<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
REGISTRATION NO. 333-8061
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-QSB/A
(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, 1998
-------------------------------------------------
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 CAPITAL DRIVE LAKE FOREST, CALIFORNIA 92630
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (949) 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 ( ) NO (X)
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 14,
1998.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 80,218 $ 7,219
Restricted cash . . . . . . . . . . . . . . . . . . . . . . 1,103,444 1,078,405
Accounts receivable, net of allowance for
doubtful accounts of $300,000 7,875,366 7,803,339
Other receivables . . . . . . . . . . . . . . . . . . . . . . 216,956 71,261
Inventories, net of reserve . . . . . . . . . . . . . . . . . 9,384,573 10,556,604
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 344,283 578,198
Income tax receivable . . . . . . . . . . . . . . . . . . . . 392,979 567,979
Current portion of notes receivable . . . . . . . . . . . . . 1,781,172 1,823,811
Notes receivable from founder . . . . . . . . . . . . . . . . 408,718 408,718
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . 293,000 301,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . 21,880,709 23,196,534
------------ ------------
PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . 1,030,100 1,169,285
Less - accumulated depreciation . . . . . . . . . . . . . . . 337,908 380,697
------------ ------------
692,192 788,588
------------ ------------
Notes receivable, net of current portion . . . . . . . . . . . 1,272,071 799,957
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 179,512 179,512
------------ ------------
1,451,583 979,469
------------ ------------
$24,024,484 $24,964,591
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks issued not yet presented for payment . . . . . . . . $ 984,031 $ 966,049
Accounts payable . . . . . . . . . . . . . . . . . . . . . 2,882,044 2,540,204
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 770,432 567,454
Lines of credit . . . . . . . . . . . . . . . . . . . . . . 9,289,188 11,095,893
Note payable . . . . . . . . . . . . . . . . . . . . . . . - 1,070,000
Current portion of long-term debt . . . . . . . . . . . . . 3,133,352 4,383,593
Current portion of capital lease obligations . . . . . . . 19,698 24,375
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 17,078,745 20,647,568
------------ ------------
Long-term debt, net of current portion . . . . . . . . . . . 2,582,826 815,525
------------ ------------
Capital lease obligations, net of current portion. . . . . . 14,674 33,576
------------ ------------
Other long-term liability . . . . . . . . . . . . . . . . . 480,000 480,000
------------ ------------
Deferred tax liability . . . . . . . . . . . . . . . . . . . 93,000 101,000
------------ ------------
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; 3,165,000 shares issued
and outstanding at December 31, 1997 and
March 31, 1998, respectively . . . . . . . . . . . . . . 31,650 31,650
Additional paid in capital . . . . . . . . . . . . . . . . 5,658,099 5,658,099
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (1,914,510) (2,802,827)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . 3,775,239 2,886,922
------------ ------------
$ 24,024,484 $ 24,964,591
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
RESTATED
(UNAUDITED) (UNAUDITED)
1997 1998
<S> <C> <C>
NET DISTRIBUTED SERVICES AND INVENTORY SALES. $ 9,188,370 $ 8,818,631
NET SALES ON CONSIGNMENT AND
MARKETING AGREEMENTS . . . . . . . . . . . . . 274,852 51,661
------------- -------------
TOTAL NET SALES . . . . . . . . . . . . . . . . 9,463,222 8,870,292
COST OF SALES . . . . . . . . . . . . . . . . . 7,686,922 6,891,389
------------- -------------
Gross profit 1,776,300 1,978,903
SELLING AND ADMINISTRATIVE EXPENSES . . . . . . 1,184,056 1,792,372
NON RECURRING EXPENSES . . . . . . . . . . . . - 508,885
------------- -------------
Income (loss) from operations . . . . . . . . 592,244 (322,354)
OTHER (EXPENSES) INCOME:
Interest expense . . . . . . . . . . . . . . (275,650) (642,544)
Interest income . . . . . . . . . . . . . . . 112,445 88,536
Other income (expense) . . . . . . . . . . . 451 (11,955)
------------- -------------
Income (loss) before provision
for income taxes . . . . . . . . . . . . . . 429,490 (888,317)
