<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 2000
REGISTRATION NO. 333-8061
================================================================================
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 September 30, 2000
-------------------------------------------------
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 (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 3,352,278 SHARES OF
COMMON STOCK, $.01 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF November 20,
2000.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------ ------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance for
doubtful accounts of $250,000 at December 31,
1999 and September 30, 2000 ........................ $ 7,548,474 $ 13,280,566
Other receivables ................................... 44,739 87,554
Inventories ......................................... 9,008,560 12,344,734
Prepaid expenses .................................... 85,554 249,660
Deferred tax asset .................................. 101,000 101,000
------------ ------------
Total current assets ........................... 16,788,327 26,063,514
------------ ------------
PROPERTY AND EQUIPMENT .................................... 1,016,165 1,096,497
Less - accumulated depreciation ..................... 466,998 611,139
------------ ------------
549,167 485,358
------------ ------------
Note receivable from founder .............................. 408,718 408,718
Debt issue costs .......................................... -- 1,883,332
Other assets .............................................. 131,484 132,760
------------ ------------
540,202 2,424,810
------------ ------------
$ 17,877,696 $ 28,973,682
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Checks issued not yet presented for payment ......... $ 256,957 $ 606,950
Accounts payable .................................... 2,587,403 3,528,866
Accrued liabilities ................................. 606,997 905,700
Lines of credit ..................................... 15,677,982 23,600,111
Current portion of long-term debt ................... 965,388 523,048
Current portion of capital lease obligations ........ 9,828 11,214
------------ ------------
Total current liabilities ...................... 20,104,555 29,175,889
------------ ------------
Long-term debt, net of current portion .................... 978,304 1,391,804
------------ ------------
Capital lease obligations, net of current portion ......... 19,427 13,206
------------ ------------
Promissory Note Payable ................................... -- 2,000,000
------------ ------------
Deferred tax liability .................................... 101,000 101,000
------------ ------------
STOCKHOLDERS' DEFICIT:
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; 3,387,500 and 3,395,278 shares
issued and 3,344,500 and 3,352,278 outstanding at
December 31, 1999 and September 30, 2000 ......... 33,875 33,953
Additional paid in capital .......................... 6,213,749 6,257,424
Accumulated deficit ................................. (9,499,910) (9,926,290)
Treasury stock, 43,000 shares at cost ............... (73,304) (73,304)
------------ ------------
Total stockholders' deficit .................... (3,325,590) (3,708,217)
------------ ------------
$ 17,877,696 $ 28,973,682
============ ============
</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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET DISTRIBUTED SERVICES AND INVENTORY SALES ......... $ 5,396,347 $ 10,112,580 $ 16,335,080 $ 28,384,619
COST OF SALES ........................................ 3,873,354 7,432,087 12,524,745 21,112,590
------------ ------------ ------------ ------------
Gross profit .................................. 1,522,993 2,680,493 3,810,335 7,272,029
SELLING AND ADMINISTRATIVE EXPENSES .................. 1,388,356 1,539,965 4,246,607 4,563,865
SETTLEMENT FINE ...................................... -- 642,016 -- 642,016
NON RECURRING EXPENSES ............................... 29,735 215,985 118,650 238,361
------------ ------------ ------------ ------------
Income (loss) from operations ................. 104,902 282,527 (554,922) 1,827,787
OTHER (EXPENSES) INCOME:
Interest expense .............................. (397,188) (863,639) (1,334,006) (2,282,064)
Interest income ............................... 80,230 10,746 130,093 23,006
Other income .................................. 6,833 -- 8,245 4,891
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes ................................ (205,223) (570,366) (1,750,590) (426,380)
INCOME TAX BENEFIT .................................. (81,397) -- (80,597) --
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM ....................... (123,826) (570,366) (1,669,993) (426,380)
------------ ------------ ------------ ------------
EXTRAORDINARY ITEM - Gain on restructuring of
payables, net of applicable income taxes ...... 171,538 -- 171,538 --
============ ============ ============ ============
NET INCOME (LOSS) ............................. $ 47,712 $ (570,366) $ (1,498,455) $ (426,380)
============ ============ ============ ============
Basic and diluted net income (loss) per share:
Loss before extraordinary item ................ (0.04) (0.17) (0.53) (0.13)
Extraordinary item ............................ 0.05 -- 0.05 --
------------ ------------ ------------ ------------
Net Income (loss) per share .......................... $ 0.01 (0.17) $ (0.48) $ (0.13)
============ ============ ============ ============
Basic and dilutive weighted average shares
outstanding ................................... 3,202,000 3,352,278 3,180,000 3,348,360
