<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
- --------------------------------------------------------------------------------
June 30, 1998 0-24275
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 52-2081515
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3516 Centre Circle Drive
Fort Mill, South Carolina 29715
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(Address of principal executive offices) (Zip code)
(803) 548-2160
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Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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]
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Shares Outstanding at July 31, 1998
6,350,000
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<PAGE> 2
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,359,640 $ 750,448
Receivables:
Trade and other, net of allowances
of $130,000 at June 30, 1998 and
December 31, 1997, respectively 1,519,219 1,958,798
Affiliate 12,986 13,589
Inventory 11,472,361 5,625,107
Prepaid expenses and other assets 96,011 30,725
----------- ----------
Total current assets 18,460,217 8,378,667
Property and equipment, net 463,556 335,795
Investments 410,000 335,000
Deferred tax asset 40,000 --
----------- ----------
Total Assets $19,373,773 $9,049,462
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Bank line of credit $ 2,950,000 $1,500,000
Current maturities of long-term debt -- 120,708
Customer deposits 83,000 --
Current maturities of notes payable
to related parties -- 1,501,846
Accounts payable and accrued expenses 1,517,429 1,057,700
Income taxes payable 265,694 --
Distributions payable for S-corporation
income taxes 150,000 --
----------- ----------
Total current liabilities 4,966,123 4,180,254
Long-term debt, less current maturities -- --
Notes payable to related parties,
less current maturities -- --
----------- ----------
Total liabilities 4,966,123 4,180,254
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
2,000,000 shares authorized; no shares
issued or outstanding -- --
Common stock, $.001 par value; 20,000,000
shares authorized; 6,100,000 and 4,100,000
shares issued, as adjusted at June 30, 1998
and December 31, 1997, respectively, 6,100 4,100
Additional paid-in capital 14,003,010 --
Retained earnings 398,540 4,865,108
----------- ----------
Total stockholders' equity 14,407,650 4,869,208
----------- ----------
Total liabilities and stockholders' equity $19,373,773 $9,049,462
=========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 3
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 4,418,019 $ 3,543,495 $ 8,095,360 $ 5,880,034
Cost of sales 2,241,805 2,126,120 4,351,717 3,528,022
----------- ----------- ----------- -----------
Gross profit 2,176,214 1,417,375 3,743,643 2,352,012
Operating expenses:
Selling and marketing 313,083 153,066 544,012 278,070
General and administrative 309,324 145,442 472,001 279,514
----------- ----------- ----------- -----------
Total operating expenses 622,407 298,508 1,016,013 557,584
----------- ----------- ----------- -----------
Income from operations 1,553,807 1,118,867 2,727,630 1,794,428
Other income (expense):
Interest income 19,591 5,935 27,313 29,246
Interest expense (91,785) (24,487) (158,570) (44,346)
----------- ----------- ----------- -----------
Total other income (expense) (72,194) (18,552) (131,257) (15,100)
----------- ----------- ----------- -----------
Income before income taxes 1,481,613 1,100,315 2,596,373 1,779,328
Income tax expense 265,694 -- 265,694 --
----------- ----------- ----------- -----------
Net income $ 1,215,919 $ 1,100,315 $ 2,330,679 $ 1,779,328
=========== =========== =========== ===========
Pro forma data (Unaudited):
Net income as reported $ 1,481,613 $ 1,100,315 $ 2,596,373 $ 1,779,328
Pro forma income tax expense 592,645 440,126 1,038,549 711,731
----------- ----------- ----------- -----------
Pro forma net income $ 888,968 $ 660,189 $ 1,557,824 $ 1,067,597
=========== =========== =========== ===========
Pro forma basic earnings per share $ 0.18 $ 0.16 $ 0.35 $ 0.26
=========== =========== =========== ===========
Pro forma diluted earnings per share $ 0.18 $ 0.16 $ 0.35 $ 0.26
=========== =========== =========== ===========
Pro forma weighted average
shares outstanding:
Basic 4,825,275 4,100,000 4,464,641 4,100,000
=========== =========== =========== ===========
Diluted 4,827,623 4,100,000 4,466,989 4,100,000
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 4
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
---------------------------- Additional Retained Stockholders'
Shares Dollars Paid-in Earnings Equity
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1997 4,100,000 4,100 -- 2,791,753 2,795,853
Net income year ended
December 31, 1997 4,073,355 4,073,355
Stockholder distributions (2,000,000) (2,000,000)