PROVISION FOR INCOME TAXES . . . . . . . . . . 103,000 -
------------- -------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 326,490 $ (888,317)
------------- -------------
------------- -------------
Basic and diluted net
income (loss) per share . . . . . . . . . . . $ 0.15 $ (0.28)
------------- -------------
------------- -------------
Weighted average shares outstanding . . . . . . 2,185,000 3,165,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are integral part of these consolidated statements.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
RESTATED
1997 1998
---- ----
(UNAUDITED) (UNAUDITED)
<S> <S> <S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 326,490 $ (888,317)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Extraordinary item - gain on early extinguishment of debt . (80,000) -
Principal payments on note receivable . . . . . . . . . . . 392,029 429,475
Borrowings on notes payable related to inventory purchases. - 2,361,228
Principal payments on notes payable
related to inventory purchases . . . . . . . . . . . . . (897,028) (1,398,194)
Principal payments on note payable
related to legal settlement . . . . . . . . . . . . . . . (820,000) -
Depreciation and amortization . . . . . . . . . . . . . . . . 36,641 63,677
Changes in assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . . . . . . (2,462,717) 72,027
Other receivables . . . . . . . . . . . . . . . . . . . . . (7,325) 145,695
Inventories . . . . . . . . . . . . . . . . . . . . . . . . (374,907) (1,172,031)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . (465,481) (233,915)
Income tax receivable . . . . . . . . . . . . . . . . . . . - (175,000)
Deferred tax asset . . . . . . . . . . . . . . . . . . . . (24,919) (8,000)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 167,797 -
Checks issued not yet presented for payment . . . . . . . . 502,771 (17,982)
Accounts payable . . . . . . . . . . . . . . . . . . . . . 625,873 (341,840)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 15,635 (202,978)
Income taxes payable . . . . . . . . . . . . . . . . . . . 103,000 -
Deferred tax liability. . . . . . . . . . . . . . . . . . . - 8,000
------------ -------------
Net cash used in operating activities . . . . . . . . . . (2,962,141) (1,358,155)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . . (75,462) (139,185)
Decrease in restricted cash . . . . . . . . . . . . . . . . . 5,695 25,039
------------ -------------
Net cash used in investing activities . . . . . . . . . . . . (69,767) (114,146)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit . . . . . . . . . . . . . . . . 6,207,319 9,398,209
Principal payments on lines of credit . . . . . . . . . . . . (7,675,485) (7,591,504)
Borrowings on long-term debt . . . . . . . . . . . . . . . . 500,000 -
Principal payments of long-term debt . . . . . . . . . . . . (504,811) (430,982)
Borrowings on capital lease obligations . . . . . . . . . . . - 30,000
Principal payments of capital lease obligations . . . . . . . (5,346) (6,421)
Net proceeds from initial public offering . . . . . . . . . . 4,507,378 -
------------ -------------
Net cash provided by financing activities . . . . . . . . . . 3,029,055 1,399,302
------------ -------------
Net Decrease in cash and cash equivalents . . . . . . . . . . . (2,853) (72,999)
Cash and cash equivalents at beginning of period . . . . . . . 16,985 80,218
------------ -------------
Cash and cash equivalents at end of period . . . . . . . . . . $ 14,132 $ 7,219
------------ -------------
------------ -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 332,482 $ 87,857
------------ -------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 375,000 $ 175,000
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
INSERT # 1
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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, 1998 and the results of its
operations for the three month periods ended March 31, 1998 and 1997 and cash
flows for the three month periods ended March 31, 1998 and 1997. The results
of operations and cash flows for the three month period ended March 31, 1998
are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of 1998.
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-QSB. 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, 1997 financial statements and the
notes thereto included in the Prospectus contained in the Company's Annual
Report on Form 10KSB.
