-----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, RT0atRV2PxSpkGDvi6WKreoCy2l11mEAFOuAVLoiXQxgaYiZ5AQIFttu1bsZCzQi TumSdrs4JuqRvtAqRp9XAA== 0000859307-95-000012.txt : 19951002 0000859307-95-000012.hdr.sgml : 19951002 ACCESSION NUMBER: 0000859307-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19950927 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-18352 FILM NUMBER: 95576495 BUSINESS ADDRESS: STREET 1: 8095 NW 64TH STREET CITY: MIAMI STATE: FL ZIP: 33166 BUSINESS PHONE: 3055932658 MAIL ADDRESS: STREET 1: 8095 NW 64TH STREET CITY: MIAMI STATE: FL ZIP: 33166 10-Q 1 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 August 31, 1995 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 jurisdication of (IRS Employer Identification No.) incorporation or organization) 8095 NW 64th Street, Miami, FL 33166 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including aera code: (305) 593-2658 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 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 Company's common stock outstanding as of September 25, 1995 was 4,041,779. PAGE FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES INDEX Page No. Part I FINANCIAL INFORMATION ---------- Item 1. Financial Statements Condensed Consolidated Balance Sheets August 31, 1995 and May 31, 1995 3 Condensed Consolidated Statements of Operations Three Months ended August 31, 1995 and 1994 4 Condensed Consolidated Statements of Cash Flows Three Months ended August 31, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-10 Part II OTHER INFORMATION Item 1. Legal Proceedings 11 Item 3. Defaults upon Senior Securitites 11 Item 6. Exhibits and Results on Form 8-K 11 2 PAGE FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS August 31, May 31, 1995 1995 (Unaudited) (Note)* ----------- ------------ Current assets: Cash $ 415,034 $ 848,331 Accounts receivable, net of allowance for doubtful accounts of $619,000 at August 31, 1995 and May 31, 1995, respectively 3,200,795 2,592,463 Notes receivable - 313,490 Inventories 7,447,828 6,497,270 Other current assets 124,676 31,480 ---------- ---------- Total current assets 11,188,333 10,283,034 Property and equipment Land 330,457 330,457 Aircraft held for lease 3,168,613 3,289,613 Building and leasehold improvements 715,772 715,772 Machinery and Equipment 940,948 940,948 ---------- ---------- 5,155,790 5,276,790 Less accumulated depreciation 2,114,722 1,980,927 ---------- ---------- 3,041,068 3,295,863 Other assets: ---------- ---------- Deferred debt costs, net 869,252 931,932 ---------- ---------- $ 15,098,653 $ 14,510,829 ================= ================ LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long term obligations $ 5,850,168 $ 1,812,040 Long-term obligations in default classified as current 14,041,667 18,083,334 Accounts payable and accrued expenses 4,056,410 3,876,978 ---------- ---------- Total current liabilities 23,948,245 23,772,352 Long-term obligations, less current maturities 433,462 440,377 Commitments and contingencies - - Stockholders' equity (deficit): Common stock 4,042 4,042 Additional paid-in capital 2,654,332 2,654,332 Retained earnings (deficit) (11,941,428) (12,360,274) ---------- ---------- Total stockholders' equity (deficit) (9,283,054) (9,701,900) ---------- ---------- $ 15,098,653 $ 14,510,829 ================= ================
* Condensed from audited financial statements. The accompanying notes are an integral part of these condensed financial statements. 3 PAGE FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three Months ended August 31, 1995 1994 ------------- ------------- Revenues Net sales $ 4,657,819 $ 7,708,652 Lease revenue 302,110 728,477 ------------- ------------- Total revenues 4,959,929 8,437,129 Cost of sales 2,628,997 6,643,161 Selling, general and administrative expenses 1,021,371 1,156,469 Financial restructuring costs 141,410 - Interest expense 530,718 646,953 Depreciation and amortization 220,961 562,719 Interest and other income (2,374) (125,686) Losses of service center subsidiary - 908,603 ------------- ------------ 4,541,083 9,792,219 Income (loss) before income taxes 418,846 (1,355,090) Provision for income taxes - - ------------ ----------- Net income (loss) $ 418,846 $ (1,355,090) ============ =========== Per share data: Weighted average shares 4,041,779 4,041,779 ============ ========== Net income (loss) per common share and common equivalent shares Net income (loss) $0.10 $(0.34) =========== =========
The accompanying notes are an integral part of these condensed financial statements. 4 PAGE FORM 10-Q INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Three Months ended August 31, 1995 1994 ------------ ------------ Cash flows from operating activities: Net income (loss) $ $418,846 $ (1,355,090) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 220,961 643,417 Changes in assets and liabilities (1,159,164) 1,155,411 ----------- ----------- Total adjustments (938,203) 1,798,828 Net cash (used in) provided by operating activities (519,357) 443,738 Cash flows from investing activities: Capital equipment deletions (additions) 96,514 (369,303) ----------- --------- Net cash provided by (used in) investing activities 96,514 (369,303) Cash flows from financing activities: Repayments of notes payable and debt obligations (10,454) (67,600) ---------- --------- Net cash (used in) financing activities (10,454) (67,600) Net (decrease) increase in cash (433,297) 6,835 Cash at beginning of period 848,331 95,790 --------- --------- Cash at end of period $ 415,034 $ 102,625 ============== =============
