SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended February 29, 1996 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 (IRS Employer Identification No.)
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 X NO __
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 April 1, 1996 was 4,041,779.
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
February 29, 1996 and May 31, 1995 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months ended
February 29,1996, and Three Months and Nine Months
Ended February 28,1995 5
Condensed Consolidated Statements of Cash Flows
Nine Months ended February 29, 1996 and
February 28, 1995 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 10
Part II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 3. Defaults upon Senior Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 29, May 31,
1996 1995
(Unaudited) (Note)*
<S> <C> <C>
Current assets:
Cash $ 230,713 $ 848,331
Accounts receivable, net of allowance
for doubtful accounts of $588,000
at February 29, 1996 and $619,000
at May 31, 1995, respectively 4,104,296 2,592,463
Notes receivable - 313,490
Inventories 7,432,857 6,497,270
Other current assets 147,469 31,480
--------------- --------------
Total current assets 11,915,335 10,283,034
Property and equipment:
Land 330,457 330,457
Aircraft held for lease 2,904,760 3,289,613
Building and leasehold improvements 715,772 715,772
Machinery and Equipment 989,596 940,948
--------------- --------------
4,940,585 5,276,790
Less accumulated depreciation 1,832,932 1,980,927
--------------- --------------
3,107,653 3,295,863
--------------- --------------
Other assets:
Deferred debt costs, net 746,446 931,932
--------------- --------------
$ 15,769,434 $ 14,510,829
=============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long term
obligations $ 38,149 $ 45,374
Long-term obligations in
default classified as current 18,400,000 19,850,000
Accounts payable and accrued expenses 4,644,882 3,876,978
-------------- -------------
Total current liabilities 23,083,031 23,772,352
Long-term obligations, less current maturities 415,799 440,377
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) (10,387,770) (12,360,274)
-------------- --------------
Total stockholders' equity (deficit) (7,729,396) (9,701,900)
--------------- --------------
$ 15,769,434 $ 14,510,829
================ ==============
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues
Net sales $ 7,318,730 $ 3,380,806 $ 16,247,134 $18,248,074
Lease revenue 529,133 774,278 1,277,169 2,189,778
------------ ----------- ----------- -----------
Total revenues 7,847,863 4,155,084 17,524,303 20,437,852
Cost of sales 4,369,628 2,044,978 9,761,700 14,910,941
Selling, general, and
administrative expenses 1,141,055 1,005,113 3,046,450 3,322,197
Provision (recovery)for
doubtful account 317,084 (194,095) 317,084 (291,602)
Financial restructuring costs 112,776 - 305,685 -
Interest expense 475,306 516,274 1,511,700 1,754,892
Depreciation and amortization 183,232 563,793 613,737 1,699,085
Interest and other income (578) (352,462) (4,557) (590,628)
Unusual and non-recurring items - (177,115) - (177,115)
(Income) losses of service
center subsidiary - (285,552) - 701,317
------------- ----------- ----------- -----------
6,598,503 3,120,934 15,551,799 21,329,087
------------- ----------- ----------- -----------
Earnings (loss) before
income taxes 1,249,360 1,034,150 1,972,504 (891,235)
Provision for income taxes - - - -
------------- ----------- ------------ ----------
Net earnings (loss) $ 1,249,360 $1,034,150 $ 1,972,504 (891,235)
============ ============ =========== ===========
Per share date:
Weighted average shares 4,041,779 4,041,779 4,041,779 4,041,779
Net earnings (loss) per common
share and common equivalent
shares
Net earnings (loss) $ 0.31 $ 0.26 $ 0.49 $ (0.48)
============ =========== ========== =============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended
February 29, February 28,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,972,504 $ (891,235)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 613,737 1,889,145
Provision for doubtful accounts 335,413 350,000
Gain on disposal of discontinued subsidiary - (70,628)
Changes in assets and liabilities (1,817,425) 4,522,827
---------------- --------------
Total adjustments (868,275) 6,691,344
Net cash provided by operating
activities 1,104,229 5,800,109
Cash flows from investing activities:
Capital expenditures (240,044) (706,482)
--------------- --------------
Net cash (used in) investing activities (240,044) (706,482)
Cash flows from financing activities:
Repayments of notes payable and debt
obligations (1,481,803) (4,913,128)
--------------- --------------
Net cash (used in) financing activities (1,481,803) (4,913,128)
Net (decrease) increase in cash (617,618) 180,499
Cash at beginning of period 848,331 95,790
--------------- --------------
Cash at end of period $ 230,713 $ 276,289
================ ==============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited condensed con-
solidated financial statements contain adjustments (consisting only of normal
and recurring adjustments) necessary to present fairly International Airline
Support Group, Inc.'s condensed consolidated balance sheets as of February 29,
1996 and May 31, 1995, the condensed consolidated statements of operations for
the three months and nine months ended February 29, 1996 and the three months
and nine months ended February 28, 1995, and the condensed consolidated
statements of cash flows for the nine month periods then ended.
