financial statements.
In December 2007, the FASB issued SFAS No. 160 ("SFAS 160"), Noncontrolling
Interests in Consolidated Financial Statements-an amendment of ARB No. 51. SFAS
160 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 is effective for the Company in its
fiscal year beginning May 1, 2009. The Company does not believe the adoption of
this statement will have a material impact on its financial position and results
of operations.
In December 2007, the FASB issued SFAS No. 141R ("SFAS 141R"), Business
Combinations. SFAS 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. SFAS 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R will be
effective for the Company's fiscal year beginning May 1, 2009. The Company does
not believe the adoption of this statement will have a material impact on its
financial position and results of operations.
In May 2008, the FASB issued SFAS No. 162 ("SFAS 162"), The Hierarchy of
Generally Accepted Accounting Principles. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. SFAS 162
directs the hierarchy to the entity, rather than the independent auditors, as
the entity is responsible for selecting accounting principles for financial
statements that are presented in conformity with generally accepted accounting
principles. SFAS 162 is effective November 15, 2008. The Company does not
believe that the adoption of this statement will have a material impact on its
financial statements.
Revenue Recognition
The Company derives revenue from the manufacture of production units of
electronic assemblies, liquid crystal displays, remote monitoring equipment and
ultra-rugged handheld computers and peripherals. The Company also derives
revenue from repairs and non-warranty services, engineering design services,
remote monitoring services and maintenance contracts.
Page 9
Production and repaired units are billed to the customer after they are shipped.
Remote monitoring services and maintenance contracts are billed and the revenue
recognized at the end of the month after the services or maintenance periods are
completed. For customers that utilize the Company's engineering design services,
the customer is billed and revenue is recognized after the design services or
tooling have been completed. The Company requires its customers to provide a
binding purchase order to verify the manufacturing services to be provided.
Typically, the Company does not have any post-shipment obligations that would
include customer acceptance requirements. Radix does provide training and
installation services to its customers and those services are billed and the
revenue recognized at the end of the month after the services are completed.
Revenue recognized is net of sales taxes remitted to the government.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate
made for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customer's financial condition and credit history, and current economic
conditions. Receivables are written off when deemed uncollectible. Recoveries of
receivables previously written off are recorded when received. The majority of
the customer accounts are considered past due after the invoice becomes older
than the customer's credit terms (30 days for the majority of customers).
Interest is not charged on past due accounts for the majority of our customers.
Inventory Valuation
Inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market value. The Company's industry is characterized by rapid
technological change, short-term customer commitments and rapid changes in
demand, as well as other market considerations. Provisions for estimated excess
and obsolete inventory are based on quarterly reviews of inventory quantities on
hand and the latest forecasts of product demand and production requirements from
customers. Inventories are reviewed in detail on a quarterly basis utilizing a
24-month time horizon. Individual part numbers that have not had any usage in a
24-month time period are examined by manufacturing personnel for obsolescence,
excess and fair value. Parts that are not identified for common use or are
unique to a former customer or application are categorized as obsolete and are
discarded as part of the quarterly inventory write-down. If actual market
conditions or customers' product demands are less favorable than those
projected, additional inventory write-downs may be required. The reserve balance
is analyzed for adequacy along with the inventory review each quarter.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
Description Years
----------- -----
Building and improvements 39
Equipment 3-8
Computers and software 3
Page 10
Goodwill
Goodwill is initially measured as the excess of the cost of an acquired
business over the fair value of the identifiable net assets acquired. The
Company does not amortize goodwill, but rather reviews its carrying value for
impairment annually (April 30), and whenever an impairment indicator is
identified. The Company performs its annual impairment test at year-end and uses
an outside valuation firm. The goodwill impairment test involves a two-step
approach. The first step is to identify if potential impairment of goodwill
exists. If impairment of goodwill is determined to exist, the second step of the
goodwill impairment test measures the amount of the impairment using a fair
value-based approach.
Intangible Assets
Intangible assets consist of patents, trademarks, copyrights, customer
relationships and capitalized software. Intangible assets are amortized over
their estimated useful lives using the straight-line method.
Impairment of Long-Lived Intangible Assets
Long-lived assets, including amortizable intangible assets, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or group of assets may not be fully recoverable.
These events or changes in circumstances may include a significant deterioration
of operating results, changes in business plans, or changes in anticipated
future cash flows. If an impairment indicator is present, the Company evaluates
recoverability by a comparison of the carrying amount of the assets to future
undiscounted cash flows expected to be generated by the assets. If the sum of
the expected future cash flows is less than the carrying amount, the Company
would recognize an impairment loss. An impairment loss would be measured by
comparing the amount by which the carrying value exceeds the fair value of the
long-lived assets and intangibles.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes ("SFAS 109") as clarified by FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes ("FIN 48"). Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
the differences between the tax bases of assets and liabilities and their
carrying amount for financial reporting purposes, as measured by the enacted tax
rates which will be in effect when these differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. In
assessing the realizability of deferred income tax assets, the Company considers
whether it is "more likely than not," according to the criteria of SFAS 109,
that some portion or all of the deferred income tax assets will be realized. The
ultimate realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. FIN 48 requires that the Company recognize the
financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following
an audit. For tax positions meeting the more likely than not threshold, the
amount recognized in the financial statements is the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement with the
relevant tax authority.
Page 11
Warranty Reserve
The Company has established a warranty reserve for rework, product
warranties and customer refunds. The Company provides a limited warranty for a
period of one year from the date of receipt of products by customers and
standard warranties require the Company to repair or replace defective products
at no cost to the customer or refund the customer's purchase price. The warranty
reserve is based on historical experience and analysis of specific known and
potential warranty issues. The product warranty liability reflects management's
best estimate of probable liability under the product warranties.
Shipping and Handling Costs
Shipping and handling costs that are billed to our customers are recognized
as revenues in the period that the product is shipped. Shipping and handling
costs that are incurred by the Company are recognized as cost of sales in the
period that the product is shipped.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company include the accounts of the Company and its wholly owned
subsidiaries, DCI, Inc., NTG, Inc. and Radix Corporation. All significant
intercompany balances and transactions have been eliminated. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles in the United
States 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-month and
six month periods ended October 31, 2008 are not necessarily indicative of the
results that may be expected for the year ending April 30, 2009.
The balance sheet at April 30, 2008 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 in the United
States for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes included in the Company' annual report on Form 10-KSB for the year
ended April 30, 2008.
3. ACQUISITIONS OF ASSETS
Radix. On September 18, 2007, the Company, through its newly formed and
wholly owned subsidiary, Radix Corporation, acquired the assets and assumed
certain liabilities of Radix International Corporation and its subsidiary. The
Company made the strategic decision to grow through expansion into the
specialized niche of rugged mobile computing. The Company, through Radix,
acquired approximately $4.43 million in assets, including accounts receivable
and inventory, as well as all of the intellectual property and intangible assets
owned by Radix
Page 12
International Corporation and its subsidiary. In the transaction, Radix assumed
accounts payable due to DCI, assumed an additional amount of approximately $2.15
million in liabilities, and incurred acquisition costs of approximately $50,000.
The transaction also includes performance related contingent consideration based
on the annual revenues of the acquired business over the next five years. The
total performance related contingency is limited to approximately $2.2 million
and is subject to certain conditions that may impact the total amount to be
paid.
The acquisition has been accounted for as a purchase and, accordingly, the
accompanying financial statements include the results of operations of Radix,
from the date of the acquisition.
