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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
--or--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
[ ] EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2002
Commission File Number: 0-16207
ALL AMERICAN SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2814714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16115 Northwest 52nd Avenue, Miami, Florida 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 621-8282
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. [X] Yes [ ] No
As of May 7, 2002, 4,040,150 shares (including 32,141 shares held by a
wholly-owned subsidiary of the Registrant) of the common stock of All American
Semiconductor, Inc. were outstanding.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
FORM 10-Q - INDEX
Part Item Page
No. No. Description No.
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I FINANCIAL INFORMATION:
1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 2002
(Unaudited) and December 31, 2001....................................... 1
Consolidated Condensed Statements of Income for the Quarters
Ended March 31, 2002 and 2001 (Unaudited)............................... 2
Consolidated Condensed Statements of Cash Flows for the
Quarters Ended March 31, 2002 and 2001 (Unaudited)...................... 3
Notes to Consolidated Condensed Financial Statements (Unaudited).......... 4
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 5
3. Quantitative and Qualitative Disclosures about Market Risk................ 8
II OTHER INFORMATION:
2. Changes in Securities and Use of Proceeds................................. 9
6. Exhibits and Reports on Form 8-K.......................................... 9
SIGNATURES................................................................ 9
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31 December 31
ASSETS 2002 2001
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(Unaudited)
Current assets:
Cash ...................................................... $ 425,000 $ 636,000
Accounts receivable, less allowances for doubtful
accounts of $2,124,000 and $1,845,000 ................... 50,989,000 41,217,000
Inventories ............................................... 62,467,000 81,032,000
Other current assets, including income taxes receivable ... 7,661,000 14,904,000
Net assets of discontinued operations ..................... - 36,000
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Total current assets .................................... 121,542,000 137,825,000
Property, plant and equipment - net ......................... 3,311,000 3,476,000
Deposits and other assets ................................... 2,740,000 2,821,000
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$ 127,593,000 $ 144,122,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt ......................... $ 189,000 $ 234,000
Accounts payable and accrued expenses ..................... 52,061,000 50,848,000
Other current liabilities ................................. 299,000 174,000
------------- -------------
Total current liabilities ............................... 52,549,000 51,256,000
Long-term debt:
Notes payable ............................................. 50,732,000 68,662,000
Subordinated debt ......................................... 5,988,000 5,999,000
Other long-term debt ...................................... 1,180,000 1,180,000
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110,449,000 127,097,000
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued ................................. - -
Common stock, $.01 par value, 40,000,000 shares
authorized, 4,040,150 shares issued and outstanding...... 40,000 40,000
Capital in excess of par value ............................ 26,328,000 26,328,000
Accumulated deficit ....................................... (8,289,000) (8,408,000)
Treasury stock, at cost, 183,246 shares ................... (935,000) (935,000)
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17,144,000 17,025,000
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$ 127,593,000 $ 144,122,000
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See notes to consolidated condensed financial statements
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
QUARTERS ENDED MARCH 31 2002 2001
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NET SALES ......................................... $ 82,142,000 $ 125,917,000
Cost of sales ..................................... (66,501,000) (100,905,000)
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Gross profit ...................................... 15,641,000 25,012,000
Selling, general and administrative expenses ...... (14,490,000) (21,247,000)
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INCOME FROM CONTINUING OPERATIONS ................. 1,151,000 3,765,000
Interest expense .................................. (967,000) (2,761,000)
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ............................. 184,000 1,004,000
Income tax provision .............................. (65,000) (431,000)
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INCOME FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS .................. 119,000 573,000
Income from discontinued operations (net
of $75,000 income tax provision) ................ - 98,000
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NET INCOME ........................................ $ 119,000 $ 671,000
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BASIC EARNINGS PER SHARE:
Income from continuing operations .............. $ .03 $ .15
Discontinued operations ........................ - .02
----- -----
Net income ..................................... $ .03 $ .17
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DILUTED EARNINGS PER SHARE:
Income from continuing operations .............. $ .03 $ .15
Discontinued operations ........................ - .02
----- -----
Net income ..................................... $ .03 $ .17
