<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1997
REGISTRATION NO. 333-8061
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
---------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934
For the transition period from to
-------------------- ------------------------
Commission file number 0-29028
Aviation Distributors, Inc.
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-0715685
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. employer
Incorporation or Organization) Identification No.)
One Wrigley Drive Irvine, California 92618
- --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (714) 586-7558
------------------------
Indicate by check (X) whether the issuer (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 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 ( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 3,165,000 SHARES OF COMMON
STOCK, $.01 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF MAY 7, 1997.
<PAGE>
<TABLE>
<CAPTION>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1996 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,985 $ 14,132
Restricted cash 63,458 57,763
Accounts receivable, net of allowance for doubtful
accounts of $150,000 at December 1996 and $75,000
at March 1997 5,815,681 7,883,206
Other receivables 66,251 73,576
Inventories 3,704,911 4,583,982
Current portion of notes receivable 1,615,528 1,654,201
Current portion of notes receivable from officer 408,718 408,718
Deferred tax asset 537,000 171,025
Prepaid expenses 69,724 185,205
------------ ------------
Total current assets 12,298,256 15,031,808
PROPERTY AND EQUIPMENT 1,784,853 1,860,315
Less - Accumulated depreciation 278,686 313,380
------------ ------------
1,506,167 1,546,935
Notes receivable, net of current portion 3,056,855 2,626,153
Other assets 246,596 -
------------ ------------
3,303,451 2,626,153
------------ ------------
$17,107,874 $19,204,896
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks issued not yet presented for payment $ 935,440 $ 1,033,211
Accounts payable 2,590,222 3,247,514
Accrued liabilities 226,510 274,679
Income tax payable 553,000 -
Lines of credit 5,583,475 4,115,309
Current portion of long term debt 2,661,540 1,699,993
Current portion of capital lease obligations 18,867 16,654
----------- -----------
Total current liabilities 12,569,054 10,387,360
Long term debt, net of current portion 3,985,205 3,551,860
Capital lease obligations, net of current portion 34,372 31,238
Deferred tax liability 51,000 51,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value of $.01, 3,000,000 shares
authorized; none issued and outstanding - -
Common stock, par value of $.01, 10,000,000 shares
authorized; 1,785,000 and 2,985,000 shares issued and
outstanding at December 31, 1996 and March 31, 1997,
respectively 17,850 29,850
Additional paid in capital 389,150 4,784,979
Retained earnings 61,243 368,609
------------ ------------
Total stockholders' equity 468,243 5,183,438
------------ ------------
$17,107,874 $19,204,896
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
DISTRIBUTED SERVICES AND INVENTORY SALES $4,089,387 $9,179,469
NET SALES ON CONSIGNMENT AND
MARKETING AGREEMENTS 546,372 274,852
--------- ---------
TOTAL NET SALES 4,635,759 9,454,321
COST OF SALES 3,766,970 7,570,793
--------- ---------
Gross profit 868,789 1,883,528
SELLING AND ADMINISTRATIVE EXPENSES 1,109,488 1,225,514
--------- ---------
Income (loss) from operations (240,699) 658,014
OTHER EXPENSES (INCOME):
Interest expense 142,265 275,650
Interest income (11,639) (112,446)
Other income - (450)
--------- ---------
Income (loss) before provision for income taxes (371,325) 495,260
PROVISION FOR INCOME TAXES - 187,894
--------- ---------
Net income (loss) $ (371,325) $ 307,366
--------- ---------
--------- ---------
Net income (loss) per share $ (0.21) $ 0.14
--------- ---------
--------- ---------
Weighted average shares outstanding 1,785,000 2,185,000
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1997
------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (371,325) $ 307,366
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Principal payments of notes receivable 336,428 392,029
Borrowings on notes payable related to inventory purchases 66,944 -
Principal payments on notes payable related to inventory purchases - (492,029)
Gain on modified legal settlement - (80,000)
Principal payments on note payable related to legal settlement - (820,000)
Depreciation and amortization of debt discounts 27,609 36,641
Changes in assets and liabilities:
Accounts receivable, net (190,096) (2,067,525)
Other receivables 24,700 (7,325)
Inventories (417,633) (879,071)
Deferred tax asset - 365,975
Other assets (87,076) 131,115
Checks issued not yet presented for payment (72,881) 97,771
Accounts payable (7,953) 657,292
Accrued liabilities (13,035) 48,169
Income tax payable - (553,000)
--------- ----------
Net cash used in operating activities (704,318) (2,862,592)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (48,028) (75,462)
(Increase) decrease in restricted cash (477,218) 5,695
---------- ----------
Net cash used in investing activities (525,246) (69,767)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit 5,685,227 6,207,319
Principal payments on lines of credit (4,938,580) (7,675,485)
Borrowings on long term debt - 500,000
Principal payments of long term debt (365,505) (504,811)
Principal payments of capital lease obligations (5,669) (5,346)
Net proceeds from initial public offering - 4,407,829
---------- ----------
Net cash provided by financing activities 375,473 2,929,506
---------- ----------
Net decrease in cash and cash equivalents (854,091) (2,853)
---------- ----------
Cash and cash equivalents at beginning of period 867,721 16,985
---------- ----------
Cash and cash equivalents at end of period $ 13,630 $ 14,132
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 166,868 $ 332,482
Income taxes 20,000 375,000
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 _ GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND OPERATIONS
Aviation Distributors, Inc. and its subsidiaries (collectively, the
"Company") established operations in 1988, incorporated in the state of
California in 1992 and reincorporated in the state of Delaware in 1996. The
Company is a supplier, distributor and broker of commercial aircraft parts and
supplies worldwide.