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- --------------------- ADDITIONAL TOTAL
NUMBER NUMBER PAID ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT IN CAPITAL DEFICIT DEFICIT
--------- -------- --------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999............. 3,165,000 $ 31,650 43,000 $ (73,304) $ 5,658,099 $ (7,710,282) $ (2,093,837)
Stock issued in
legal settlement................. 80,000 800 - - 479,200 - 480,000
Fair value of stock options issued
for debt forgiveness............... - - - - 42,250 - 42,250
Stock options exercised............ 142,500 1,425 - - 34,200 - 35,625
Net loss........................... - - - - - (1,789,628) (1,789,628)
--------- -------- ------ --------- ----------- ------------ ------------
Balance at December 31, 1999........... 3,387,500 33,875 43,000 (73,304) 6,213,749 (9,499,910) (3,325,590)
Fair value of warrants issued for
debt in connection with amendment
of credit facility................. - - - - 500,000 - 500,000
Unamortized debt discount contra
to fair value of warrants.......... - - - - (470,831) - (470,831)
Stock option exercised............. 7,778 78 - - 14,506 - 14,584
Net Loss........................... - - - - - (426,380) (426,380)
--------- -------- ------ --------- ----------- ------------ ------------
Balance at September 30, 2000.......... 3,395,278 $ 33,953 43,000 $ (73,304) $ 6,257,424 $ (9,926,290) $ (3,708,217)
========= ======== ====== ========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................................... $ (1,498,455) $ (426,380)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Principal payments on note receivable .......................................... 1,276,750 --
Principal payments on notes payable
related to inventory purchases ............................................... (1,276,750) --
Reduction in amount due on notes payable
related to inventory purchases in exchange for
reduction in accounts receivable ............................................. (643,788) --
Depreciation and amortization .................................................. 157,997 289,980
Immaculate cashless stock option exercise ...................................... -- 14,584
Changes in assets and liabilities:
Accounts receivable, net .................................................. (773,750) (5,732,092)
Other receivables ......................................................... (166,566) (42,815)
Inventories ............................................................... 601,063 (3,336,174)
Prepaid expenses .......................................................... 215,962 (164,106)
Income tax receivable ..................................................... 355,984 --
Other assets .............................................................. (2,133) (1,276)
Checks issued not yet presented for payment ............................... (40,000) 349,993
Accounts payable .......................................................... 675,820 941,463
Accrued liabilities ....................................................... 10,148 298,703
------------ ------------
Net cash used in operating activities .............................. (1,107,718) (7,808,120)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................................... (74,769) (80,335)
Decrease in restricted cash ....................................................... 1,145 --
------------ ------------
Net cash used in investing activities ............................... (73,624) (80,335)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit ..................................................... 16,152,534 30,257,824
Principal payments on lines of credit ............................................. (15,077,578) (22,335,694)
Borrowings on long-term debt ...................................................... 125,000 642,016
Principal payments of long-term debt .............................................. (4,794) (670,856)
Principal payments of capital lease obligations ................................... (13,820) (4,835)
------------ ------------
Net cash provided by financing activities ........................... 1,181,342 7,888,455
------------ ------------
Net change in cash and cash equivalents ................................................ -- --
Cash and cash equivalents at beginning of period ....................................... -- --
------------ ------------
Cash and cash equivalents at end of period ............................................. $ -- $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ....................................................................... $ 1,402,426 $ 2,136,225
============ ============
Income taxes ................................................................... $ 800 $ --
============ ============
Noncash financing activities:
Capitalized loan issue costs, due in the form of a promissory note payable ........ $ -- $ 2,000,000
============ ============
Warrants issued in connection with the amendment of the Company's credit facility.. $ -- $ 500,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
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 September 30, 2000, and the results of its operations for the
three and nine month periods ended September 30, 2000, and 1999, and cash flows
for the nine month periods ended September 30, 2000, and 1999. The results of
operations and cash flows for the nine month period ended September 30, 2000,
are not necessarily indicative of the results of operations or cash flows which
may be reported for the remainder of 2000.
