-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LjGvFUERZIvdy3H2KezkeQfE/Ovdc+/orCoQMmHt3Qda54HuR5ZIpFVdFZ+a1/uy 8C4ZFzh/k+DieXzAimgk3g== 0000859307-00-000005.txt : 20000418 0000859307-00-000005.hdr.sgml : 20000418 ACCESSION NUMBER: 0000859307-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL AIRLINE SUPPORT GROUP INC CENTRAL INDEX KEY: 0000859307 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 592223025 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12893 FILM NUMBER: 602786 BUSINESS ADDRESS: STREET 1: 1954 AIRPORT ROAD STREET 2: SUITE 200 CITY: ATLANTA STATE: GA ZIP: 30341 BUSINESS PHONE: 7704557575 MAIL ADDRESS: STREET 1: 1954 AIRPORT ROAD STREET 2: SUITE 200 CITY: ATLANTA STATE: GA ZIP: 30341 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended February 29, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________________ to __________________. Commission file number 0-18352 ------- INTERNATIONAL AIRLINE SUPPORT GROUP, INC. -------------------------------------------- Delaware 59-2223025 - ---------------------------------- ---------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1954 Airport Road, Suite 200, Atlanta, GA 30341 - ----------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770) 455-7575 -------------- 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 __ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of the registrant's common stock outstanding as of April 7, 2000 was 2,190,198. FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES INDEX Page No. --------- Part I FINANCIAL INFORMATION Item 1. Unaudited Financial Statements Condensed Consolidated Balance Sheets as of May 31, 1999 and February 29, 2000 3 Condensed Consolidated Statements of Earnings for the Three Months and Nine Months Ended February 28, 1999 and February 29, 2000 4 Condensed Consolidated Statements of Cash Flows for The Nine Months ended February 28, 1999 and February 29, 2000 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 The accompanying notes are an integral part of these condensed financial statements 3 FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
May 31, February 29, 1999* 2000 ------------- ----------- (unaudited) Current assets Cash and cash equivalents $ 892,283 $ 838,008 Accounts receivable, net of allowance for doubtful accounts of approximately $342,000 at May 31, 1999 and $477,000 at February 29, 2000 2,812,500 3,054,183 Inventories 11,131,059 14,731,691 Deferred tax benefit - current 1,128,302 1,128,302 Other current assets 134,274 759,916 ------- ------- Total current assets 16,098,418 20,512,100 Property and equipment Aircraft and engines held for lease 4,593,854 9,928,854 Leasehold improvements 157,175 162,639 Machinery and equipment 988,983 1,055,247 ------- --------- 5,740,012 11,146,740 Accumulated depreciation 1,734,503 2,362,052 --------- --------- Property and equipment, net 4,005,509 8,784,688 Other assets Investment in joint venture 2,373,572 3,396,954 Deferred debt costs, net 360,406 317,623 Deferred tax benefit 1,071,959 347,172 Deposits and other assets 66,155 - ------ --------- Total other assets 3,872,092 4,061,749 --------- --------- $ 23,976,019 $ 33,358,537 = ========== = ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term obligations $ 1,455,600 $ 2,340,633 Accounts payable 910,029 1,260,560 Accrued expenses 2,209,191 2,153,867 --------- --------- Total current liabilities 4,574,820 5,755,060 Long-term obligations, less current maturities 8,138,059 15,234,564 Stockholders' equity Preferred stock - $.001 par value; authorized 2,000,000 shares; 0 shares outstanding at May 31, 1999 and February 29, 2000 - - Common stock - $.001 par value; authorized 20,000,000 shares; issued and outstanding 2,655,723 shares at May 31, 1999 and 2,658,723 shares at February 29, 2000 2,655 2,658 Additional paid-in capital 13,936,089 13,903,738 (Accumulated deficit) retained earnings (728,824) 437,839 Common stock held in treasury, at cost - 467,325 shares at May 31, 1999 and 471,525 shares at February 29, 2000 (1,946,780) (1,975,322) --------- --------- Total stockholders' equity 11,263,140 12,368,913 --------- --------- $ 23,976,019 $ 33,358,537 = ========== = ==========