The accounting policies followed by the Company are described in the May
31, 1995 financial statements.
The results of operations for the nine months ended February 29, 1996 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:
February 29, 1996 May 31, 1995
Aircraft parts $ 5,120,988 $ 4,063,352
Aircraft available for sale 2,104,354 2,433,918
--------- ---------
$ 7,432,857 $ 6,497,270
========= =========
Inventories are stated at the lower of cost or market. The cost of
aircraft parts is determined on a specific identification basis for those parts
purchased individually or in lots where specific identification is practical.
For parts acquired through whole aircraft purchases, the costs are assigned to
pools which are then amortized as parts sales take place. The amortization is
based upon the actual sales, except in any periods where sales are lower than
expected, the estimated sales per the initial sales projection are used (which
has a maximum life of 5 years). 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 February 29, 1996, approximately 94% of the ending inventory (including
aircraft held for sale) was costed under the specific identification method, and
the remaining 6% was costed under the pooling method.
3. Primarily as a result of net losses experienced in fiscal 1995 and 1994,
and the classification of most indebtedness as current, the Company has a
significant deficit in working capital and stockholders' equity. Currently, the
Company is in default in the payment of principal on the 12% Senior Secured
Notes (Notes), issued July 1992, and is in default in payment of interest on
the 8% Convertible Subordinated Debentures (Debentures), issued September
1993. The Notes are secured by substantially all of the assets of the Company.
The Debentures are unsecured and are subordinated in right of payment to the
Notes and to the claims of the Company's general unsecured creditors. The
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
entire balance of the Notes and the Debentures, amounting to $8,400,000 and
$10,000,000, respectively, are subject to accelerated maturity and, as such,
have been classified as a current liability in the Consolidated Balance Sheets
at February 29, 1996. After conducting preliminary meetings with certain
holders of the Notes and Debentures, the Company formulated a restructuring
proposal that contemplates (among other things) a deferral of the time of
payment of a portion of the principal of the Notes and a conversion of all of
the outstanding Debentures into the Company's Common Stock. The restructuring
proposal was subsequently presented to certain major holders of the Debentures.
The Company understands that, after the presentation of the restructuring
proposal, the largest holder of the Debentures sold all of the Debentures then
held by it, for a cash price equal to $150 per $1,000 principal amount of the
Debentures, to one or more substantial holders of Debentures that have also been
participating in the restructuring discussions. In November 1995, these
Debenture holders presented to the Company a preliminary counterproposal to the
Company's restructuring proposal, but the counterproposal was subsequently
retracted. On February 1, 1996, the Company again met with representatives of
certain major holders of the Debentures. At this meeting, the Company and the
representatives of the Debentureholders discussed the Company's proposal that
the Debentures be converted into shares of the Company's common stock. The
representatives requested that the Company update certain information included
in its original restructuring proposal and provide a revised restructuring
proposal. The Company is preparing a revised restructuring proposal based on
the assumption that the Debentureholders will agree to convert their instruments
into shares of the Company's Common Stock. Although the Company intends to
continue these restructuring discussions, there can be no assurance that the
Company will be able to consummate a restructuring of its indebtedness. If the
lenders were to accelerate the maturity of the Notes or Debentures, or both, the
Company would not have sufficient funds to repay the debt obligations.
