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| ASY > SEC Filings for ASY > Form 10QSB on 10-Mar-2008 | All Recent SEC Filings |
10-Mar-2008
Quarterly Report
Overview
We are 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 specialized interface technologies, such as custom LCDs, LED displays, and keypads with circuit boards and other electronic components. DCI seeks to become an extension of the OEM's organization by providing key expertise that enables rapid development and manufacture of electronic products from product conception through volume production.
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 is an innovator of internet-based, wireless remote monitoring that uses existing cellular and satellite infrastructure. NTG's remote monitoring devices and its Watchdog CP Web Monitor provide full time, wireless status monitoring and alarm notification regarding the performance of multiple types of systems over the internet. This low cost, highly reliable network provides positive control and prompt event notification using the internet and our integrated back-end network. When combined with its internet-based front-end, NTG's customers can directly access and control a large population of field-deployed remote monitoring devices at an attractive cost.
Radix designs, develops, and implements ultra-rugged handheld computing solutions. 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.
On December 19, 2006, the Company announced that its NTG subsidiary had acquired the product lines, technology, customer base and intellectual property, including a pending patent application, of Advanced Monitoring & Control, Inc. ("AMCI") for approximately $90,000 plus additional royalty payments. 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 Company renewed and increased its operating line of credit to $5,000,000 on August 15, 2007. This line of credit provides the Company and its subsidiaries with short-term financing for their working capital requirements. It is secured by accounts receivable and inventory and
expires on August 14, 2008. Its borrowing capacity is calculated as a specified percentage of accounts receivable and inventory. The line of credit accrues interest at the prime rate plus .25% (7.25% at January 31, 2008) and contains various covenants, including certain financial performance covenants pertaining to the maintenance of debt to net worth and minimum net worth ratios. As of January 31, 2008 the Company was in violation of its minimum tangible net worth covenant as a result of acquiring a significant amount of intangible assets in the Radix transaction. The Company received a waiver of the covenant from its financial institution for the period ended January 31, 2008. There were $3,861,000 in borrowings outstanding on the credit facility as of January 31, 2008.
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 of Salt Lake City, Utah. The Company acquired approximately $4.7 million in tangible assets, including accounts receivable and inventory, as well as all of the intellectual property and intangible assets owned by Radix International Corporation and its subsidiary. In the transaction, the Company's new subsidiary assumed accounts payable of $2.2 million due to the Company's DCI subsidiary, assumed an additional amount of approximately $2.5 million in liabilities, and incurred acquisition costs of approximately $25,000. The transaction also includes performance related compensation based on the annual revenues of the acquired business over the next five years. The total performance related compensation is limited to approximately $2.2 million and is subject to certain considerations that may impact the total amount to be paid.
Results of Operations
Three Months Ended January 31, 2008 Compared With Three Months Ended January 31,
2007.
The following table sets forth, for the periods presented, certain
statement of operations data (in thousands) of the Company:
Three Months Ended
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January 31, 2008 January 31, 2007
---------------- ----------------
Sales $6,135 100.0% $5,173 100.0%
Cost of products sold 3,733 60.9% 3,725 72.0%
---------------- ----------------- ---------------- --------------
Gross margin 2,402 39.1% 1,448 28.0%
Selling, general and
administrative expenses 1,876 30.6% 1,151 22.3%
---------------- ----------------- ---------------- --------------
Operating income 526 8.5% 297 5.7%
Interest expense (138) (2.2%) (104) (2.0%)
Gain on sale of Lenexa facility -- 0.0% 324 6.3%
Other income, net 2 0.0% 3 0.0%
---------------- ----------------- ---------------- --------------
Income from operations
before income taxes 390 6.3% 520 10.0%
Income tax expense 149 2.4% 210 4.0%
---------------- ----------------- ---------------- --------------
Net income $241 3.9% $310 6.0%
Net income per share - basic $0.07 $0.10
================ ================
Net income per share - diluted $0.07 $0.09
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Total consolidated sales for the three months ended January 31, 2008 were
approximately $6,135,000, an increase of $962,000, or 18.6%, from $5,173,000
reported for the third quarter of fiscal 2007.
DCI. Sales at DCI were approximately $3,560,000, a decrease of $1,346,000,
or 27.4%, from $4,906,000 from the prior year period. The sales from the prior
year period included $1,162,000 in sales to the former Radix International
Corporation to help them meet the requirements of a specific customer contract.
Sales reported at DCI no longer include sales made to our Radix subsidiary.
Overall, sales to outside customers at DCI, excluding sales to both NTG and
Radix in both comparable periods, were $3,560,000 for the three-month period
ended January 31, 2008, a decrease of $184,000, or 4.9%, from the $3,744,000 for
the three-month period ended January 31, 2007. The decrease in sales at DCI to
outside customers resulted from the timing of shipments to existing and new
customers during the quarter. We expect sales to outside customers at DCI to
increase over the coming quarters as a result of scheduled shipments
to customers currently recorded in our backlog as well as anticipated future
bookings from sales and marketing efforts currently in progress.