The purchase price was initially allocated based on the fair value of the
assets acquired and, subsequent to the acquisition date, there have been
additional purchase price adjustments leading to the following allocation for
the assets purchased and liabilities assumed (in thousands):
Assets acquired:
Receivables $783
Inventories 614
Goodwill 1,325
Intangibles (customer list, trade names/trade secrets, and technology) 1,705
----------
4,427
Liabilities assumed:
Accounts payable to outside vendors (533)
Accounts payable to DCI, Inc. (a subsidiary of Elecsys Corporation) (2,262)
Accrued expenses (1,620)
----------
(4,415)
----------
Cost of acquisition, net of cash acquired $12
==========
The purchase price in excess of the fair value of the tangible assets
acquired has been allocated to intangibles and goodwill. The Company engaged an
independent third party valuation expert to assist in the allocation of the
excess purchase price to the various specific separately identifiable
intangibles. The final valuation report allocated the $1,705,000 in intangible
valuation to customer relationships ($950,000), trade names ($530,000) and
technology ($225,000). These assets were determined by the valuation expert to
have a useful life of 15 years. Amortization expense for the acquired intangible
assets is estimated to be approximately $114,000 in each of the next fifteen
fiscal years.
Page 13
The following table sets forth the unaudited pro forma results of
operations of the Company for the three-month and six-month periods ended
October 31, 2008 and 2007 as if the Company had acquired the assets and assumed
certain liabilities of Radix International Corporation and subsidiary at the
beginning of the respective periods. The pro forma information contains the
actual operating results of the Company and Radix with the results prior to
September 18, 2007, for Radix, adjusted to include pro forma impact of (i) the
elimination of intercompany sales and gross margin in inventory as of the
periods presented; (ii) additional interest expense associated with the
financing arrangement entered into by the Company on September 25, 2007 in
connection with the transaction; (iii) additional expense as a result of
estimated amortization of identifiable intangible assets; and (iv) an adjustment
to income tax expense for the tax effect of the above adjustments. These pro
forma amounts do not purport to be indicative of the results that would have
actually been obtained if the acquisitions occurred at the beginning of the
respective periods or that may be obtained in the future.
Three Months Ended
-------------------------------------------------------------------------------
(In thousands, except per share data)
October 31, 2008 October 31, 2007
------------------------------------- --------------------------------------
Pro Forma Pro Forma
Reported Adjustments Pro Forma Reported Adjustments Pro Forma
------------------------------------- --------------------------------------
Sales $7,202 $ -- $7,202 $5,602 $754 $6,356
Net income (loss) 424 -- 424 10 (210) (200)
Basic earnings per share $0.13 $0.13 $0.00 $(0.06)
Diluted earnings per share $0.12 $0.12 $0.00 $(0.06)
Six Months Ended
-------------------------------------------------------------------------------
(In thousands, except per share data)
October 31, 2008 October 31, 2007
------------------------------------- --------------------------------------
Pro Forma Pro Forma
Reported Adjustments Pro Forma Reported Adjustments Pro Forma
------------------------------------- --------------------------------------
Sales $12,766 $ -- $12,766 $10,389 $1,399 $11,788
Net income (loss) 533 -- 533 184 (414) (230)
Basic earnings per share $0.16 $0.16 $0.06 $(0.07)
Diluted earnings per share $0.15 $0.15 $0.05 $(0.07)
AMCI. On December 19, 2006, the Company announced that its NTG subsidiary
had acquired the product lines, technology, customer base and intellectual
property of Advanced Monitoring & Control, Inc. ("AMCI") for approximately
$90,000. The purchase price also included a pending patent application. The
entire purchase price was allocated to the customer list. AMCI was a competitor
of NTG in the business of remote monitoring of oil and gas pipelines as well as
other various remote monitoring applications. The employees of AMCI became
employees of NTG upon completion of the transaction.
Page 14
The Company's total acquired intangible assets consist of the following (in
thousands):
October 31, 2008 April 30, 2008
---------------------------- -----------------------------
Gross Gross
Intangible Asset Carrying Accumulated Carrying Accumulated
Description Company Amount Amortization Amount Amortization
---------------------------- ----------- ---------- -------------- ----------- --------------
Patents, trademarks and
copyrights NTG $352 $(138) $352 $(120)
Customer relationships NTG 90 (33) 90 (24)
Customer relationships Radix 950 (74) 950 (42)
Trade name Radix 530 (41) 530 (24)
Technology Radix 225 (17) 225 (10)
---------- -------------- ----------- --------------
$2,147 $(303) $2,147 $(220)
========== ============== =========== ==============
Amortization expense for the six-month periods ended October 31, 2008 and
2007 was approximately $83,000 and $79,000, respectively.
Estimated amortization expense for the next five fiscal years ending April
30 is as follows (in thousands):
Year Amount
---------------- ----------------
2009 $84
2010 167
2011 167
2012 161
2013 149
Thereafter 1,116
4. INVENTORY
Inventories are stated at the lower of cost or market, using the first-in,
first-out (FIFO) method. Inventories, net of reserves of approximately $408,000
and $377,000, for the periods ended October 31, 2008 and April 30, 2008,
respectively, are summarized by major classification as follows (in thousands):
October 31, 2008 April 30, 2008
---------------------- ---------------------
Raw material $4,069 $4,725
Work-in-process 1,028 959
Finished goods 593 523
---------------------- ---------------------
$5,690 $6,207
====================== =====================
5. STOCK OPTION PLAN
At October 31, 2008, the Company had an equity-based compensation plan from
which stock-based compensation awards are granted to eligible employees and
consultants of the Company. According to the terms of the Company's 1991 stock
option plan (the "Plan") for
Page 15
which the Company originally reserved 675,000 shares of common stock, both
incentive stock options and non-qualified stock options to purchase common stock
of the Company may be granted to key employees, directors and consultants to the
Company, at the discretion of the Board of Directors. Incentive stock options
may not be granted at prices that are less than the fair market value on the
date of grant. Non-qualified options may be granted at prices determined
appropriate by the Board of Directors of the Company, but have not been granted
at less than market value on the date of grant. Generally, these options become
exercisable and vest over one to five years and expire within 10 years of the
date of grant. The Plan also provides for accelerated vesting if there is a
change in control of the Company. As of October 31, 2008, options to purchase
approximately 331,000 shares were outstanding of which 250,917 are vested and
exercisable.
Prior to May 1, 2006, the Company accounted for its equity-based
compensation plan under the recognition and measurement provision of APB Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), and related
Interpretations, as permitted by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123). The Company did not
recognize the value of stock-based compensation issued to employees and
directors in its Consolidated Statements of Operations prior to May 1, 2006, as
all options granted under its equity-based compensation plan had an exercise
price equal to the market value of the underlying common stock on the date of
the grant. Effective May 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standard No. 123 (revised 2004),
Share-Based Payment (SFAS 123R), using the modified-prospective-transition
method. Under this transition method, compensation cost recognized in the first
quarter of fiscal year 2007 includes compensation costs for all share-based
payments granted prior to May 1, 2006, but not yet vested as of May 1, 2006,
based on the grant-date fair value estimated in accordance with the original
provisions of SFAS 123, and compensation cost for all share-based payments
granted subsequent to April 30, 2006 based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R.
The fair value of each option award is estimated on the date of grant using
the Black-Scholes option pricing model, which uses the following
weighted-average assumptions for the six-month periods ended October 31, 2008
and 2007.