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See notes to consolidated condensed financial statements
2
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
QUARTERS ENDED MARCH 31 2002 2001
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Cash Flows Provided By (Used For) Operating Activities ........ $ 17,744,000 $ (1,557,000)
------------ ------------
Cash Flows From Investing Activities:
Acquisition of property and equipment ......................... (46,000) (128,000)
Decrease in other assets ...................................... 81,000 76,000
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Cash flows provided by (used for) investing activities ..... 35,000 (52,000)
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Cash Flows From Financing Activities:
Net borrowings (repayments) under line of credit agreement .... (17,930,000) 1,843,000
Repayments of notes payable ................................... (60,000) (56,000)
Net proceeds from issuance of equity securities ............... - 2,000
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Cash flows provided by (used for) financing activities ..... (17,990,000) 1,789,000
------------ ------------
Increase (decrease) in cash ................................... (211,000) 180,000
Cash, beginning of period ..................................... 636,000 335,000
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Cash, end of period ........................................... $ 425,000 $ 515,000
============ ============
Supplemental Cash Flow Information:
Interest paid ................................................. $ 947,000 $ 2,702,000
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Income taxes paid (refunded) - net ............................ $ (7,273,000) $ 717,000
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See notes to consolidated condensed financial statements
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited Consolidated Condensed
Financial Statements include all adjustments (consisting of normal recurring
accruals or adjustments only) necessary to present fairly the financial position
at March 31, 2002, and the results of operations and the cash flows for all
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results to be obtained in any future interim
period or for the entire year.
Prior period financial statements have been reclassified to conform with the
current period's presentation.
For a summary of significant accounting policies (which have not changed from
December 31, 2001) and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, including the
consolidated financial statements and notes thereto which should be read in
conjunction with these financial statements.
The accompanying unaudited interim financial statements have been prepared in
accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes required to be in conformity with accounting
principles generally accepted in the United States of America.
Earnings Per Share
------------------
The following average shares were used for the computation of basic and diluted
earnings per share:
Quarters Ended March 31 2002 2001
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Basic............................................. 3,856,904 3,856,539
Diluted........................................... 3,878,447 4,051,693
2. LONG-TERM DEBT
Outstanding borrowings at March 31, 2002 under the Company's $85 million line of
credit facility aggregated $50,732,000. Borrowings under this facility are
collateralized by substantially all of the Company's assets.
3. OPTIONS
During the quarter ended March 31, 2002, in connection with a prior cancellation
of certain stock options, the Company granted 81,000 stock options pursuant to
the Employees', Officers', Directors' Stock Option Plan, as previously amended
and restated, at an exercise price of $3.45 per share. These stock options vest
over two years and are exercisable through March 3, 2005.
During the quarter ended March 31, 2002, no stock options were granted by the
Company pursuant to the 2000 Nonemployee Director Stock Option Plan, as amended.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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All American Semiconductor, Inc. and its subsidiaries (the "Company") is a
national distributor of electronic components manufactured by others. The
Company distributes a full range of semiconductors (active components),
including transistors, diodes, memory devices, microprocessors, microcontrollers
and other integrated circuits, as well as passive components, such as
capacitors, resistors, inductors and electromechanical products, including
cable, switches, connectors, filters and sockets. These products are sold
primarily to original equipment manufacturers in a diverse and growing range of
industries, including manufacturers of computers and computer-related products;
home office and portable equipment; networking, satellite, wireless and other
communications products; Internet infrastructure equipment and appliances;
automobiles; consumer goods; voting and gaming machines; point-of-sale
equipment; robotics and industrial equipment; defense and aerospace equipment;
and medical instrumentation. The Company also sells products to contract
electronics manufacturers, or electronics manufacturing services, or EMS,
providers who manufacture products for companies in all electronics industry
segments. Through the Aved Memory Products division of its subsidiary, Aved
Industries, Inc., the Company also designs and has manufactured under the label
of its subsidiary's division, certain memory modules which are sold to original
equipment manufacturers. Prior to the second quarter of 2001, the Company also
designed and had manufactured under the label of Aved Display Technologies, a
division of the Company, certain board-level products including flat panel
display driver boards. As a result of adverse industry conditions and other
factors, management decided to discontinue its Aved Display Technologies
division during the second quarter of 2001.
