<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended November 30, 1994 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to __________________.
Commission file number 0-18352
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
Delaware 59-2223025
(State or other jurisdiction of No.) (IRS Employer Identification
incorporation or organization)
8095 NW 64th Street, Miami, FL 33166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 593-2658
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 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
------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of the Company's common stock outstanding as of
February 22, 1995 was 4,041,779.
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FORM 10-Q/A
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
(Pursuant to Rule 12b-15, the complete text of each item
being amended is set forth in this Amendment.
The text of items not being amended has been omitted.)
INDEX
Page No.
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 30, 1994 and May 31, 1994 3
Condensed Consolidated Statements of Operations
Three Months and Six Months ended
November 30, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows
Six Months ended November 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 3. Defaults upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
2
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<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS November 30, 1994 May 31, 1994
(Unaudited) (Note)*
----------------- ------------
<S> <C> <C>
Current assets:
Cash $ 6,846 $ 95,790
Accounts receivable, net of allowance for doubtful
accounts of $911,000 and $940,000 at November 30, 1994
and May 31, 1994, respectively 4,644,769 3,817,023
Notes receivable 870,000 1,120,000
Income tax refund receivable 40,000 1,930,000
Inventories 4,588,931 8,719,774
Other current assets 58,102 162,055
---------- ----------
Total current assets 10,208,648 15,844,642
Property and equipment
Land 330,457 330,457
Aircraft held for lease 7,672,270 7,227,835
Building and leasehold improvements 789,340 789,340
Machinery and equipment 2,209,253 2,191,999
---------- ----------
11,001,320 10,539,631
Less accumulated depreciation 3,312,840 2,233,680
---------- ----------
7,688,480 8,305,951
--------- ---------
Other assets:
Deferred debt costs, net 1,017,496 1,224,401
Deposits and other assets 183,145 178,322
---------- ----------
$ 19,097,769 $ 25,553,316
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long term obligations $ 3,489,275 $ 3,531,228
Long-term obligations in technical default
classified as current 18,875,992 22,156,720
Bank overdrafts 144,554 410,570
Accounts payable and accrued expenses 7,136,193 8,057,838
---------- ----------
Total current liabilities 29,646,014 34,156,356
Long-term obligations, less current maturities 465,200 485,020
Commitments and contingencies - -
Stockholders' equity (deficit):
Common stock 4,042 4,042
Additional paid-in capital 2,654,332 2,654,332
Retained earnings (deficit) (13,671,819) (11,746,434)
------------ ------------
Total stockholders' equity (deficit) (11,013,445) (9,088,060)
------------ ------------
$ 19,097,769 $ 25,553,316
========== ==========
</TABLE>
*Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed financial
statements.
3
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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Ended November 30, November 30,
1994 1993 1994 1993
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales $7,213,618 $3,190,393 $14,867,268 $8,605,924
Lease revenue 687,023 324,967 1,415,500 473,014
Other revenue 57,480 25,765 238,166 35,952
--------- --------- --------- ---------
Total revenues 7,958,121 3,541,125 16,520,934 9,114,890
Cost of sales 6,222,803 2,217,619 12,865,963 5,465,296
Selling, general and
administrative expenses 1,160,615 1,076,292 2,317,084 2,779,585
Provision (recovery) for
doubtful accounts (97,507) (13,283) (97,507) (36,783)
Interest expense 591,665 725,247 1,238,618 1,316,631
Depreciation and amortization 572,574 414,507 1,135,292 764,848
Losses of service center subsidiary 528,266 444,019 986,869 512,237
-------- -------- --------- ---------
Loss before income taxes, equity
in loss of joint venture and
extraordinary item (1,020,295) (1,323,276) (1,925,385) 1,686,924
Income tax benefit -- (292,000) -- (422,000)
----------- ----------- ---------- ----------
Loss before equity in loss of
joint venture and
extraordinary item (1,020,295) (1,031,276) (1,925,385) (1,264,924)
Equity in loss of joint venture -- (65,505) -- (128,944)
----------- ----------- ---------- -----------
Loss before extraordinary item (1,020,295) (1,096,781) (1,925,385) (1,393,868)
Extraordinary loss on the
extinguishment of debt -- (232,334) -- (232,334)