On March 3, 1997 the Company's Registration Statement on Form SB-2 relating
to the Company's initial public offering of 1,200,000 shares of its common stock
was declared effective. On March 7, 1997 the Company closed its public offering
of 1,200,000 shares of its common stock at $5 per share. In connection with the
initial public offering, the Company granted the underwriters a 45-day option to
purchase up to 180,000 additional shares of its common stock to cover
over-allotments. The underwriters exercised such over-allotment option and on
April 22, 1997, the Company sold an additional 180,000 shares of its common
stock at $5 per share.
The net proceeds from the offering after all expenses were approximately
$4.75 million, of such proceeds, $3,800,000 was used to repay a portion of the
amount outstanding under two revolving lines of credit, $400,000 was used to
repay loans made to the Company by certain of its employees, and the remaining
proceeds were used to fund a portion of a legal settlement entered into by the
Company. (See Note 4)
On April 22, 1997 the Company received net proceeds of approximately
$792,000 from the exercise of the underwriter's over-allotment option. The
proceeds were used for working capital and to reduce vendor payables.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Company contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of March 31, 1997 and the results of its operations and cash
flows for the three month periods ended March 31, 1997 and 1996. The results of
operations and cash flows for the three month period ended March 31, 1997 are
not necessarily indicative of the results of operations or cash flows which may
be reported for the remainder of 1997.
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim consolidated financial
statements should be read in connection with the Company's December 31, 1996
financial statements and the notes thereto included in the Prospectus contained
in the Company's Form SB-2 Registration Statement.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
<PAGE>
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, ADI Consignment Sales Inc. and
Aviation Distributors (Europe) Ltd. All significant intercompany transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
less than 90 days to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of short term certificates of deposits held as
security for letters of credit issued on behalf of the Company by financial
institutions.
INVENTORIES
Inventories, which consist primarily of aircraft parts, are stated at the
lower of cost or market with cost determined on a first-in, first-out basis.
Expenditures required for the rectification of parts are capitalized as
inventory cost as incurred and are expensed as the parts associated with the
rectification are sold.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation expense is provided
using the straight line method over the estimated useful lives of the assets,
ranging from five to thirty years. Expenditures for repairs and maintenance are
expensed as incurred. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized. The carrying
amounts of assets which are sold or retired and the related accumulated
depreciation are removed from the accounts in the year of disposal, and any
resulting gain or loss is reflected in operations.
REVENUE RECOGNITION
Sales of aircraft parts are recognized as revenues when the product is
shipped and title has passed to the customer. The Company provides an allowance
for estimated product returns.
Distributed services and inventory sales represent sales of inventory
located through outside parties and sales of company-owned inventory. Net sales
on consignment and marketing agreements represent revenue related to sales of
inventory held on consignment and sales of inventory obtained through marketing
agreements.
INCOME TAXES
The Company accounts for income taxes using the liability method as
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board (FASB) issued
FASB# 128 "Earnings Per Share." FASB #128 will be effective for the Company
beginning December 31, 1997. Among other things, FASB #128 replaces primary
earnings per share with basic earnings per share. Basic EPS is computed by
dividing reported earnings available to common stockholders by weighted
average shares outstanding (no dilution for any potentially dilutive
securities is included). Pro forma earnings per share information, as if
FASB #128 was followed is as follows:
Three Months Three Months
ended March 31, 1997 ended March 31, 1996
-------------------- --------------------
Basic earnings per share $ 0.14 $(0.21)
Diluted earnings per share $ 0.14 $(0.21)
NOTE 2 _ ACCOUNTS RECEIVABLE:
The Company distributes products in the United States and abroad to
commercial airlines, air cargo carriers, distributors, maintenance facilities
and other aerospace companies. The Company's credit risks consist of accounts
receivable denominated in U.S. dollars from customers in the aircraft industry.