NOTE 2 - RESTATEMENT OF MARCH 31, 1997 FINANCIAL STATEMENTS:
The Company has restated its previously issued consolidated financial
statements for the quarterly period ended March 31, 1997, for matters related
to: previously reported sales and accounts receivables, inventory costs and
valuation reserves, revisions to the previous policy regarding the
capitalization of costs associated with the bulk purchase of inventory,
correction of prior accounting for capitalization of bulk purchase and
certain other costs, unrecorded liabilities, additional bad debt expenses and
the related income tax effects. Retained earnings at January 1, 1997, was
reduced by $2,380,245 as a result of adjustments to 1995 and 1996 financial
statements.
<PAGE>
The effect on the Company's previously issued financial statements for the
quarterly period ended March 31, 1997 are summarized as follows:
Statement of Operations for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
PREVIOUSLY INCREASE
REPORTED (DECREASE) (RESTATED)
---------- --------- ------------
(OOO'S OMITTED)
<S> <C> <C> <C>
Total Net Sales . . . . . . . . . . . . . $ 9,454 $ 9 $ 9,463
Cost of Sales . . . . . . . . . . . . . . 7,570 117 7,687
Gross Profit . . . . . . . . . . . . . . 1,884 (108) 1,776
Selling and Administration Expenses . . . 1,226 (42) 1,184
Income from Operations . . . . . . . . . 658 (66) 592
Interest Expense . . . . . . . . . . . . 163 - 163
Income Before Taxes . . . . . . . . . . . 495 (66) 429
Provision for Taxes . . . . . . . . . . . 188 (85) 103
Net Income . . . . . . . . . . . . . . . 307 19 326
Net Income Per Share . . . . . $ 0.14 $ 0.01 $ 0.15
</TABLE>
NOTE 3 - CLASS ACTION LAWSUITS AND GOVERNMENT INVESTIGATIONS:
In August 1997, the Company's former independent auditors withdrew their
previously issued reports on the Company's financial statements for the years
ended December 31, 1994, 1995 and 1996 and the six months ended June 31, 1996
and resigned as the Company's auditors. These actions were the result of
their investigation of allegations regarding certain of the Company's
accounting and financing practices. The lack of required financial
information resulted in the subsequent halt in trading and delisting of the
Company's common stock on the Nasdaq SmallCap market in September 1997.
In October 1997, three separate class action lawsuits were filed against the
Company, its founder, directors and certain current and former officers and
directors, and others. In February 1998, a motion was approved to
consolidate all three class action lawsuits in Federal court.
In April 1998, the Company entered into a settlement in principle which is
memorialized in a Memorandum of Understanding (the "M.O.U.") with counsel for
the plaintiffs to settle the suits. Terms of the settlement include cash
consideration of $740,000 and 210,000 shares of the Company's common stock,
of which the Company will issue 80,000 shares and the Company's founder,
Osamah S. Bakhit, will contribute 130,000 shares. The Company's cost of
settlement was accrued in the fourth quarter of 1997.
The settlement is conditioned upon the execution of a definitive settlement
agreement on or before May 1, 1998 and the court's approval of that
agreement. Counsel for the plaintiffs and the Company have orally agreed to
extend this date. For the agreement to be effected, a certain percentage (to
be specified in the agreement) of shareholders must not have elected to be
excluded from the terms and conditions of the settlement. The settling
plaintiffs may also withdraw from the settlement if the Company's common
shares trade at less than $5 per share for the ten-day period beginning
fifteen days prior to the settlement hearing.
Both a Federal grand jury and the Securities and Exchange Commission have
commenced investigations into the allegations referred to above. The
investigations are continuing and the Company is unable, at this time, to
evaluate the possible outcome of the investigations or their impact on the
Company.
<PAGE>
NOTE 4 - DEBT ARRANGEMENTS
At March 31, 1998, the Company was not in compliance with certain of the
covenants of its line of credit with BNY Financial Corporation. There is no
assurance that the lender will not require repayment of all debt and/or
terminate the credit facility.
