<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB\A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
SEPTEMBER 30, 1998 0-24275
------------------ -------------------
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-2081515
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3516 CENTRE CIRCLE DRIVE
------------------------
FORT MILL, SOUTH CAROLINA 29715
------------------------- ----------
(Address of principal executive offices) (Zip code)
(803) 548-2160
--------------------------------------------------
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 X No
----- -----
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 October 31, 1998
6,440,104
<PAGE> 2
Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10 - Q/A amends the Company's Management's Discussion and
Analysis of Financial Condition and Results of Operations to include discussion
of the Year 2000 Compliance issue.
F-2
<PAGE> 3
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,103,749 $ 750,448
Receivables:
Trade and other, net of allowances
of $130,000 at September 30, 1998 and
December 31, 1997, respectively 3,018,510 1,958,798
Affiliate 23,074 13,589
Inventory 13,652,272 5,625,107
Prepaid expenses and other assets 92,669 30,725
----------- ----------
Total current assets 17,890,274 8,378,667
Property and equipment, net 661,405 335,795
Assets held for lease, net 480,000 --
Investments 410,000 335,000
Other assets 148,698 --
Deferred tax asset 40,000 --
----------- ----------
TOTAL ASSETS $19,630,377 $9,049,462
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 500,000 $1,500,000
Current maturities of long-term debt -- 120,708
Customer deposits 31,000 --
Current maturities of notes payable
to related parties -- 1,501,846
Accounts payable and accrued expenses 1,383,828 1,057,700
Income taxes payable 501,054 --
Distributions payable for S-corporation
income taxes 70,580 --
----------- ----------
Total current liabilities 2,486,462 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; 6,350,000 and 4,100,000
shares issued, as adjusted at September 30, 1998
and December 31, 1997, respectively, 6,350 4,100
Additional paid-in capital 15,363,735 --
Retained earnings 1,773,830 4,865,108
----------- ----------
Total stockholders' equity 17,143,915 4,869,208
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,630,377 $9,049,462
=========== ==========
</TABLE>
F-3
<PAGE> 4
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------ -------------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 7,345,189 $ 3,823,739 $ 15,440,548 $ 9,703,772
Cost of sales 4,366,286 2,294,245 8,718,001 5,822,266
----------- ----------- ------------ -----------
GROSS PROFIT 2,978,903 1,529,494 6,722,547 3,881,506
Operating expenses:
Selling and marketing 447,351 182,884 991,363 460,954
General and administrative 260,140 112,544 732,142 392,058
----------- ----------- ------------ -----------
Total operating expenses 707,491 295,428 1,723,505 853,012
----------- ----------- ------------ -----------
INCOME FROM OPERATIONS 2,271,412 1,234,066 4,999,042 3,028,494
Other income (expense):
Interest income 47,327 12,300 74,640 41,544
Interest expense (26,589) (32,485) (185,159) (76,830)
----------- ----------- ------------ -----------
Total other income (expense) 20,738 (20,185) (110,519) (35,286)
----------- ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 2,292,150 1,213,881 4,888,523 2,993,208
Income tax expense 916,860 -- 1,182,554 --
----------- ----------- ------------ -----------
NET INCOME $ 1,375,290 $ 1,213,881 $ 3,705,969 $ 2,993,208
=========== =========== ============ ===========
Pro forma data (Unaudited):
Net income as reported $ 2,292,150 $ 1,213,881 $ 4,888,523 $ 2,993,208
Pro forma income tax expense 916,860 485,552 1,955,409 1,197,283
----------- ----------- ------------ -----------
Pro forma net income $ 1,375,290 $ 728,329 $ 2,933,114 $ 1,795,925
=========== =========== ============ ===========
Pro forma basic earnings per share $ 0.22 $ 0.18 $ 0.58 $ 0.44
=========== =========== ============ ===========
Pro forma diluted earnings per share $ 0.22 $ 0.18 $ 0.58 $ 0.44
=========== =========== ============ ===========
Pro forma weighted average
shares outstanding:
Basic 6,311,957 4,100,000 5,087,179 4,100,000
=========== =========== ============ ===========