----------- ----------- ---------- -----------
Net Loss $(1,020,295) $(1,329,115) $(1,925,385) $(1,626,202)
============ ============ ============ ============
Per share data:
Weighted average shares 4,041,779 4,106,394 4,041,779 4,074,683
=========== =========== =========== ===========
Loss per common share and
common equivalent shares
Loss before extraordinary
item $ (0.25) $ (0.27) $ (0.48) $ $(0.34)
Extraordinary item -- (0.05) -- (0.06)
------------ ------------ ------------ ------------
Net loss $ (0.25) $ (0.32) $ (0.48) $ (0.40)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1994 1993
-------------- --------------
<S>
Cash flows from operating activities: <C> <C>
Net loss $ (1,925,385) $ (1,626,202)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,298,023 794,848
Extraordinary loss on early extinguishment of debt - 232,334
Increase in deferred debt cost - (889,429)
Equity in loss of joint venture - 128,944
Decrease in notes receivable 250,000 330,000
Changes in assets and liabilities 4,104,566 1,726,002
------------- ------------
Total adjustments 5,652,589 2,322,699
Net cash provided by operating activities 3,727,204 696,497
Cash flows from investing activities:
Capital expenditures (473,647) (6,775,662)
Restricted cash - 348,538 _
------------- -------------
Net cash (used in) investing activities (473,647) (6,427,124)
Cash flows from financing activities:
Repayments of notes payable and debt obligations (3,342,501) (5,713,621)
Proceeds from long-term obligations - 10,000,000
Borrowings under notes and leases - 945,463
------------- -------------
Net cash provided by (used in) financing activities (3,342,501) 5,231,842
Net decrease in cash (88,944) (498,785)
Cash at beginning of period 95,790 510,942
------------- -------------
Cash at end of period $ 6,846 $ 12,157
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
5
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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly International
Airline Support Group, Inc.'s condensed consolidated balance sheets as of
November 30, 1994, the condensed consolidated statements of operations for the
three and six month periods ended November 30, 1994 and 1993, and the
condensed consolidated statements of cash flows for the six month periods then
ended.
The accounting policies followed by the Company are described in
the May 31, 1994 financial statements.
The results of operations for the six months ended November 30,
1994 are not necessarily indicative of the results to be expected for the full
year. For interim reporting purposes, certain expenses are based on estimates
rather than expenses actually incurred.
2. Inventories consisted of the following:
November 30, 1994 May 31, 1994
----------------- ------------
Aircraft - $5,624,922
Aircraft Parts 4,588,931 3,094,852
--------- ---------
$4,588,931 $8,719,774
========= =========
Inventories are primarily valued at the lower of cost or market.
For those aircraft parts purchased in lots, the cost is determined on a specific
identification basis. For parts acquired through whole aircraft purchases,
the costs are assigned to certain pools which are then amortized as parts
sales take place. The amount of cost amortized is based upon the gross profit
percentage as calculated from the estimated sales value of the parts. The
sales value estimates are monitored by management, and adjusted periodically
as necessary.
At November 30, 1994, approximately 53% of the ending inventory has been
costed under the specific identification method, and the remaining 47% is
costed under the pooling method.
3. Primarily as a result of large net losses experienced in fiscal 1994 and
further net losses incurred during the six month period ended November 30,
1994, the Company has a significant deficit in working capital and
stockholder's equity. Also, as discussed in Part II - Other Information, a
class-action complaint has been filed against the Company. Currently, the
Company is in noncompliance with certain financial and other covenants under
the loan agreements relating to previous borrowings under the 12% Senior
Secured Notes and the 8% Convertible Subordinated Debentures, as well as the
equipment lease agreement relating to the assets acquired for International
Airline Service Center, Inc. ("IASC"), the Company's repair facility located
in Sherman, Texas. The Notes are secured by substantially all the assets of
the Company and the Debentures are subordinated to the rights of the Notes.
6
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The Company has worked with lenders for several months to restructure the
existing senior debt, however, an agreement has not yet been reached. As
discussed in Note 5, on January 31, 1995 the Company assigned its interest in
the IASC equipment lease to a third party.