*Condensed from audited Financial Statements The accompanying notes are an integral part of these condensed financial Statements 3 FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended February 28, February 29, February 28, February 29, 1999 2000 1999 2000 ------------ ----------- ---------- ---------- Revenues Net sales $ 4,435,864 $ 4,872,593 $ 14,265,975 $ 18,457,102 Lease and service revenue 1,293,517 485,926 2,874,315 2,107,362 ------------- ------------- ------------- --------------- Total revenues 5,729,381 5,358,519 17,140,290 20,564,464 Cost of sales 2,934,173 3,680,504 9,693,079 13,641,925 Selling, general and administrative expenses 1,627,168 1,231,872 3,787,906 4,292,851 Depreciation and amortization 279,442 266,115 875,114 857,069 ------------- ------------- ------------- --------------- Total operating costs 4,840,783 5,178,491 14,356,099 18,791,845 Equity in net earnings of unconsolidated joint venture 357,589 441,735 705,695 1,263,537 ------------- ------------- ------------- --------------- Earnings from operations 1,246,187 621,763 3,489,886 3,036,156 Interest expense 359,723 444,138 1,011,751 1,163,877 Interest and other income (16,006) (11,343) (6,620) (39,171) ------------- ------------- ------------- --------------- Earnings before income taxes 902,470 188,968 2,484,755 1,911,450 Provision for income taxes 347,066 73,066 948,333 744,787 ------------- ------------- ------------- --------------- Net earnings $ 555,404 $ 115,902 $ 1,536,422 $ 1,166,663 ============= ============= ============= =============== Per share data: Earnings per share available for common stockholders - Basic $ 0.22 $ 0.05 $ 0.60 $ 0.53 Weighted average number of shares of common stock outstanding - Basic 2,541,111 2,187,198 2,558,051 2,187,448 ============= ============= ============= =============== Earnings per share available for common stockholders - Diluted $ 0.21 $ 0.05 $ 0.56 $ 0.51 Weighted average number of shares of common stock outstanding - Diluted 2,708,302 2,240,141 2,751,896 2,289,300 ============= ============= ============= ===============
The accompanying notes are an integral part of these condensed financial Statements 4 FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended February 28, February 29, 1999 2000 ------------ ---------- Cash flows from operating activities: Net earnings $ 1,536,422 $ 1,166,663 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 875,114 857,069 Loss on sale of investment 20,074 - Undistributed equity in earnings of joint venture (705,695) (1,263,537) Provision for income taxes - deferred 948,333 744,787 Changes in assets and liabilities (1,632,948) (3,203,554) ------------ ------------- Total adjustments (495,122) (2,865,235) Net cash provided by (used in) operating activities 1,041,300 (1,698,572) Cash flows from investing activities: Capital equipment and leasehold improvements (64,284) (71,728) Investment in unconsolidated joint venture (1,514,000) (29,845) Proceeds from sale of investment 94,665 - Distributions received from joint venture - 270,000 Additions to aircraft and engines held for lease, net (1,949,917) (6,375,000) ------------ ------------- Net cash used in investing activities (3,433,536) (6,206,573) Cash flows from financing activities: Net increase in debt obligations 3,831,180 7,981,538 Proceeds from exercise of employee stock options 23,250 10,707 Repurchase of common stock (986,855) (18,000) Payment of debt offering costs - (123,375) ---------- --------- Net cash provided by financing activities 2,867,575 7,850,870 ------------ ------------- Net (decrease) increase in cash 475,339 (54,275) Cash and cash equivalents at beginning of period 438,403 892,283 ------------ ------------- Cash and cash equivalents at end of period $ 913,742 $ 838,008 ============= =============
The accompanying notes are an integral part of these condensed financial Statements 5 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain adjustments (consisting only of normal and recurring adjustments) necessary to present fairly International Airline Support Group, Inc.'s condensed consolidated balance sheets as of May 31, 1999 and February 29, 2000, the condensed consolidated statements of earnings for the three and nine months ended February 28, 1999 and February 29, 2000, and the condensed consolidated statements of cash flows for the nine months ended February 28, 1999 and February 29, 2000. The accounting policies followed by the Company are described in the May 31, 1999 financial statements. The results of operations for the three and nine months ended February 29, 2000 are not necessarily indicative of the results to be expected for the full year. 2. Inventories consisted of the following: May 31,1999 February 29,2000 ------------ ------------------ Aircraft parts $ 8,679,059 $ 7,325,209 Aircraft and Engines available for sale 2,452,000 7,406,482 ----------- ----------- $11,131,059 $14,731,691 =========== =========== 3. Earnings Per Share The Company's basic earnings per share is calculated by dividing net earnings by the weighted