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 4,100,000 4,100 -- 4,865,108 4,869,208
Net income, three months ended
March 31, 1998 (Unaudited) 1,114,761 1,114,761
Net income, two months ended
May 28, 1998 (Unaudited) 817,379 817,379
Existing stockholder distributions (3,101,361) (3,101,361)
Recapitalization from S-corp to
C-corp and establishment of
deferred tax asset 3,735,887 (3,695,887) 40,000
Issuance of common stock and
warrants in conjunction with
initial public offering, net
of transaction cost 2,000,000 2,000 10,267,123 10,269,123
Net income, one month ended
June 30, 1998 (Unaudited) 398,540 398,540
---------- ----------- ----------- ----------- -----------
Balance, June 30, 1998
(Unaudited) 6,100,000 $ 6,100 $14,003,010 $ 398,540 $14,407,650
========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 5
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Operating activities
Net income $ 2,330,679 $ 1,779,328
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 47,800 27,279
Decrease (increase) in trade and other
receivables 439,579 (325,241)
Decrease (increase) in receivables
from affiliate 603 (5,765)
Increase in inventory (5,847,254) (1,269,250)
Increase in prepaid expenses and other
assets (65,286) (9,089)
Net increase in income taxes payable 265,694 --
Increase in customer deposits 83,000 --
Increase (decrease) in accounts payable
and accrued expenses 609,730 (154,662)
------------ -----------
Net cash (used in) provided by operating activities (2,135,455) 42,600
Investing activities
Investments (75,000) --
Capital expenditures (175,561) (63,245)
------------ -----------
Net cash used in investing activities (250,561) (63,245)
Financing activities
Proceeds from bank line of credit 1,450,000 --
Principal repayments on debt (120,708) (112,287)
Principal repayments on notes payable
to related parties (1,501,846) --
Net proceeds from initial public offering 10,269,123 --
Distributions to stockholders (3,101,361) --
------------ -----------
Net cash provided by (used in) financing activities 6,995,208 (112,287)
------------ -----------
Net increase (decrease) in cash and cash equivalents 4,609,192 (132,932)
Cash and cash equivalents, beginning of year 750,448 1,773,294
------------ -----------
Cash and cash equivalents, end of period $ 5,359,640 $ 1,640,362
============ ===========
</TABLE>
F-5
<PAGE> 6
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
Interim Financial Statements
The accompanying financial statements include the accounts of American
Aircarriers Support, Incorporated ("AASI") a Delaware corporation and the
accounts of American Aircarriers Support, Inc. ("AAS") a South Carolina
corporation (collectively the "Company"). These statements have been prepared by
American Aircarriers Support, Incorporated, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and reflect all
adjustments which, in management's opinion, are necessary for fair presentation.
All such adjustments are of a normal, recurring nature. The balance sheet as of
December 31, 1997 has been derived from the audited financial statements of the
Company as of that date. Certain pro forma information has been provided in
connection the initial public offering of securities (Notes 2 and 3). Operating
results for the three and six month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Registration Statement on Form SB-2 (File No. 333-48497).
Note 2. Initial Public Offering
On May 28, 1998 the Company, through an initial public offering, sold 2,000,000
shares of common stock. Immediately prior to the registration statement becoming
effective, the existing shareholders of the Company (AAS), exchanged all
outstanding shares of the existing Company, for 4.1 million shares of common
stock of AASI, and the Company merged with and into AASI (together, the
"Reincorporation"). The proceeds before the deduction of expenses totaled $12.0
million. The transaction closed on June 2, 1998. As part of the transaction, the
Company granted warrants to purchase 200,000 shares to the underwriters at a
price of $7.98 per share. The warrants have a termination date of June 2, 2003.
As of June 30, 1998, the Company had used approximately $2.8 million to repay
stockholder advances and distributions, in connection with the termination of
the Company's S-Corporation status, to the existing common stockholders. An
additional $3 million was used to repay a portion of the indebtedness
outstanding under a $10.0 million credit facility maturing in September 1998
(the "Credit Facility") with NationsBank, N.A. ("NationsBank"). The Company will
also distribute approximately $150,000 for tax payments in connection with the
termination of the Company's S-Corporation status. The balance of the proceeds
will be used to purchase additional inventory and support the Company's
continued growth and expansion.