NTG. Total sales at NTG were $1,300,000, an increase of approximately
$1,033,000, or 387%, from the third quarter of fiscal 2007. The increase in
sales at NTG resulted from shipments of new products and equipment upgrades that
totaled $1,227,000 during the period and additional network messaging service
revenues which totaled $68,000. The increase in messaging revenues of $31,000
includes messaging services for both NTG and AMCI units in the field. The
increase in the total number of units sold during the current period was the
result of the multiple new products developed by NTG over the past year. Sales
at NTG are expected to continue to record significant increases from the prior
year periods and are expected to be similar to the current period over the next
few quarters as a result of customer demand for both our digital cellular and
satellite-based WatchdogCP products.
Radix. Sales at the Company's newest subsidiary, Radix, totaled
approximately $1,275,000 for the three-month period ended January 31, 2008.
Sales for the previous period that commenced on September 18, 2007 and ended on
October 31, 2007 were $584,000. Sales of rugged hand held computer hardware and
peripherals totaled approximately $866,000 for the period with an additional
$409,000 of maintenance contract and related repair revenues. We anticipate
increasing revenues at Radix over the next few quarters as integration efforts
are completed and investments are made in sales, marketing and support resources
and initiatives.
Total consolidated backlog at January 31, 2008 was approximately $7,100,000, a decrease of approximately $2,709,000, or 27.6%, from a total backlog of $9,809,000 on January 31, 2007 and a decrease of $997,000 from a total backlog of $8,097,000 on October 31, 2007. As of January 31, 2007, the backlog of orders at DCI included approximately $4,707,000 in orders from the former Radix International Corporation that are no longer reported in consolidated backlog. The amount of total consolidated backlog at January 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 for the periods ended January 31, 2008 and 2007 (in thousands):
January 31, 2008 January 31, 2007
---------------------- ----------------------
DCI, Inc. $6,139 $9,613
NTG, Inc. 322 196
Radix Corporation 639 --
---------------------- ----------------------
Total $7,100 $9,809
====================== ======================
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Gross margin can fluctuate from period to period due to a variety of
factors including, but not limited to, sales volume, product mix, and plant
efficiency. Gross margin for the three-month period ended January 31, 2008, was
39.1% of sales, or $2,402,000, compared to 28.0% of sales, or $1,448,000, for
the three-month period ended January 31, 2007.
DCI. DCI's gross margin was approximately $1,285,000, or 24.2%, for the
period as compared to approximately $1,358,000, or 27.7%, for the comparable
period of the prior year. The decrease in gross margin at DCI of $73,000 is the
result of both lower sales as compared to
sales of the prior year period and product mix within the product lines.
NTG. Total gross margin at NTG was approximately $498,000, or 38.3%,
for the three-month period ended January 31, 2008 as compared to approximately
$90,000, or 33.7%, for the three-month period ended January 31, 2007. The
increase in gross margin at NTG of $408,000 was due to the increased sales of
NTG's products and an increase in messaging services.
Radix. The gross margin at Radix for the three-month period ended January
31, 2008 was approximately $619,000 or 48.5%. Gross margin at Radix was
primarily the result of its product mix of sales between equipment and
maintenance and service contract revenues.
At the consolidated level, we expect that gross margins over the next few
quarters will be between 30% - 35% as a result of increased sales in our
proprietary product segments which have higher gross margins than our EMS
segment.
Selling, general and administrative ("SG&A") expenses increased $725,000,
or 63.0%, to $1,876,000 in the three-month period ended January 31, 2008 from
$1,151,000 in the three-month period ended January 31, 2007. SG&A expenses were
30.6% of sales for the three-month period ended January 31, 2008 as compared to
22.3% of sales for the three-month period ended January 31, 2007.
DCI. SG&A expenses at DCI decreased $17,000 from the prior year period as a
result of a number of factors which included a decrease in commissions paid to
independent sales representatives resulting from our strategic emphasis on
direct sales and a decrease in support engineering expenses. These decreases
were slightly offset by increases in personnel and personnel-related expenses in
the administration and engineering departments resulting from our continued
growth.
NTG. SG&A expenses at NTG increased $103,000 from the comparable prior year
period as a result of increased personnel costs, increased marketing and travel
expenses and royalty payments to AMCI.
Radix. Radix had approximately $627,000 in SG&A expenses during the period
which contributed to the overall increase in operating expenses. Included in
Radix's SG&A expenses were approximately $106,000 of expenses related to the
engineering consultants based in England and whose contracts expire in February
2008. These consultants are being replaced by engineers at the Radix Operations
Facility in Olathe, Kansas. These new engineers were hired and recruited during
the current period. These expenses contributed approximately $80,000 to the
amount of SG&A expenses at Radix.
