SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.For the quarterly period ended
August 31, 1999 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)
1954 Airport Road, Suite 200, Atlanta, GA 30341
- ----------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 455-7575
------------
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 October 6, 1999 was
2,187,198.
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
INDEX
Page No.
---------
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
May 31, 1999 and August 31, 1999
Condensed Consolidated Statements of Earnings 4
Three Months Ended August 31, 1998 and
August 31, 1999
Condensed Consolidated Statements of Cash Flows 5
Three Months Ended August 31, 1998 and
August 31, 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
-2-
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, August 31
1999* 1999
------------- -----------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 892,283 $ 1,509,497
Accounts receivable, net of
allowance for doubtful accounts
of approximately $342,000 at
May 31, 1999 and $389,000 at
August 31, 1999 2,812,500 2,459,465
Inventories 11,131,059 11,658,380
Deferred tax benefit - current 1,128,302 1,128,302
Other current assets 134,274 1,412,385
--------- ---------
Total current assets 16,098,418 18,168,029
Property and equipment
Aircraft and engines held for lease 4,593,854 10,968,854
Leasehold improvements 157,175 155,617
Machinery and equipment 988,983 1,019,642
---------- ---------
5,740,012 12,144,113
Accumulated depreciation 1,734,503 2,003,474
--------- ---------
Property and equipment, net 4,005,509 10,140,639
Other assets
Investment in joint venture 2,373,572 2,707,046
Deferred debt costs, net 360,406 411,830
Deferred tax benefit 1,071,959 697,770
Deposits and other assets 66,155 374,533
------ -------
Total other assets 3,872,092 4,191,179
--------- ---------
$ 23,976,019 $ 32,499,847
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term
obligations $ 1,455,600 $ 2,340,978
Accounts payable 910,029 1,242,333
Accrued expenses 2,209,191 2,505,449
--------- ---------
Total current liabilities 4,574,820 6,088,760
Long-term obligations, less current
maturities 8,138,059 14,568,587
Commitments and contingencies
Stockholders' equity
Preferred stock - $.001 par value;
authorized 2,000,000 shares;
0 shares outstanding at May 31, 1999
and August 31, 1999. - -
Common stock - $.001 par value;
authorized 20,000,000 shares; issued
and outstanding 2,655,723 shares
at May 31, 1999 and 2,658,723 shares
at August 31, 1999. 2,655 2,658
Additional paid-in capital 13,936,089 13,946,793
Accumulated deficit (728,824) (131,629)
Common stock held in treasury, at
cost - 467,325 shares at May 31, 1999
and 471,525 shares at August 31, 1999 (1,946,780) (1,975,322)
---------- -----------
Total stockholders' equity 11,263,140 11,842,500
---------- -----------
$ 23,976,019 $ 32,499,847
========== ==========
</TABLE>
*Condensed from audited Financial Statements
The accompanying notes are an integral part of these condensed financial
statements
-3-
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
1998 1999
------------ ----------
<S> <C> <C>
Revenues
Net sales $ 4,788,384 $ 8,329,082
Lease and service revenue 786,562 669,431
------- -------
Total revenues 5,574,946 8,998,513
Cost of sales 3,256,923 6,118,332
Selling, general and administrative expenses 1,042,884 1,706,872
Depreciation and amortization 257,830 277,766
------- -------
Total operating costs 4,557,637 8,102,970
Equity in net earnings of
unconsolidated joint venture - 401,065
---------- -------
Earnings from operations 1,017,309 1,296,608
Interest expense 310,489 329,165
Interest and other income (5,617) (3,942)
------- -------
Earnings before income taxes 712,437 971,385
Provision for income taxes 270,726 374,189
------- -------
Net earnings $ 441,711 $ 597,196
======= =======
Per share data:
Earnings per share available for
common stockholders - Basic $ 0.17 $ 0.27
Weighted average number of common
stock outstanding - Basic 2,563,874 2,187,361
========= =========
Earnings per share available for
common stockholders - Diluted $ 0.16 $ 0.25
Weighted average number of common
stock outstanding - Diluted 2,820,264 2,372,705
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
-4-
<PAGE>
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
August 31, August 31,
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 441,711 $ 597,196
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities:
Depreciation and amortization 257,830 277,766
Earnings of joint venture - (401,065)
Provision for doubtful accounts 39,745 47,914
Increase in inventory (2,034,595) (527,321)
Changes in other assets and
liabilities (1,570,591) 661,162
---------- --------
Total adjustments (3,307,611) 58,456
Net cash (used in) provided
by operating activities (2,865,900) 655,652
Cash flows from investing activities:
Capital equipment additions (33,031) (29,101)
Aircraft and engine expenditures - (7,375,000)
Proceeds from sale of engine held for lease 265,000 -
Distributions from unconsolidated joint venture - 90,000
Investment in unconsolidated joint venture (1,000,000) (22,409)
--------- ----------
Net cash used in investing
activities (768,031) (7,336,510)
Cash flows from financing activities:
Net increase in debt obligations 3,555,862 7,315,906
Proceeds from exercise of employee stock
options 14,250 10,708
Repurchase of common stock - (28,542)
--------- --------
Net cash provided by financing
Activities 3,570,112 7,298,072
--------- ---------
Net increase (decrease) in cash (63,819) 617,214
Cash and cash equivalents at beginning of period 438,403 892,283
--------- ---------
Cash and cash equivalents at end of period $ 374,584 $ 1,509,497
======= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-5-
<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
consolidated financial statements contain adjustments (consisting only of normal
and recurring adjustments) necessary to present fairly International Airline
Support Group, Inc. and Subsidiary's condensed consolidated balance sheets as of
May 31, 1999 and August 31, 1999, the condensed consolidated statements of
earnings for the three months ended August 31, 1998 and August 31, 1999, and the
condensed consolidated statements of cash flows for the three months ended
August 31, 1998 and August 31, 1999.