Diluted 6,311,957 4,100,000 5,087,179 4,100,000
=========== =========== ============ ===========
</TABLE>
F-4
<PAGE> 5
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 conjuction with
intitial 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
========= ====== =========== =========== ===========
Issuance of common stock in
conjuction with the exercise
of the over-allotment, net
of transaction cost 250,000 250 1,360,725 -- 1,360,975
Net income, one month ended
September 30, 1998
(Unaudited) 1,375,290 1,375,290
--------- ------ ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1998
(UNAUDITED) 6,350,000 $6,350 $15,363,735 $ 1,773,830 $17,143,915
========= ====== =========== =========== ===========
</TABLE>
F-5
<PAGE> 6
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,705,969 $ 2,993,208
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 105,714 40,918
Increase in trade and other
receivables (1,059,712) (637,807)
Increase in receivables
from affiliate (9,485) (4,919)
Increase in inventory (8,027,165) (1,288,728)
Increase in prepaid expenses and other
assets (210,642) (2,453)
Net increase in income taxes payable 501,054 --
Increase in customer deposits 31,000 --
Increase in accounts payable
and accrued expenses 396,709 44,737
------------ -----------
Net cash (used in) provided by operating activities (4,566,558) 1,144,956
INVESTING ACTIVITIES
Investments (75,000) --
Assets held for lease (496,279) --
Capital expenditures (415,045) (251,360)
------------ -----------
Net cash used in investing activities (986,324) (251,360)
FINANCING ACTIVITIES
Repayments of bank line of credit (1,000,000) --
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 11,630,098 --
Distributions to stockholders (3,101,361) --
------------ -----------
Net cash provided by (used in) financing activities 5,906,183 (112,287)
------------ -----------
Net increase in cash and cash equivalents 353,301 781,309
Cash and cash equivalents, beginning of year 750,448 1,773,294
------------ -----------
Cash and cash equivalents, end of period $ 1,103,749 $ 2,554,603
============ ===========
</TABLE>
F-6
<PAGE> 7
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 3 and 4). Operating
results for the three and nine month periods ended September 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. 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 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 October 30, 1998, there was $1 million
outstanding under the facility.
F-7
<PAGE> 8
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 Nine months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income as reported $1,375,290 $ 728,329 $2,933,114 $1,795,925
========== ========== ========== ==========
Pro forma weighted average
shares outstanding: 6,311,957 4,100,000 5,087,179 4,100,000
========== ========== ========== ==========
Pro forma basic earning per share $ 0.22 $ 0.18 $ 0.58 $ 0.44
========== ========== ========== ==========
</TABLE>
F-8
<PAGE> 9
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 Nine months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 1,375,290 $ 728,329 $ 2,933,114 $ 1,795,925
Net income as reported ============= ============= ============= =============
Pro forma weighted average
shares outstanding: 6,311,957 4,100,000 5,087,179 4,100,000
Pro forma common stock options
at average market price are
anti-dilutive and therefore are
not included -- -- -- --
Pro forma weighted average
dilutive shares outstanding 6,311,957 4,100,000 5,087,179 4,100,000
============= ============= ============= =============
Pro forma earning per share $ 0.22 $ 0.18 $ 0.58 $ 0.44
============= ============= ============= =============
</TABLE>
NOTE 4. EXERCISE OF OVER-ALLOTMENT OPTION
Only July 10, 1998, Cruttenden Roth Incorporated, the lead underwriter of the
initial public offering, exercised the over-allotment 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 $1.4 million. The Company
used $1 million of the proceeds to pay off a portion of the outstanding
indebtedness on the existing line of credit.
NOTE 5. BUSINESS COMBINATIONS
On September 8, 1998, the Company signed a letter of intent to acquire
substantially all the assets of Global Turbine Services and Turbine Inspections
Incorporated. The transaction closed on October 1, 1998.
