10-K/A 1 air41edg.txt 10K/A AIR 41 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 2000 Commission file number: 0-18352 INTERNATIONAL AIRLINE SUPPORT GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 59-2223025 -------- ---------- (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) ------------------------------ ------------------------------------ 1954 Airport Road, Suite 200, Atlanta, Georgia 30341 (Address of Principal Executive Offices) (Zip Code) ---------------------------------------- ---------- (770) 455-7575 ----------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of class Name of each exchange on which registered Common Stock, $.001 par value American Stock Exchange ----------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None The undersigned Registrant hereby amends the following items, financial statements, exhibits or other portions of its Annual Report on Form 10-K for the year ending May 31, 2000 as set forth below: Part II, Item 8 Financial Statements The following financial statements of Air 41 LLC, a Delaware limited liability company in which the Company owns an equity interest, are filed pursuant to Regulation S-X, Rule 3-09: Report of independent certified public accountants Balance sheets as of May 31, 2000 and 1999; Statements of earnings for the years ended May 31, 2000 and 1999; Statement of members' capital for the year ended May 31, 2000 and for the period from September 19, 1998 through May 31, 1999; Notes to financial statements. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. International Airline Support Group, Inc., a Delaware corporation By: /s/ James M. Isaacson -------------------------- James M. Isaacson Chief Accounting Officer Date: May 31, 2001 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AIR 41 LLC MAY 31, 2000 AND 1999 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS BALANCE SHEETS 2 STATEMENTS OF EARNINGS 3 STATEMENT OF MEMBERS' CAPITAL 4 STATEMENTS OF CASH FLOWS 5 NOTES TO FINANCIAL STATEMENTS 6 - 10 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors AIR 41 LLC We have audited the accompanying balance sheets of AIR 41 LLC (the "Company") as of May 31, 2000 and 1999, and the related statements of earnings, members' capital and cash flows for the year ended May 31, 2000 and the period from September 19, 1998 (date of inception) through May 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AIR 41 LLC as of May 31, 2000 and 1999 and the results of its operations and its cash flows for the year ended May 31, 2000 and the period from September 19, 1998 (date of inception) through May 31, 1999, in conformity with accounting principles generally accepted in the United States of America. Miami, Florida July 21, 2000 F-1 AIR 41 LLC BALANCE SHEETS MAY 31, ASSETS
2000 1999 ----------- ----------- Aircraft, net $ 71,573,610 $ 76,458,333 Deferred debt costs, net of accumulated amortization of $225,848 and $83,431 as of May 31, 2000 and 1999, respectively 222,739 303,782 ------- ------- Total assets $ 71,796,349 $ 76,762,115 = ========== = ========== LIABILITIES AND MEMBERS' CAPITAL Current liabilities Accounts payable and accrued expenses $ 262,955 $ 283,670 Deferred revenue 600,000 600,000 Current portion of long-term debt 22,234,761 7,846,929 ---------- --------- Total current liabilities 23,097,716 8,730,599 Long-term debt, net of current portion 40,978,361 63,284,372 Commitment and contingencies - - Members' capital 3,353,327 3,174,426 Retained earnings 4,366,945 1,572,718 --------- --------- Total members' capital 7,720,272 4,747,144 --------- --------- Total liabilities and members' capital $ 71,796,349 $ 76,762,115 = ========== = ==========
The accompanying notes are an integral part of these statements. F-2 AIR 41 LLC STATEMENTS OF EARNINGS YEAR ENDED MAY 31, 2000 AND FOR THE PERIOD FROM SEPTEMBER 19, 1998 (DATE OF INCEPTION) THROUGH MAY 31, 1999
2000 1999 ----------- ----------- Rental revenue $ 14,475,000 $ 10,200,000 Expenses Interest expense 5,770,912 4,522,184 Depreciation and amortization expense 5,189,861 3,625,098 --------- --------- 10,960,773 8,147,282 ---------- --------- Net earnings $ 3,514,227 $ 2,052,718 = ========= = =========
The accompanying notes are an integral part of these statements. F-3 AIR 41 LLC STATEMENT OF MEMBERS' CAPITAL YEAR ENDED MAY 31, 2000 AND FOR THE PERIOD FROM SEPTEMBER 19, 1998 (DATE OF INCEPTION) THROUGH MAY 31, 1999
Members' Retained Capital Earnings Total ----------- ----------- ----------- Balance at September 19, 1998 (date of inception) $ - $ - $ - Capital contributions 3,174,426 - 3,174,426 Net earnings - 2,052,718 2,052,718 Distributions - (480,000) (480,000) --------- -------- -------- Balance at May 31, 1999 3,174,426 1,572,718 4,747,144 Capital contributions 178,901 - 178,901 Net earnings - 3,514,227 3,514,227 Distributions - (720,000) (720,000) --------- -------- -------- Balance at May 31, 2000 $ 3,353,327 $ 4,366,945 $ 7,720,272 ========== ========== ============