A principal payment of $3.2 million was due in July 1994 under the 12%
Senior Secured Notes Agreement (which was subsequently extended by agreement
and paid in September 1994), and $3.2 million is due in July 1995. As a
result of the Company's noncompliance with certain covenants as discussed
above, $18.9 million is subject to accelerated maturity and, as such, has been
classified as a current liability in the Condensed Consolidated Balance Sheet
at November 30, 1994.
As a result of these factors, there exists substantial doubt about the
Company's ability to continue in existence. However, the Company has and will
continue to take a number of cost-cutting steps to reduce its operating
losses, including the closure and sale of assets of IASC (discussed in Note 5)
and the elimination of other costs.
4. On January 31, 1995 the Company entered into a Purchase Agreement with
Richard R. Wellman and Lynda Wellman (the "Wellmans") and an entity affiliated
with the Wellmans, Custom Air Holdings, Inc., a Nevada corporation ("Custom
Air"), pursuant to which the Company transferred to Custom Air (i) all of the
outstanding shares of common stock of Brent Aviation, Inc. ("Brent"), a Texas
corporation, a wholly-owned subsidiary of the Company, (ii) certain spare
parts, components, inventory and equipment for Boeing 727 series aircraft, and
(iii) a McDonnell Douglas DC-4 aircraft. In consideration for the foregoing,
Custom Air paid the Company $230,000 and agreed to lease a Boeing B-727-100
freighter airplane on a month-to-month basis. In addition, the Wellmans
resigned from all positions as officers or directors held by them with the
Company and its subsidiaries, granted a proxy to the Company enabling the
Company's directors to vote 1,980,000 shares of common stock of the Company
held by the Wellmans for a period of two years, and agreed not to compete or
interfere with any of the businesses of the Company and its subsidiaries for
a period of two years. The Company agreed to pay Lynda Wellman severance
equivalent to her current salary for a period of one year. The Company
further agreed to terminate its leasehold interest in a facility located at
the Grayson County, Texas Airport, allowing Brent to lease such facility for
its operations.
Other than the severance pay to Lynda Wellman no material gain or loss is
expected on the above transaction.
5. In June 1994, the Company's Board of Directors unanimously voted to cease
operations and to sell or otherwise dispose of IASC following the sale of
certain aircraft being serviced under contract by IASC. During the fourth
quarter of 1994 IASC fulfilled its obligations to service the aircraft and
ceased operations. On January 31, 1995, IASC entered into an agreement with
Express One International, Inc., a Delaware corporation ("Express One"),
pursuant to which IASC assigned its interest in a certain equipment lease with
CIT Group/Equipment Financing, Inc. to Express One, and Express One assumed
IASC's interests and obligations under such lease. In addition, IASC
transferred to Express One certain additional assets that served as
collateral under the CIT lease. Pursuant to the transaction, IASC is
disposing of substantially all of its operating assets. IASC also agreed to
terminate two leases relating to a warehouse and hanger at the Grayson County,
Texas Airport, allowing Express One to lease such facilities for its
operations. The remaining assets of IASC will be liquidated to satisfy
IASC's outstanding liabilities, consisting primarily of unsecured trade
payables. The Company has not yet determined whether to dispose of IASC's
common stock.
7
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As a result of the above transaction, the Company has accounted for the
operations and loss and expected disposal of IASC as a separate line item in
the accompanying condensed consolidated financial statements. No material
gain or loss is expected in connection with the above transaction. The
Company has recorded an accrual of $150,000 for estimated operating losses
IASC will incur through January 31, 1995.
Results of operations of IASC for the six month period ended
November 30, 1994 are as follows:
Other revenue $ 98,298
Cost of sales 69,735
Selling, general and administrative 662,782
Interest expense 39,919
Depreciation and amortization 62,731
--------
Pre-tax loss (836,869)
Tax (benefit) -
________
Net loss $ (836,869)
No income tax benefits have been recorded for IASC as the Company has fully
exhausted its carryback benefits and recorded a one hundred percent (100%)
valuation allowance for net operating loss carryforwards.
6. Net loss per share was computed by dividing net loss by weighted average
number of common shares outstanding. The effect of options and warrants is
not included because they are anti-dilutive.