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, 1999
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB.
NOTE 2 - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company sustained a substantial
loss from operations in 1999 and through September 30, 2000; has used, rather
than provided, cash in its operations; and has deficits in working capital
and stockholders' equity at December 31, 1999 and September 30, 2000. Also,
as discussed in Note 3, the impact on the Company of certain governmental
investigations cannot be determined at this time.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheets are dependent upon continued operations of the Company. This in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
<PAGE>
Management has taken steps to revise its operations and financial
requirements, which it believes are sufficient to provide the Company with
the ability to continue in existence. Ongoing expenses have been reduced by
salary reductions, headcount reductions and other cost saving measures have
been implemented. The class action lawsuits have been settled. Settlement of
remaining legal issues will also allow management to concentrate on managing,
improving and expanding the business. In addition, as described in Note 4,
the Company has increased its availability under its line of credit and
extended the loan maturity date.
NOTE 3 - CLASS ACTION LAWSUITS AND GOVERNMENT INVESTIGATIONS:
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 issued 80,000 shares and the Company's founder, Osamah S.
Bakhit, contributed 130,000 shares. The Company recorded a $620,000 charge in
1997 related to this settlement, of which $480,000 was attributable to the
issuance of 80,000 shares of common stock and $140,000 represented the Company's
portion of the cash consideration. The Federal Court approved this settlement
agreement on March 15, 1999.
Both a Federal grand jury and the Securities and Exchange Commission (SEC)
previously commenced investigations into the allegations referred to above.
The Company has entered into a proposed settlement with the SEC staff related to
the ongoing SEC investigation of the Company. Under the terms of the proposed
settlement, the Company would consent to the entry of a federal court
injunction, in which the Company would not admit or deny any allegations made by
the SEC, enjoining it from future violations of the federal securities laws. The
proposed settlement with the SEC's staff must be approved by the Securities and
Exchange Commission. The Company does not know when the proposed settlement will
be presented to the Commission for approval.
The Company has entered into a plea agreement with the government that will
resolve it's involvement in the ongoing criminal investigation of the Company
that has been conducted by the United States Attorney's Office in Los
Angeles, California. Under the terms of the plea agreement, the Company will
enter a guilty plea to a three count criminal information alleging that the
Company conspired to violate Title 15, United States Code, Sections 77q(a)
and 77x, and violated Title 15, United States Code, Sections 77x,
78m(b)(2)(A), 78m(b)(5) and 78ff, and Title 17, Code of Federal Regulations,
Section 240.13b2-1 in connection with the preparation of the Company's
financial records and the filing of the Company's financial statements during
the period through approximately August 1997. As a part of the plea
agreement, the Company has agreed to pay a total fine of $750,000, which fine
will be payable as follows: $50,000 to be paid at the time of sentencing;
$150,000 to be paid on March 31, 2001; $250,000 to be paid on March 31, 2002;
and $300,000 to be paid on March 31, 2003. In addition the Company will be
placed on probation until the fine is paid in full or until December 31,
2002, whichever is later.
The plea agreement with the government must still be submitted to the federal
court in Los Angeles for approval. The court can either accept or reject the
sentence contained in the plea agreement. No date has been scheduled for the
court hearing on this matter
The settlement fine has been recorded as $642,016, in the Company's statement of
operations as of September 30, 2000 based on the present value of the proposed
payments using a 10% interest assumption.
<PAGE>
NOTE 4 - DEBT ARRANGEMENTS
On February 23, 2000, the Company amended its Credit Facility with GMAC to
extend the loan maturity date to December 1, 2010. Additionally, the 126,600
warrants previously issued to GMAC were increased to provide GMAC with warrants
equal to 9.9% of the outstanding stock of the Company or approximately 335,362
warrants. The exercise price of the previously issued warrants was reduced from
$1.00 to $.25 per share. The additional 208,762 warrants were issued at an
exercise price of $.25 per share. The total warrants issued to GMAC expire on
February 28, 2010. The fair value of the new warrants and the repriced warrants
issued to GMAC, estimated at $500,000, is being amortized to interest expense
over the term of the credit facility. The unamortized discount ($470,831), which
was netted against the line of credit in the consolidated balance sheet as of
March 31, 2000, included in the Company's first quarter Form 10-QSB has been
reclassified as a contra equity account, as presented in the accompanying
Consolidated Statement of Stockholders' Deficit.