The accompanying notes are an integral part of this statement. F-4 AIR 41 LLC STATEMENTS OF CASH FLOWS YEAR ENDED MAY 31, 2000 AND FOR THE PERIOD FROM SEPTEMBER 19, 1998 (DATE OF INCEPTION) THROUGH MAY 31, 1999
2000 1999 ----------- ----------- Net cash flows from operating activities: Net earnings $ 3,514,227 $ 2,052,718 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization 5,189,861 3,625,098 Changes in assets and liabilities: Increase (decrease) in liabilities: Accounts payable and accrued expenses (20,715) 283,670 Deferred revenue - 600,000 ---------- ------- Net cash provided by operating activities 8,683,373 6,561,486 Cash flows from investing activities: Purchase of aircraft - (80,000,000) Additions to aircraft (162,721) - ----------- ---------- Net cash used in investing activities (162,721) (80,000,000) Cash flows from financing activities: Principal payments on long-term debt (7,918,179) (4,868,699) Proceeds from long-term debt - 76,000,000 Capital contributions 178,901 3,174,426 Distributions (720,000) (480,000) Payment of debt costs (61,374) (387,213) ------- -------- Net cash (used in) provided by financing activities (8,520,652) 73,438,514 ---------- ---------- Net change in cash and cash equivalents - - Cash and cash equivalents at beginning of period - - ---------- ---------- Cash and cash equivalents at end of period $ - $ - ========== ========== Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 5,813,845 $ 3,995,524 ============ ============= Taxes $ - $ - ============ =============
The accompanying notes are an integral part of these statements. F-5 AIR 41 LLC NOTES TO FINANCIAL STATEMENTS - CONTINUED YEAR ENDED MAY 31, 2000 AND FOR THE PERIOD FROM SEPTEMBER 19, 1998 (DATE OF INCEPTION) THROUGH MAY 31, 1999 AIR 41 LLC NOTES TO FINANCIAL STATEMENTS YEAR ENDED MAY 31, 2000 AND FOR THE PERIOD FROM SEPTEMBER 19, 1998 (DATE OF INCEPTION) THROUGH MAY 31, 1999 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation ----------------------- The statements include the accounts of AIR 41 LLC (the "Company") which is equally owned by International Airline Support Group ("IASG") and Aircorp, Inc. Nature of Operations ---------------------- The Company is the owner and lessor of twenty McDonnell Douglas aircraft. The aircraft are leased primarily to Scandinavian Airline Systems ("SAS"), a company based in Sweden. Cash Flow ---------- All monthly rental income from operations is paid directly to the Company's lender. The lender applies the portion of the rental income to the respective monthly principal and interest due on the Company's debt and the remaining portion is distributed back to the members of the Company. Accordingly, the Company does not retain any cash. Aircraft and Depreciation The aircraft is recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over an estimated economic life of twelve years with an estimated salvage value equal to 25% of the original asset cost. Major improvements to aircraft are capitalized when incurred and depreciated over the useful life of the improvement. The Company evaluates the carrying value of the aircraft based upon changes in market and other physical and economic conditions and will record write-downs to recognize a loss in the value of the aircraft when management believes that, based on expected future cash flows, the recoverability of the Company's investment has been impaired. Operating Leases The aircraft leases are accounted for as operating leases and have an average original term of 39 months. Lease revenues are recognized in equal installments over the terms of the related leases. (continued) F-6 NOTE A - SIGNIFICANT ACCOUNTING POLICIES - Continued Operating Leases - Continued Currently, the Company has no further commitment related to the disposition of these aircraft upon the termination of the leases, although, the Company is actively marketing these aircraft. A future impairment in the value of these aircraft and/or the inability of the Company to sell or re-lease these aircraft, after they come off lease, could have a significant negative impact on the Company's operations. Deferred Debt Costs --------------------- Deferred debt costs represent costs incurred related to the loan with Finova Capital Corporation. These costs are amortized using the effective interest rate method. Income Taxes ------------- Income taxes on earnings are payable personally by the members pursuant to an election under section 701 of the Internal Revenue Code and the Company is not taxed as a Corporation. Accordingly, no provision has been made for federal income taxes in these financial statements. Revenue Recognition -------------------- Rental income is recognized on a straight-line basis over the term of each lease and when collection is reasonably assured. Deferred Revenue ----------------- Lease revenues received in advance, but not yet earned, are deferred and recognized as rental revenue when earned. Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates. F-7 NOTE B - AIRCRAFT Net Investment in Aircraft ----------------------------- The Company's net investment in aircraft as of May 31, consisted of the following: 2000 1999 ------------ ------------ Aircraft on operating leases, at cost $ 80,115,277 $ 80,000,000 Less: Accumulated depreciation (8,541,667) (3,541,667) ----------- ---------- Aircraft, net $ 71,573,610 $ 76,458,333 = ========== = ========== NOTE C - FUTURE MINIMUM RENTAL INCOME The following is a schedule by year of future minimum rental income under the leases as of May 31, 2000: Year Amount ------- ----------- 2001 $ 12,840,000 2002 7,800,000 2003 600,000 ------- Total $ 21,240,000 = ========== In September 1998, the Company entered into a lease agreement with Scandinavian Airline Systems ("SAS") to lease twenty McDonnell Douglas DC-9-41 aircraft. The monthly lease payments are $60,000 per aircraft and the average original lease term was 39 months. The operational responsibility for the aircraft rests with the lessee, and at its cost must maintain, service, repair and overhaul the aircraft so as to keep the aircraft in good repair condition and appearance and airworthy in all respects and to the same standard as lessee maintains, services, repairs and overhauls other commercial jet aircraft which it owns or leases. However, the Company is responsible for the cost related to any Airworthiness Directives over a certain amount, as defined in the Lease Agreement. Title to the aircraft remains with the lessor throughout the lease period, however, the lessee is responsible for the insurance on the aircraft. IASG and Aircorp, Inc. collectively have guaranteed the Company's obligation as the lessor of the aircraft. F-8 NOTE D - DEBT Long-term obligations at May 31, consisted of the following: 2000 1999 ------------ ------------ Note payable $ 63,213,122 $ 71,131,301 Less: Current maturities 22,234,761 7,846,929 ---------- --------- $ 40,978,361 $ 63,284,372 = ========== = ========== In September 1998, the Company entered into a loan agreement with Finova Capital Corporation in the amount of $76 million. The annual interest on the loan is fixed at 8.63% and the loan is collateralized by the twenty aircraft as well as the interest in the SAS leases (see Note B). During the original terms of the leases, the Company is required to repay principal and interest on the debt based on 95% of the rental income received from the lease of the aircraft. Once an aircraft lease expires, the remaining principal on the aircraft is due to Finova Capital Corporation. If the aircraft is re-leased, the repayment terms of the debt on the aircraft is modified in accordance with the new lease terms. If the aircraft is sold, the remaining principal due on the aircraft is repaid in full with the proceeds from the aircraft sale. In fiscal 2001, nine aircraft are due to come off lease. Accordingly, the remaining principal due on these nine aircraft as of May 31, 2000 is classified as part of current portion of long-term debt on the accompanying May 31, 2000 Balance Sheet. This loan represents non-recourse debt to IASG and Aircorp, Inc. The following is a schedule of the future principal payments as of May 31, 2000: 2001 $ 22,234,761 2002 27,425,604 2003 13,552,757 ---------- $ 63,213,122 = ========== F-9 NOTE E - RELATED PARTY TRANSACTIONS Funding of Expenses --------------------- The members pay all expenses on behalf of the Company, which represent primarily aircraft maintenance and improvements. The payment of these expenses is accounted for by the Company as capital contributions. Allocation of Expenses ------------------------ Certain management and accounting expenses of the Company are absorbed by IASG and have not been allocated to the Company. These expenses are deemed to be insignificant. Aircraft Lease --------------- In fiscal 2000, the Company leased one of its aircraft to an entity controlled by the owner of Aircorp, Inc., a member of the Company. Total rental income from this related party was $75,000 for the year ended May 31, 2000. NOTE F - SUBSEQUENT EVENT Subsequent to May 31, 2000, two additional aircraft came off of lease from SAS. One of these aircraft has been leased to an unrelated party at a more favorable lease rate, and the Company is currently searching for a potential lessee for the other aircraft. F-10