7.Supplemental cash flow disclosures:
Cash payments for interest were $1,345,600 and $1,379,399 for the six
months ended November 30, 1994 and 1993, respectively.
8.Commitments and contingencies:
In February 1991, Admark International, Ltd. ("Admark") brought suit in the
Dade County Circuit Court against the Company alleging that IASG is obligated
to Admark for the payment of spare parts brokerage commissions in excess of
$0.5 million. In November 1994 the Company received an unfavorable judgment
arising from the suit and recorded an accrual of $825,000 at May 31, 1994,
representing final judgment of $500,000 and accrued interest of $325,000. On
January 31, 1995 the Company reached a settlement with Admark to pay $520,000
as follows: $135,000 on January 31, 1995 and $35,000 quarterly through
October 1997. The Company will adjust the settlement accrual in the fiscal
quarter ended February 28, 1995.
On February 28, 1994, a complaint titled Ullman et al v. International
Airline Support Group, Inc. et al. was filed in the United States District
Court for the Southern District of Florida (Case No. 94-0379), alleging
certain actionable misrepresentations and non-disclosures by the Company and
certain directors under the federal securities laws, as well as claims for
common law fraud and breach of fiduciary duty. The plaintiff alleges damages
due to declines in the market price of the Company's common stock and seeks to
8
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have the action certified as a class-action complaint. The complaint seeks
unspecified damages. The plaintiff's original complaint was dismissed by the
Court with leave to re-plead such complaint. On August 3, 1994, an amended
complaint was filed, which again does not specify the amount of damages
sought. Motions to dismiss were filed on behalf of all defendants on
September 30, 1994. In response to motions to dismiss, the plaintiffs filed a
second amended complaint. The defendants intend to respond by filing new
motions to dismiss. The Company does not expect this case to have a material
financial impact on the Company, and no provision for any loss has been made
in the accompanying condensed consolidated financial statements.
In July 1993, Viglass Aviation ("Viglass") filed a complaint against the
Company claiming that Viglass was entitled to payment of $681,750 under a
commission agreement with the Company relating to the sale of certain aircraft
to one of the Company's significant customers. The plaintiff has offered to
settle the litigation in exchange for a $50,000 payment by the Company;
therefore, the Company does not expect this litigation to have a material
financial impact on the Company.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of business and which have not been finally
adjudicated. The actions, when ultimately concluded and determined, will not,
in the opinion of management, have a material adverse effect upon the
financial position or results of operations of the Company.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operating results and
financial position during the periods included in the accompanying condensed
consolidated financial statements.
RESULTS OF OPERATIONS:
Revenues
Total revenues for the three and six months ended November 30, 1994
increased 125% and 81%, respectively, to $8.0 million and $16.5 million from
$3.5 million and $9.1 million, respectively, for the same periods in the prior
fiscal year. Aircraft sales were $4.5 million and $8.7 million for the three
and six months ended November 30, 1994, compared to $0 and $2.3 million for
the same periods in the prior fiscal year. Aircraft sales during the three
and six-month periods ended November 30, 1994 increased because the Company
consummated the sale of three DC-9 aircraft to a leasing company for $5.6
million during the period. Included in other revenue in the six month period
ended November 30, 1994 is approximately $120,000 in connection with
consulting and other services provided to an insurance company.
Cost of Sales
Cost of sales as a percentage of total revenues for the three and six
months ended November 30, 1994 was 78% and 66%, respectively, compared to 63%
and 60%, respectively, for the same periods in the prior fiscal year. The
Company realized no profit on the $5.6 million sale of three DC-9 aircraft to
a leasing company during the quarter ended November 30, 1994 because the
carrying value of such aircraft equalled the sales price. As disclosed in the
Company's Form 10-K for the fiscal year ended May 31, 1994, the Company
incurred unanticipated costs of overhauling the three DC-9 aircraft for
delivery. The Company recorded a provision of approximately $2.4 million at
May 31, 1994 to reduce the aircraft to the net amount the Company expected to
be able to realize upon their sale.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) for the three and
six months ended November 30, 1994 increased to $1.2 million and decreased to
$2.3 million, respectively, compared to $1.1 million and $2.8 million for the
same periods in the prior fiscal year. Included in SG&A for the three months
and six months ended November 30, 1994 is $200,000 and $455,000 relating to the
operations of Brent, which was sold on January 31, 1995 (see Note 4). Brent
was acquired by the Company in November 1993 and thus there was no SG&A
incurred by Brent prior to November 1993. Excluding SG&A expenses of Brent,
the Company's SG&A during the three months and six months ended November 30,
1994 was $960,000 and $1.8 million. The decrease in SG&A expenses (excluding
Brent) during the six months ended November 30, 1994 is the result of the
Company's continuing effort to reduce costs, including reductions in
personnel.