average shares outstanding during the period. The computation of diluted earnings per share includes all dilutive common stock equivalents in the weighted average shares outstanding. e reconciliation between the computation is as follows: Three Months Ended February 28/ Net Basic Basic Diluted Diluted February 29, Earnings Shares EPS Shares EPS ------------- -------- ------ --- ------ --- 1999 $555,404 2,541,111 $0.22 2,708,302 $0.21 2000 $115,902 2,187,198 $0.05 2,240,141 $0.05 6 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Nine Months Ended February 28/ Net Basic Basic Diluted Diluted February 29, Earnings Shares EPS Shares EPS - ------------- -------- ------ --- ------ --- 1999 $1,536,422 2,558,051 $0.60 2,751,896 $0.56 2000 $1,166,663 2,187,448 $0.53 2,289,300 $0.51 Included in diluted shares are common stock equivalents relating to stock options of 167,191 and 52,943 for the three months ended February 28, 1999 and February 29, 2000, respectively, and 193,845 and 101,852 for the nine months ended February 28 1999 and February 29, 2000, respectively. 4. Credit Facility On October 3, 1996, the Company entered into the Credit Agreement, which provided for a $3 million term loan and up to an $11 million revolving credit. The Credit Agreement was amended on various occasions to create new term loan facilities and to increase the revolving credit to $14 million (collectively referred to as the "Credit Facility"). The Credit Facility is secured by substantially all of the assets of the Company and availability of amounts for borrowing is subject to certain limitations and restrictions. Such limitations and restrictions are discussed in the Company's Proxy Statement/Prospectus filed with the Securities and Exchange Commission on August 29, 1996. 5. Supplemental Cash Flow Disclosures: Cash payments for interest were $891,000 and $1,005,000 for the nine months ended February 28, 1999 and February 29, 2000, respectively. Cash and cash equivalents include $582,651 and $84,639 of restricted cash at May 31, 1999 and February 29, 2000, respectively. Restricted cash includes customer receipts deposited into the Company's lockbox account, which are applied the next business day against the outstanding amount of the Credit Facility, and customer deposits on aircraft and engines leases. 6. Joint Venture On September 16, 1998, the Company entered into a joint venture (the "Air41 Joint Venture") for the acquisition of 20 DC-9-41H aircraft from Scandinavian Airlines System ("SAS"). The aircraft were leased back to SAS and the leases had an average term of 39 months. The Company's original investment in the Air41 Joint Venture was approximately $1.5 million. The Company's Air41 Joint Venture partner is AirCorp, Inc., a privately held company. The aircraft were financed through the joint venture, utilizing non-recourse debt to the partners. The Air41 Joint Venture is accounted for under the equity method and the leases are treated as operating leases. 7 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. Joint Venture (cont.) The Company is exploring opportunities for the aircraft after the end of the term of the leases with SAS. Such opportunities include releasing the aircraft with SAS, leasing the aircraft to one or more different lessee(s), selling the aircraft, parting out the aircraft, or directly placing the aircraft into either passenger or cargo service, whereby the Company may have a principal interest in an airline. The first aircraft was returned by SAS and was immediately leased to a domestic lessee for a three-year term at a higher rental rate. At this time, the Company has no firm commitment for the remaining aircraft after the SAS leases expire. 7. Treasury Stock In the third quarter of 1999, the Company began acquiring shares of its common stock in connection with a stock repurchase program approved by the Company's Board of Directors and lender in December 1998. During the nine months ended February 29, 2000, the Company repurchased 6,500 shares of its common stock at an average price of $4.39 for a total expenditure of $28,542. This repurchase brings the total number of shares repurchased to 471,525 at an average price of $4.19 and a total expenditure of $1,975,322. The Company does not have a formal plan in place to purchase any additional shares; however, the Company is authorized by the Board to make further purchases if deemed to be in the best interest of the Company. The Company's lender must also approve any such purchases. 