F-6
<PAGE> 7
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 3. Pro Forma Financial Information
Pro forma statement of operations information
In conjunction with the initial public offering on May 28, 1998, the Company
terminated its status as an S corporation. The pro forma data in the statement
of operations provides information as if the Company had been treated as a C
Corporation for income tax purposes for all periods presented. Pro forma net
income includes a provision for income taxes as if the Company were subject to
federal and state income taxes as described above at an effective tax rate of
approximately 40%.
Pro forma earnings per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which is required to be adopted for the fiscal years ending after
December 15, 1997. SFAS No. 128 supercedes APB Opinion No. 15, "Earnings Per
Share" and specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. Essentially, this Statement replaces the primary EPS and
fully diluted EPS presentations under APB Opinion No. 15 with a basic EPS and a
diluted EPS.
The provisions of SFAS No. 128 have been adopted in determining pro forma basic
and diluted EPS for all periods presented. The weighted average number of shares
outstanding have been retroactively restated to give effect to the shares issued
in the Reincorporation (Note 2).
Computation of pro forma basic earnings per common share:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income as reported $ 1,481,613 $ 1,100,315 $2,596,373 $1,779,328
=========== =========== ========== ==========
Pro forma weighted average
shares outstanding: 4,825,275 4,100,000 4,464,641 4,100,000
=========== =========== ========== ==========
Pro forma basic earning per share $ 0.18 $ 0.16 $ 0.35 $ 0.26
=========== =========== ========== ==========
</TABLE>
F-7
<PAGE> 8
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 3. Pro Forma Financial Information (continued)
Pro forma earnings per share (continued)
Computation of pro forma diluted earnings per common share:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income as reported $1,481,613 $1,100,315 $2,596,373 $1,779,328
========== ========== ========== ==========
Pro forma weighted average
shares outstanding: 4,825,275 4,100,000 4,464,641 4,100,000
Pro forma dilutive common stock
options at average market price 2,348 -- 2,348 --
Pro forma weighted average
dilutive shares outstanding 4,827,623 4,100,000 4,466,989 4,100,000
========== ========== ========== ==========
Pro forma earning per share $ 0.18 $ 0.16 $ 0.35 $ 0.26
========== ========== ========== ==========
</TABLE>
Note 4. Investments
The Company made investments of $50,000 in 1996 and $50,000 in 1997 in nonpublic
companies, which were accounted for at cost. The investment made in 1997 was in
a company in which a director is a principal. In conjunction with the initial
public offering, these two investments were included as part of the
distributions, in connection with the termination of the Company's S-Corporation
status, to the then existing common stockholders. The investments were
distributed at estimated fair value, which was equivalent to carrying value, in
lieu of an equal portion of cash.
Note 5. Subsequent Events
Line of credit
The Company's Credit Facility was initially established with NationsBank in June
1995. On July 13, 1998, the Company entered into an agreement with NationsBank
for an expanded $30 million credit facility. Under the terms of the agreement,
$10 million replaced the Company's existing working capital line which was due
to mature September 30, 1998. The line of credit bears an annual interest rate
equal
F-8
<PAGE> 9
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Continued)
Note 4. Subsequent Events (continued)
Line of credit (continued)
to the three-month London Interbank Offered Rate ("LIBOR") plus an amount
between 1.25% and 2.50%. The remaining $20 million of the facility will be used
to fund the Company's acquisition line, at the same annual interest rate, plus
an unused commitment fee of between 10.0 and 20.0 basis points. The $30 million
credit facility matures June 30, 2000 and is collateralized by the Company's
accounts receivable and inventory. On July 31, 1998, there was no outstanding
balance under the facility.
Exercise of over-allotment option
Only July 10, 1998, Cruttenden Roth Incorporated, the lead underwriter of the
initial public offering, exercised the option to purchase 250,000 shares of
common stock at $6.00 per share. The additional shares represent more than 80
percent of the 300,000 share over-allotment option granted under the terms and
conditions of the Underwriting Agreement. The transaction closed on July 14,
1998 and the Company received net proceeds of $1,365,000. The Company used
$1 million of the proceeds to pay off a portion of the outstanding indebtedness
on the existing line of credit.