Six Months Ended Six Months Ended
October 31, 2008 October 31, 2007
----------------------- ------------------------
Risk-free interest rate 2.61 - 2.92% 4.16 - 4.85%
Expected life, in years 6 6
Expected volatility 35.12 - 35.40% 50.00 - 51.32%
Dividend yield 0.0% 0.0%
Forfeiture rate 5.00 - 6.30% 5.00%
The Company uses historical data to estimate option exercises and employee
terminations used in the model. Expected volatility is based on monthly
historical fluctuations of the Company's common stock using the closing market
value for the number of months of the expected term immediately preceding the
grant. The risk-free interest rate is based on the U.S.
Page 16
Treasury yield curve in effect at the time of the grant for a bond with a
similar term.
The Company receives a tax deduction for certain stock option exercises and
disqualifying stock dispositions generally for the excess of the price at which
the options are sold over the exercise prices of the options. In accordance with
SFAS 123R, the Company reports any tax benefit from the exercise of stock
options as financing cash flows. For the six-month periods ended October 31,
2008 and 2007, there were no exercises of stock options which triggered tax
benefits, therefore net cash flow used in financing activities was unchanged as
a result of the adoption of SFAS 123R.
At October 31, 2008, there was approximately $145,000 of unrecognized
compensation cost related to share-based payments which is expected to be
recognized over a weighted-average period of 2.17 years.
The following table represents stock option activity for the six-month
period ended October 31, 2008:
Number Weighted-Average Weighted-Average
of Exercise Remaining
Shares Price Contract Life
------------- -------------- --------------------
Outstanding options at April 30, 2008 324,750 $2.53 5.34 Years
Granted 36,750 6.33
Exercised (10,500) 3.94
Forfeited (20,000) 5.61
------------- -------------- --------------------
Outstanding options at October 31, 2008 331,000 $2.73 5.23 Years
============= ============== ====================
Outstanding exercisable at October 31, 2008 250,917 $1.87 4.07 Years
============= ============== ====================
Shares available for future stock option grants to employees, officers,
directors and consultants of the Company under the existing Plan were 16,750 at
October 31, 2008. At October 31, 2008 the aggregate intrinsic value of options
outstanding was approximately $811,000, and the aggregate intrinsic value of
options exercisable was approximately $777,000. The Company recognized
share-based compensation expense of $41,000 and $38,000 for the six-month
periods ended October 31, 2008 and 2007, respectively. The weighted-average fair
value of the options granted in the six-month period ended October 31, 2008 was
$2.35 per option.
Page 17
The following table summarizes information about stock options outstanding
at October 31, 2008:
Options Outstanding Options Exercisable
--------------------------------------------------------- ----------------------------------
Number Number
Number Weighted-Average Exercisable at
Range of Exercise Outstanding at Remaining Weighted-Average October 31, Weighted-Average
Prices October 31, 2008 Contractual Life Exercise Price 2008 Exercise Price
---------------------------------------------------------------------------------------------------------------------
$0.81 95,750 3.50 years $0.81 95,750 $0.81
$1.25 - $1.50 47,500 4.06 years $1.25 47,500 $1.25
$2.13 - $2.25 51,000 1.26 years $2.25 51,000 $2.25
$3.66 - $3.99 80,000 7.46 years $3.70 53,334 $3.70
$4.70 5,000 9.92 years $4.70 -- --
$5.63 - $5.90 20,000 9.29 years $5.75 -- --
$6.30 10,000 8.83 years $6.30 3,333 $6.30
$7.00 - $7.05 21,750 9.80 years $7.03 -- --
------------------ ----------------
$0.81 - $7.05 331,000 5.23 years $2.73 250,917 $1.87
================== ================
6. NET INCOME PER SHARE
The following table presents the calculation of basic and diluted income
per share (in thousands):
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ---------- ----------
Numerator:
Net income $424 $10 $533 $184
Denominator:
Weighted average common shares
outstanding - basic 3,293 3,285 3,290 3,284
Effect of dilutive options outstanding 159 173 160 183
----------- ----------- ---------- ----------
Weighted average common shares
outstanding - diluted 3,452 3,458 3,450 3,467
=========== =========== ========== ==========
7. PLEDGED ASSETS, NOTES PAYABLE AND LONG-TERM DEBT
As of October 31, 2008, the Company had multiple credit agreements with a
regional lender based in Kansas City, Missouri. These credit agreements include
an operating line of credit, an additional asset-backed long-term note related
to the Company's acquisition of assets and assumption of certain liabilities of
Radix International Corporation, a long-term mortgage secured by approximately
74,000 square feet of land adjacent to the Company's production and headquarters
in Olathe, Kansas, and long-term financing for the facility.
Page 18
The Company has an operating line of credit that provides the Company and
its subsidiaries with short-term financing for their working capital
requirements. On August 14, 2008, the Company and its financial institution
renewed the $6,000,000 agreement. The line of credit accrues interest at the
prime rate (4.56% at October 31, 2008) and has an interest rate floor of 5.50%.
The line of credit is secured by accounts receivable and inventory, expires on
August 13, 2009, and has a borrowing capacity calculated as a specified
percentage of accounts receivable and inventory. The line of credit contains
various covenants, including certain financial performance covenants pertaining
to the maintenance of debt to net worth and minimum net worth ratios. As of
October 31, 2008, the Company is in compliance with all of the covenants. There
were $2,258,000 and $3,836,000 in borrowings outstanding on the credit facility
as of October 31, 2008 and April 30, 2008, respectively.
The following table is a summary of the Company's long-term debt and
related current maturities (in thousands):
October 31, April 30,
2008 2008
---------------- -------------
Industrial revenue bonds, Series 2006A, 5-year adjustable interest rate based on
the yield on 5-year United States Treasury Notes, plus .45% (5.50% as of October
31, 2008), due in monthly principal and interest payments beginning October 1,
2006 through maturity on September 1, 2026, secured by real estate.
$3,452 $3,508
Note payable with an adjustable interest rate of 7.94%, due in monthly principal
and interest payments beginning December 15, 2006 through maturity on November
15, 2016, secured by real estate.
207 217
Note payable with a fixed interest rate of 9.00%, due in monthly principal and
interest payments beginning October 25, 2007 through maturity on September 25,
2010, secured by accounts receivable and inventory.
369 454
---------------- -------------
4,028 4,179
Less current maturities 321 309
---------------- -------------
Total long-term debt $3,707 $3,870
================ =============
Page 19
The approximate aggregate amount of principal to be paid on the
long-term debt during each of the next five years ending April 30 is as follows
(in thousands):
Year Amount
---------------- ----------------
2009 $158
2010 334
2011 235
2012 158
2013 167
Thereafter 2,976
----------------
$4,028
================
8. SEGMENT REPORTING
The Company operates three reportable business segments: DCI, Inc., NTG,
Inc. and Radix Corporation. DCI produces custom electronic assemblies which
integrate a variety of interface technologies, such as custom liquid crystal
displays, light emitting diode displays, and keypads, and also provides repair
services and engineering design services. NTG designs, markets, and provides
remote monitoring services. Radix develops, designs and markets ultra-rugged
handheld computers, peripherals and portable printers. The following table
presents business segment revenues, income (loss), capital expenditures,
goodwill and intangible assets, and total assets for the three-month and
six-month periods ended October 31, 2008 and 2007 (in thousands).