8 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is management's discussion and analysis of certain significant factors which have affected the Company's operating results and financial position during the periods included in the accompanying condensed consolidated financial statements. RESULTS OF OPERATIONS: - ------------------------ Revenues - -------- Total revenue for the three and nine months ended February 29, 2000 was $5.4 million and $20.6 million, respectively, compared to $5.7 million and $17.1 million, respectively, during the three and nine months ended February 28, 1999. Net sales for the three and nine months ended February 29, 2000 were $4.9 million and $18.5 million, respectively, compared to $4.4 million and $14.3 million, respectively, during the three and nine months ended February 28, 1999. Net sales include parts sales as well as aircraft and engine sales. Aircraft and engine sales are unpredictable transactions and may fluctuate significantly from year to year, dependent, in part, upon the Company's ability to purchase an aircraft or engine at an attractive price and resell it within a relatively brief period of time, as well as the overall market for used aircraft or engines. For the nine-month period, total revenue and net sales were higher due to an increase in aircraft and engine sales offset by a reduction in lease and service revenue. For the three-month period, total revenue was lower as the increase in net sales was not enough to offset the reduction in lease and service revenue. Lease and service revenue decreased from $1.3 million and $2.9 million, respectively, for the three and nine months ended February 28, 1999 to $486,000 and $2.1 million, respectively, for the three and nine months ended February 29, 2000, primarily due to a reduction in service revenue as well as lower lease revenue as the Company has fewer aircraft and engines currently on lease. Under the equity method of accounting, lease revenue from the Air41 Joint Venture is not included in the Company's revenue. Cost of Sales - --------------- Cost of sales increased 25.4% from $2.9 million during the three months ended February 28, 1999 to $3.7 million during the three months ended February 29, 2000. Cost of sales increased 40.7% from $9.7 million during the nine months ended February 28, 1999 to $13.6 million during the nine months ended February 29, 2000. As a percentage of total revenues, cost of sales for the three and nine months ended February 29, 2000 was 69% and 66%, respectively, compared to 51% and 57% for the three and nine months ended February 28, 1999, respectively. These increases were due primarily to increases in net sales, an increase in the sale of brokered parts and a higher cost of sales for aircraft and engines. As the Company continues to expand its brokered part sales, gross margins should decrease from historical levels, which reflect higher levels of sales of parts out of inventory. 9 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Selling, General and Administrative Expenses - ------------------------------------------------ Selling, general and administrative expenses decreased 24.3% from $1.6 million during the three months ended February 28, 1999 to $1.2 million during the three months ended February 29, 2000, primarily due to a decrease in salary and bonuses partially offset by an increase in insurance expenses. Selling, general and administrative expenses increased 13.3% from $3.8 million during the nine months ended February 28, 1999 to $4.3 million during the nine months ended February 29, 2000, primarily due to an increase in insurance costs, professional fees, commissions and advertising and marketing expenses. Depreciation and Amortization - ------------------------------- Depreciation and amortization for the three and nine months ended February 28, 1999 totaled $279,000 and $875,000, respectively, compared to $266,000 and $857,000 for the three and nine months ended February 29, 2000, respectively. Interest Expense - ----------------- Interest expense for the three and nine months ended February 28, 1999 was $360,000 and $1.0 million, respectively, compared to $444,000 and $1.2 million for the three and nine months ended February 29, 2000, respectively. The increase in interest expense from 1999 to 2000 was due to an increase in total debt outstanding during this period from $13.5 million at February 28, 1999 to $17.6 million at February 29, 2000. Interest and other income - ---------------------------- Interest and other income for the three and nine months ended February 29, 2000 was $11,000 and $39,000, respectively, compared to $16,000 and $7,000 for the three and nine months ended February 28, 1999, respectively. Net Earnings - ------------- Earnings per share - diluted for the third quarter of fiscal 2000 were $0.05 compared to earnings per share - diluted for the third quarter of fiscal 1999 of $0.21, based on 2,240,141 and 2,708,302 weighted average shares outstanding, respectively. Earnings per share - diluted for the first nine months of fiscal 2000 were $0.51 compared to earnings per share - diluted for the first nine months of fiscal 1999 of $0.56 per share - diluted, based on 2,289,300 and 2,751,896 weighted average shares outstanding, respectively. The decrease in the weighted average shares outstanding - basic and diluted is the result of the Company's stock repurchase program. 