In February 1998, the Company borrowed $2,140,000 from BNY Financial
Corporation to purchase specific inventory. The balance of the note payable
is $1.1 million at March 31, 1998. The note, which is secured by specific
inventory and by the one million shares of common stock pledged on the Credit
Facility, was due on April 27, 1998, and has an interest rate of Prime plus
three percent plus other fees. The Company did not pay the required amount
on the note in March 1998 and did not pay off the note by April 27, 1998. As
a result the Company incurred a $100,000 default penalty in March 1998. The
bank has proposed additional fees for further extension of the due date;
management is currently negotiating with the bank to resolve this matter.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion includes the operations of the Company for each of
the periods discussed. This discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and the
related notes thereto, which are included elsewhere in this document.
OVERVIEW
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. The timing of bulk inventory purchases
can impact sales and gross profit. 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 seek 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, 1997 and 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
1997
(RESTATED) 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net distributed services and inventory sales $ 9,188 97.1% $ 8,818 99.5%
Net sales on consignment and marketing
agreements 275 2.9 52 0.5
---------- ------- --------- -------
Net sales 9,463 100.0 8,870 100.0
Cost of sales 7,687 81.2 6,891 77.7
---------- ------- --------- -------
Gross profit 1,776 18.8 1,979 22.3
Selling and administrative expenses 1,184 12.5 1,792 20.2
Non recurring expenses - - 509 5.7
---------- ------- --------- -------
Income (loss) from operations 592 6.3 (322) (3.6)
Interest expense, net 163 1.8 554 6.3
Other income (expense) - - (12) (0.1)
Provision for income taxes 103 1.1 - -
---------- ------- --------- -------
Net income (loss) 326 3.4 (888) (10.0)%
---------- ------- --------- -------
---------- ------- --------- -------
</TABLE>
NET DISTRIBUTED SERVICES AND INVENTORY SALES. Net distributed services
represents sales of aircraft parts purchased at the point of sale through
outside parties. Inventory sales represent sales of the Company's owned
inventory. Net distributed services and inventory sales decreased slightly
from $9.2 million for the three months ended March 31, 1997 to $8.8 million
for the three months ended March 31, 1998, a decrease of $400,000 or 4.3%.
This decrease was mainly a result of the Company's move to a new location in
the first quarter of 1998.
Sales from distributed services represented approximately 94.7% and 77.5% of
total distributed services and inventory sales for the three months ended
March 31, 1997 and 1998, respectively. Sales of Company-owned inventory
represented approximately 5.3% and 22.5% of total distributed services and
inventory sales for the three months ended March 31, 1997 and 1998,
respectively. The increase in the percentage of the sales of Company-owned
inventory was primarily due to the sale of some of the bulk inventory
purchases received during the second and third quarters of 1997 and the sale
of parts of the CFM56 engine purchased in the first quarter of 1998.
NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment
and marketing agreements represent revenue, including commission, from sales
of inventory held on consignment and sales of inventory obtained through
marketing agreements with larger airlines. Net sales on consignment and
marketing agreements decreased from $275,000 for the three months ended March
31, 1997 to $52,000 for the three months ended March 31, 1998, a decrease of
$223,000 or 81.1%. The decrease was a result of management's decision to
terminate the last consignment agreement and a marketing agreement during the
third quarter of 1997.
COST OF SALES. Cost of sales decreased from $7.7 million for the three
months ended March 31, 1997 to $6.9 million for the three months ended March
31, 1998, a decrease of $800,000 or 10.4%. This decrease was primarily
attributable to the decrease in net sales and the higher margins the Company
realized on the larger transactions in the first quarter of 1998. See "Gross
profit."
GROSS PROFIT. Gross profit increased from $1.8 million or 18.8% of net sales
for the three months ended March 31, 1997 to $2.0 million or 22.3% of net
sales for the three months ended March 31, 1998, an increase of $200,000 or
11.1%. This increase was a result of the Company realizing margins of only
20% or lower on the large transactions in the first quarter of 1997 compared
to margins of 33% on the large transactions in the first
<PAGE>
quarter of 1998. See "Cost of sales."