Three Months Ended October 31, 2008
-----------------------------------------------------------------------------------------
DCI NTG Radix Unallocated Eliminations Total
---------- --------- --------- -------------- --------------- ----------
Sales:
External customers $3,092 $833 $3,277 $ -- $ -- $7,202
Intersegment 1,484 -- -- -- (1,484) --
---------- --------- --------- -------------- --------------- ----------
Total sales $4,576 $833 $3,277 $ -- $(1,484) $7,202
========== ========= ========= ============== =============== ==========
Depreciation and
amortization expenses $114 $22 $38 $ -- $ -- $174
========== ========= ========= ============== =============== ==========
Segment income (loss)
before income tax
expense $641 $55 $190 $(127) $6 $765
========== ========= ========= ============== =============== ==========
Page 20
Three Months Ended October 31, 2007
-----------------------------------------------------------------------------------------
DCI NTG Radix Unallocated Eliminations Total
---------- --------- --------- -------------- --------------- ----------
Sales:
External customers $4,197 $821 $584 $ -- $ -- $5,602
Intersegment 765 -- -- -- (765) --
---------- --------- --------- -------------- --------------- ----------
Total sales $4,962 $821 $584 $ -- $(765) $5,602
========== ========= ========= ============== =============== ==========
Depreciation and
amortization expenses $120 $24 $51 $ -- $ -- $195
========== ========= ========= ============== =============== ==========
Segment income (loss)
before income tax
expense $398 $25 $(131) $(148) $(128) $16
========== ========= ========= ============== =============== ==========
Six Months Ended October 31, 2008
-----------------------------------------------------------------------------------------
DCI NTG Radix Unallocated Eliminations Total
---------- --------- --------- -------------- --------------- ----------
Sales:
External customers $6,411 $1,614 $4,741 $ -- $ -- $12,766
Intersegment 2,754 -- -- -- (2,754) --
---------- --------- --------- -------------- --------------- ----------
Total sales $9,165 $1,614 $4,741 $ -- $(2,754) $12,766
========== ========= ========= ============== =============== ==========
Depreciation and
amortization expenses $233 $45 $74 $ -- $ -- $352
========== ========= ========= ============== =============== ==========
Segment income (loss)
before income tax
expense $1,200 $86 $151 $(322) $(171) $944
========== ========= ========= ============== =============== ==========
Capital expenditures $16 $2 $49 $ -- $ -- $67
========== ========= ========= ============== =============== ==========
Goodwill and
Intangible assets $ -- $360 $2,898 $ -- $ -- $3,258
========== ========= ========= ============== =============== ==========
Total assets $19,190 $1,367 $5,708 $4,999 $(12,170) $19,094
========== ========= ========= ============== =============== ==========
Page 21
Six Months Ended October 31, 2007
-----------------------------------------------------------------------------------------
DCI NTG Radix Unallocated Eliminations Total
---------- --------- --------- -------------- --------------- ----------
Sales:
External customers $8,633 $1,172 $584 $ -- $ -- $10,389
Intersegment 921 -- -- -- (921) --
---------- --------- --------- -------------- --------------- ----------
Total sales $9,554 $1,172 $584 $ -- $(921) $10,389
========== ========= ========= ============== =============== ==========
Depreciation and
amortization expenses $238 $45 $51 $ -- $ -- $334
========== ========= ========= ============== =============== ==========
Segment income (loss)
before income tax
expense $914 $(64) $(131) $(316) $(121) $282
========== ========= ========= ============== =============== ==========
Capital expenditures $192 $8 $34 $ -- $ -- $234
========== ========= ========= ============== =============== ==========
Goodwill and
Intangible assets $ -- $415 $2,748 $ -- $ -- $3,163
========== ========= ========= ============== =============== ==========
Total assets $18,927 $1,518 $4,743 $4,988 $(9,919) $20,257
========== ========= ========= ============== =============== ==========
The following table reconciles total revenues to the products and services
offered by the Company (in thousands).
Three Months Ended Six Months Ended
October 31, October 31,
---------------------------------- --------------------------------
2008 2007 2008 2007
--------------- --------------- -------------- --------------
Products and services:
Electronic interface assemblies $2,974 $4,132 $6,139 $8,447
Remote monitoring solutions 833 821 1,614 1,172
Rugged mobile computing 3,277 584 4,741 584
Engineering services 101 18 180 112
Other 17 47 92 74
--------------- --------------- -------------- --------------
Total sales $7,202 $5,602 $12,766 $10,389
=============== =============== ============== ==============
Page 22
9. WARRANTY
The Company provides a limited warranty for a period of one year from the
date of a customer's receipt of its products. The Company's standard warranties
require the Company to repair or replace defective products at no cost to the
customer or refund the customer's purchase price. The Company's product warranty
liability reflects management's best estimate of probable liability under
product warranties. Management determines the liability based on known product
failures (if any), historical experience, and other currently available
evidence.
The following table presents changes in the Company's warranty liability,
which is included in accrued expenses on the balance sheets (in thousands):
Six Months Ended
October 31,
------------------------------
2008 2007
------------ -------------
Warranty reserve balance at beginning of period $122 $85
Expense accrued 49 42
Warranty costs incurred (54) (37)
------------ -------------
Warranty reserve balance at end of period $117 $90
============ =============
Page 23
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Overview
Elecsys is a publicly traded company that tailors customer specific
technology solutions wherever high quality, reliability, and innovation are
essential. We provide electronic design and manufacturing services, custom
liquid crystal displays ("LCDs"), ultra-rugged mobile computing devices, and
wireless remote monitoring solutions to numerous industries worldwide. We
operate our business through three wholly-owned subsidiaries, DCI, Inc. ("DCI"),
Radix Corporation ("Radix") and NTG, Inc. ("NTG").
DCI provides electronic design and manufacturing services to original
equipment manufacturers ("OEMs") in the aerospace, transportation,
communications, safety, security and other industrial product markets. DCI has
specialized expertise and capabilities to design and efficiently manufacture
custom electronic assemblies which integrate a variety of specialized interface
technologies, such as custom LCDs, keypads, and touchscreens with circuit boards
and other electronic components. DCI seeks to become an extension of our
partners' organizations by providing key expertise that enables rapid
development and manufacture of electronic products from product conception
through volume production.
Radix designs, develops, and implements ultra-rugged handheld computing
solutions for tough environments where data integrity is paramount. Its
field-proven products, which include handheld computers, printers, peripherals,
and application software, are deployed in over 70 countries in applications that
include utilities, transportation logistics, traffic and parking enforcement,
route accounting/deliveries, and inspection and maintenance. Radix has built a
reputation for reliability and support over its lengthy history. Our flexibility
to custom configure solutions tailored to specific requirements has provided
opportunities to expand our product offerings into new industries.
NTG designs, markets, and provides remote monitoring solutions for the oil
and gas pipeline industry as well as other industries that require remote
monitoring. NTG's wireless remote monitoring devices utilize the existing
cellular and satellite infrastructure and its WatchdogCP Web Monitor to provide
full time, wireless status monitoring and alarm notification regarding the
performance of multiple types of systems over the internet. This highly reliable
network, combined with its internet-based front-end, provides NTG's customers
with active monitoring and control of a large population of field-deployed
remote monitoring devices.