As a condition for the extension of the credit facility, the Company entered
into a $2,000,000 promissory note, due in a balloon payment on the earlier of
February 1, 2010, or if the Company's stock reaches a $6 per share value over 10
consecutive days, or the occurrence of one of several events, none of which have
occurred. The $2,000,000 has been reflected as debt issue costs in the
accompanying Consolidated balance sheet and is being amortized to interest
expense over the term of the promissory note. The note bears interest at GMAC's
Alternate Base Rate and interest is payable semi-annually.
On April 5, 2000 the Company obtained an additional $3,800,000 increase in its
credit facility for an eighteen month period, at an interest rate of prime plus
1%, to finance the purchase of inventory.
On September 12, 2000 the Company received approval from GMAC for a $10
million working capital line to finance the purchase of inventory related to
the servicing of the Company's contracts with major foreign airlines. The
Company implemented the use of this line in October, 2000, which is
guaranteed by the export-import Bank of the United States, the official
export credit agency of the U.S. government, and which carries an interest
rate of Prime plus 1%.
At September 30, 2000, the Company was not in compliance with certain of the
covenants of its line of credit with GMAC. GMAC has waived the covenant
violations for the quarter ended September 30, 2000.
NOTE 5 - EXPORT SALES
For the nine months ended September 30, 1999 and 2000, approximately 50.9% and
66.0%, respectively, of the Company's net sales were export sales. Export sales
by region were approximately as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1999 2000
---- ----
<S> <C> <C>
Pacific Rim. . . . . . . . . . . . . . . . 14.0% 4.9%
Europe . . . . . . . . . . . . . . . . . 11.6 30.8
Latin/South America. . . . . . . . . . . . . 18.7 20.8
Africa/Middle East . . . . . . . . . . . . . 6.6 9.5
-----------------
50.9% 66.0%
==== ====
</TABLE>
<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.
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 be 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
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.
<PAGE>
The following table sets forth certain information relating to the Company's
operations for the three months ended September 30, 1999 and 2000 (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 2000
---------------------- ------------------------
<S> <C> <C> <C> <C>
Net sales........................................ $5,396 100.0%% $10,112 100.0 %
Cost of sales.................................... 3,873 71.8 7,432 73.5
------- -------- -------- --------
Gross profit... 1,523 28.2 2,680 26.5
Selling and administrative....................... 1,388 25.7 1,539 15.2
Settlement fine.................................. - - 642 6.8
Non-recurring expenses........................... 30 0.6 216 2.1
------- -------- -------- --------
Income (loss) from operations.................... 105 1.9 283 2.8
Interest expense, net............................ 317 5.9 853 8.4
Other income..................................... 7 0.1 - -
Provision for income tax (benefit)............... (81) (1.5) - -
Gain on restructuring payables, net.............. 172 3.2 - -
------- -------- -------- --------
Net income (loss) $48 0.8 % $ (570) (5.6)%
======= ======== ======== ========
</TABLE>
NET SALES. Net sales increased from $5.4 million for the three months ended
September 30, 1999 to $10.1 million for the three months ended September 30,
2000, an increase of $4.7 million or 87%. This increase was mainly a result of
the increase in financing availability that allowed the Company to focus on the
business, which resulted in increased sales and the ability of the company to
purchase material for its customers. The improved financing availability allowed
the Company to obtain sales previously passed over due to a lack of financing.
COST OF SALES. Cost of sales increased from $3.9 million for the three months
ended September 30, 1999 to $7.4 million for the three months ended September
30, 2000, an increase of $3.5 million or 90%. This increase was primarily
attributable to the 87% increase in net sales.