As a result of these factors, there exists substantial doubt about the
Company's ability to continue in existence.
During the nine months ended February 29, 1996, the Company incurred
approximately $306,000 of legal, accounting and other consulting fees in
connection with its debt restructuring activities.
4. During the fiscal year ending May 31, 1995, the Company accepted lease
payments from a foreign customer in the customer's local currency because
conversion restrictions precluded the customer from obtaining and paying U.S.
dollars. Due to uncertainties regarding when and at what rate the local
currency could be converted to U.S. dollars, the Company valued the local
currency at an estimated value of $200,000 as of May 31, 1995 (included in
cash), such amount being less than the then current U.S. equivalent amount at
the official exchange rate. The Company subsequently was able to convert the
funds to U.S. dollars in the amount of $339,000, resulting in a gain of
$139,000, which is included in lease revenues during the nine months ended
February 29, 1996.
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. The Company recorded a gain during the nine months ended February 29, 1996
relating to the settlement of certain disputes with a customer. Pursuant to the
settlement, the customer paid the Company $660,000 and the Company canceled a
note receivable from the customer. The Company also released all claims it had
against the customer, which included among other things, claims for the purchase
price of parts purchased by the customer on open account or pursuant to a
consignment arrangement. The customer released certain claims it had against
the Company as part of the settlement. The transaction resulted in a net gain
to the Company of approximately $345,000, consisting of the excess of cash
received over the net carrying value of the note receivable and cost of the
inventory. The Company recorded as net sales the cost of the inventory plus the
amount of the net gain.
6. Earnings per share is computed by dividing the net earnings (loss) by the
weighted average number of common shares outstanding and common stock
equivalents. Stock options and warrants are considered common stock equivalents
unless their inclusion would be anti-dilutive. In all periods presented, stock
options and warrants are anti-dilutive because their exercise price exceeded the
market price. The Company's convertible subordinated debentures are not
considered common stock equivalents as the effective yield on the securities
exceeded 66-2/3% of the average Aa corporate bond rate at the time of issuance.
7. Supplemental cash flow disclosures:
Cash payments for interest were $940,700 and $1,695,200 for the nine month
periods ended February 29, 1996 and February 28, 1995, respectively.
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATION 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 months and nine months ended February 29, 1996
increased 89% and decreased 14%, respectively, to $7.8 million and $17.5
million, from $4.2 million and $20.4 million, respectively, for the three months
and nine months ended February 28, 1995. Aircraft sales were $1,450,000 and
$1,775,000 during the three and nine months ended February 29, 1996, compared to
$0 and $8.2 million, respectively, during the three and nine months ended
February 28, 1995. Aircraft sales are unpredictable transactions and may
fluctuate significantly from year to year, dependent, in part, upon the
Company's ability to purchase an aircraft and resell it within a relatively
brief period of time. Included in aircraft sales during the nine months ended
February 28, 1995 are the sale of three DC-9 aircraft sold to a leasing company
for $5.6 million pursuant to a contract entered into during the fiscal year
ended 1994. Parts sales for the three and nine months ended February 29, 1996
were $5.9 million and $14.4 million, respectively, compared to $3.4 million and
$10.1 million, respectively, during the three and nine months ended February
28, 1995. During the nine months ended February 29, 1996, the Company has
continued to increase its domestic customer base and decrease its number of
foreign customers in order to lessen the Company's credit risks. Lease revenue
for the three and nine months ended February 29, 1996 decreased to $529,000 and
$1.3 million, respectively, compared to $774,000 and $2.2 million, respectively,
during the three and nine months ended February 28, 1995, as certain leases that
were in existence during the prior year have terminated.