F-9
<PAGE> 10
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5. BUSINESS COMBINATIONS (CONTINUED)
On September 15, 1998, the Company signed a letter of intent to acquire
substantially all the assets of American Jet Engine Services, Inc., a FAA
certified overhaul and repair agency, and the inventories of Global Air Spares
and Atlantic Airmotive Corporation, redistributors of engines and engine parts.
The Company plans to close the acquisitions within the next 60 days.
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 Act 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 are
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.
F-10
<PAGE> 11
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1998 and 1997
Net sales increased $3.5 million, or 92%, to $7.3 million in the three months
ended September 30, 1998 from $3.8 million in the three months ended September
30, 1997. Net sales of aircraft and engine component parts ("core parts")
accounted for 39% of the increase. International sales were approximately 8% of
net core part sales in the 1998 period, compared to approximately 25% of net
core part sales in the same period a year ago. Five complete engines were sold
during the 1998 period, compared with three engines sold during the comparative
period of 1997.
Cost of sales totaled $4.4 million for the three months ended September 30,
1998, a $2.1 million or 90% increase from $2.3 million for the three months
ended September 30, 1997. Gross profit increased $1.4 million, or 95%, to $3.0
million in the three months ended September 30, 1998 from $1.5 million in the
three months ended September 30, 1997. As a percentage of net sales, gross
profit increased to 41% in the three months ended September 30, 1998, from 40%
in the comparable 1997 period.
Selling and marketing expenses increased $264,000, or 145%, to $447,000 in the
three months ended September 30, 1998 from $183,000 in the three months ended
September 30, 1997. This increase primarily reflects increased compensation
expenses related to additional staffing, outside sales office expense and
commissions paid to sales agents, and sales related travel and advertising
costs. As a percentage of net sales, selling and marketing expenses increased to
6% in the three months ended September 30, 1998 from 5% in the comparable 1997
period.
General and administrative expenses increased $148,000, or 131%, to $260,000 in
the three months ended September 30, 1998 from $112,000 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 and increased professional fees and insurance
associated with operating as a public entity. As a percentage of net sales,
general and administrative expenses increased to 4% in the three months ended
September 30, 1998 from 3% in the three months ended September 30, 1997.
Net other income increased to $21,000 in the three months ended September 30,
1998, from net other expense of $20,185 in the three months ended September 30,
1997. The increase in net other income reflects interest income generated from
the proceeds of the initial public offering, partially offset with interest
expense charges associated with indebtedness outstanding under the Credit
Facility.
As a result of the above, net income before the provision for income taxes
increased $1.1 million, or 89%, to $2.3 million in the three months ended
September 30, 1998 from $1.2 million in the three months ended
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)
September 30, 1997. The Company terminated its election to be taxed as an S
Corporation for federal and state income tax purposes on May 28, 1998, in
conjunction with its initial public offering. The Company accrued for federal
and state income taxes at a combined 40% rate for the three months ended
September 30, 1998. To allow comparisons with C corporations, pro forma federal
and state income taxes have been assumed at a combined 40% rate for the three
months ended September 30, 1997. Based on these estimates and assumptions, the
Company would have incurred income taxes of $917,000 in the three months ended
September 30, 1998 and $486,000 in the three months ended September 30, 1997,
resulting in net income and pro forma net income of $1.4 million and $728,000 in
the three months ended September 30, 1998 and 1997, respectively.
Comparison of Nine months Ended September 30, 1998 and 1997
Net sales increased $5.7 million or 59%, to $15.4 million in the nine months
ended September 30, 1998 from $9.7 million in the nine months ended September
30, 1997. Net sales of aircraft and engine component parts ("core parts")
accounted for 41% of the increase. International sales were approximately 10% of
net core part sales in the 1998 period, compared to approximately 22% of net
core part sales in the same period a year ago. Eight complete engines were sold
in the nine month period ended September 30, 1998, compared with five complete
engines sold in the same period in 1997.