Critical Accounting Policies and Estimates
------------------------------------------
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the unaudited Consolidated Condensed Financial Statements and accompanying
notes. Estimates are used for, but not limited to, the accounting for the
allowance for doubtful accounts, inventories, income taxes and loss
contingencies. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting policies, among others,
may be impacted significantly by judgement, assumptions and estimates used in
the preparation of the unaudited Consolidated Condensed Financial Statements:
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). Under SAB 101, revenue is recognized at the point of
passage to the customer of title and risk of loss, there is persuasive evidence
of an arrangement, the sales price is determinable, and collection of the
resulting receivable is reasonably assured. The Company generally recognizes
revenue at the time of shipment. Sales are reflected net of discounts and
returns.
The allowance for doubtful accounts is maintained to provide for losses arising
from customers' inability to make required payments. If there is a deterioration
of our customers' credit worthiness and/or there is an increase in the length of
time that the receivables are past due greater than the historical assumptions
used, additional allowances may be required.
Inventories are stated at the lower of cost (determined on an average cost
basis) or market. Based on our assumptions about future demand and market
conditions as well as the Company's distribution agreements with its suppliers
which provide for price protection and obsolescence credits, inventories are
written-down to market value. If our assumptions about future demand change
and/or actual market conditions are less favorable than those projected,
additional write-downs of inventories may be required.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Deferred tax assets are recorded based on the Company's projected future taxable
income and the resulting utilization of the deferred tax assets. To the extent
that the Company would not be able to realize all or part of its deferred tax
assets in the future, an adjustment to the deferred tax assets would be
necessary and charged to income.
Loss contingencies arise in the ordinary course of business. In determining loss
contingencies, we evaluate the likelihood of the loss or impairment of an asset
or the incurrence of a liability, as well as our ability to reasonably estimate
the amount of such loss. We accrue for an estimated loss contingency when it is
probable that a liability has been incurred or an asset has been impaired and
the amount of the loss can be reasonably estimated.
Results of Operations
---------------------
Net sales for the first quarter of 2002 were $82.1 million, a decrease of 34.8%
from net sales of $125.9 million for the same period of 2001, excluding sales
from discontinued operations. The decrease was primarily attributable to a
severe broad-based industry downturn which began during the first quarter of
2001 and progressively and significantly worsened throughout 2001, weakness in
demand for electronic components as well as the general weakness in the overall
economy. While market conditions have not improved significantly as of yet, net
sales for the first quarter of 2002 did represent the first sequential quarterly
increase in sales, when compared to the prior consecutive quarter, since the
third quarter of 2000. Net sales for the first quarter of 2002 were 23.8% ahead
of net sales for the fourth quarter of 2001.
Gross profit was $15.6 million for the first quarter of 2002, a decrease of
37.5% from gross profit of $25.0 million for the same period of 2001, excluding
gross profit from discontinued operations. The decrease in gross profit was
primarily due to the decrease in net sales. Gross profit margins as a percentage
of net sales were 19.0% for the first three months of 2002 compared to 19.9% for
the same period of 2001. The decline in gross profit margins reflects the
continued weakness in demand for electronic components, excess product
availability as well as a change in our product mix, including an increase in
sales of flat panel displays which generally sell at lower gross margins. In
addition, we continue to develop long-term strategic relationships with accounts
that have required aggressive pricing programs and we expect a greater number of
low margin, large volume transactions. Management therefore expects that the
downward pressure on gross profit margins may continue.