During the fiscal year ending May 31, 1995, the Company accepted lease
payments from a foreign customer in the customer's local currency because
conversion restrictions precluded the customer from obtaining and paying U.S.
dollars. Due to uncertainties regarding when and at what rate the local
currency could be converted to U.S. dollars, the Company valued the local
currency at an estimated value of $200,000 as of May 31, 1995 (included in
cash), such amount being less than the then current U.S. equivalent amount at
the official exchange rate. The Company subsequently was able to convert the
funds to U.S. dollars in the amount of $339,000, resulting in a gain of
$139,000, which is included in lease revenues during the nine months ended
February 29, 1996.
The Company recorded a gain during the nine months ended February 29, 1996
relating to the settlement of certain disputes with a customer. Pursuant to the
settlement, the customer paid the Company $660,000 and the Company canceled a
note receivable from the customer. The Company also released all claims it had
against the customer, which included among other things, claims for the purchase
price of parts purchased by the customer on open account or pursuant to a
consignment arrangement. The customer released certain claims it had against
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
the Company as part of the settlement. The transaction resulted in a net gain
to the Company of approximately $345,000, consisting of the excess of cash
received over the net carrying value of the note receivable and cost of the
inventory. The Company recorded as net sales the cost of the inventory plus the
amount of the net gain.
Cost of Sales
Cost of sales as a percentage of total revenues for the three and nine
months ended February 29, 1996 was 56%, compared to 49% and 73%, respectively,
during the three and nine months ended February 28, 1995. Cost of sales on
aircraft sales was 28% and 30% for the three and nine months ended February 29,
1996, compared to 99% during the nine months ended February 28, 1995 (there were
no aircraft sales during the three months ended February 28, 1995). The higher
percentage of cost of sales on aircraft sales during the nine months ended
February 28, 1995 as compared to the three and nine months ended February 29,
1996 was the result of zero margins realized on the sale of three DC-9 aircraft
sold during the nine months ended February 28, 1995 to a leasing company for
$5.6 million pursuant to a contract entered into during the fiscal year ended
1994. Excluding aircraft sales and cost of aircraft sales, cost of sales as a
percentage of total revenues during the three and nine months ended February 29,
1996 was 62% and 59%, respectively, compared to 49% and 56% during the three and
nine months ended February 28, 1995. The higher cost of sales percentage
(excluding aircraft sales and cost of aircraft sales) during the three and nine
months ended February 29, 1996 compared to the three and nine months ended
February 28, 1995 is primarily attributable to the larger volume of parts sales
during the three months ended February 29, 1996, some of which were brokered
transactions (the Company fills a customer order for a part not held in
inventory, whereby the Company locates the part for the customer from another
vendor and then resells the part to the customer) which typically have lower
margins, and sales from inventory of certain large dollar items at slightly
lower margins. Additionally, the decrease in lease revenue in fiscal 1996 from
fiscal 1995 results in lower overall margins due to the lower amount of cost of
sales incurred in generating such lease revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and nine months
ended February 29, 1996 were $1.1 million and $3.0 million, respectively,
compared to $1.0 million and $3.3 million, respectively, during the three and
nine months ended February 28, 1995.
Provision (Recovery) for Doubtful Accounts
Provision (recovery) for doubtful accounts was $317,000 during the three
and nine months ended February 29,1996, compared to ($194,000) and ($292,000)
during the three and nine months ended February 28, 1995. The provision
recorded during the three and nine months ended February 29, 1996 resulted from
a general provision for doubtful accounts. During the three and nine months
ended February 28, 1995, the Company, primarily through litigation, recovered
approximately $540,000 and $640,000, respectively, of accounts receivable which
had been written off or reserved during the fiscal year ended May 31, 1994. The
recoveries were offset by a general provision for doubtful accounts of $350,000.
Financial Restructuring Costs
During the three and nine months ended February 29. 1996 the Company
incurred approximately $113,000 and $306,000, respectively, of legal, accounting
and other consulting fees in connection with its debt restructuring activities.
Interest Expense
Interest expense for the three and nine months ended February 29, 1996 was
$475,000 and $1.5 million, respectively, compared to $516,000 and $1.8 million
during the three and nine months ended February 29, 1995, reflecting the overall
reduction in debt.