On August 14, 2008, the Company renewed its $6,000,000 operating line of
credit. This line of credit provides the Company and its subsidiaries with
short-term financing for working capital requirements, is secured by accounts
receivable and inventory, and expires on August 13, 2009. The Company's
borrowing capacity under this line is calculated as a specified percentage of
accounts receivable and inventory. The line of credit accrues interest at the
higher of the prime rate (4.56% at October 31, 2008) and 5.5%. The loan
agreement has various covenants, including certain financial performance
covenants pertaining to the maintenance of debt to net worth and minimum net
worth ratios.
Page 24
Results of Operations
Three Months Ended October 31, 2008 Compared With Three Months Ended October 31, 2007.
The following table sets forth, for the periods presented, certain
statement of operations data of the Company:
Three Months Ended
-----------------------------------------------------
(In thousands, except per share data)
October 31, 2008 October 31, 2007
---------------- ----------------
Sales $7,202 100.0% $5,602 100.0%
Cost of products sold 4,314 59.9% 3,806 67.9%
------------ ------------ ------------ ----------
Gross margin 2,888 40.1% 1,796 32.1%
Selling, general and administrative expenses 2,017 28.0% 1,656 29.6%
------------ ------------ ------------ ----------
Operating income 871 12.1% 140 2.5%
Interest expense (107) (1.5%) (127) (2.3%)
Other income, net 1 0.0% 3 0.1%
------------ ------------ ------------ ----------
Income before income taxes 765 10.6% 16 0.3%
Income tax expense 341 4.7% 6 0.1%
------------ ------------ ------------ ----------
Net income $424 5.9% $10 0.2%
Net income per share - basic $0.13 $0.00
============ ============
Net income per share - diluted $0.12 $0.00
============ ============
Sales for the three months ended October 31, 2008 were approximately
$7,202,000, an increase of $1,600,000, or 28.6%, from $5,602,000 for the
comparable period of fiscal 2008.
DCI. Sales at DCI were approximately $4,576,000, a decrease of $386,000, or
7.8%, from $4,962,000 from the prior year. The sales from the second quarter of
the prior year included $175,000 in sales to the former Radix Corporation.
External sales reported at DCI no longer include sales made to our Radix
subsidiary after September 18, 2007. The remaining decrease in sales at DCI
resulted from lower bookings during the preceding quarters. We expect sales
volumes at DCI to remain at or near the current levels during the next fiscal
quarter, and we expect to increase sales in the fourth quarter of the 2009
fiscal year. This expectation is based upon scheduled shipments to customers
currently recorded in our backlog, combined with anticipated future bookings,
and the additional sales and marketing investments made at DCI.
Radix. Sales at Radix totaled approximately $3,277,000 for the quarter,
compared to $584,000 in the comparable quarter of the previous year. Revenues
for the current three-month period were mainly the result of sales of rugged
hand held computer hardware and peripherals as a result of the $2.6 million
order announced in July that was delivered by the end of October. This order was
the result of the initial phase of a customer's larger project that could
potentially generate similar orders over the next few years. Sales of our rugged
hand held computers and peripherals totaled approximately $2,968,000 for the
current period while maintenance contract revenues and repairs were
approximately $309,000. Revenues for the third quarter are expected
Page 25
show significant increases over the comparable period of the preceding year, but
will likely be lower than the current period. Subsequent quarters are also
likely to show increases in revenue from the prior year periods based on
expected orders and our ongoing domestic and international marketing
initiatives.
NTG. Sales volumes at NTG were $833,000 for the three-month period ended
October 31, 2008 an increase of $12,000, or 1.5%, from the three-month period
ended October 31, 2007. Sales from the second quarter of the prior year included
approximately $254,000 of upgrade kits to convert fielded analog units to the
new digital standard in advance of the FCC's phase-out of analog service in
February 2008. Revenues from upgrade kits in the current period totaled
approximately $87,000. Exclusive of these one-time sales of upgrade kits,
revenue increased $179,000, or 31.6%. Sales at NTG are expected to continue
increasing over the next few quarters as compared to the current period due to
continued strong demand for our WatchdogCP products and our initiative to market
our products internationally.
Elecsys revenues are generally derived from markets that are typically less
susceptible to economic cycles. In spite of the current global economic
conditions, we expect revenues for the next quarter to be lower than the current
period, but similar to, or higher than, the revenues in the comparable period of
the prior year. With the product development and international sales and
marketing initiatives currently underway, we expect that for the subsequent
quarters there will be increasing revenues as compared to the comparable periods
of prior years.
Total consolidated backlog at October 31, 2008 was approximately
$4,163,000, a decrease of approximately $3,934,000, or 48.6%, from a total
backlog of $8,097,000 on October 31, 2007 and a decrease of $1,003,000 from a
total backlog of $5,166,000 on April 30, 2008. The amount of total consolidated
backlog at October 31, 2008, includes purchase orders in place from our
customers at each of the three subsidiaries that are scheduled for shipment in
future periods but excludes any intercompany purchase orders. The following
table presents total backlog by subsidiary (in thousands):
October 31, 2008 April 30, 2008 October 31, 2007
----------------------- --------------------- -----------------------
DCI, Inc. $6,318 $7,888 $9,998
NTG, Inc. 88 108 1,120
Radix Corporation 647 589 551
Less intercompany backlog (2,890) (3,419) (3,572)
----------------------- --------------------- -----------------------
Total $4,163 $5,166 $8,097
======================= ===================== =======================
Gross margin for the three-month period ended October 31, 2008, was 40.1%
of sales, or $2,888,000, compared to 32.1% of sales, or $1,796,000, for the
three-month period ended October 31, 2007. The increase in gross margin of
approximately $1,092,000 is primarily the result of increased sales volumes at
Radix and NTG.
DCI. DCI's gross margin was approximately $1,464,000, or 32.0% of sales,
for the period as compared to approximately $1,297,000, or 26.1%, for the
comparable period of the prior year primarily as a result of product mix to its
outside customers. The gross margin for intercompany sales to Radix and NTG of
$7,000 and $128,000 for the three months ended October 31, 2008 and 2007,
respectively, are included in DCI's gross margins for the periods presented and
are excluded from the reported consolidated gross margins.
Page 26
Radix. The gross margin at Radix for the fiscal quarter was approximately
$1,077,000, or 32.9%. The gross margin percentage in the last two consecutive
three-month periods ended July 31, 2008 and April 30, 2008 were 29.5% and 34.2%,
respectively. The gross margin at Radix for the fiscal quarter was approximately
$1,077,000, or 32.9%. The gross margin percentage in the last two consecutive
three-month periods ended July 31, 2008 and April 30, 2008 were 29.5% and 34.2%,
respectively. The gross margin for the three-month period ended October 31, 2007
was $286,000, or 49.0% of sales, and only included gross margin from the
acquisition date of September 17, 2008.
NTG. The gross margin at NTG was approximately $340,000, or 40.8% of sales,
for the three-month period ended October 31, 2008 as compared to approximately
$339,000, or 41.3%, for the three-month period ended October 31, 2007. The gross
margin at NTG was due to the increased sales volumes of NTG's products,
including new equipment sales and network services.
We expect that consolidated gross margins over the next few quarters will
continue to remain in the range of 35% to 40%.
Selling, general and administrative ("SG&A") expenses increased $361,000,
or 21.8%, to $2,017,000 for the three-month period ended October 31, 2008 from
$1,656,000 in the three-month period ended October 31, 2007. SG&A expenses were
28.0% of sales for the fiscal second quarter of 2009 as compared to 29.6% of
sales for the comparable period for fiscal 2008.