The accompanying notes are an integral part of these condensed financial statements. 5 PAGE 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 August 31, 1995 and May 31, 1995, the condensed consolidated statements of operations and the condensed consolidated statements of cash flows for the three month period ended August 31, 1995, and August 31, 1994. The accounting policies followed by the Company are described in the May 31, 1995 financial statements. The results of operations for the three months ended August 31, 1995 are not necessarily indicative of the results to be expected for the full year. For interim reporting purposes, certain expenses are based on estimates rather than expenses actually incurred. 2. Inventories consisted of the following: August 31, 1995 May 31, 1995 --------------- -------------- Aircraft parts $ 4,823,351 $ 4,063,352 Aircraft available for sale 2,624,477 2,433,918 ------------- -------------- $ 7,447,828 $ 6,497,270 ============= ============== Inventories are stated at the lower of cost or market. The cost of aircraft parts is determined on a specific identification basis for those parts purchased individually or in lots where specific identification is practical. For parts acquired through whole aircraft purchases, the costs are assigned to pools which are then amortized as parts sales take place. The amortization is then based upon the actual sales, except in any periods where sales are lower than expected, the estimated sales per the initial sales projection are used (which has a maximum life of 5 years). The amount of cost amortized is based upon the gross profit percentage as calculated from the estimated sales value of the parts. The sales value estimates are monitored by management, and adjusted periodically as necessary. At August 31, 1995, approximately 86% of the ending inventory (including aircraft held for sale) was costed under the specific identification method, and the remaining 14% was costed under the pooling method. 3. Primarily as a result of large net losses experienced in fiscal 1995 and 1994, and the classification of most indebtedness as current, the Company has a significant deficit in working capital and stockholders' equity. Currently, the Company is in default in the payment of principal on the 12% Senior Secured Notes (Notes), issued July 1992, and is in default in payment of interest on the 8% Convertible Subordinated Debentures (Debentures), issued September 1993. The Notes are secured by substantially all of the assets of the Company and the Debentures are unsecured and are subordinated in right of payment to the Notes. 6 PAGE INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Continued Excluding amounts scheduled to be repaid within the next 12 months under the terms of the agreements, $14,041,667 is subject to accelerated maturity and, as such, has been classified as a current liability in the Consolidated Balance Sheets at August 31, 1995. The Company intends to present a restructuring proposal to the holders of the Notes and the Debentures during the second quarter of fiscal 1996. There can be no assurance that the Company will be able to consummate a restructuring of its indebtedness. If the lenders were to accelerate maturity, the Company would not have sufficient funds to repay the debt obligations. As a result of the factors, there exists substantial doubt about the Company's ability to continue in existence. During the fiscal quarter ended August 31, 1995, the Company incurred approximately $141,000 of legal, accounting and other consulting fees in connection with its debt restructuring activities. 4. The company recorded a gain during the quarter ending August 31, 1995 relating to the settlement of certain disputes with a customer. Pursuant to the settlement, the customer paid the Company $660,000 and the Company cancelled a note receivable from the customer. The Company also released all claims it had against the customer, which included among other things, claims for the purchase price of parts purchased by the customer on open account or pursuant to a consignment arrangement. The customer released certain claims it had against the Company as part of the settlement. The transaction resulted in a net gain to the Company of approximately $345,000, consisting of the excess of cash received over the net carrying value of the note receivable and cost of the inventory. The Company recorded as net sales the cost of the inventory plus the amount of the net gain. 5. Supplemental cash flow disclosures: Cash payments for interest were $331,000 and $895,000 for the three months ended August 31, 1995 and August 31, 1994, respectively. 