10 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Treasury Stock - --------------- In the third quarter of 1999, the Company began acquiring shares of its common stock in connection with a stock repurchase program approved by the Company's Board of Directors and lender in December 1998. During the nine months ended February 29, 2000, the Company repurchased 6,500 shares of its common stock at an average price of $4.39 for a total expenditure of $28,542. This repurchase brings the total number of shares repurchased to 471,525 at an average price of $4.19 and a total expenditure of $1,975,322. The Company does not have a formal plan in place to purchase any additional shares; however, the Company is authorized by the Board to make further purchases if deemed to be in the best interest of the Company. The Company's lender must also approve any such purchases. Liquidity and Capital Resources - ---------------------------------- The Credit Agreement originally entered into by the Company in October of 1996 provided for a $3 million term loan and up to an $11 million revolving credit. The Credit Agreement has been amended to create several new term loan facilities and to increase the revolving credit to $14 million (collectively referred to as the "Credit Facility"). The revolving credit facility matures in October 2001 and the term loans mature on various dates through October 2001. The interest rate that the Company is assessed is subject to fluctuation and may change based upon certain financial covenants. As of April 7, 2000, the interest rate under the Credit Facility was the lender's base rate (9.00%) minus 0.25%. The Credit Facility is secured by substantially all of the assets of the Company and availability of amounts for borrowing is subject to certain limitations and restrictions. Such limitations and restrictions are discussed in the Company's Proxy Statement/Prospectus filed with the Securities and Exchange Commission on August 29, 1996. Net cash provided by (used in) operating activities for the nine months ended February 29, 2000 and February 28, 1999 were ($1,699,000) and $1,041,000, respectively. The cash used in operating activities for nine months ended February 29, 2000 was due primarily to an increase in inventory relating to the acquisition of aircraft and engines held for sale. The cash provided by operations for the nine months ended February 28, 1999 was due to net earnings offset by an increase in accounts receivables and inventory. Net cash used for investing activities for the nine months ended February 29, 2000 amounted to $6,207,000 compared to $3,434,000 for the nine months ended February 28, 1999. The net cash used for investing activities for the nine months ended February 29, 2000 was primarily the result of the addition of aircraft and engines held for lease. The net cash used for investing activities for the nine months ended February 28, 1999 was primarily the result of an investment in the Air41 Joint Venture and the addition of certain Pratt & Whitney JT8D engines held for lease. 11 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Liquidity and Capital Resources (cont.) - ------------------------------------------- Net cash provided by financing activities for nine months ended February 29, 2000 amounted to $7,851,000 compared to $2,868,000 million for the nine months ended February 28, 1999. The net cash provided by financing activities for the nine months ended February 29, 2000 was the result of a net increase in debt obligations primarily resulting from the acquisition of aircraft and engines held for sale and for lease. The net cash provided by financing activities for the nine months ended February 28, 1999 was primarily the result of a net increase in debt obligations of $3.8 million due to the borrowing of funds for the acquisition of certain Pratt & Whitney JT8D engines and the investment in the Air41 Joint Venture. At April 7, 2000, the Company was permitted