F-9
<PAGE> 10
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion may contain "forward-looking" statements, as that term
is defined by (i) the Private Securities Litigation Reform Axt of 1995 (the
"Reform Act") and (ii) in releases made by the Securities and Exchange
Commission from time to time. Such statements should be read in conjunction with
the cautionary factors described in the "Risk Factors" section included in the
Company's Registration Statement on Form SB-2 (File No. 333-48497) and
incorporated into this discussion by this reference and the consolidated
financial statements and related notes. The Company's future operating results
may be affected by various trends and factors beyond the Company's control.
Accordingly, past results and trends should not be used by investors to
anticipate future results or trends.
Overview
The Company is a leading international supplier of aircraft components and spare
parts primarily to maintenance and repair facilities, major commercial passenger
and cargo airlines and other redistributors located throughout the world. The
Company's net sales are principally derived from the redistribution of engines,
engine components and spare parts primarily for Boeing, McDonnell-Douglas and
certain Airbus aircraft. The Company acquires engines, engine and airframe
components and spare parts for redistribution through purchases of surplus
aircraft for disassembly, bulk purchases of aircraft components and spare parts
from aircraft operators, purchases of individual components and spare parts from
other redistributors, consignments from aircraft operators and others, and
exchanges of inventoried aircraft components and spare parts for components and
spare parts that require service or overhaul.
Results of Operations
Comparison of Three Months Ended June 30, 1998 and 1997
Net sales increased $874,000, or 24.7%, to $4.4 million in the three months
ended June 30, 1998 from $3.5 million in the three months ended June 30, 1997.
Net sales of aircraft and engine component parts ("core parts") accounted for
20.5% of the increase. International sales were approximately 10% of net core
part sales in the 1998 period, compared to approximately 8% of net core part
sales in the same period a year ago. Two complete engines were sold in each of
the three month periods ended June 30, 1998 and 1997.
Cost of sales totaled $2.2 million for the three months ended June 30, 1998, a
$116,000 or 5.4% increase from $2.1 million for the three months ended June 30,
1997. Gross profit increased $759,000, or 53.5%, to $2.2 million in the three
months ended June 30, 1998 from $1.4 million in the three months ended June 30,
1997. As a percentage of net sales, gross profit increased to 49.3% in the three
months ended June 30, 1998, from 40.0% in the comparable 1997 period. The
increase was due primarily to higher sales of parts that were acquired in prior
bulk purchases and whole aircraft purchases that have an associated lower cost
of sales.
F-10
<PAGE> 11
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (continued)
Selling and marketing expenses increased $160,000, or 104.5%, to $313,000 in the
three months ended June 30, 1998 from $153,000 in the three months ended June
30, 1997. This increase primarily reflects commissions paid to sales agents,
higher compensation expense related to additional sales personnel and sales
related travel and advertising costs. As a percentage of net sales, selling and
marketing expenses increased to 7.1% in the three months ended June 30, 1998
from 4.3% in the comparable 1997 period.
General and administrative expenses increased $164,000, or 112.7%, to $309,000
in the three months ended June 30, 1998 from $145,000 in the comparable 1997
period. Expenses increased during the comparative periods primarily due to the
increase in occupancy charges, such as rent and depreciation, associated with
the addition of corporate offices and warehouse space in August 1997 and
additional staffing expense, including the hiring of a Chief Financial Officer.
Also included in 1998 expenses are one time charges associated with the change
from a $10 million credit facility to a $30 million credit facility, increased
professional fees and insurances associated with operating as a public entity,
and increased accruals for the Company's discretionary profitability bonuses and
contribution to the employee profit sharing plan. As a percentage of net sales,
general and administrative expenses increased to 7.0% in the three months ended
June 30, 1998 from 4.1% in the three months ended June 30, 1997.
Net other expense increased to $72,000 in the three months ended June 30, 1998,
from net other expense of $19,000 in the three months ended June 30, 1997. The
increase in net other expense reflects interest charges associated with higher
levels of indebtedness outstanding under the Credit Facility.
As a result of the above, net income increased $381,000, or 34.6%, to $1.5
million in the three months ended June 30, 1998 from $1.1 million in the three
months ended June 30, 1997. Net income represents the difference between gross
profit and other expenses. The Company terminated its election to be taxed as an
S Corporation for federal and state income tax purposes on May 8, 1998, in
conjunction with its initial public offering. To allow comparisons with C
corporations, pro forma federal and state income taxes have been assumed at a
combined 40% rate. Based on this assumption, the Company would have incurred pro
forma income taxes of $593,000 in the three months ended June 30, 1998 and
$440,000 in the three months ended June 30, 1998, resulting in pro forma net
income of $889,000 and $660,000 in the three months ended June 30, 1998 and
1997, respectively.