GROSS PROFIT. Gross profit increased from $1.5 million or 28.2% of net sales for
the three months ended September 30, 1999 to $2.7 million or 26.5% of net sales
for the three months ended September 30, 2000, an increase of $1.2 million or
80%. This increase was a result of the 87% increase in net sales from the prior
period.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of wages and commission expense, rent expense, professional
fees, consulting expense and travel expense. The Company's selling and
administrative expenses increased from $1.4 million for the three months ended
September 30, 1999 to $1.5 million for the three months ended September 30,
<PAGE>
2000, an increase of $100,000 or 7.1%. This increase was principally due to an
increase in employee compensation as a result of the increased commission from
increased sales.
SETTLEMENT FINE. The Company has entered into a plea agreement with the
government which, in part requires a fine of $750,000 payable in installments
of; $50,000 at time of sentencing, $150,000 to be paid on March 31, 2001,
$250,000 to be paid March 31,2002, and $300,000 to be paid on March 31, 2003.
The present value of these payments, based on a 10% interest assumption has been
recorded in the Statement of Operations as of September 30, 2000. See " Part II,
Legal Proceedings."
NON-RECURRING EXPENSES. In the third quarter of 1999 and 2000, the Company
incurred $30,000 and $216,000, respectively, 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. Management expects these expenses to decrease, as the legal issues
are expected to be resolved. These expenses primarily consist of legal,
accounting and consulting fees. See "Part II, Item 1 - Legal Proceedings."
INCOME FROM OPERATIONS. The Company had income from operations of $.1 million
for the three months ended September 30, 1999 compared to income from
operations of $.9 million, before the settlement fine, and $.3 million after
the settlement fine, for the three months ended September 30, 2000. The
increase in income from operations is due to the increase in net sales and
improved gross profit amount, but reduced by the settlement fine of $642,000.
INTEREST EXPENSES, NET. Net interest expense increased from $317,000 for the
three months ended September 30, 1999 to $853,000 for the three months ended
September 30, 2000. The $536,000 increase in interest expense was due to
increased financing to support the increase in sales.
The following table sets forth certain information relating to the Company's
operations for the nine months ended September 30, 1999 and 2000 (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 2000
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net sales........................................... $16,335 100.0 % $28,385 100.0 %
Cost of sales....................................... 12,525 76.7 21,113 74.4
-------- -------- -------- --------
Gross profit... 3,810 23.3 7,272 25.6
Selling and administrative expenses................. 4,247 26.0 4,564 16.1
Settlement fine..................................... - - 642 2.3
Non-recurring expenses.............................. 118 0.7 238 0.8
-------- -------- -------- --------
Income (loss) from operations....................... (555) (3.4) 1,828 6.4
Interest expense, net............................... 1,204 7.4 2,259 8.0
Other income........................................ 8 - 5 -
Income tax(benefit)................................. (81) (0.5) - -
Gain on restructuring of payables................... 172 1.1 - -
-------- -------- -------- --------
Net loss............................................ $(1,498) (9.2)% $(426) (1.5)%
======== ======== ======== ========
</TABLE>
<PAGE>
NET SALES. Net sales increased from $16.3 million for the nine months ended
September 30, 1999 to $28.4 million for the nine months ended September 30,
2000, an increase of $12.1 million or 74.2%. This increase was mainly a result
of increased availability that allowed the Company's to receive critical parts
from its suppliers. The increase in financing ability has allowed the company to
increase sales, improve margins and position itself for growth.
COST OF SALES. Cost of sales increased from $12.5 million for the nine months
ended September 30, 1999 to $21.1 million for the nine months ended September
30, 2000, an increase of $8.6 million or 68.8%. This increase was primarily
attributable to the 74.2% increase in net sales.
GROSS PROFIT. Gross profit increased from $3.8 million or 23.3% of net sales for
the nine months ended September 30, 1999 to $7.3 million or 25.6% of net sales
for the nine months ended September 30, 2000, an increase of $3.5 million or
92.1%. This increase was primarily a result of the 74.2% increase in net sales
and improved buying capability.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of wages and commission expense, rent expense, professional
fees, consulting expense and travel expense. The Company's selling and
administrative expenses increased from $4.2 million for the nine months ended
September 30, 1999 to $4.6 million for the nine months ended September 30, 2000,
an increase of $300,000 or 7.1%. This increase was principally due to an
increase in employee compensation as a result of increased commissions.