The Company performs periodic credit evaluations of its customers' financial
conditions and provides an allowance for doubtful accounts as required. The
Company, at times, offers extended payment terms of up to one year on its
receivables.
The Company insures the majority of its international customers through an
export credit insurance policy. The policy has an aggregate limit of $5 million,
a one-time annual deductible of $35,000 for any claim(s) for the period, a
premium rate of $.75 per $100 of insured receivables and the policy expires on
November 1, 1997. This policy covers 90% of the insured balance.
The Company also insures certain of its domestic customer accounts under
another policy.
NOTE 3 _ COMMITMENTS AND CONTINGENCIES:
In 1996, the Company entered into an agreement to purchase approximately
$7.0 million of inventory from a vendor. Under the terms of the agreement, the
Company will remit 36 equal monthly installments after receipt of 30% of the
inventory. As of March 31, 1997, the Company had started receiving inventory
under this agreement. The inventory had not been formally accepted as
inspection of the inventory had not been completed.
NOTE 4 _ LEGAL SETTLEMENT:
In February 1996, an action was brought against the Company arising out of
a dispute relating to an agreement between the Company and a customer. The
plaintiff claimed, among other things, damages of $3,518,000, interest, attorney
fees and punitive damages. In August 1996, the Company made a partial payment
to such customer of $166,000. Although the Company believed it had meritorious
defenses to this dispute, in August 1996, counsel advised the Company that final
judicial resolution of such matter could take several years. Consequently, in
order to prevent future strain on the Company's financial and human resources
necessary to defend the dispute, to avoid the uncertainties associated with
litigation generally and to pursue an initial public offering in a timely
manner, the Company made a strategic business decision to resolve this dispute,
and on November 1, 1996, entered into a settlement agreement with such customer.
<PAGE>
Pursuant to such settlement agreement, the Company was to pay such customer
$1.2 million, of which $300,000 was paid upon execution of the settlement
agreement. On March 14, 1997 the Company modified the settlement agreement by
paying the customer $850,000 in exchange for full satisfaction of all remaining
monetary obligations owed to the customer under the settlement agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the
information set forth under: Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 13 through 20 of the Company's
Form SB-2 dated March 3, 1997. This discussion contains "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. Although the Company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Such forward looking
statements involve risks and uncertainties and actual results could differ
from those described herein and future results may be subject to numerous
factors, many of which are beyond the control of the Company.
OVERVIEW
The Company's business as a supplier, distributor and seller of commercial
aircraft parts and supplies was established in October 1988. The Company was
incorporated in California in February 1992 and reincorporated in Delaware in
July 1996.
GENERAL
Net sales consist primarily of gross sales, net of allowance for returns
and other adjustments. Cost of sales consists primarily of product costs,
freight charges and an inventory provision for damaged and obsolete products.
Product costs consist of the acquisition costs of the products and costs
associated with repairs, maintenance and certification.
Net sales and gross profit depend in large measure on the volume and timing
of sales orders received during the period and the mix of aircraft parts
contained in the Company's inventory. Sales and gross profit can be impacted by
the timing of bulk inventory purchases. In general, bulk inventory purchases
allow the Company to obtain large inventories of aircraft parts at a lower cost
than can ordinarily be obtained by purchasing such parts on an individual basis.
Thus, these bulk purchases allow the Company to receive larger gross margins on
its sale of aircraft parts since the cost of purchase is reduced.
Sales can be impacted by marketing and consignment agreements because such
agreements give the Company increased access to aircraft parts. Net profits are
impacted by marketing agreements because the Company does not incur costs
associated with carrying owned inventory due to the fact that a party who has
entered into a marketing agreement with the Company is responsible for storing
and maintaining the inventory to which the Company has access pursuant to such
marketing agreement. Generally, sales from consignment and marketing agreements
are not as profitable as sales from bulk inventory purchases.