Comparison of Six months Ended June 30, 1998 and 1997
Net sales increased $2.2 million or 37.7%, to $8.1 million in the six months
ended June 30, 1998 from $5.9 million in the six months ended June 30, 1997. Net
sales of aircraft and engine component parts ("core parts") accounted for 41.6%
of the increase. International sales of core parts increased $141,000 or
approximately 18%. However as a percentage of net sales, international sales
were approximately 11% of net core part sales in the 1998 period, compared to
approximately 13% of net core part sales in
F-11
<PAGE> 12
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (continued)
the same period a year ago. Three complete engines were sold in each of the six
month periods ended June 30, 1998 and 1997, although revenues from engines sales
increased 27.8% in 1998 when compared to the same period in 1997. The increase
in revenues was due to the type and the condition of the engines sold.
Cost of sales totaled $4.4 million for the six months ended June 30, 1998, an
$824,000 or 23.4% increase from the $3.5 million in the six months ended June
30, 1997. Gross profit increased $1.4 million or 59.2%, to $3.7 million in the
six months ended June 30, 1998 from $2.3 million in the six months ended June
30, 1997. As a percentage of net sales, gross profit increased to 46.2% in the
six months ended June 30, 1998, from 40.0% in the comparable 1997 period. The
increase was due primarily to higher sales of parts that were acquired in prior
bulk purchases and whole aircraft purchases that have an associated lower cost
of sales.
Selling and marketing expenses increased $266,000, or 95.6%, to $544,000 in the
six months ended June 30, 1998 from $278,000 in the six months ended June 30,
1997. This increase primarily reflects commissions paid to sales agents, higher
compensation expense related to additional sales personnel and sales related
travel and advertising costs. As a percentage of net sales, selling and
marketing expenses increased to 6.7% in the six months ended June 30, 1998 from
4.7% in the comparable 1997 period.
General and administrative expenses increased $192,000, or 68.9%, to $472,000 in
the six months ended June 30, 1998 from $280,000 in the comparable 1997 period.
Expenses increased during the comparative periods primarily due to the increase
in occupancy charges, such as rent and depreciation, associated with the
addition of corporate offices and warehouse space in August 1997 and additional
staffing expense, including the hiring of a Chief Financial Officer. Also
included in 1998 expenses are one time charges associated with the change from a
$10 million credit facility to a $30 million credit facility, increased
professional fees and insurances associated with operating as a public entity,
and increased accruals for the Company's discretionary profitability bonuses and
contribution to the employee profit sharing plan. As a percentage of net sales,
general and administrative expenses increased to 5.8% in the six months ended
June 30, 1998 from 4.8% in the six months ended June 30, 1997.
Net other expense increased to $116,000 in the six months ended June 30, 1998,
from net other expense of $44,000 in the six months ended June 30, 1997. The
increase in net other expense reflects interest charges associated with higher
levels of indebtedness outstanding under the Credit Facility.
As a result of the above, net income increased $817,000, or 45.9%, to $2.6
million in the six months ended June 30, 1998 from $1.8 million in the six
months ended June 30, 1997. Net income represents the difference between gross
profit and other expenses. The Company terminated its election to be taxed as an
S Corporation for federal and state income tax purposes on May 8, 1998, in
conjunction with its initial public offering. To allow comparisons with C
corporations, pro forma federal and state income taxes
F-12
<PAGE> 13
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (continued)
have been assumed at a combined 40% rate. Based on this assumption, the Company
would have incurred pro forma income taxes of $1 million in the six months ended
June 30, 1998 and $712,000 in the six months ended June 30, 1997, resulting in
pro forma net income of $2.3 million and $1.8 million in the six months ended
June 30, 1998 and 1997, respectively.
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity have been comprised of
cash flow from operating activities, borrowings under the Credit Facility and
advances from the stockholders of the Company prior to the initial public
offering. The Company requires capital for the procurement of inventory, to fund
the servicing and overhaul of complete engines, engine and airframe components
and spare parts performed by third-party repair facilities, for normal operating
expenses and for general working capital purposes.