to borrow up to an additional $2.8 million pursuant to the revolving credit facility. The Company believes that amounts available to be borrowed pursuant to the Credit Agreement and cash flow from operations will be sufficient to meet the requirements of the Company's business for the foreseeable future. The Company had no material commitments for capital expenditures as of February 29, 2000. Recent Accounting Pronouncements - ---------------------------------- In June 1998, the FASB issued Statement of Financial Accounting Standards (FAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS No. 133 establishes standards for accounting and reporting for derivative instruments, and conforms the requirements for treatment of different types of hedging activities. This statement is effective for all fiscal years beginning after June 15, 2000. Management does not expect this standard to have a significant impact on the Company's operations. Year 2000 Issues - ------------------ The Company experienced no disruptions in the operation of its internal information systems or in the availability of its facilities during its transition to year 2000. The Company is not aware that any of its vendors experienced any disruptions during their transitions to year 2000 or that there have been any year 2000 problems with its material held for sale. The Company will continue to monitor the transition to year 2000 and will act promptly to resolve any problems that occur. 12 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Recent Developments - -------------------- On April 11, 2000, the Company signed a definitive agreement to acquire a small regional air cargo airline that operates three piston light twin and two light turboprop Part 23 aircraft under an Air Carrier Certificate under Part 135 of the regulations of the Federal Aviation Administration. Besides providing ad hoc charter operations, the airline is currently under contract to provide cargo services to certain express carriers. The Company has agreed to pay $125,000, plus certain contingent consideration including assuming the debt relating to the aircraft, for the airline. Consummation of the acquisition is subject to customary approvals. The Company expects that the acquisition will close during the fourth quarter of fiscal 2000. If the acquisition is consummated, the airline will become a wholly owned subsidiary of the Company. A Part 135 certificate permits the holder to operate aircraft for cargo transportation service up to a maximum payload of 7,500 pounds or on-demand passenger charter service for up to 30 passengers. The Company intends to expand the air cargo operations conducted by the airline during the first quarter of fiscal 2001. Although the Company expects the acquisition to be accretive, earnings could be negatively impacted due to the resulting investment in the airline and the intended expansion. The Company is evaluating the possibility of raising capital by issuing debt or equity securities of the subsidiary to finance the acquisition, continued operations and expansion of this subsidiary. As of April 7, 2000, the Company owns four Embraer EMB-120 aircraft that are not currently under lease. The Company intends to sell or lease these aircraft; however, the aircraft are currently in maintenance for repairs. While these aircraft are in maintenance and until they are utilized, future earnings could be negatively impacted because the interest expense associated with debt incurred to purchase the aircraft may not be offset by revenues generated from the sale or lease of the aircraft. One or more of these aircraft may be leased to the above-mentioned subsidiary. Forward Looking Statements - ---------------------------- This Form 10-Q contains statements that may constitute "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. Those statements include statements regarding the capital spending and future financing plans of the Company and reflect the intent, belief or current expectations of the Company and members of its management team. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. 13 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is from time to time subject to legal proceedings and claims that arise in the ordinary course of its business. On the date hereof, no such proceedings are pending and no such claims have been asserted. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits --------