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of management compensation, commission expense, rent
expense, professional fees, consulting expense and travel expense. The
Company's selling and administrative expenses increased from $1.2 million for
the three months ended March 31, 1997 to $1.8 million for the three months
ended March 31, 1998, an increase of $600,000 or 50.0%. This increase was
principally due to higher personnel costs, bank charges and facility rent
expense.
NON RECURRING EXPENSES. In the first quarter of 1998, the Company incurred
$509,000 of expenses related to its investigation of allegations concerning
its previously issued financial statements, restatement of those financial
statements, class action lawsuits and investigations by a Federal grand jury
and the Securities and Exchange Commission. See "Part II, Item 1 - Legal
Proceedings". These expenses primarily consist of legal, accounting and
consulting fees.
INCOME (LOSS) FROM OPERATIONS. The Company had a loss from operations of
$322,000 for the three months ended March 31, 1998 as a result of lower sales
(offset by the increase in gross margin), the non recurring expenses and the
increase in the selling and administrative expenses. Income from operations
for the quarter ended March 31, 1998, excluding the non-recurring expenses,
was $187,000. See "Gross profit," "Selling and administrative expenses" and
"Non recurring expenses"
INTEREST EXPENSES, NET. Net interest expense increased from $163,000 for the
three months ended March 31, 1997 to $554,000 for the three months ended
March 31, 1998. The increase in interest expense was due to an increase in
borrowings under the Company's line of credit and a new note for $2.2 million
used to purchase an engine during the first quarter of 1998, plus related
loan fees and additional charges by the bank for late payments.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $80,000 and $7,000 as of
December 31, 1997 and March 31, 1998, respectively. The Company had
restricted cash of $1.1 million as of December 31, 1997 and March 31, 1998.
Restricted cash was required for letters of credit issued to certain vendors.
The Company's operating activities used $3.0 million and $1.4 million in the
quarters ended March 31, 1997 and 1998, respectively. The largest cash uses
in the 1997 period were $2.5 million for increases in accounts receivable,
$1.3 million for acquisition of inventories and payments of $820,000 related
to a legal settlement, offset by earnings and increases in liability
accounts. For the 1998 period the largest uses of cash were the $888,000
loss, along with the net effect of normal fluctuations in operating asset and
liability accounts.
Net cash used in investing activities, $70,000 in the 1997 period and
$114,000 in the 1998 period, resulted from purchases of property and
equipment, less reductions in restricted cash.
Cash provided by 1997 financing activities of $3.0 million was a result of
$4.5 million of net proceeds from the Company's initial public offering, less
$1.5 million net reduction in borrowings under the lines of credit. The $1.4
million provided by 1998 financing activities consisted of a $1.8 million net
increase in line of credit borrowings less $400,000 of payments on long-term
debt.
The Company's Credit Facility provides for working capital loans of up to
$15.0 million with interest at the Bank of New York Alternate Base Rate (8.5
percent at March 31, 1998) plus one percent subject to an availability
calculation based on the eligible borrowing base. The eligible borrowing base
includes certain receivables and inventories of the
<PAGE>
Company. The terms of the credit agreement provide for a facility non-use
fee of 0.75% per annum of the difference between the facility amount and the
average monthly balance. The Credit Facility matures on June 25, 2000.
BNY Financial Corporation has a fully perfected security interest against all
assets of the Company, except restricted cash, in addition to a personal
guarantee from the Company's founder and is secured by 1 million shares of
common stock pledged by the Company's founder.
The Credit Facility provides for the repayment of all debt and/or termination
of the Credit Facility (i) in the event the Company voluntarily files under
the federal bankruptcy laws or fails to dismiss, within 31 days, any petition
filed against it in any involuntary case under such bankruptcy laws, (ii) if
the lender believes the prospect of payment or performance of the
indebtedness is impaired, or (iii) upon a change of control. The $15.0
million Credit Facility has certain financial covenants that require the
Company to have a tangible net worth of at least $3.0 million at March 31,
1998, and that tangible net worth shall increase by $250,000 per quarter in
1998 commencing with the June 30, 1998 quarter, to not make capital
expenditures in any fiscal year in an amount in excess of $750,000, the ratio
of EBITDA (as defined in the Credit Facility and the amendments) of the
Company to be less than two to one, and shall not at any time at the end of
any month permit its working capital to be less than $4.0 million.