DCI. SG&A expenses at DCI decreased $53,000 from the prior year period
to $727,000 for the current period. The 6.8% decrease in DCI's SG&A expenses
included decreases in support engineering costs, sales commissions to
independent sales representatives and lower bad debt expense.
Radix. SG&A expenses at Radix were approximately $878,000 during the
period, an increase of $465,000 from the prior year period. The increase was
primarily due to the impact of a full period of expenses at Radix. The Company
acquired Radix midway through the previous year's quarter and those expenses
included the resulting costs of the transaction and the move of integration,
engineering, and service operations to the Company's headquarters in Olathe,
Kansas. The current period included additional expenses for engineering, sales
and marketing personnel as well as additional travel costs for marketing.
NTG. SG&A expenses at NTG decreased $29,000 from the prior year period. The
SG&A expenses at NTG are indicative of the current level of expenses required to
support NTG's sales, marketing and customer support efforts at their current
level of sales and number of customers.
Elecsys Corporation. Corporate expenses were approximately $21,000 lower
than for the corresponding fiscal 2008 quarter as a result of lower accounting
and consulting expenses that were incurred during the previous year period for
corporate governance and valuation services.
We anticipate that our SG&A expenses will continue at or near their present
levels. We will continue to invest in the growth at DCI and will intensify our
investment in product development, marketing, and sales at both NTG and Radix.
Interest expense was $107,000 and $127,000 for the three-month periods
ended October 31, 2008 and 2007, respectively. This decrease of $20,000 was the
direct result of a decrease in the interest rate on our operating line of credit
during the period. The line of credit was utilized during the period to pay
operating expenses, including accounts payable, income taxes and debt payments.
As of October 31, 2008, there was $2,258,000 outstanding on the line of credit
and an additional $4,028,000 in outstanding long-term borrowings. We plan to
continue to utilize the operating line of credit over the next few quarters and
anticipate that the amount of outstanding borrowings will remain stable as our
business continues to grow.
Income tax expense totaled $341,000 for the three-month period ended
October 31, 2008
Page 27
as compared to $6,000 for the three-month period ended October 31, 2007. Income
tax expense for the three-month period ended October 31, 2008 was based on a 39%
blended tax rate for both federal and state taxes and included certain state
income tax adjustments which increased the effective tax rate to 44.6% for the
current period.
As a result of the above factors, net income was $424,000, or $0.12 per
diluted share, for the three-month period ended October 31, 2008 as compared to
net income of $10,000, or $0.00 per diluted share, reported for the three-month
period ended October 31, 2007.
Six Months Ended October 31, 2008 Compared With Six Months Ended October 31, 2007.
The following table sets forth, for the periods presented, certain
statement of operations data of the Company:
Six Months Ended
-----------------------------------------------------
(In thousands, except per share data)
October 31, 2008 October 31, 2007
---------------- ----------------
Sales $12,766 100.0% $10,389 100.0%
Cost of products sold 7,927 62.1% 7,078 68.1%
------------ ------------ ------------ ----------
Gross margin 4,839 37.9% 3,311 31.9%
Selling, general and administrative expenses 3,672 28.8% 2,817 27.1%
------------ ------------ ------------ ----------
Operating income 1,167 9.1% 494 4.8%
Interest expense (224) (1.8%) (229) (2.2%)
Other income, net 1 0.0% 17 0.1%
------------ ------------ ------------ ----------
Income before income taxes 944 7.4% 282 2.7%
Income tax expense 411 3.2% 98 0.9%
------------ ------------ ------------ ----------
Net income $533 4.2% $184 1.8%
Net income per share - basic $0.16 $0.06
============ ============
Net income per share - diluted $0.15 $0.05
============ ============
Sales for the six months ended October 31, 2008 were approximately
$12,766,000, an increase of $2,377,000, or 22.9%, from $10,389,000 for the six
months ended October 31, 2007.
DCI. Sales at DCI were approximately $9,165,000, a decrease of $389,000, or
4.1%, from $9,554,000 from the prior year. The sales from the prior year
included approximately $872,000 in sales to the former Radix Corporation.
External sales reported at DCI no longer include sales made to our Radix
subsidiary after September 18, 2007. The remaining decrease in sales at DCI
resulted from lower bookings during the preceding quarters. We expect sales
volumes to outside customers at DCI to remain at or near the current levels
during the next fiscal quarter, and we expect to increase sales in the fourth
quarter of the 2009 fiscal year. This expectation is based upon scheduled
shipments to customers currently recorded in our backlog, combined with
anticipated future bookings, and the additional sales and marketing investments
made at DCI.
Radix. Sales at Radix totaled approximately $4,741,000 for the six-month
period ended October 31, 2008. Revenues for the current six-month period were
primarily for sales of rugged
Page 28
hand held computer hardware and peripherals that totaled approximately
$4,018,000. Maintenance contract revenues and repairs were approximately
$723,000 for the six-month period ended October 31, 2008. Revenues for the
second half of the fiscal year are expected to show significant increases over
the preceding year.
NTG. Sales volumes at NTG were $1,614,000 for the six-month period ended
October 31, 2008 an increase of $442,000, or 37.7%, from the six-month period
ended October 31, 2007. The increase in sales at NTG resulted primarily from
shipments of our new products during the period which totaled approximately
$959,000 and increases in network messaging service revenues which totaled
approximately $219,000. Sales at NTG are expected to continue increasing over
the next few quarters as compared to the current period and should equal or show
increases to the comparable quarters of fiscal 2008 due to continued strong
demand for our WatchdogCP products and our initiative to market our products
internationally.
Gross margin for the six-month period ended October 31, 2008, was 37.9% of
sales, or $4,839,000, compared to 31.9% of sales, or $3,311,000, for the
comparable period of fiscal 2008. The increase in gross margin of approximately
$1,528,000 is primarily the result of increased sales volumes at Radix and NTG
as well as improved product mix at DCI.
DCI. DCI's gross margin was approximately $2,862,000, or 31.2% of sales,
for the period as compared to approximately $2,625,000, or 27.5%, for the
comparable period of the prior year primarily as a result of product mix to its
outside customers. The gross margin for intercompany sales to Radix and NTG of
$170,000 and $121,000 for the six months ended October 31, 2008 and 2007,
respectively, are included in DCI's gross margins for the periods presented and
are excluded from the reported consolidated gross margins.
Radix. The gross margin at Radix for the first six months of the fiscal
year was approximately $1,509,000, or 31.8% of sales. The resulting gross margin
for the current year-to-date period was the result of increases in sales of our
rugged hand held computers. The gross margin for the comparable period ended
October 31, 2007 was $286,000, or 49.0% of sales, and only included the period
from the acquisition date of September 17, 2008.
NTG. The gross margin at NTG was approximately $638,000, or 39.5% of sales,
for the six-month period ended October 31, 2008 as compared to approximately
$520,000, or 44.4%, for the six-month period ended October 31, 2007. The lower
gross margin percentage at NTG was due to the product mix during the current
year period.
We expect that consolidated gross margins over the next few quarters will
continue to remain in the range of 35% to 40%.
Selling, general and administrative ("SG&A") expenses increased $855,000,
or 30.3%, to $3,672,000 for the six-month period ended October 31, 2008 from
$2,817,000 in the six-month period ended October 31, 2007. SG&A expenses were
28.8% of sales for the period as compared to 27.1% of sales for the comparable
period for fiscal 2008.