Exhibit NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING 2.4 Credit Incorporated by reference to Exhibit 2.4 to Agreement Amendment No. 2 to the Company's Registration between BNY Statement on Form S-4 filed on August 29, 1996 (File Financial No. 333-08065). Corporation and the Registrant (the "Credit Agreement"). 2.5 First Amendment, Filed herewith. Waiver and Agreement, dated as of March 24, 1997, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.6 Second Filed herewith. Amendment and Agreement, dated as of September 9, 1997, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.7 Third Amendment and Filed herewith. Agreement, dated as of October 15, 1997, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.8 Fourth Amendment and Filed herewith. Agreement, dated as of February 2, 1998, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.9 Fifth Amendment, Filed herewith. dated as of July 16, 1998, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.10 Sixth Amendment, Filed herewith. dated as of May 30, 1998, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.11 Seventh Amendment, Filed herewith. dated as of October 28, 1998, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.12 Eighth Amendment Filed herewith dated as of December 8, 1998 1999, between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 2.13 Ninth Amendment Filed herewith dated as of July 1, 1999 between BNY Financial Corporation and the Registrant and related to the Credit Agreement. 3.1 Amended and Incorporated by reference to Exhibit 3.1 to the Restated Company's Annual Report on Form 10-K for the fiscal Certificate year ended May 31, 1996 (the "1996 Form 10-K"). of Incorporation of the Registrant. 3.2 Restated and Incorporated by reference to Exhibit 3.2 to the 1996 Amended Form 10-K. Bylaws of the Registrant. 4.1 Specimen Incorporated by reference to Exhibit 4.1 to the 1996 Common Stock Form 10-K. Certificate. 10.1.1 Employment Incorporated by reference to Exhibit 10.1.1 to the Agreement, 1996 Form 10-K dated as of December 1, 1995, between the Registrant and Alexius A. Dyer III, as amended on October 3, 1996. 10.1.2 Employment Incorporated by reference to Exhibit 10.1.2 to the Agreement Company's Quarterly Report for the quarter ended dated as of February 28, 1997. October 3, 1996, between the Registrant and George Murnane III. 10.2.1 1996 Long- Incorporated by reference to Appendix B to the Proxy Term Statement/Prospectus included in the Company's Incentive and Registration Statement on Form S-4 (File Share Award No. 333-08065), filed on July 12, 1996. Plan. 16 10.2.2 401(k) Plan. Incorporated by reference to Exhibit 10-H to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1992 (the "1992 Form 10-K"). 10.2.3 Bonus Plan. Incorporated by reference to Exhibit 10.2.4 to the 1992 Form 10-K. 10.2.4 Cafeteria Incorporated by reference to Exhibit 10.2.5 of the Plan. Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1993. 10.2.5 Form of Incorporated by reference to Exhibit 10.2.5 to the Option 1996 Form 10-K. Certificate (Employee Non-Qualified Stock Option). 10.2.6 Form of Incorporated by reference to Exhibit 10.2.6 to the Option 1996 Form 10-K. Certificate (Director Non-Qualified Stock Option). 10.2.7 Form of Incorporated by reference to Exhibit 10.2.7 to the Option 1996 Form 10-K. Certificate (Incentive Stock Option). 10.14 Commission Incorporated by reference to Exhibit 10.14 to the Agreement 1996 Form 10-K. Dated December 1, 1995 between the Registrant and J.M. Associates, Inc. 10.15 Operating Incorporated by reference to Exhibit 10.14 to the Air41 LLC, Exhibit 10.15 to the 1999 Form 10-K dated as of September 9, 1998, by and between AirCorp, Inc. and the Company 10.16 Office Lease Incorporated by reference to Exhibit 10.17 to the Agreement 1997 Form 10-K. dated January 31, 1997 between the Registrant and Globe Corporate Center, as amended. 10.17 Lease Incorporated by reference to Exhibit 10.18 to the Agreement 1997 Form 10-K. dated March 31, 1997 between the Registrant and Port 95- 4, Ltd. 27 Financial Filed herewith. Data Schedule.
(b) Reports on Form 8-K ---------------------- None INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY 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. INTERNATIONAL AIRLINE SUPPORT GROUP, INC. - -------------------------------------------- (Registrant) /s/James M. Isaacson April 14, 2000 - ---------------------- ---------------- James M. Isaacson Date Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS May-31-2000 Feb-29-2000 838,008 0 3,531,183 477,000 14,731,691 20,512,100 11,146,740 2,362,052 33,358,537 5,755,060 15,234,564 2,658 0 0 13,903,738 33,358,537 14,265,975 2,874,315 9,693,079 14,365,099 0 144,109 1,011,751 2,484,755 948,333 0 0 0 0 1,536,051 0.60 0.56
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