The Company was not in compliance with certain of its debt covenants at March
31, 1998. There is no assurance that BNY Financial Corporation will not
require repayment of all debt and/or terminate the Credit Facility.
The Company's long-term debt consists of the following: (i) note payable of
$2.6 million at March 31, 1998 to a financial institution, due in monthly
installments of $166,250 (principal and interest) to August 1999 with an
interest rate of 9.5 percent; (ii) note payable of $2.5 million at March 31,
1998 to a corporation, secured by specific inventory, due in varied monthly
installments of principal and interest to July 1998, with an imputed interest
rate of 9.5 percent; and (iii) two notes payable for $23,000.
In February 1998, the Company borrowed $2,140,000 from BNY Financial
Corporation to purchase specific inventory. The balance of the note payable
is $1.1 million at March 31, 1998. The note is secured by specific inventory
and by the one million shares of common stock pledged on the Credit Facility,
was due on April 27, 1998, and has an interest rate of Prime plus three
percent plus other fees. The Company did not pay the required amount on the
note in March 1998 and did not pay off the note by April 27, 1998. As a
result the Company incurred a $100,000 default penalty in March 1998. The
bank has proposed additional fees for further extension of the date;
management is currently negotiating with the bank to resolve this matter.
In 1997, the Company and certain of its current and former officers and
directors were named as defendants in three class action lawsuits. In April
1998, the Company entered into a Memorandum of Understanding to settle the
lawsuits. The Company's estimated cost of settlement, totaling $620,000, was
charged to Legal Settlement Expense in the fourth quarter of 1997. See "Part
II, Item 1 - Legal Proceedings."
The Company's operations are financed under a credit facility BNY Financial
Corporation, a subsidiary of, the Bank of New York. This facility is an
asset based line of credit secured by account receivable and inventory and is
the primary source for the Company to finance its operations and growth.
Because of the non-recurring costs associated with the re-auditing of the
Company's financial statements and the ongoing federal investigations, the
Company has used its asset base to meet these obligations. As a result, the
Company may need to increase its capital base in order to continue to meet
its growth objectives. There can be no assurance that such additional
capital will be available on a timely basis or at acceptable terms.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In October 1997, the Company, its founder, its directors, certain of its
officers, a former officer and director, its former auditor and its
underwriter were named as defendants in three civil suits filed as class
actions on behalf of individuals claiming to have purchased ADI Common Stock
during the period from March 1997 to September 1997, and seeking damages for
violation of Federal securities laws. The suits were filed in the United
States District Court for the Central District of California and are
captioned as follows: (i) NGUYEN V. AVIATION DISTRIBUTORS, INC., ET AL.,
U.S. District Court, Central District of California, Case No. SACV 97-795
(ANx); (ii) ALAN GREEN V. AVIATION DISTRIBUTORS, INC., ET AL., U.S. District
Court, Central District of California, Case No. SACV 97-801 GLT (EEx); and
(iii) SHARON TATE V. AVIATION DISTRIBUTORS, INC., ET AL., U.S. District
Court, Central District of California, Case No. SACV 97-838 (Eex).
In April 1998, the Company entered into a settlement in principle, which is
memorialized in a Memorandum of Understanding (the "M.O.U."), with counsel
for the plaintiffs to settle the suits. Terms of the settlement include cash
consideration of $740,000 and 210,000 shares of the Company's common stock,
of which the Company will issue 80,000 shares and the Company's founder,
Osamah S. Bakhit, will contribute 131,000 shares. The settlement is
conditioned upon execution of a definitive settlement agreement and approval
of the settlement by the Federal Court. The M.O.U. provides that the
settling plaintiffs may withdraw from the settlement if the mean trading
price of the Company's common stock is less than $5.00 per share for the
10-day period beginning 15 days prior to the settlement hearing.