<PAGE>
The following table sets forth certain information relating to the
Company's operations for the three months ended March 31, 1996 and 1997 (dollars
in thousands):
<TABLE>
<CAPTION>
1996 1997
-------------------------- -----------------------
<S> <C> <C> <C> <C>
Distributed services and inventory sales $4,090 88.2% $9,179 97.1%
Net sales on consignment and marketing
agreements 546 11.8 275 2.9
------ ------ ------ -------
Net sales 4,636 100.0 9,454 100.0
Cost of sales 3,767 81.3 7,571 80.1
------ ------ ------ -------
Gross profit 869 18.7 1,883 19.9
Selling and administrative expenses 1,110 23.9 1,225 12.9
------ ------ ------ -------
Income (loss) from operations (241) (5.2) 658 7.0
Interest expense, net 131 2.8 163 1.7
Net income (loss) (371) (8.0) 307 3.2
</TABLE>
DISTRIBUTED SERVICES AND INVENTORY SALES. Distributed services
and inventory sales represent sales of inventory located through outside
parties and sales of Company-owned inventory. Distributed services and
inventory sales increased from $4.1 million for the three months ended March
31, 1996 to $9.2 million for the three months ended March 31, 1997, an
increase of $5.1 million or 124.4%. This increase was primarily due to an
increase in the Company's availability of aircraft parts as a result of a
bulk inventory purchase received during the first three quarters of 1996, the
addition of new sales personnel and emphasis on development of new domestic
customers and some larger international customers. The Company also had two
large transactions during the first quarter of 1997 that contributed
approximately $1.6 million of distributed services sales.
Sales from distributed services represented approximately 98.2% and 94.1%
of total distributed services and inventory sales for the three months ended
March 31, 1996 and 1997, respectively. Sales of Company-owned inventory
represented approximately 1.8% and 5.9% of total distributed services and
inventory sales for the three months ended March 31, 1996 and 1997,
respectively. The increase in the percentage of the sales of Company-owned
inventory was primarily due to a bulk inventory purchase during the first three
quarters of 1996.
NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on
consignment and marketing agreements represent total revenue, including
commissions, related to sales of inventory held on consignment and sales of
inventory obtained through marketing agreements. Net sales on consignment and
marketing agreements decreased from $546,000 for the three months ended
March 31, 1996 to $275,000 for the three months ended March 31, 1997, a decrease
of $271,000 or 49.6%. This decrease was primarily due to a decrease in the
number of consignment and marketing agreements the Company had entered into
during the first quarter of 1997.
NET SALES. Net sales increased from $4.6 million for the three months
ended March 31, 1996 to $9.5 million for the three months ended March 31, 1997,
an increase of $4.9 million or 106.5%. This increase was primarily due to
additional sales personnel hired in the third and fourth quarters of 1996,
continued efforts to strengthen relationships with customers and the
availability of additional parts as a result of a bulk inventory purchase
received during the first three quarters of 1996. See "Distributed services and
inventory sales."
COST OF SALES. Cost of sales increased from $3.8 million for the three
months ended March 31, 1996 to $7.6 million for the three months ended March 31,
1997, an increase of $3.8 million or 100.0%. This increase was attributable to
the increase in net sales.
<PAGE>
GROSS PROFIT. Gross profit increased from $869,000 for the three months
ended March 31, 1996 to $1.9 million for the three months ended March 31, 1997,
an increase of $1 million or 115.1%. This increase was a result of the increase
in net sales. Gross profit margin slightly increased from 18.7% for the three
months ended March 31, 1996 to 19.9% for the three months ended March 31, 1997.
The increase in gross profit margin was attributable to lower product
acquisition costs somewhat offset by lower margins from the two larger
transactions. See "Distributed services and inventory sales."
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of management compensation, commission expense, professional
fees, consulting expense and travel expense. The Company's selling and
administrative expenses slightly increased from $1.1 million for the three
months ended March 31, 1996 to $1.2 million for the three months ended March 31,
1997, an increase of $100,000 or 9.1%. This increase was principally due to
higher personnel costs necessary to respond to the Company's growth, including
salaries, taxes, insurance and commission expenses. As a percentage of net
sales, selling and administrative expenses decreased from 23.9% for the three
months ended March 31, 1996 to 12.9% for the three months ended March 31, 1997.
The decrease as a percentage of net sales was primarily due to management
effectively controlling administrative expenses.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations for the three months ended March 31, 1997 increased $899,000 compared
to the three months ended March 31, 1996. The increase primarily reflects
higher net sales and gross profit realized during the first quarter of 1997.
See "Net Sales" and "Gross profit."
INTEREST EXPENSES, NET. Net interest expense increased from $131,000 for
the three months ended March 31, 1996 to $163,000 for the three months ended
March 31, 1997. The increase in interest expense was due to an increase in
borrowings under the Company's lines of credit during the first quarter of 1997.
NET INCOME (LOSS). Net income (loss) increased from ($371,000) for the
three months ended March 31, 1996 to $307,000 for the three months ended
March 31, 1997, an increase of $678,000. This increase was attributable to
the increase in net sales and gross profit, somewhat offset by slightly
higher selling and administrative expenses and interest expenses. See "Net
sales," "Gross profit," "Selling and administrative expenses," and "Interest
expenses, net."