Interest Expense
Interest expense for the three and six months ended November 30, 1994
decreased to $592,000 and $1.2 million, respectively, versus $725,000 and $1.3
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million, respectively, for the same periods in the prior fiscal year. The
decrease in interest expense is due to a net reduction in total debt
outstanding at November 30, 1994 versus debt outstanding at November 30, 1993,
to $22.8 million from $28.7 million, respectively.
Depreciation and Amortization
Depreciation and amortization increased to $573,000 and $1.1 million in
the three and six months ended November 30, 1994, respectively, from $415,000
and $765,000, respectively, for the same periods in the prior fiscal year. The
increase in depreciation and amortization is primarily attributable to the
incurrence during the six months ended November 30, 1994 of additional
scheduled maintenance checks and mandatory air-worthiness directives on
certain of the Company's aircraft held for lease, and an acceleration over
prior years of the depreciation of such costs to more closely match the
estimated life of the service work.
Losses of Service Center Subsidiary
As discussed in Note 5 of Notes to Condensed Consolidated Financial
Statements, the Company has recorded the net loss of IASC, amounting to
$528,266 and $986,869 during the three and six months ended November 30, 1994,
respectively, and $444,019 and $512,237, during the three and six months ended
November 30, 1993, respectively, as a separate line item included in
operations in the accompanying financial statements.
Income Taxes
No income tax benefits have been recorded in the three and six months
ended November 30, 1994 as the Company has fully exhausted its carryback
benefits and recorded a one hundred percent (100%) valuation allowance for net
operating loss carryforwards.
Liquidity and Capital Resources
At November 30, 1994, the Company had a working capital deficit of $19.4
million and a current ratio of .34 to 1.0, compared to a working capital
deficit of $18.3 million and a current ratio of .46 to 1.0 at May 31, 1994.
The decrease in working capital and current ratio was principally the result
of the Company's net loss of $1.9 million incurred during the six months ended
November 30, 1994, along with a decrease in inventory of $4.1 million (due
primarily to the sale of aircraft) and a reduction in total debt outstanding
of $3.3 million. As discussed in Note 3, the long term amounts due under the
Company's 12% Senior Secured Notes, 8% Convertible Subordinated Debentures and
Service Center equipment lease payable have been classified as current due to
noncompliance with certain financial and other covenants under the loan
agreements.
Although the Company has no present plans or commitments for any
significant capital improvements or additions that would impact cash flows
from investing activities, the Company has required, and will continue to
require, additional financing to acquire inventory in order to maintain its
operations. Previous borrowings under the 12% Senior Secured Notes and 8%
Convertible Subordinated Debentures, and other borrowings have resulted in
significant debt service obligations for the Company. Current negotiations
between the Company and the holders of its Senior Notes and Debentures may
reduce the impact of debt repayments on cash flows from investing activity;
however, there can be no assurance that such negotiations will be successfully
concluded. Management believes that the Company will have to obtain
additional financing or liquidate inventories in order to meet future
11
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obligations. If the Company is unable to restructure its existing debt and/or
obtain such financing, cash flow from the sale of inventory at current levels
will be insufficient to meet the Company's obligations as they become due. If
the Company remains in default under the terms of the Senior Notes and
Debentures agreements, the holders could accelerate the debt under such
instruments, resulting in principal exceeding $21 million becoming immediately
payable, which the Company would have no ability to satisfy. The foregoing
circumstances could require the Company to cease operations or seek protection
from its creditors through judicial reorganization proceedings.
The Company believes it will have sufficient cash to support its
operations through May 31, 1995.