The Company is involved in certain legal and administrative proceedings and
threatened legal and administrative proceedings arising in the normal course
of its business. While the outcome of such proceedings and threatened
proceedings cannot be predicted with certainty, management believes the
ultimate resolution of these matters individually or in the aggregate will
not have a material adverse effect on the Company.
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
<PAGE>
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (1)
3.2 Bylaws, as amended, of the Registrant. (1)
3.3 Amendment to Amended and Restated Certificate of Incorporation
of the Registrant. (1)
4.1 Specimen Common Stock Certificate. (1)
9.1 Voting Trust Agreement, dated November 17, 1997, by and among
Osamah Bakhit, Aviation Distributors, Inc., and Dirk O. Julander,
as trustee. (2)
10.2 1996 Stock Option and Incentive Plan. (1)
10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and between
Alia The Royal Jordanian Airlines and Aviations Distributors, Inc..
(1)
10.4 Credit and Security Agreement, dated June 25, 1997, by and between
Aviation Distributors, Inc. and BNY Financial Corporation.
10.5 Secured and Guaranteed Promissory Note, dated February 24, 1998, by
and between Aviation Distributors, Inc. and BNY Financial
Corporation.
10.6 Amended and Restated Employment Agreement, dated as of July 16,
1996, by and between Osamah S. Bakhit and Aviation Distributors,
Inc. (1)
10.7 Employment Agreement, dated as of July 16, 1996, by and between
Mark W. Ashton and Aviation Distributors, Inc. (1)
10.8 Employment Agreement, dated as of July 16, 1996, by and between
Jeffrey G. Ward and Aviation Distributors, Inc. (1)
10.9 Commercial Lease, dated June 11, 1996, by and between Francis De
Leone and Aviation Distributors, Inc. (1)
10.10 Amendment to Employment Agreement, dated November 17, 1997, by and
between Osamah S. Bakhit and Aviation Distributors, Inc.
10.11 Amendment to Employment Agreement, dated November 17, 1997, by and
between Mark W. Ashton and Aviation Distributors, Inc.
10.12 Lease, dated as of July 9, 1997, by and between Olen Properties
Corp. and Aviation Distributors, Inc.
10.13 Amended and Restated Promissory Note from Osamah S. Bakhit to
Aviation Distributors, Inc., dated as of December 31, 1995. (1)
10.14 Settlement Agreement dated as of November 1, 1996. (1)
10.15 Form of Indemnity Agreement. (1)
10.33 Promissory Note between Aviation Distributors, Inc. and Osamah
S. Bakhit, dated December 31, 1996. (1)
(1) Filed with the Company's Registration Statement on Form SB-2 dated
March 3, 1997.
(2) Filed with the Company's Registration Statement on Form 10-KSB dated
May 7, 1998.
</TABLE>
<PAGE>
(b) Reports on Form 8-K.
<TABLE>
<CAPTION>
<S> <C>
DATE OF REPORT/FILING DATE ITEM REPORTED
-------------------------- -------------
August 29, 1997/September 8, 1997 Change in Registrant's Certifying
Accountant (Withdrawal of Reports on
Financial Statements; Resignation of
Arthur Andersen LLP). No financial
statements were filed.
August 29, 1997/September 17, 1997 Financial Statements and Exhibits
(Letter from Arthur Andersen LLP). No
financial statements were filed.
October 1, 1997/October 14, 1997 Other Events (Delisting by Nasdaq). No
financial statements were filed.
November 19, 1997/November 19, 1997 Change in Registrant's Certifying
Account (Appointment of Grant Thornton
LLP); Other Events (Resignation of
Osamah S. Bakhit as Chairman, CEO;
Transfer of Bakhit Shares to Voting
Trust). No financial statements were
filed.
</TABLE>
<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 18, 1998 AVIATION DISTRIBUTORS, INC.
---------------------------
By: /s/ Ken Lipinski
-------------------------------
Ken Lipinski
Chief Operating Officer
By: /s/ Gary Joslin
-------------------------------
Gary Joslin
Chief Financial Officer and
Vice President of Finance