DCI. SG&A expenses at DCI decreased $45,000 from the prior year period to
$1,459,000 for the current period. The decrease in DCI's SG&A expenses included
decreases in travel, external sales commissions, support engineering expenses
and other administration costs.
Radix. SG&A expenses at Radix were approximately $1,339,000 during the
fiscal year-to-date period, which was the primary contributing factor to the
overall increase in Elecsys S,G&A expenses for the period. The increase was
primarily due to the impact of a full period of expenses at Radix. The Company
acquired Radix midway through the comparable period last year and those expenses
included the resulting costs of the transaction and the move of integration,
engineering, and service operations to the Company's headquarters in Olathe,
Page 29
Kansas. Radix has intensified its engineering efforts with additional
experienced personnel and has also enhanced its marketing expertise with more
sales and marketing resources.
NTG. SG&A expenses at NTG decreased $31,000 from the prior year period. The
decrease was the result of slightly lower personnel and personnel-related
expenses as well as a decrease in sales commissions to independent sales
representatives. The SG&A expenses at NTG are indicative of the current level of
expenses required to support NTG's sales, marketing and customer support efforts
at their current level of sales and number of customers.
Elecsys Corporation. Corporate expenses were approximately $6,000 higher
than for the corresponding fiscal 2008 period as a result of higher accounting
and consulting expenses primarily as a result of the work necessary to comply
with the requirements of the Sarbanes-Oxley Act of 2002.
We anticipate that our SG&A expenses will continue at or near their present
levels. We will continue to invest in the growth at DCI and will intensify our
investment in product development, marketing, and sales at both NTG and Radix.
Interest expense was $224,000 and $229,000 for the six-month periods ended
October 31, 2008 and 2007, respectively. This decrease of $5,000 was the direct
result of a lower overall interest rate on our operating line of credit during
the period. The line of credit was utilized during the period to pay operating
expenses, including accounts payable, income taxes and debt payments. As of
October 31, 2008, there was $2,258,000 outstanding on the line of credit and an
additional $4,028,000 in outstanding long-term borrowings. We plan to continue
to utilize the operating line of credit over the next few quarters and
anticipate that the amount of outstanding borrowings will remain stable as our
business continues to grow.
Income tax expense totaled $411,000 for the six-month period ended October
31, 2008 as compared to $98,000 for the prior year period. Income tax expense
for the six-month period ended October 31, 2008 was based on a 39% blended tax
rate for both federal and state taxes and included certain state income tax
adjustments which increased the rate 43.5% for the current period.
As a result of the above factors, net income was $533,000, or $0.15 per
diluted share, for the six-month period ended October 31, 2008 as compared to
net income of $184,000, or $0.05 per diluted share, reported for the six-month
period ended October 31, 2007.
Liquidity and Capital Resources
Cash and cash equivalents increased $44,000 to $401,000 as of October 31,
2008 compared to $357,000 at April 30, 2008. This increase was primarily the
result of cash provided by collections from accounts receivable and reductions
in inventory slightly offset by payments made on the note payable to the bank.
Operating activities. Our consolidated working capital increased
approximately $875,000 for the six-month period ended October 31, 2008. The
increase was due to an overall reduction in current assets, with reductions in
accounts receivable from collections and a decrease in inventories, offset by a
larger decrease in current liabilities as a result of payments for accounts
payable, taxes and debt. Operating cash receipts totaled approximately
$13,883,000
Page 30
and $10,140,000 during the six-month periods ended October 31, 2008 and 2007,
respectively. The increase is the result of the increase in sales for the
current period in combination with the reduction in receivables as compared to
the prior year. Total cash disbursements for operations which include purchases
of inventory and operating expenses, were approximately $12,085,000 for the
six-month period ended October 31, 2008 and $12,249,000 for the six-month period
ended October 31, 2007. The Company utilizes its line of credit when necessary
in order to pay suppliers and meet operating cash requirements.
Investing activities. Cash used in investing activities totaled $66,000
during the six-month period ended October 31, 2008. Purchases of equipment were
approximately $67,000 and cash received from the sale of equipment totaled
$1,000. During the period ended October 31, 2007, purchases of equipment totaled
$234,000.
Financing activities. For the six-month period ended October 31, 2008,
total borrowings on our operating line of credit were $2,252,000 which were
primarily used to finance the operations of DCI, Radix and NTG. Payments on the
line of credit and long-term debt were $3,981,000 for the first six months of
the fiscal year. Also included in the Company's financing activities for the
quarter was $41,000 of cash provided by the exercise of stock options. For the
six-month period ended October 31, 2007, the cash used in financing activities
included payments of long-term debt principal of $142,000, line of credit
payments of $2,157,000, and borrowings on the line of credit of $4,069,000. Also
during the prior year period the Company borrowed $550,000 to finance the
Company's acquisition of the assets and certain liabilities of Radix
International Corporation. As of October 31, 2008, there were $2,258,000
borrowings outstanding on the operating line of credit.
The Company renewed its $6,000,000 operating line of credit on August 14,
2008. The line of credit is secured by accounts receivable and inventory and is
available for working capital. It expires on August 13, 2009 and its borrowing
capacity is calculated as a specified percentage of accounts receivable and
inventory. The line of credit accrues interest at the prime rate (4.56% at
October 31, 2008) and contains an interest rate floor of 5.5%. The loan also
contains various covenants, including certain financial performance covenants
pertaining to the maintenance of debt to net worth and minimum net worth ratios.
Although there can be no assurances, we believe that existing cash, the
cash expected to be generated from the operations of DCI, Radix and NTG, amounts
available under our line of credit, and amounts available from trade credit,
will be sufficient to finance our anticipated working capital needs, our capital
expenditures, and our scheduled debt repayment for the foreseeable future.
Page 31
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and related disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We cannot assure you that actual results
will not differ from those estimates. We believe the following critical
accounting policies affect our more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue Recognition. We derive revenue from the manufacture of production
units of electronic assemblies, liquid crystal displays, remote monitoring
equipment and ultra-rugged handheld computers and peripherals. We also derive
revenue from repairs and non-warranty services, engineering design services,
remote monitoring services and maintenance contracts. Production and repaired
units are billed to the customer after they are shipped. Remote monitoring
services and maintenance contracts are billed and the revenue recognized at the
end of the month after the services or maintenance periods are completed. For
customers that utilize our engineering design services, we bill the customer and
recognize revenue after the design services or tooling have been completed. We
require our customers to provide a binding purchase order to verify the
manufacturing services to be provided. Typically, we do not have any
post-shipment obligations that would include customer acceptance requirements,
training, installation or other services.
Inventory Valuation. Our inventories are stated at the lower of cost, using
the first-in, first-out (FIFO) method, or market value. Our industry is
characterized by rapid technological change, short-term customer commitments and
rapid changes in demand, as well as other market considerations. We make
provisions for estimated excess and obsolete inventory based on our quarterly
reviews of inventory quantities on hand and the latest forecasts of product
demand and production requirements from our customers. We review our inventory
in detail on a quarterly basis utilizing a 24-month time horizon. Individual
part numbers that have not had any usage in a 24-month time period are examined
by manufacturing personnel for obsolescence, excess and fair value. Parts that
are not identified for common use or are unique to a former customer or
application are categorized as obsolete and are discarded as part of our
quarterly inventory write-down. If actual market conditions or our customers'
product demands are less favorable than those projected, additional inventory
write-downs may be required. The reserve balance is analyzed for adequacy along
with the inventory review each quarter.