LIQUIDITY AND CAPITAL RESOURCES
On March 3, 1997 the Company's Registration Statement on Form SB-2 relating
to the Company's initial public offering of 1,200,000 shares of its common stock
was declared effective. On March 7, 1997 the Company closed its initial public
offering of 1,200,000 shares of its common stock at $5 per share. In connection
with the initial public offering, the Company granted the underwriters a 45-day
option to purchase up to 180,000 additional shares of its common stock to cover
over-allotments. The underwriters exercised such over-allotment option and on
April 22, 1997, the Company sold an additional 180,000 shares of its common
stock at $5 per share.
The net proceeds from the offering after all expenses were approximately
$4.75 million, of such proceeds, $3,800,000 was used to repay a portion of the
amount outstanding under two revolving lines of credit, $400,000 was used to
repay loans made to the Company by certain of its employees, and the remaining
proceeds were used to fund a portion of a legal settlement entered into by the
Company.
On April 22, 1997 the Company received net proceeds of approximately
$792,000 from the exercise of the underwriter's over-allotment option. The
proceeds were used for working capital and to reduce vendor payables.
<PAGE>
The Company's two revolving lines of credit provide working capital of up
to $6.5 million with interest at prime plus 1.0 to 1.5 percent subject to an
availability calculation based on the eligible borrowing base. The eligible
borrowing base, currently reduced by a letter of credit for $150,000, includes
certain receivables and inventories of the Company. The $4.5 million line of
credit matures on March 31, 1998. The $2.0 million line of credit matures on
August 31, 1997. The Company is currently in discussions with financial
institutions with respect to additional sources of financing.
The two revolving lines of credit provide for their suspension and
repayment of all debt (i) in the event of a material adverse change in the
Company's financial condition, (ii) if the lender believes the prospect of
payment or performance of the indebtedness is impaired, or (iii) upon a change
of control. The $4.5 million line of credit requires the Company to have a
tangible net worth of at least $750,000 beginning January 31, 1997. The Company
is in compliance with the tangible net worth requirement at March 31, 1997. In
addition, the two revolving lines of credit require mandatory repayments from
excess cash flow. Substantially all of the Company's assets are pledged as
collateral for amounts borrowed.
In February 1996, an action was brought against the Company arising out of
a contract dispute between the Company and one of its customers. In August
1996, the Company made a partial settlement payment to such customer in the
amount of $166,000, which was financed through additional borrowings under the
Company's lines of credit. Although the Company believed it had meritorious
defenses to this dispute, counsel advised the Company that final judicial
resolution of such matter could take several years. Consequently, in order to
prevent future strain on the Company's financial and human resources necessary
to defend the dispute, to avoid the uncertainties associated with litigation
generally and to pursue an initial public offering in a timely manner, the
Company made a strategic business decision to resolve this dispute, and on
November 1, 1996, entered into a settlement agreement with such customer.
Pursuant to such settlement agreement, the Company was to pay such customer
$1.2 million, of which $300,000 was paid upon execution of the settlement
agreement, which was financed through additional borrowings under the
Company's lines of credit.
On March 14, 1997 the Company modified the settlement agreement by paying
the customer $850,000 in exchange for full satisfaction of all remaining
monetary obligations owed to the customer under the settlement agreement. This
amount was financed through the proceeds from the offering and through
additional borrowings under the Company's lines of credit.
On April 16, 1997, the Company entered into an agreement to lease
approximately 33,000 square feet of office and warehouse space located in Lake
Forest, California. In addition, the Company has listed to sell the building
presently owned. Net proceeds resulting from the sale are expected to offset
the costs associated with relocation and improvements to the new leased
facility.
The Company expects its cash requirements to increase significantly in
future periods. The Company will require substantial funds to purchase
inventory on a bulk basis.
The Company believes that the net proceeds from its initial public offering
will be sufficient to meet its cash requirements for at least the next twelve
months. There can be no assurance that the Company will not require additional
financing during such period or that financing will be available on a timely
basis and at acceptable terms, if at all.
As part of its growth strategy, the Company intends to pursue acquisitions
of bulk inventories of aircraft parts. Financing for such acquisitions will be
provided from operations and from borrowings under the Company's lines of
credit. The Company may also issue additional debt and/or equity securities in
connection with one or more of these acquisitions.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
In February 1996, an action was brought against the Company arising out
of a dispute relating to an agreement between the Company and a customer. The
plaintiff claimed, among other things, damages of $3,518,000, interest,
attorney fees and punitive damages. In August 1996, the Company made a
partial payment to such customer of $166,000. Although the Company believed
it had meritorious defenses to this dispute, in August 1996, counsel advised
the Company that final judicial resolution of such matter could take several
years. Consequently, in order to prevent future strain on the Company's
financial and human resources necessary to defend the dispute, to avoid the
uncertainties associated with litigation generally and to pursue an initial
public offering in a timely manner, the Company made a strategic business
decision to resolve this dispute, and on November 1, 1996, entered into a
settlement agreement with such customer.