7 PAGE INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION 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 revenues for the first fiscal quarter ended August 31, 1995 decreased 41% to $5.0 million, from $8.4 million for the fiscal quarter ended August 31, 1994. Aircraft sales were $325,000 in the quarter ended August 31, 1995 compared to $4.1 million in the quarter ended August 31, 1994. Aircraft sales are unpredictable transactions and may fluctuate significantly from year to year, dependant, in part, upon the Company's ability to purchase an aircraft and resell it within a relatively brief period of time. Parts sales were $3.8 million during the quarter ended August 31, 1995, compared to $3.4 million during the quarter ended August 31, 1994. Lease revenue decreased to $302,000 in the quarter ended August 31, 1995, from $728,000 in the quarter ended August 31, 1994 as certain aircraft leases terminated during fiscal 1995. The company recorded a gain during the quarter ending August 31, 1995 relating to the settlement of certain disputes with a customer. Pursuant to the settlement, the customer paid the Company $660,000 and the Company cancelled a note receivable from the customer. The Company also released all claims it had against the customer, which included among other things, claims for the purchase price of parts purchased by the customer on open account or pursuant to a consignment arrangement. The customer released certain claims it had against the Company as part of the settlement. The transaction resulted in a net gain to the Company of approximately $345,000, consisting of the excess of cash received over the net carrying value of the note receivable and cost of the inventory. The Company recorded as net sales the cost of the inventory plus the amount of the net gain. Cost of Sales Cost of sales as a percentage of total revenues in the quarter ended August 31, 1995 was 53% compared to 79% for the quarter ended August 31, 1994. The higher cost of sales as a percentage of total revenues in the quarter ended August 31, 1994 was the result of lower margins realized on aircraft sales. Excluding aircraft sales and cost of aircraft sales, cost of sales as a percentage of total revenues was 54% during the quarter ended August 31, 1995, compared to 62% during the quarter ended August 31, 1994. The improvement in cost of sales as a percentage of total revenues (excluding aircraft sales) was primarily the result of the settlement with a customer noted above. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses for the quarter ended August 31, 1995 were $1.0 million, compared to $1.2 million for the quarter ended August 31, 1994. The decrease in SG&A expenses is a result of continuing efforts to reduce costs. Financial Restructuring Costs During the fiscal quarter ended August 31, 1995 the Company incurred approximately $141,000 of legal, accounting and other consulting fees in connection with its debt restructuring activities. 8 PAGE INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES Interest Expense Interest expense for the quarter ended August 31, 1995 was $531,000 versus $647,000 for the quarter ended August 31, 1994. The decrease in interest expense is due to a reduction in total debt outstanding, which was $20.3 million at August 31, 1995 compared to $26.1 million outstanding at August 31, 1994. Depreciation and Amortization Depreciation and amortization decreased to $221,000 during the quarter ended August 31, 1995, from $563,000 during the quarter ended August 31, 1994. The decrease in depreciation and amortization was due primarily to a reduction in depreciable aircraft held for lease, such aircraft held for lease amounting to a gross value of $7.6 million at August 31, 1994 compared to $3.2 million at August 31, 1995. The reduction in aircraft held for lease is due to the Company selling during fiscal 1995 certain aircraft previously leased or transferring certain aircraft to inventory held for sale. Losses of Service Center Subsidiary In fiscal 1994 the Company began operations of International Airline Service Center, Inc. (IASC), an FAA-certified repair facility. During fiscal 1995 IASC ceased operations and the majority of its assets were sold. As such, there were no operating results of IASC during the fiscal quarter ended August 31, 1995. The results of IASC for the quarter ended August 31, 1994 are shown as losses of service center subsidiary. Income Taxes No income tax provision has been recorded in the fiscal quarter ended August 31, 1995 as the Company has net operating loss carryforwards sufficient to offset income. Liquidity and Capital Resources At August 31, 1995 the Company's total long-term debt amounted to $20.3 million, consisting of $9.9 million principal amount of the Senior Notes, $10 million principal amount of the Subordinated Debentures and $400,000 principal amount of a mortgage loan secured by its corporate headquarters. The entire principal amount of the Senior Notes and the Subordinated Debentures is classified as current at May 31, 1995, because of the existence of defaults under the governing documents. The Senior Notes, which were issued during fiscal 1993, bear interest at the fixed rate of 12% per annum, payable quarterly. The Senior Notes mature in 1997. The Subordinated Debentures, which were issued during fiscal 1994, bear interest at the fixed rate of 8% per annum, payable quarterly and are convertible into shares of the Company's Common Stock at $4.00 per share. The Subordinated Debentures mature in 2003. On May 26, 1995, the Company received a notice of payment blockage from the holder (the Majority Noteholder) of a majority of the outstanding principal amount of the Senior Notes. Citing a continuing Event of Default under the agreement governing the Senior Notes as a result of the Company's noncompliance with certain financial covenants, the Majority Noteholder