Elecsys Corporation. Corporate expenses were $12,000 higher than the prior
year period in fiscal 2007 primarily as a result of higher professional fees.
We anticipate that our SG&A expenses will decrease slightly over the near
term as the current three-month period contained transitional and other
short-term expenses related to the Radix transaction. We will continue to invest
in the continuing growth of DCI as well as intensify our investment in product
development, marketing, and sales at both NTG and Radix.
Income from operations before income taxes totaled $390,000 for the three-month period ended January 31, 2008. During the three-month period ended January 31, 2007, the Company reported income from operations before income taxes of $520,000 which included a gain on the sale of its Lenexa facility of approximately $324,000, net of selling expenses.
Interest expense was $138,000 and $104,000 for the three-month periods ended January 31, 2008 and 2007, respectively. This increase of $34,000 was due to interest expense on our operating line of credit which was the result of an increase in the total average amount outstanding during the period. As of January 31, 2008, there were $3,861,000 of borrowings outstanding on the line of credit. We expect to continue utilizing the operating line of credit periodically in the next few quarters and anticipate that the amount of outstanding borrowings may grow as our business continues to grow and debt financing is needed to meet operating requirements and finance our capital investments.
Income tax expense totaled approximately $149,000 for the three-month period ended January 31, 2008 as compared to $210,000 for the three-month period ended January 31, 2007. The decrease of $61,000 was the result of higher income from operations in the previous period which directly impacts the calculation of income tax expense for the respective periods.
As a result of the above factors, net income was $241,000 for the three-month period ended January 31, 2008 as compared to net income of $310,000 reported for the three-month period ended January 31, 2007 which included a gain on the sale of our Lenexa facility of approximately $324,000.
Nine Months Ended January 31, 2008 Compared With Nine Months Ended January 31, 2007.
The following table sets forth, for the periods presented, certain statement of operations data (in thousands) of the Company:
Nine Months Ended
---------------------------------------------------------------------
January 31, 2008 January 31, 2007
---------------- ----------------
Sales $16,524 100.0% $14,631 100.0%
Cost of products sold 10,811 65.4% 10,209 69.8%
---------------- ----------------- ---------------- --------------
Gross margin 5,713 34.6% 4,422 30.2%
Selling, general and
administrative expenses 4,693 28.4% 3,302 22.6%
---------------- ----------------- ---------------- --------------
Operating income 1,020 6.2% 1,120 7.6%
Interest expense (367) (2.2%) (224) (1.5%)
Gain on sale of Lenexa facility -- 0.0% 324 2.2%
Interest income 19 0.1% 9 0.1%
---------------- ----------------- ---------------- --------------
Income from operations
before income taxes 672 4.1% 1,229 8.4%
Income tax expense 247 1.5% 509 3.5%
---------------- ----------------- ---------------- --------------
Net income $425 2.6% $720 4.9%
Net income per share - basic $0.13 $0.22
================ ================
Net income per share - diluted $0.12 $0.21
================ ================
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Sales for the nine months ended January 31, 2008 were approximately
$16,524,000, an increase of $1,893,000, or 12.9%, from $14,631,000 for the
comparable period of fiscal 2007.
DCI. Sales at DCI were approximately $12,192,000, a decrease of $1,821,000,
or 13.0%, from $14,013,000 from the prior year period. The sales from the prior
year period included $3,055,000 in sales to the former Radix Corporation. Sales
to the former Radix Corporation totaled approximately $872,000 for the period
from May 1, 2007 to September 17, 2007. Sales reported at DCI no longer include
sales made to our Radix subsidiary after September 18, 2007. Overall, sales to
outside customers at DCI, excluding sales to both NTG and Radix in both
comparable periods, were $11,320,000 for the nine-month period ended January 31,
2008, an increase of $362,000, or 3.3%, from the $10,958,000 for the nine-month
period ended January 31, 2007. The increase in sales at DCI to outside customers
resulted from increased shipments to existing and new customers. We expect
growth in sales volumes to outside customers at DCI to continue over the coming
quarters. This expectation results from scheduled shipments to customers
currently recorded in our backlog as well as anticipated future bookings.
NTG. Sales volumes at NTG were $2,472,000 for the nine-month period ended
January 31, 2008 an increase of $1,854,000, or 300%, from the nine-month period
ended January 31,
2007. The increase in sales at NTG resulted from shipments of new products and
equipment upgrades of $2,433,000 during the period and additional network
messaging service revenues which totaled $199,000 for the period. Sales at NTG
are expected to continue increasing next quarter as compared to the previous
year period as a result of anticipated demand for both our digital cellular and
satellite-based WatchdogCP products.