Selling, general and administrative expenses ("SG&A") decreased to $14.5 million
for the first quarter of 2002 from $21.2 million for the first quarter of 2001.
The improvement in SG&A reflects the benefit from the implementation of certain
expense reduction programs, including workforce and salary reductions, all of
which began during the second quarter of 2001. The decrease also reflects a
reduction in variable expenses associated with the decline in sales and gross
profit dollars.
SG&A as a percentage of net sales was 17.6% for the quarter ended March 31, 2002
compared to 16.9% for the same period of 2001. The increase in SG&A as a
percentage of net sales reflects the significant decline in sales which outpaced
the improvement in SG&A discussed above.
Income from continuing operations was $1.2 million for the first quarter of 2002
compared to $3.8 million for the first quarter of 2001. The decrease in income
from continuing operations was due to the significant decline in sales and gross
profit dollars resulting from the severe industry downturn, which decreases were
partially offset by the improvement in SG&A described above.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Interest expense decreased to $1.0 million for the first quarter of 2002 from
$2.8 million for the same period of 2001. The decrease in interest expense
resulted from a significant decrease in our average borrowings and a decrease in
overall interest rates. Our average borrowings decreased approximately $60
million from the first quarter of 2001 due to the decreases in our inventory,
accounts receivable and income taxes receivable as well as from the positive
effects of our expense reduction programs.
Net income was $119,000 or $.03 per share (diluted) for the quarter ended March
31, 2002, compared to $671,000 or $.17 per share (diluted) for the same period
of 2001.
Liquidity and Capital Resources
-------------------------------
Working capital at March 31, 2002 decreased to $69.0 million from working
capital of $86.6 million at December 31, 2001. The current ratio was 2.31:1 at
March 31, 2002 compared to 2.69:1 at December 31, 2001. The decreases in working
capital and the current ratio were primarily due to a substantial decrease in
inventory, a decrease in income taxes receivable and an increase in accounts
payable. These changes to working capital were partially offset by an increase
in accounts receivable. Accounts receivable levels at March 31, 2002 were $51.0
million compared to accounts receivable of $41.2 million at December 31, 2001.
The increase in accounts receivable reflects an increase in the level of sales
during the first quarter of 2002 compared to the latter part of 2001. Inventory
levels were $62.5 million at March 31, 2002, down from $81.0 million at December
31, 2001. The significant decrease in inventory reflects our sustained efforts
to bring inventory positions in line with the current levels of sales. Accounts
payable and accrued expenses increased to $52.1 million at March 31, 2002
compared to $50.8 million at December 31, 2001.
Outstanding borrowings under the Company's $85 million line of credit facility
aggregated $50.7 million at March 31, 2002 down from $68.7 million at December
31, 2001. The decline in outstanding borrowings during the first quarter of 2002
reflects the decrease in working capital discussed previously. Borrowings under
this facility are collateralized by substantially all of the Company's assets.
In addition to its borrowings under its line of credit facility and other
long-term debt obligations reflected on its unaudited Consolidated Condensed
Balance Sheet, the Company has operating leases for office space and equipment
that have initial or remaining noncancelable lease terms in excess of one year
as of March 31, 2002. The amount of the Company's obligations with respect to
operating leases is approximately $3.9 million for the twelve months ending
March 31, 2003.
The Company currently expects that its cash flows from operations and additional
borrowings available under its credit facility will be sufficient to meet the
Company's current financial requirements over the next twelve months.