Cost of sales totaled $8.7 million for the nine months ended September 30, 1998,
a $2.9 million or 50% increase from the $5.8 million in the nine months ended
September 30, 1997. Gross profit increased $2.8 million or 73%, to $6.7 million
in the nine months ended September 30, 1998 from $3.9 million in the nine months
ended September 30, 1997. As a percentage of net sales, gross profit increased
to 44% in the nine months ended September 30, 1998, from 40% 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 $530,000, or 115%, to $991,000 in the
nine months ended September 30, 1998 from $461,000 in the nine months ended
September 30, 1997. This increase primarily reflects outside sales office
expenses and 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 were 6% in
the nine months ended September 30, 1998, compared to 5% of net sales in the
comparable period in 1997.
General and administrative expenses increased $340,000, or 87%, to $732,000 in
the nine months ended September 30, 1998 from $392,000 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, additional
staffing
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)
expense and increased professional fees and insurance associated with operating
as a public entity. As a percentage of net sales, general and administrative
expenses increased to 5% in the nine months ended September 30, 1998 from 4% in
the nine months ended September 30, 1997.
Net other expense increased to $111,000 in the nine months ended September 30,
1998, from net other expense of $35,000 in the nine months ended September 30,
1997. The increase in net other expense reflects interest charges associated
with higher levels of indebtedness outstanding under the Credit Facility,
partially offset by interest income generated from the proceeds of the initial
public offering.
As a result of the above, net income before the provision for income taxes
increased $1.9 million, or 63%, to $4.9 million in the nine months ended
September 30, 1998 from $3.0 million in the nine months ended September 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 28, 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
$2.0 million in the nine months ended September 30, 1998 and $1.2 million in the
nine months ended September 30, 1997, resulting in pro forma net income of $2.9
million and $1.8 million in the nine months ended September 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. As of September 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 then existing common
stockholders, $3 million was used to repay a portion of the indebtedness
outstanding under the Company's existing credit facility and approximately $5.8
million was used for additional inventory purchases, working capital and general
corporate purposes.
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)
On July 10, 1998, Cruttenden Roth Incorporated, the lead underwriter of the
initial public offering, exercised the over-allotment 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 $1.4 million. The Company used $1
million of the proceeds to pay off a portion of the outstanding balance on the
existing line of credit.
As of September 30, 1998, the Company's principal sources of liquidity included
cash and cash equivalents of $1.1 million and net accounts receivable of $3.0
million. The Company had working capital of $15.4 million and no long-term debt
at September 30, 1998.
For the nine months ended September 30, 1998, operating activities used cash of
$4.6 million, primarily for increases in inventory and accounts receivable. Net
cash used in investing activities during the nine months ended September 30,
1998 was $986,000, reflecting the net increase in investments, assets held for
lease and purchases of fixed assets. Net cash provided by financing activities
during the nine months ended September 30, 1998 was $5.9 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 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 October 30, 1998, there was $1 million
outstanding under the facility.
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000 COMPLIANCE
The Company is cognizant of the issues associated with the programming code in
existing computer systems and devices that utilize microchip processors as the
year 2000 approaches. The "Year 2000" problem is pervasive and complex, as
virtually every computer operation will be affected in some way by the rollover
of the two-digit year value to "00." The issue is whether computer systems will
properly recognize date-sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or fail.
In the ordinary course of business, the Company has replaced or is in the
process of replacing its non- compliant hardware and software with systems that
are Year 2000 ready. The Company has confirmed with the licensors of financial
information and operational applications that have been licensed from outside
vendors that those products are Year 2000 ready.
The information system used by the Company in tracking and processing inventory
currently is non- compliant. The Company has contracted for the development of a
proprietary system to replace the existing system. Testing and implementation of
the system is expected to be completed in the third quarter of 1999. Should
management assess that the new system will not be implemented prior to the end
of 1999, the Company can purchase and install upgrades of the existing system
that are or will be Year 2000 ready at a cost approximating $50,000.