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Depreciation and Amortization
Depreciation and amortization for the three and nine months ended February
29, 1996 was $183,000 and $614,000, respectively, compared to $564,000 and $1.7
million, respectively, during the three and nine months ended February 28, 1995.
The decrease in depreciation and amortization was due primarily to a reduction
in depreciable aircraft held for lease, such aircraft held for lease amounting
to a gross value of $2.9 million at February 29, 1996 compared to $7.8 million
at February 28, 1995. The reduction in aircraft held for lease is due to the
Company selling during fiscal 1995 certain aircraft previously leased or
transferring certain aircraft to inventory held for sale.
(Income) Losses of Service Center Subsidiary
In fiscal 1994 the Company began operations of International Airline
Service Center, Inc. (IASC), an FAA-certified repair facility. During the
fiscal year ended May 31, 1995, IASC ceased operations and the majority of its
assets were sold. As a result, there were no operating results of IASC during
the three and nine months ended February 29,1996. The results of IASC during
the three and nine months ended February 28, 1995, amounting to approximately
$(286,000) and $701,000, respectively, are shown as (income) losses of service
center subsidiary.
Income Taxes
No income tax provision or benefits were recorded during the three and nine
months ended February 29, 1996, or during the three and nine months ended
February 28, 1995, respectively, as the Company has net operating loss
carryforwards sufficient to offset income. The Company has fully exhausted its
carryback benefits and recorded a one hundred percent (100%) valuation allowance
against the deferred tax asset for net operating loss carryforwards.
Liquidity and Capital Resources
At February 29, 1996 the Company's total long-term debt amounted to $18.9
million, consisting primarily of $8.4 million principal amount of the Notes,
$10 million principal amount of the Debentures and $400,000 principal amount of
a mortgage loan secured by its corporate headquarters. The entire principal
amount of the Notes and the Debentures is classified as current at February 29,
1996, because of the existence of defaults under the governing documents. The
Notes, which were issued during fiscal 1993, bear interest at the fixed rate of
12% per annum, payable quarterly. The Notes mature in 1997. The Debentures,
which were issued during fiscal 1994, bear interest at the fixed rate of 8% per
annum, payable quarterly and are convertible into shares of the Company's Common
Stock at $4.00 per share. The Debentures mature in 2003.
On May 26, 1995, the Company received a notice of payment blockage from the
holder (the Majority Noteholder) of a majority of the outstanding principal
amount of the Notes. Citing a continuing Event of Default under the agreement
governing the Notes as a result of the Company's noncompliance with certain
financial covenants, the Majority Noteholder demanded that the scheduled
interest payment which would otherwise have been payable on May 31, 1995 to
holders of the Debentures not be paid. As a result of the Company's receipt of
the notice of payment blockage, the Company did not make its scheduled May 31,
1995 nor its August 31, 1995 interest payments, totaling $400,000, to the
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
holders of the Debentures. Further, the Company did not make its scheduled July
17, 1995 principal payment, in the approximate amount of $1.8 million, to the
holders of the Notes. Pursuant to terms of the Notes, the Company was
prohibited from making any other payments with respect to the Debentures prior
to the expiration of the payment blockage period on November 22, 1995.
Notwithstanding the expiration of the payment blockage period, the Company
did not pay interest in the amount of $200,000 on the Debentures that became due
on November 30, 1995 nor did it pay $200,000 on the Debentures that became due
on February 29, 1996. The Company does not intend to resume making payments of
interest on the Debentures. The Company made a principal payment of $1,450,000
on the Notes on December 12, 1995.
The failure to make the May 31, 1995, August 31, 1995, November 30, 1995,
and February 29, 1996 interest payments to the holders of the Debentures and the
July 17, 1995 principal payment to the holders of the Notes constitutes an Event
of Default under the agreements governing the Notes and Debentures. If the
Company remains in default under the terms of the Notes and Debentures, the
holders of such instruments could accelerate the debt, resulting in principal of
$18.4 million becoming immediately due and payable. The Company would have no
ability to repay such indebtedness if it were to be accelerated. The foregoing
circumstances could require the Company to cease operations or to seek
protection from its creditors through judicial reorganization proceedings.