Pursuant to such settlement agreement, the Company was to pay such customer
$1.2 million, of which $300,000 was paid upon execution of the settlement
agreement. On March 14, 1997 the Company modified the settlement agreement by
paying the customer $850,000 in exchange for full satisfaction of all remaining
monetary obligations owed to the customer under the settlement agreement.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
**3.1 Amended and Restated Certificate of Incorporation of the Registrant
**3.2 Bylaws, as amended, of the Registrant
**3.3 Amendment to Amended and Restated Certificate of Incorporation of the
Registrant
**4.1 Specimen Common Stock Certificate
**4.2 Form of Warrant Agreement
**10.2 1996 Stock Option and Incentive Plan
**10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and between Alia
The Royal Jordanian Airlines and Aviation Distributors Incorporated
**10.4 Aircraft Purchase Agreement, dated January 4, 1995, by and between Air
China Group Import & Export Trading Co. and Aviation Distributors
Incorporated
**10.5 Revolving Credit Facility, dated August 22, 1996, by and between
Aviation Distributors Incorporated and Far East National Bank
**10.6 Employment Agreement, dated as of July 16, 1996, by and between Osamah
S. Bakhit and Aviation Distributors Incorporated
**10.7 Employment Agreement, dated as of July 16, 1996, by and between Mark
W. Ashton and Aviation Distributors Incorporated
**10.8 Employment Agreement, dated as of July 16, 1996, by and between
Jeffrey G. Ward and Aviation Distributors Incorporated
**10.9 Commercial Lease, dated June 11, 1996, by and between Francis De Leone
and Aviation Distributors, Inc.
**10.10 Lease Agreement, dated January 1, 1996, by and between Ian and Robert
Burton Limited and Aviation Distributors (Europe) Limited
**10.11 Revolving Credit Facility, dated August 31, 1996, by and between
Aviation Distributors Incorporated and Far East National Bank
**10.12 Non-Revolving Credit Facility dated August 22, 1996, by and between
Aviation Distributors, Incorporated and Far East National Bank
**10.13 Amended and Restated Employment Agreement, dated as of July 16, 1996,
by and between Osamah S. Bakhit and Aviation Distributors Incorporated
**10.14 Amended and Restated Promissory Note from Osamah S. Bakhit to Aviation
Distributors, Inc., dated as of December 31, 1995
**10.15 Settlement Agreement dated as of November 1, 1996
-2-
<PAGE>
**10.16 Form of Indemnity Agreement
**10.17 Promissory Note between Aviation Distributors, Inc. and Mark W.
Ashton, dated January 28, 1997
**10.18 Promissory Note between Aviation Distributors, Inc. and Osamah S.
Bakhit, dated January 28, 1997
**10.19 Promissory Note between Aviation Distributors, Inc. and Jim Goulet,
dated January 28, 1997
**10.20 Promissory Note between Aviation Distributors, Inc. and Steve Hayer,
dated January 28, 1997
**10.21 Promissory Note between Aviation Distributors, Inc. and Elizabeth
Morgan, dated January 28, 1997
**10.22 Promissory Note between Aviation Distributors, Inc. and Magda
Reichenberg, dated January 28, 1997
**10.23 Promissory Note between Aviation Distributors, Inc. and Leza Ann
Waner, dated January 28, 1997
**10.24 Promissory Note between Aviation Distributors, Inc. and Jeffrey G.
Ward, dated January 28, 1997
**10.25 Amendment to Promissory Note between Aviation Distributors, Inc. and
Mark W. Ashton, dated February 3, 1997
**10.26 Amendment to Promissory Note between Aviation Distributors, Inc. and
Osamah S. Bakhit, dated February 3, 1997
**10.27 Amendment to Promissory Note between Aviation Distributors, Inc. and
Jim Goulet, dated February 3, 1997
**10.28 Amendment to Promissory Note between Aviation Distributors, Inc. and
Steve Hayer, dated February 3, 1997
**10.29 Amendment to Promissory Note between Aviation Distributors, Inc. and
Elizabeth Morgan, dated February 3, 1997
3
<PAGE>
**10.30 Amendment to Promissory Note between Aviation Distributors, Inc. and
Magda Reichenberg, dated February 3, 1997
**10.31 Amendment to Promissory Note between Aviation Distributors, Inc. and
Leza Ann Waner, dated February 3, 1997
**10.32 Amendment to Promissory Note between Aviation Distributors, Inc. and
Jeffrey G. Ward, dated February 3, 1997
**10.33 Promissory Note between Aviation Distributors, Inc. and Osamah S.
Bakhit, dated December 31, 1996
*10.34 Acknowledgment of Receipt of Settlement Funds by and among Compania
Mexicana de Aviacion, S.A. de C.V., ADI Consignment Sales, Inc.,
Aviation Distributors, Inc. and Osamah S. Bakhit
- ---------------------
* Filed herewith.
** Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form SB-2 previously
filed by the Registrant (File No. 333-8061).
(b) Reports on Form 8-K
None.
4
<PAGE>
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.
Date May 7, 1997 AVIATION DISTRIBUTORS, INC.
-----------------------
By: /s/OSAMAH S. BAKHIT
---------------------------
Osamah S. Bakhit
President and
Chief Executive Officer
By: /s/MARK W. ASHTON
---------------------------
Mark W. Ashton
Chief Financial Officer and
Vice President of Finance
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title
- ------- -----
**3.1 Amended and Restated Certificate of Incorporation of the Registrant
**3.2 Bylaws, as amended, of the Registrant
**3.3 Amendment to Amended and Restated Certificate of Incorporation of the
Registrant
**4.1 Specimen Common Stock Certificate
**4.2 Form of Warrant Agreement
**10.2 1996 Stock Option and Incentive Plan
**10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and between Alia
The Royal Jordanian Airlines and Aviation Distributors Incorporated
**10.4 Aircraft Purchase Agreement, dated January 4, 1995, by and between Air
China Group Import & Export Trading Co. and Aviation Distributors
Incorporated
**10.5 Revolving Credit Facility, dated August 22, 1996, by and between
Aviation Distributors Incorporated and Far East National Bank
**10.6 Employment Agreement, dated as of July 16, 1996, by and between Osamah
S. Bakhit and Aviation Distributors Incorporated
**10.7 Employment Agreement, dated as of July 16, 1996, by and between Mark
W. Ashton and Aviation Distributors Incorporated
5
<PAGE>
**10.8 Employment Agreement, dated as of July 16, 1996, by and between
Jeffrey G. Ward and Aviation Distributors Incorporated
**10.9 Commercial Lease, dated June 11, 1996, by and between Francis De Leone
and Aviation Distributors, Inc.