Page 32
Allowance for Doubtful Accounts. Accounts receivable are carried at
original invoice amount less an estimate made for doubtful receivables based on
a review of all outstanding amounts on a monthly basis. We determine the
allowance for doubtful accounts by regularly evaluating individual customer
receivables and considering a customer's financial condition and credit history,
and current economic conditions. Receivables are written off when deemed
uncollectible. Recoveries of receivables previously written off are recorded
when received. The majority of the customer accounts are considered past due
after 30 days. Interest is not charged on past due accounts for the majority of
our customers.
Warranty Reserve. We have established a warranty reserve for rework,
product warranties and customer refunds. We provide a limited warranty for a
period of one year from the date of receipt of our products by our customers and
our standard warranties require us to repair or replace defective products at no
cost to the customer or refund the customer's purchase price. The warranty
reserve is based on historical experience and analysis of specific known and
potential warranty issues. The product warranty liability reflects management's
best estimate of probable liability under our product warranties.
Goodwill. Goodwill is initially measured as the excess of the cost of an
acquired business over the fair value of the identifiable net assets acquired.
We do not amortize goodwill, but rather review its carrying value for impairment
annually (April 30), and whenever an impairment indicator is identified. Our
annual impairment test is performed at year-end. The goodwill impairment test
involves a two-step approach. The first step is to identify if potential
impairment of goodwill exists. If impairment of goodwill is determined to exist,
the second step of the goodwill impairment test measures the amount of the
impairment using a fair value-based approach.
Intangible Assets. Intangible assets consist of patents, trademarks,
copyrights, customer relationships and capitalized software. Intangible assets
are amortized over their estimated useful lives using the straight-line method.
Impairment of Long-Lived Intangible Assets. Long-lived assets, including
amortizable intangible assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset or group
of assets may not be fully recoverable. These events or changes in circumstances
may include a significant deterioration of operating results, changes in
business plans, or changes in anticipated future cash flows. If an impairment
indicator is present, we evaluate recoverability by a comparison of the carrying
amount of the assets to future undiscounted cash flows expected to be generated
by the assets. If the sum of the expected future cash flows is less than the
carrying amount, we would recognize an impairment loss. An impairment loss would
be measured by comparing the amount by which the carrying value exceeds the fair
value of the long-lived assets and intangibles.
Forward Looking Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, but not limited to,
statements on strategy, operating forecasts, and our
Page 33
working capital requirements and availability. In addition, from time to time,
the Company or its representatives have made or may make forward-looking
statements, orally or in writing. Such forward-looking statements may be
included in, but are not limited to, various filings made by the Company with
the Securities and Exchange Commission, press releases or oral statements made
by or with the approval of an authorized executive officer of the Company.
Forward-looking statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking terminology
such as "may," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. Actual results
could differ materially from those projected or suggested in any forward-looking
statements as a result of a wide variety of factors and conditions, including,
but not limited to, an inability on the part of the Company to successfully
market and grow NTG, Radix and DCI, the Company's dependence on its top
customers, reliance on certain key management personnel, an inability to grow
the Company's customer base, potential growth in costs and expenses, an
inability to refinance the Company's existing debt on terms comparable to those
now in existence, potential deterioration of business or economic conditions for
the Company's customers' products, price competition from larger and better
financed competitors, and the factors and conditions described in the discussion
of "Results of Operations" and "Liquidity and Capital Resources" as contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations of this report, as well as those included in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Company's quarterly reports on Form 10-Q, the annual report on
Form 10-KSB, and current reports on Form 8-K. Holders of the Company's
securities are specifically referred to these documents with regard to the
factors and conditions that may affect future results. 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.
Page 34
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information
required by this item.
ITEM 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures, as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of the end of the period covered by this report. Based on such
evaluation, these officers have concluded that the Company's disclosure controls
and procedures are effective to provide reasonable assurance that information
required to be disclosed in our periodic filings under the Exchange Act is
accumulated and communicated to our management, including those officers, to
allow timely decisions regarding required disclosure.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls over financial reporting or in other factors that in
management's estimates are reasonably likely to materially affect the Company's
internal controls over financial reporting subsequent to the date of the
evaluation.
Page 35
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 1A. Risk Factors.
Smaller reporting companies are not required to provide the
information required by this item.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
ITEM 3. Defaults Upon Senior Securities
Not Applicable.
ITEM 4. Submission of Matters to a vote of Security Holders
On September 11, 2008, the Company held its annual meeting of
stockholders during which Mr. Stan Gegen was reelected as a Class III
director of the Company for a period of three years until the 2011
Annual Meeting of Stockholders. Shares voted for the election of Mr.
Gegen were 3,010,815. No shares were voted against his appointment,
48,799 shares were withheld, and 230,823 shares were not voted. Mr.
Robert D. Taylor, a Class I director, and Mr. Karl B. Gemperli, a
Class II director, will continue to serve as directors of the Company
until their elective terms end at the annual meeting of stockholders
in 2009 and 2010, respectively.
ITEM 5. Other Information
Not Applicable.
Page 36
ITEM 6. Exhibits
10.1 Business Loan Agreement (Asset Based) dated August 14, 2008 between
Elecsys Corporation and Bank Midwest N.A. filed as Exhibit 10.2 to the
Company's Form 10-Q filed on September 9, 2008 is incorporated herein by
reference.
10.2 Promissory Note dated August 14, 2008 between Elecsys Corporation and
Bank Midwest N.A. filed as Exhibit 10.3 to the Company's Form 10-Q filed on
September 9, 2008 is incorporated herein by reference.
31.1 Rule 13a-14(a)/15d-14(a) Certification of President and Chief
Executive Officer (Principal Executive Officer).
31.2 Rule 13a-14(a)/15d-14(a) Certification of Vice President and Chief
Financial Officer (Principal Financial and Accounting Officer).
32.1 Section 1350 Certification of President and Chief Executive Officer
(Principal Executive Officer).
32.2 Section 1350 Certification of Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer).
Page 37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ELECSYS CORPORATION
December 9, 2008 /s/ Karl B. Gemperli
---------------------- -----------------------------------
Date Karl B. Gemperli
President and
Chief Executive Officer
(Principal Executive Officer)
December 9, 2008 /s/ Todd A. Daniels
---------------------- -----------------------------------
Date Todd A. Daniels
Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 38
EXHIBIT INDEX
Item Description
10.1 Business Loan Agreement (Asset Based) dated August 14, 2008 between
Elecsys Corporation and Bank Midwest N.A. filed as Exhibit 10.2 to the
Company's Form 10-Q filed on September 9, 2008 is incorporated herein by
reference.
10.2 Promissory Note dated August 14, 2008 between Elecsys Corporation and
Bank Midwest N.A. filed as Exhibit 10.3 to the Company's Form 10-Q filed on
September 9, 2008 is incorporated herein by reference.
31.1 Rule 13a-14(a)/15d-14(a) Certification of President and Chief
Executive Officer (Principal Executive Officer).
31.2 Rule 13a-14(a)/15d-14(a) Certification of Vice President and Chief
Financial Officer (Principal Financial and Accounting Officer).
32.1 Section 1350 Certification of President and Chief Executive Officer
(Principal Executive Officer).
32.2 Section 1350 Certification of Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer).
Page 39
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