After conducting preliminary meetings with certain holders of the Notes and
Debentures, the Company formulated a restructuring proposal that contemplates
(among other things) a deferral of the time of payment of a portion of the
principal of the Notes and a conversion of all of the outstanding Debentures
into the Company's Common Stock. The restructuring proposal was subsequently
presented to certain major holders of the Debentures. The Company understands
that, after the presentation of the restructuring proposal, the largest holder
of the Debentures sold all of the Debentures then held by it, for a cash price
equal to $150 per $1,000 principal amount of the Debentures, to one or more
substantial holders of Debentures that have also been participating in the
restructuring discussions. In November 1995, these Debenture holders presented
to the Company a preliminary counterproposal to the Company's restructuring
proposal, but the counterproposal was subsequently retracted. The Debenture
holders have engaged an aviation consulting firm and an investment banking firm
to review the Company's restructuring proposal. These experts completed their
review and issued a report dated December 12, 1995. On February 1, 1996, the
Company again met with representatives of certain major holders of the
Debentures. At this meeting, the Company and the representatives of the
Debentureholders discussed the Company's proposal that the Debentures be
converted into shares of the Company's common stock. The representatives
requested that the Company update certain information included in its original
restructuring proposal and provide a revised restructuring proposal. The
Company is preparing a revised restructuring proposal based on the assumption
that the Debentureholders will agree to convert their instruments into shares of
the Company's Common Stock. Although the Company intends to continue discussing
a restructuring with its creditors, there can be no assurances that the Company
will be able to consummate a successful restructuring.
At February 29, 1996, the Company had a working capital deficit of $11.1
million and a current ratio of .52 to 1.0, compared to a working capital deficit
of $13.5 million and a current ratio of .43 to 1.0 at May 31, 1995. The
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
decrease in working capital deficit was principally the result of the Company's
net income recorded during the nine months ended February 29, 1996.
The Company does not have any bank lines of credit or other sources of
liquidity beyond cash flows from operating activities due to profitable
operations, if any, or further asset sales. However, the Company does not
currently have any significant commitments for capital outlays.
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.
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings and claims
that arise in the ordinary course of its business. On the date hereof, no such
proceedings are pending and no such claims have been asserted.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Currently, the Company is in default in the payment of principal on the
Notes and in default in the payment of interest on the Debentures. As of the
date of this report, the Company was in default in the payment of approximately
$317,000 of principal on the Notes. As of the date of this report, the Company
was in default in the payment of $800,000 of interest on the Debentures. The
Notes are secured by substantially all of the assets of the Company and the
Debentures are unsecured and are subordinated in right of payment to the Notes
and to the claims of the Company's general unsecured creditors.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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 report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
(Registrant)
/s/ Robert K. Norris April 2, 1996
ROBERT K. NORRIS Date
Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 230,713
<SECURITIES> 0
<RECEIVABLES> 4,692,296
<ALLOWANCES> 588,000
<INVENTORY> 7,432,857
<CURRENT-ASSETS> 11,915,335
<PP&E> 4,940,585
<DEPRECIATION> 1,832,932
<TOTAL-ASSETS> 15,769,434
<CURRENT-LIABILITIES> 23,083,031
<BONDS> 415,799
<COMMON> 4,042
0
0
<OTHER-SE> (7,733,438)
<TOTAL-LIABILITY-AND-EQUITY> 15,769,434
<SALES> 16,247,134
<TOTAL-REVENUES> 17,524,303
<CGS> 9,761,700
<TOTAL-COSTS> 9,761,700
<OTHER-EXPENSES> 613,737
<LOSS-PROVISION> 317,084
<INTEREST-EXPENSE> 1,511,700
<INCOME-PRETAX> 1,972,504
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,972,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,972,504
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