Radix. Sales at the Company's newest subsidiary, Radix, totaled
approximately $1,860,000 since the acquisition date of September 18. 2007. The
revenues were mainly the result of sales of rugged hand held computer hardware
and peripherals as well as maintenance contract revenues. We anticipate
increasing revenues at Radix over the next few quarters as integration efforts
are completed and investments are made in sales, marketing, and support
resources and initiatives.
Gross margin for the nine-month period ended January 31, 2008, was 34.6% of
sales, or $5,713,000, compared to 30.2% of sales, or $4,422,000, for the
nine-month period ended January 31, 2007. The increase in gross margin of
approximately $1,291,000 is primarily the result of increased sales volumes at
NTG and the additional sales from Radix. Due to the proprietary nature of their
products, these subsidiaries generate higher gross margins than DCI.
DCI. DCI's gross margin was approximately $3,789,000, or 31.1%, for the
period as compared to approximately $4,208,000, or 30.0%, for the comparable
period of the prior year primarily as a result of product mix to its outside
customers.
NTG. Total gross margin at NTG was approximately $1,019,000, or 41.2%, for
the nine-month period ended January 31, 2008 as compared to approximately
$214,000, or 34.6%, for the nine-month period ended January 31, 2007. The
increase in gross margin at NTG was due to the increased sales volumes with
NTG's products and an increase in messaging services, which includes the AMCI
customer accounts added as part of the AMCI asset acquisition.
Radix. The gross margin at Radix for the nine-month period ended January
31, 2008 was approximately $905,000 or 48.7%. Radix's gross margin was the
result of the mix between equipment sales and maintenance service contract
revenues.
We expect that consolidated gross margins over the next few quarters
will continue at or near the current period margin and near a range of 30%-35%
as a result of increased sales at both NTG and Radix, which have higher margins
than our EMS segment, DCI.
Selling, general and administrative ("SG&A") expenses increased $1,391,000,
to $4,693,000 in the nine-month period ended January 31, 2008 from $3,302,000 in
the nine-month period ended January 31, 2007. SG&A expenses were 28.4% of sales
for the nine-month period ended January 31, 2008 as compared to 22.6% of sales
for the nine-month period ended January 31, 2007.
DCI. SG&A expenses at DCI decreased $10,000 from the prior year period.
During the prior year period, DCI's SG&A expenses included moving and relocation
expenses of approximately $100,000. Excluding those moving and relocation
expenses, the increase in SG&A expenses in the current period was mainly due to
increases in personnel and personnel-related expenses in the administration and
engineering departments resulting from our growth.
NTG. NTG SG&A expenses increased $286,000 from the comparable prior year
period as a result of increased personnel costs, increased marketing and travel
expenses and royalty
payments to AMCI.
Radix. Radix also had approximately $1,040,000 in SG&A expenses during the
period which contributed to the overall increase in operating expenses. Included
in Radix's SG&A expenses were approximately $160,000 which were specifically
related to the costs of the transaction and the move of product integration,
engineering, and service operations to Olathe.
Elecsys Corporation. Corporate expenses were approximately $75,000 higher
than the prior year period in fiscal 2007 as a result of higher accounting and
consulting expenses.
We anticipate that our SG&A expenses will decrease slightly over the near
term as the current nine-month period contained moving, relocation and legal
expenses related to the Radix transaction and are not expected to be recurring.
We will continue to invest in the continuing growth at DCI as well as intensify
our investment in product development, marketing, and sales at both NTG and
Radix.
Interest expense was $367,000 and $224,000 for the nine-month periods ended January 31, 2008 and 2007, respectively. This increase of $143,000 was the direct result of interest expense on our operating line of credit during the period that resulted from an increase in the average amount outstanding on the line of credit during the period. As of January 31, 2008, there was $3,861,000 outstanding on the line of credit.
Income from operations before income taxes totaled $672,000 for the nine-month period ended January 31, 2008. During the nine-month period ended January 31, 2007, the Company reported income from operations before income taxes of $1,229,000 which included a gain on the sale of its Lenexa facility of approximately $324,000, net of selling expenses.
Income tax expense totaled approximately $247,000 and $509,000 for the nine-month periods ended January 31, 2008 and 2007, respectively. The decrease of $262,000 was the result of higher income from operations in the previous period which directly impacts the calculation of income tax expense.
Net income was $425,000 for the nine-month period ended January 31, 2008 as compared to net income of $720,000 reported for the nine-month period ended January 31, 2007.
Liquidity and Capital Resources
Cash and cash equivalents decreased $209,000 to $294,000 as of January 31, 2008 compared to $503,000 at April 30, 2007. This decrease was the result of cash used for new production equipment, increases in inventory and accounts receivable, a decrease in accounts payable which were partially offset by cash borrowed for the assets and liabilities purchased for the Radix acquisition as . . .
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