demanded that the scheduled interest payment which would otherwise have been payable on May 31, 1995 to holders of the Subordinated Debentures not be paid. As a result of the Company's receipt of the notice of payment blockage, the Company did not make its scheduled May 31, 1995 nor its August 31, 1995 interest payments, totalling $400,000, to the holders of the Subordinated Debentures, and is prohibited from 9 PAGE INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES making any other payments with respect to the Subordinated Debentures until the earlier of (i) the expiration of a 180-day period commencing upon the date of the Company's receipt of such notice (the Payment Blockage Period) or (ii) the receipt by the Company of written notice from the Majority Noteholder terminating such Payment Blockage Period. The Company did not make its scheduled July 17, 1995 principal payment to the holders of the Senior Notes. The aggregate principal payment due on July 17, 1995 was approximately $1.8 million. The failure to make the May 31, 1995 and August 31, 1995 interest payments to the holders of the Subordinated Debentures and the July 17, 1995 principal payment to the holders of the Senior Notes constitutes an Event of Default under the agreements governing the Senior Notes and Subordinated Debentures. If the Company remains in default under the terms of the Senior Notes and Subordinated Debentures, the holders of such instruments could accelerate the debt, resulting in principal of approximately $20 million becoming immediately due and payable. The Company would have no ability to repay such indebtedness if it were to be accelerated. The foregoing circumstances could require the Company to cease operations or to seek protection from its creditors through judicial reorganization proceedings. At August 31, 1995, the Company had a working capital deficit of $12.8 million and a current ratio of .47 to 1.0, compared to a working capital deficit of $13.5 million and a current ratio of .43 to 1.0 at May 31, 1995. The decrease in working capital deficit was principally the result of the Company's net income recorded during the fiscal quarter ended August 31, 1995. The Company does not have any bank lines of credit or other sources of liquidity beyond cash flows from operating activities due to profitable operations, if any, or further asset sales. However, the Company does not currently have any significant commitments for capital outlays. Impact of Inflation Current financial statements are prepared in accordance with generally accepted accounting principles and report operating results in terms of historical costs. They provide a reasonable, objective, quantifiable statement of financial results, but do not evaluate the impact of inflation. Management believes that impact of inflation would not materially affect operating results because, competitive conditions permitting, the Company modifies its selling prices to recognize cost changes as incurred. 10 PAGE INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS In July 1993, Viglass Aviation (Viglass) filed a complaint against the Company in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida (Case No. 93-14256CA20), claiming that Viglass was entitled to payment of $681,750 under a commission agreement with the Company relating to the sale of certain aircraft to one of the Company's significant customers. The Company disputes this claim, maintaining that the sale occurred outside the provisions of the commission agreement. The Company filed a motion to hold the plaintiffs in contempt for failure to comply with discovery demands. This motion remains in abeyance pending settlement negotiations between the parties. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of its business and which have not been finally adjudicated. The actions, when ultimately concluded and determined, will not, in the opinion of management, have a material adverse affect upon the financial position of the Company. Item 3. DEFAULTS UPON SENIOR SECURITIES Currently, the Company is in default in the payment of principal on the 12% Senior Secured Notes and in default in the payment of interest on the 8% Convertible Subordinated Debentures. The Notes are secured by substantially all of the assets of the Company and the Debentures are unsecured and are subordinated in right of payment to the Notes. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (b) Reports on Form 8-K A report on Form 8-K dated July 17,1995 was filed by the Company during the quarter for which this report is filed. The Form 8-K reported that the Company did not make its scheduled July 17, 1995 principal payment in the amount of approximately $1.8 million to the holders of the Company's 12% Senior Secured Notes due July 17, 1997, noting that non-payment constituted an Event of Default under the underlying loan agreements and under the agreements relating to the Company's 8% Convertible Subordinated Debentures. The report discussed that the Company has commenced meeting with lenders to discuss a preliminary restructuring proposal. 11 PAGE INTERNATIONAL AIRLINE SUPPORT GROUP, INC AND SUBSIDIARIES 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/ Robert K. Norris September 26, 1995 - ---------------------------- ---------------------- ROBERT K. NORRIS Date Vice President-Finance -----END PRIVACY-ENHANCED MESSAGE-----