**10.10 Lease Agreement, dated January 1, 1996, by and between Ian and Robert
Burton Limited and Aviation Distributors (Europe) Limited
**10.11 Revolving Credit Facility, dated August 31, 1996, by and between
Aviation Distributors Incorporated and Far East National Bank
**10.12 Non-Revolving Credit Facility dated August 22, 1996, by and between
Aviation Distributors, Incorporated and Far East National Bank
**10.13 Amended and Restated Employment Agreement, dated as of July 16, 1996,
by and between Osamah S. Bakhit and Aviation Distributors Incorporated
**10.14 Amended and Restated Promissory Note from Osamah S. Bakhit to Aviation
Distributors, Inc., dated as of December 31, 1995
**10.15 Settlement Agreement dated as of November 1, 1996
**10.16 Form of Indemnity Agreement
**10.17 Promissory Note between Aviation Distributors, Inc. and Mark W.
Ashton, dated January 28, 1997
**10.18 Promissory Note between Aviation Distributors, Inc. and Osamah S.
Bakhit, dated January 28, 1997
**10.19 Promissory Note between Aviation Distributors, Inc. and Jim Goulet,
dated January 28, 1997
**10.20 Promissory Note between Aviation Distributors, Inc. and Steve Hayer,
dated January 28, 1997
**10.21 Promissory Note between Aviation Distributors, Inc. and Elizabeth
Morgan, dated January 28, 1997
6
<PAGE>
**10.22 Promissory Note between Aviation Distributors, Inc. and Magda
Reichenberg, dated January 28, 1997
**10.23 Promissory Note between Aviation Distributors, Inc. and Leza Ann
Waner, dated January 28, 1997
**10.24 Promissory Note between Aviation Distributors, Inc. and Jeffrey G.
Ward, dated January 28, 1997
**10.25 Amendment to Promissory Note between Aviation Distributors, Inc. and
Mark W. Ashton, dated February 3, 1997
**10.26 Amendment to Promissory Note between Aviation Distributors, Inc. and
Osamah S. Bakhit, dated February 3, 1997
**10.27 Amendment to Promissory Note between Aviation Distributors, Inc. and
Jim Goulet, dated February 3, 1997
**10.28 Amendment to Promissory Note between Aviation Distributors, Inc. and
Steve Hayer, dated February 3, 1997
**10.29 Amendment to Promissory Note between Aviation Distributors, Inc. and
Elizabeth Morgan, dated February 3, 1997
**10.30 Amendment to Promissory Note between Aviation Distributors, Inc. and
Magda Reichenberg, dated February 3, 1997
**10.31 Amendment to Promissory Note between Aviation Distributors, Inc. and
Leza Ann Waner, dated February 3, 1997
**10.32 Amendment to Promissory Note between Aviation Distributors, Inc. and
Jeffrey G. Ward, dated February 3, 1997
**10.33 Promissory Note between Aviation Distributors, Inc. and Osamah S.
Bakhit, dated December 31, 1996
7
<PAGE>
*10.34 Acknowledgment of Receipt of Settlement Funds by and among Compania
Mexicana de Aviacion, S.A. de C.V., ADI Consignment Sales, Inc.,
Aviation Distributors, Inc. and Osamah S. Bakhit
- ---------------------
* Filed herewith.
** Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form SB-2 previously
filed by the Registrant (File No. 333-8061).
8
<PAGE>
ACKNOWLEDGMENT OF RECEIPT
OF SETTLEMENT FUNDS
("ACKNOWLEDGMENT")
On November 1, 1996, Compania Mexicana de Aviacion, S.A. de C.V.
("Mexicana"), on the one hand, and ADI Consignment Sales, Inc., Aviation
Distributors, Inc. and Osamah S. Bakhit (collectively, the "ADI Parties"),
entered into a Settlement Agreement ("Agreement") that required the ADI Parties
to make certain payments to Mexicana. Section 2 of the Agreement required the
ADI Parties to make various payments to Mexicana at specified times in calendar
year 1997, which payments remain outstanding.
Mexicana and the ADI Parties now agree to modify the Agreement to
allow the ADI Parties to satisfy all of the remaining payment obligations
required by the Agreement in exchange for a lump sum payment of Eight Hundred
Fifty Thousand Dollars ($850,000.00), to be paid to Mexicana by cashier's
check on or before March 15, 1997. Mexicana agrees that the ADI Parties'
payment of Eight Hundred Fifty Thousand Dollars ($850,000) satisfies, in full
the remaining monetary obligations owed to Mexicana under the Agreement.
Nothing in this Acknowledgment shall change or modify any of the
agreements contained in the November 1, 1996, Agreement that do not relate
specifically to the payment of monies, and all remaining terms and conditions of
the Agreement shall remain in force. Within ten (10) days upon Mexicana's
receipt of the Eight Hundred Fifty Thousand Dollars ($850,000.00), Mexicana
shall deliver to
-1-
<PAGE>
Sheppard, Mullin, Richter & Hampton Attention: Paul F. Rafferty, the original
stipulated consent judgement pursuant to Section 3(e) of the Agreement.
Facsimile signatures are sufficient to bind the parties. This
Acknowledgment may be signed in counterparts.
This Acknowledgment, and the agreements contained herein, shall be
null and void if Mexicana does not receive a valid cashier's check in the
full amount of Eight Hundred Fifty Thousand Dollars ($850,000.00) on or
before March 15, 1997.
"MEXICANA" "ADI PARTIES"
COMPANIA MEXICANA de AVIACION, ADI CONSIGNMENT SALES, INC.
S.A. de C. V.
By: /s/Javier Christlieb By: /s/Osamah S. Bakhit
----------------------- -----------------------
Its: Sr. V.P. Legal Its: CEO
----------------- -----------------
AVIATION DISTRIBUTORS, INC.
By: /s/Osamah S. Bakhit
-----------------------
Its: CEO
-----------------
/s/Osamah S. Bakhit
---------------------------
OSAMAH S. BAKHIT
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE UNAUDITED
CONSOLIDATE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 71,895
<SECURITIES> 0
<RECEIVABLES> 7,958,206
<ALLOWANCES> 75,000
<INVENTORY> 4,583,982
<CURRENT-ASSETS> 15,031,808
<PP&E> 1,860,315
<DEPRECIATION> 313,380
<TOTAL-ASSETS> 19,204,896
<CURRENT-LIABILITIES> 10,387,360
<BONDS> 3,551,860
0
0
<COMMON> 29,850
<OTHER-SE> 5,153,588
<TOTAL-LIABILITY-AND-EQUITY> 19,204,896
<SALES> 9,454,321
<TOTAL-REVENUES> 9,454,321
<CGS> 7,570,793
<TOTAL-COSTS> 7,570,793
<OTHER-EXPENSES> 1,170,514
<LOSS-PROVISION> 55,000
<INTEREST-EXPENSE> 275,650
<INCOME-PRETAX> 495,260
<INCOME-TAX> 187,894
<INCOME-CONTINUING> 307,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307,366
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