On May 28, 1998 the Company, through an initial public offering, sold 2,000,000
shares of common stock. The proceeds before the deduction of expenses totaled
$12.0 million. The Company used approximately $2.8 million to repay stockholder
advances and distributions, in connection with the termination of the Company's
S-Corporation status, to the then existing common stockholders. An additional $3
million was used to repay a portion of the indebtedness outstanding under the
Company's existing credit facility. After expenses, the Company expects to have
approximately $5.0 million available for the purchase of additional inventory,
working capital and general corporate purposes.
As of June 30, 1998, the Company's principal sources of liquidity included cash
and cash equivalents of $5.4 million and net accounts receivable of $1.5
million. The Company had working capital of $13.5 million and no long-term debt
at June 30, 1998.
For the six months ended June 30, 1998, operating activities used cash of $2.3
million, primarily for increases in inventory, accounts payable and accrued
expenses, partially offset by net income, and decreases in trade and other
receivables. Net cash used in investing activities during the three months ended
June 30, 1998 was $251,000, reflecting the net increase in investments and
purchases of fixed assets. Net cash provided by financing activities during the
six months ended June 30, 1998 was $7.1 million, consisting of borrowings under
the Credit Facility, proceeds from the initial public offering, net of offering
transaction costs, partially offset by debt repayments, and distributions, in
connection with the termination of the Company's S-Corporation status.
The Company's Credit Facility was initially established with NationsBank in June
1995. On July 13, 1998, the Company entered into an agreement with NationsBank
for an expanded $30 million credit facility. Under the terms of the agreement,
$10 million replaced the Company's existing working capital line which was due
to mature September 30, 1998. The line of credit bears an annual interest rate
equal
F-13
<PAGE> 14
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources (continued)
to the three-month London Interbank Offered Rate ("LIBOR") plus an amount
between 1.25% and 2.50%. The remaining $20 million of the facility will be used
to fund the Company's acquisition line, at the same annual interest rate, plus
an unused commitment fee of between 10.0 and 20.0 basis points. The $30 million
credit facility matures June 30, 2000 and is collateralized by the Company's
accounts receivable and inventory. On July 31, 1998, there was no outstanding
balance under the facility.
On July 10, 1998, Cruttenden Roth Incorporated, the lead underwriter of the
initial public offering, exercised the option to purchase 250,000 shares of
common stock at $6.00 per share. The transaction closed on July 14, 1998 and the
Company received net proceeds of $1,365,000. The Company used $1 million of the
proceeds to pay off a portion of the outstanding indebtedness on the existing
line of credit.
The Company believes that existing cash balances, accounts receivables and the
Credit Facility will be sufficient to meet the Company's capital requirements
for at least the next 18 months. Thereafter, if the Company's capital
requirements increase, the Company could be required to secure additional
sources of capital. There can be no assurance the Company will be capable of
securing additional capital or that the terms upon which such capital will be
available to the Company will be acceptable.
F-14
<PAGE> 15
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Effective February 10, 1998, an Agreement and Plan of Exchange
("Agreement") was adopted by and among the Company, American
Aircarriers Support, Incorporated, a Delaware corporation ("AASI"),
Karl F. Brown and Herman O. Brown, Jr. The Agreement provided that,
exactly one day prior to the effective date of a registration statement
related to the initial public offering of stock, existing stockholders
of the Company exchanged all outstanding shares of the Company for 4.1
million shares of common stock of AASI, and the Company merged with and
into AASI (together, the "Reincorporation"). Contemporaneously with the
merger, the Company terminated its S Corporation income tax election.
AASI was formed for the purpose of merging with the Company and
otherwise had no operations. The authorized capital stock of AASI
consists of 20,000,000 shares of common stock and 2,000,000 shares of
preferred stock. The authorized capital stock of the Company consists
of 100,000 shares of common stock, $1 par value. At December 31, 1996
and 1997 and March 31, 1998, 100 shares were outstanding. The balance
sheets, statements of stockholders' equity, and pro forma earnings per
share calculations give effect to the stock issued in connection with
the Reincorporation.
(d) The Company registered 2,300,000 shares of common stock for sale to the
public at a price of $6.00 per share on a Form SB-2 Registration
Statement (Reg No. 333-48497) (the "Registration Statement") declared
effective on May 28, 1998. The Company also registered 200,000 shares
of common stock underlying warrants issued to Cruttenden Roth
Incorporated, the lead underwriter of the public offering, exercisable
at $7.98 per share.