Settlement fine. THE COMPANY HAS ENTERED INTO A PLEA AGREEMENT WITH THE
GOVERNMENT WHICH, IN PART REQUIRES A FINE OF $750,000 PAYABLE IN INSTALLMENTS
OF; $50,000 AT TIME OF SENTENCING, $150,000 TO BE PAID ON MARCH 31, 2001,
$250,000 TO BE PAID MARCH 31,2002, AND $300,000 TO BE PAID ON MARCH 31, 2003.
THE PRESENT VALUE OF THESE PAYMENTS, BASED ON A 10% INTEREST ASSUMPTION HAS BEEN
RECORDED IN THE STATEMENT OF OPERATIONS AS OF SEPTEMBER 30, 2000. SEE " PART II,
LEGAL PROCEEDINGS."
NON-RECURRING EXPENSES. For the nine months ended September 30, 1999 and 2000,
the Company incurred $118,000 and $238,000, respectively, 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. Management expects these expenses to continue to decrease, as the
shareholder lawsuit was settled on March 15, 1999. These expenses primarily
consist of legal, accounting and consulting fees. See "Part II, Item 1 - Legal
Proceedings."
INCOME (LOSS) FROM OPERATIONS. The Company had a loss from operations of
$555,000 and income from operations of $2.5 million, before the settlement fine,
and $1.8 million after the settlement fine, for the nine months ended September
30, 1999 and 2000, respectively. The increase in income from operations is due
to the increased sales and margins, but reduced by the settlement fine of
$642,000.
INTEREST EXPENSES, NET. Net interest expense increased from $1.2 million for the
nine months ended September 30, 1999 to $2.3 million for the nine months ended
September 30, 2000. The $1.1 million increase in interest expense was due to the
increased financing to support the increase in sales.
YEAR 2000 COMPLIANCE
To become fully Year 2000 compliant, the Company successfully implemented a new
software system at a cost of approximately $120,000. The Company did not
separately track the internal costs incurred for the Y2K project. The Company
did not incur any systems problems as a result of the successful implementation
of the new systems.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $1.1 million and $7.6 million in the
nine months ended September 30, 1999 and 2000, respectively. The largest cash
<PAGE>
uses in the 1999 period were the $1.5 million net loss, payments of $1.3 million
related to notes payable for inventory purchases, and $600,000 reduction in
amount due on notes payable related to inventory purchases in exchange for
reduction in accounts receivable and $800,000 reductions in accounts receivable
offset by $1.3 million principal payments on notes receivable, $600,000 decrease
in inventories and a $700,000 increase of accounts payable. For the 2000 period,
the largest uses of cash were a $5.7 million increase in accounts receivable, a
$3.3 million increase in inventory, offset by a $.9 million increase in accounts
payable, a $.3 million increase in accrued liabilities and a $.3 million
increase in checks not presented for payment.
The 1999 financing activities provided cash of $1.2 million, primarily resulting
from the $1.1 million net increase in line of credit borrowings and a $.1
million increase in borrowings of long term debt. The 2000 financing activities
provided $7.7 million of cash due to a net increase in borrowings of $7.7
million.
As of September 30, 2000, the Company had a working capital deficit of $3.1
million. This was primarily due to the increase in the borrowings on the line of
credit resulting from the cash requirements for increases in accounts
receivable, reduction of accounts payable with an offset of reduced inventory.
As of December 31, 1999, the Company was in default on certain covenants of its
credit facility with GMAC Commercial Credit (GMAC). On April 7, 2000, the
financial institution issued the Company a waiver of the covenants that were in
default and set new covenants for 2000 with the first measurement date effective
for the quarter ended June 30, 2000. As of September 30, 2000, the Company was
in default on certain covenants of the credit facility with GMAC. On November 6,
2000, the financial institution issued the Company a waiver for those covenants
that were in default.
On February 23, 2000, the Company amended its Credit Facility with GMAC to
extend the loan maturity date to December 1, 2010. Additionally, the 126,600
warrants previously issued to GMAC were increased to provide GMAC with warrants
equal to 9.9% of the outstanding stock of the Company or approximately 335,362
warrants. The exercise price of the previously issued warrants was reduced from
$1.00 to $.25 per share. The additional 208,762 warrants were issued at an
exercise price of $.25 per share. The total warrants issued to GMAC expire on
February 28, 2010. The fair value of the new warrants and the repriced warrants
issued to GMAC, estimated at approximately $500,000, is being amortized to
interest expense over the term of the credit facility.