Year 2000 issues may also affect the computer systems of the customers, vendors
and financial institutions with which the Company does business. The Company has
made inquiry of its significant customers, vendors and financial institutions
and had been advised that these customers expect to be Year 2000 ready in
sufficient time to allow for testing and system implementation before December
31, 1999.
The Company believes is will be fully Year 2000 ready by September 30, 1999. The
Company believes that amounts currently budgeted for hardware and software
upgrades will be sufficient to address expenses associated with any Year 2000
issues. The Company expects to expend approximately $300,000 during 1999 in
connection with information systems acquisition and development in addition to
approximately $230,000 expended during 1998. As many of these expenditures are
for information and operational systems enhancements, the Company expects a
significant portion of these expenditures to be capitalized and amortized. The
Company does not anticipate that any other material expenditures will be
necessary to achieve Year 2000 compliance. Failure of the Company to achieve
full Year 2000 compliance prior to December 31, 1999 could have a material
adverse impact on the Company's results of operations.
F-15
<PAGE> 16
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) Not applicable
(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
approximately 80% of the over-allotment of 250,000 shares 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
$655,000, for total expenses of $1,870,000. 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. From the effective date of the Registration
Statement through September 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 $5.8 million was used
for additional inventory purchases. The aforementioned distributions of
$2.8 million 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 securites. The Company will also distribute approximately
$150,000 for additional 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.
F-16
<PAGE> 17
AMERICAN AIRCARRIERS SUPPORT, INCORPORATED
PART II - OTHER INFORMATION
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 10.4 - NationsBank Credit Facility Agreement
Exhibit 11 - Computation of Net Income Per Common Share
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Report on Form 8-K describing the acquisition of Global
Turbine Services, Inc. And Turbine Inspections,
Incorporated was filed with the Securities and
Exchange Commission on October 14, 1998.
*Included with form 10-QSB for the period ended September 30, 1998 previously
filed.
F-17
<PAGE> 18
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: January 26, 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>
<CAPTION>
Three months Three months Nine months Nine months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Pro forma data: *
Net income as reported $2,292,150 $1,213,881 $4,888,523 $2,993,208
Pro forma income tax expense 916,860 485,552 1,955,409 1,197,283
---------- ---------- ---------- ----------
Pro forma net income $1,375,290 $ 728,329 $2,933,114 $1,795,925
========== ========== ========== ==========
Pro forma basic earnings per share $ 0.22 $ 0.18 $ 0.58 $ 0.44
========== ========== ========== ==========
Pro forma diluted earnings per share $ 0.22 $ 0.18 $ 0.58 $ 0.44
========== ========== ========== ==========
Pro forma weighted average shares outstanding:
Basic 6,311,957 4,100,000 5,087,179 4,100,000
========== ========== ========== ==========
Diluted 6,311,957 4,100,000 5,087,179 4,100,000
========== ========== ========== ==========
</TABLE>
* Reference note 2 for additional calculations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN AIRCARRIERS SUPPORT, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,103,749
<SECURITIES> 0
<RECEIVABLES> 3,148,510
<ALLOWANCES> 130,000
<INVENTORY> 13,652,272
<CURRENT-ASSETS> 17,890,274
<PP&E> 661,405
<DEPRECIATION> 173,037
<TOTAL-ASSETS> 19,630,377
<CURRENT-LIABILITIES> 2,482,437
<BONDS> 0
0
0
<COMMON> 6,350
<OTHER-SE> 17,143,915
<TOTAL-LIABILITY-AND-EQUITY> 19,630,377
<SALES> 15,440,548
<TOTAL-REVENUES> 15,440,548
<CGS> 8,718,001
<TOTAL-COSTS> 1,723,505
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (110,519)
<INCOME-PRETAX> 4,888,523
<INCOME-TAX> 1,955,409
<INCOME-CONTINUING> 2,933,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,933,114
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