Forward-Looking Statements; Business Risks
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This Form 10-Q contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs relating to the Company's or
industry's future performance, its future operating results, its sales,
products, services, markets and industry, market conditions and/or future events
relating to or effecting the Company and its business and operations. If and
when used in this Form 10-Q, the words "believes," "estimates," "plans,"
"expects," "attempts," "intends," "anticipates," "could," "may," "explore" and
similar expressions as they relate to the Company or its management are intended
to identify forward-looking statements. The actual performance, results or
achievements of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties. Factors
that could adversely affect the Company's future results, performance or
achievements include, without limitation: the continuance of or increase in the
broad-based industry downturn resulting in the decline or increasing decline (as
the case may be) in demand for electronic components and further excess customer
inventory; continuing or worsening in the overall economic weakness; the reduced
effectiveness of the Company's business and marketing
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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strategies; an increase in the allowance for doubtful accounts receivable and
bad debts or further write-offs of accounts receivable as a result of the
weakened and/or further weakening financial condition of certain of the
Company's customers; further write-offs of inventory arising from customers
returning additional inventory and further canceling orders or the devaluation
of inventory as a result of adverse market conditions; a reduction in the
Company's development of new customers, existing customer demand as well as the
level of demand for products of its customers; deterioration in the
relationships with existing suppliers; price erosion in and price competition
for products sold by the Company; difficulty in the management and control of
expenses; the inability of the Company to generate revenue commensurate with the
level of personnel and size of its infrastructure; price decreases on inventory
that is not price protected; decreases in gross profit margins, including
decreasing margins resulting from the Company being required to have aggressive
pricing programs; an increasing number of low-margin, large volume transactions
and increased availability of the supply for certain products; increased
competition from third party logistics companies, e-brokers and other Internet
providers through the use of the Internet as well as from its traditional
competitors; insufficient funds from operations, from the Company's credit
facility and from other sources (debt and/or equity) to support the Company's
operations; problems with telecommunication, computer and information systems;
the inability of the Company to expand its product offerings or obtain product
during periods of allocation; the inability of the Company to continue to
enhance its service capabilities and the timing and cost thereof; the failure to
achieve acceptance of or to grow in all or some of the new technologies that
have been or are being supported by the Company; an increase in interest rates;
the adverse impact of terrorism on the economy; and the other risks and factors
detailed in this Form 10-Q and in the Company's Form 10-K for the fiscal year
ended December 31, 2001 and other filings with the Securities and Exchange
Commission and in its press releases. These risks and uncertainties are beyond
the ability of the Company to control. In many cases, the Company cannot predict
the risks and uncertainties that could cause actual results to differ materially
from those indicated by the forward-looking statements.
Quantitative and Qualitative Disclosures about Market Risk
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The Company's credit facility bears interest based on interest rates tied to the
prime or LIBOR rate, either of which may fluctuate over time based on economic
conditions. As a result, the Company is subject to market risk for changes in
interest rates and could be subjected to increased or decreased interest
payments if market interest rates fluctuate. If market interest rates increase,
the impact may have a material adverse effect on the Company's financial
results.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
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ITEM 2. Changes in Securities and Use of Proceeds
------- -----------------------------------------
(c) Sales of Unregistered Securities
--------------------------------
The Company has not issued or sold any unregistered securities during the
quarter ended March 31, 2002, although, pursuant to the Company's
Employees', Officers', Directors' Stock Option Plan, as previously amended
and restated, the Company granted stock options to 109 individuals to
purchase an aggregate of 81,000 shares of the Company's Common Stock at an
exercise price of $3.45 per share. The stock options vest over a two-year
period and are exercisable through March 3, 2005. All of the stock options
were granted by the Company in reliance upon the exemption from
registration available under Section 4(2) of the Securities Act of 1933, as
amended. See Note 3 to Notes to Consolidated Condensed Financial Statements
(Unaudited).
ITEM 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
--------
11.1 Statement Re: Computation of Per Share Earnings (Unaudited).
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2002.
------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
All American Semiconductor, Inc.
------------------------------------------------
(Registrant)
Date: May 15, 2002 /s/ Paul Goldberg
------------------------------------------------
Paul Goldberg, Chairman of the Board
(Duly Authorized Officer)
Date: May 15, 2002 /s/ Howard L. Flanders
------------------------------------------------
Howard L. Flanders, Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
9