As a condition for the extension of the credit facility, the Company entered
into a $2,000,000 promissory note, due in a balloon payment on the earlier of
February 1, 2010, or if the Company's stock reaches a $6 per share value over 10
consecutive days, or the occurrence of one of several other events, none of
which have occurred. The $2,000,000 is being amortized to interest expense over
the term of the promissory note. The note bears interest at GMAC's Alternate
Base Rate and interest is payable semi-annually.
On April 5, 2000 the Company obtained an additional $3,800,000 increase in its
credit facility for an eighteen month period, at an interest rate of prime plus
1%, to finance the purchase of inventory.
On September 12, 2000 the Company received approval from GMAC for a $10 million
working capital line to finance the purchase of inventory related to the
servicing of the Company's contracts with major foreign airlines. The Company
implemented the use of this line in October, 2000 which is guaranteed by the
export-import Bank of the United States the official export credit agency of the
U.S. government and which carries an interest rate of Prime plus 1%.
The Company's long-term debt consists of the following: (i) term loan of
$1,000,000 at September 30, 2000 to GMAC, due in quarterly principal
installments of $125,000 with an interest rate of 2.0 percent above the lenders
alternate base rate; (ii) note payable of $500,000 at September 30, 2000 to
corporations', secured by specific inventory; (iii) note payable of $100,000 at
September 30, 2000 to the founder of the Company (iv) capital lease obligations
of $13,207 and Promissory Note Payable for $2,000,000.
<PAGE>
The Company's credit facility with GMAC 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. At September 30, 2000 the balance on the
credit facility was $23,100,111. 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 line of credit to pay these
costs. 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.
See note 2 to the consolidated financial statements included in this form 10-Q
regarding realization of assets and steps management has taken with respect to
its operations and financing requirements.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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. Also, see Note 3 to the consolidated financial
statements in Part I.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 Aviation Distributors, Inc.. (1)
10.4 Credit and Security Agreement, dated June 25, 1997, by and between
Aviation Distributors, Inc. and BNY Financial Corporation.(3)
10.5 Amendment dated December 15, 1999 between the Company and GMAC Commercial
Credit LLC to the June 25, 1997 Credit and Security Agreement between the
company and BNY Financial Corporation, including related Common Stock
Purchase Warrant for 335,362 shares dated February 28, 2000 issued to GMAC
Commercial Credit LLC.(4)
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 January 5, 2000 by and between
William D. King and Aviation Distributors, Inc.. (4)
10.8 Employment Agreement, dated as of July 16, 1996, by and between Jeffrey G.
Ward and Aviation Distributors, Inc. (1)
10.9 Amendment to Employment Agreement, dated November 17, 1997, by and between
Osamah S. Bakhit and Aviation Distributors, Inc.(3)
10.10 Lease, dated as of July 9, 1997, by and between Olen Properties Corp. and
Aviation Distributors, Inc. (3)
10.11 Amended and Restated Promissory Note from Osamah S. Bakhit to Aviation
Distributors, Inc., dated as of December 31, 1995. (1)
10.12 Form of Indemnity Agreement. (1)
10.13 Promissory Note between Aviation Distributors, Inc. and Osamah S. Bakhit,
dated December 31, 1996. (1)
10.16 Employment Agreement dated as of June 1, 1998 by and between Gary L.
Joslin and Aviation Distributors, Inc. (4)
27 FDS
(1) Filed with the Company's Registration Statement on Form SB-2
dated March 3, 1997.
(2) Filed with the Company's Current Report on Form 8-K dated
August 29, 1997.
(3) Filed with the Company's Registration Statement on Form 10-KSB
dated April 20, 1998.
(4) Filed with the Company's Form 10-KSB dated April 11, 2000
(b) Reports on Form 8-K.
<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 November 20, 2000 AVIATION DISTRIBUTORS, INC.
-------------------------------------------
By: /s/ William D. King
-----------------------------
William D. King
Chief Executive Officer
Chairman and Director
(Principal Executive Officer)
By: /s/ Gary L. Joslin
-----------------------------
Gary L. Joslin
Chief Financial Officer
and Director (Principal
Accounting Officer)