The offering of 2,000,000 shares closed on June 2, 1998 and the
over-allotment of 250,000 closed on July 14, 1998. The Company received
aggregated gross proceeds of $13,500,000. Expenses incurred by the
Company in connection with the issuance and distribution of the
securities registered for underwriting discounts and commissions were
$945,000, and other expenses paid to or for underwriters were $270,000
and other expenses (consisting of registration fees, filing fees, legal
fees, printing and engraving, consulting fees, accounting fees and
transfer agent fees and costs, appraisal fees, insurance costs,
presentation and travel expense) were $518,000, for total expenses of
$1,733,000. Of the expenses paid, legal fees of $182,000 were paid to a
law firm in which a director is a partner. No other expenditures were
direct or indirect payments to directors, officers or their associates
or to persons owning ten percent or more of any class of equity
securities of the Company or to affiliates of the Company.
F-15
<PAGE> 16
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds (continued)
From the effective date of the Registration Statement through June 30,
1998 the net offering proceeds have been used by the Company as
follows: $2.8 million to repay stockholder advances and distributions
in connection with the termination of the Company's S-Corporation
status. An additional $3 million was used to repay a portion of
outstanding indebtedness, and $5 million was placed in temporary
investments in NationsBank Treasury Reserves until additional inventory
purchases transpire. The aforementioned distributions of $2.8 were paid
to one director whose ownership exceeds more than ten percent of the
outstanding securities and to another shareholder whose ownership also
exceeds more than ten percent of the outstanding securities. In
addition, the Company will also distribute approximately $150,000 for
tax payments in connection with the termination of the Company's
S-Corporation status. No other expenditures were direct or indirect
payments to directors, officers or their associates or to persons
owning ten percent or more of any class of equity securities of the
Company or to affiliates of the Company. Furthermore, the use of
proceeds described above does not represent a material change in the
use of proceeds described in the prospectus contained in the
Registration Statement.
Item 3 - Defaults Upon Senior Securities
No defaults occurred during the period covered in this report.
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other information
None
Item 6 -exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Net Income Per Common
Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
F-16
<PAGE> 17
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
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.
American Aircarriers Support, Incorporated
(Registrant)
Date: August 5, 1998
By: /s/ Elaine T. Rudisill
-----------------------------
Elaine T. Rudisill
(Principal Financial
and Accounting Officer)
<PAGE> 1
EXHIBIT 11
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Pro forma data: *
Net income as reported $1,481,613 $1,100,315 $2,596,373 $1,779,328
Pro forma income tax expense 592,645 440,126 1,038,549 711,731
---------- ---------- ---------- ----------
Pro forma net income $ 888,968 $ 660,189 $1,557,824 $1,067,597
========== ========== ========== ==========
Pro forma basic earnings per share $ 0.18 $ 0.16 $ 0.35 $ 0.26
========== ========== ========== ==========
Pro forma diluted earnings per share $ 0.18 $ 0.16 $ 0.35 $ 0.26
========== ========== ========== ==========
Pro forma weighted average shares outstanding:
Basic 4,825,275 4,100,000 4,464,641 4,100,000
========== ========== ========== ==========
Diluted 4,827,623 4,100,000 4,466,989 4,100,000
========== ========== ========== ==========
</TABLE>
* Reference note 2 for additional calculations.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,359,640
<SECURITIES> 0
<RECEIVABLES> 1,619,219
<ALLOWANCES> 100,000
<INVENTORY> 11,472,361
<CURRENT-ASSETS> 18,460,217
<PP&E> 637,720
<DEPRECIATION> 174,164
<TOTAL-ASSETS> 19,373,773
<CURRENT-LIABILITIES> 4,966,123
<BONDS> 0
0
0
<COMMON> 6,100
<OTHER-SE> 14,401,550
<TOTAL-LIABILITY-AND-EQUITY> 19,373,773
<SALES> 8,095,360
<TOTAL-REVENUES> 8,095,360
<CGS> 4,351,717
<TOTAL-COSTS> 1,016,013
<OTHER-EXPENSES> 131,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158,570
<INCOME-PRETAX> 2,596,373
<INCOME-TAX> 1,038,549
<INCOME-CONTINUING> 1,557,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,557,824
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