Impact of Inflation
Current financial statements are prepared in accordance with generally
accepted accounting principles and report operating results in terms of
historical costs. They provide a reasonable, objective, quantifiable
statement of financial results, but do not evaluate the impact of inflation.
Management believes that impact of inflation would not materially affect
operating results because, competitive conditions permitting, the Company
modifies its selling prices to recognize cost changes as incurred.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In February 1991, Admark International, Ltd. ("Admark") brought suit in
the Dade County Circuit Court against the Company alleging that IASG is
obligated to Admark for the payment of spare parts brokerage commissions in
excess of $0.5 million. In November 1994 the Company received an unfavorable
judgment arising from the suit and recorded an accrual of $825,000 at May 31,
1994, representing final judgment of $500,000 and accrued interest of
$325,000. On January 31, 1995 the Company reached a settlement with Admark to
pay $520,000 as follows; $135,000 on January 31, 1995 and $35,000 quarterly
through October 1997. The Company will adjust the settlement accrual in the
fiscal quarter ended February 28, 1995.
On February 28, 1994, a complaint titled Ullman et al v. International
Airline Support Group, Inc. et al. was filed in the United States District
Court for the Southern District of Florida (Case No. 94-0379), alleging
certain actionable misrepresentations and non-disclosures by the Company and
certain directors under the federal securities laws, as well as claims for
common law fraud and breach of fiduciary duty. The plaintiff alleges damages
due to declines in the market price of the Company's common stock and seeks
to have the action certified as a class-action complaint. The complaint seeks
unspecified damages. The plaintiff's original complaint was dismissed by the
Court with leave to re-plead such complaint. On August 3, 1994, an amended
complaint was filed, which again does not specify the amount of damages
sought. Motions to dismiss were filed on behalf of all defendants on
September 30, 1994. In response to motions to dismiss, the plaintiffs filed a
second amended complaint. The defendants intend to respond by filing new
motions to dismiss. The Company does not expect this case to have a material
financial impact on the Company, and no provision for any loss has been made
in the accompanying condensed consolidated financial statements.
In July 1993, Viglass Aviation ("Viglass") filed a complaint against the
Company claiming that Viglass was entitled to payment of $681,750 under a
commission agreement with the Company relating to the sale of certain aircraft
to one of the Company's significant customers. The plaintiff has offered to
settle the litigation in exchange for a $50,000 payment by the Company;
therefore, the Company does not expect this litigation to have a material
financial impact on the Company.
12
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ITEM 3. Item 3. DEFAULTS UPON SENIOR SECURITIES
Currently, the Company is in noncompliance with certain financial
and other covenants under the loan agreements relating to previous borrowings
under the 12% Senior Secured Notes and the 8% Convertible Subordinated
Debentures, as well as the equipment lease agreement relating to the assets
acquired for International Airline Service Center, Inc. ("IASC"), the
Company's repair facility located in Sherman, Texas. The Notes are secured by
substantially all the assets of the Company and the Debentures are
subordinated to the rights of the Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Page Number or
Number Description Method of Filing
10.1 Purchase Agreement, dated January __, Incorporated by reference
1995, by and among International to Exhibit 10.1 to the Comp-
Airline Support Group, Inc., Richard R. any's Quarterly Report on Form
Wellman, Lynda Wellman and Custom Air 10-Q/A for the quarter ended
Holdings, Inc., including as an exhibit August 31, 1994.
the "General Proxy" executed by
Richard R. Wellman and Lynda Wellman.
10.2 Assignment and Assumption Agreement, Incorporated by reference to
dated January 31, 1995, between Exhibit 10.2 to the Company's
International Airline Service Center, Quarterly Report on Form
Inc. and Express One International, Inc. 10-Q/A for the quarter ended
August 31, 1994.
(b) Reports on Form 8-K.
A report on Form 8-K dated September 15, 1994 was filed by the Company during
the quarter for which this report is filed. The Form 8-K reported the
Company's inability to file its Annual Report on Form 10-K for the fiscal year
ended May 31, 1994 by the required filing date.
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INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report on Form 10-Q/A to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
(Registrant)
/s/ Robert K. Norris August 14,1995
ROBERT K. NORRIS
Vice President-Finance
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