The accounting policies followed by the Company are described in the May
31, 1999 financial statements.
The results of operations for the three months ended August 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
2. Inventories consisted of the following:
May 31,1999 August 31,1999
------------ ----------------
Aircraft parts $ 8,679,059 $ 8,163,159
Aircraft and Engines
available for sale 2,452,000 3,495,221
------------ -----------
$11,131,059 $11,658,380
============ ===========
3. Earnings Per Share:
The Company's basic earnings per share are calculated by dividing net
earnings by the weighted average shares outstanding during the period. The
computation of diluted earnings per share includes all dilutive common stock
equivalents in the weighted average shares outstanding.
Financial Accounting Standards Board (FASB) Statement 128 "Earnings Per Share"
was adopted by the Company on January 1, 1998 and requires the dual presentation
of basic and diluted earnings per share on the face of the statement of
earnings. The reconciliation between the computation is as follows:
Three Months
Ended Net Basic Basic Diluted Diluted
August 31, Earnings Shares EPS Shares EPS
----------- -------- ------ --- ------ ---
1998 $ 441,711 2,563,874 $0.17 2,820,264 $0.16
1999 $ 597,196 2,187,361 $0.27 2,372,705 $0.25
Included in diluted shares are common stock equivalents relating to stock
options of 185,344 and 256,390 for the three months ended August 31, 1999 and
1998, respectively.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Credit Facility
On October 3, 1996, the Company entered into the Credit Agreement, which
provided for a $3 million term loan and up to an $11 million revolving credit.
The Credit Agreement was amended on various occasions to create new term loan
facilities and to increase the revolving credit to $14 million (collectively
referred to as the "Credit Facility"). The Credit Facility is secured by
substantially all of the assets of the Company and availability of amounts for
borrowing is subject to certain limitations and restrictions. Such limitations
and restrictions are discussed in the Company's Proxy Statement/Prospectus filed
with the Securities and Exchange Commission on August 29, 1996.
5. Supplemental Cash Flow Disclosures:
Cash payments for interest were $310,000 and $329,000 for the three months
ended August 31, 1998 and August 31, 1999, respectively. Cash and cash
equivalents include $582,651 and $1,138,000 of restricted cash at May 31, 1999
and August 31, 1999, respectively. Restricted cash includes customer receipts
deposited into the Company's lockbox account, which are applied the next
business day against the outstanding amount of the Credit Facility, and customer
deposits on aircraft and engines leases.
6. Joint Venture
On September 16, 1998, the Company entered into a joint venture (the "Air41
Joint Venture") for the acquisition of 20 DC-9-41H aircraft from Scandinavian
Airlines System ("SAS"). The aircraft were leased back to SAS and the leases
had an average term of 39 months. The Company's original investment in the
Air41 Joint Venture was approximately $1.5 million. The Company's Air41 Joint
Venture partner is AirCorp, Inc., a privately held company. The aircraft were
financed through the joint venture, utilizing non-recourse debt to the partners.
The Air41 Joint Venture is accounted for under the equity method and the leases
are treated as operating leases.
The Company is exploring opportunities for the aircraft after the end of
the term of the leases with SAS. Such opportunities include releasing the
aircraft with SAS, leasing the aircraft to one or more different lessee(s),
selling the aircraft, parting out the aircraft, or directly placing the aircraft
into either passenger or cargo service, whereby the Company may have a principal
interest in an airline. At this time, the Company has no firm commitment for
the aircraft after the SAS leases expire.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Treasury Stock
In the third quarter of 1999, the Company began acquiring shares of its
common stock in connection with a stock repurchase program approved by the
Company's Board of Directors and lender in December 1998. During the three
months ended August 31, 1999, the Company repurchased 6,500 shares of its common
stock at an average price of $4.39 for a total expenditure of $28,542. This
repurchase brings the total number of shares repurchased to 471,525 at an
average price of $4.17 and a total expenditure of $1,975,322. The Company does
not have a formal plan in place to purchase any additional shares; however, the
Company is authorized by the Board to make further purchases if deemed to be in
the best interest of the Company. The Company's lender must also approve any
such purchases.
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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 revenue increased 61% from $5.6 million for the three months ended
August 31, 1998 to $9.0 million for the three months ended August 31, 1999,
primarily due to an increase in net sales slightly offset by a decrease in lease
and service revenue. Net sales for the three months ended August 31, 1999 were
$8.3 million compared to $4.8 million for the three months ended August 31,
1998, primarily relating to an increase in turboprop parts sales and aircraft
sales. Net sales include parts sales as well as aircraft and engine sales.
Aircraft and engine sales are unpredictable transactions and may fluctuate
significantly from year to year, dependent, in part, upon the Company's ability
to purchase an aircraft or engine at an attractive price and resell it within a
relatively brief period of time, as well as the overall market for used aircraft
or engines. Lease and service revenue decreased to $669,000 during the three
months ended August 31, 1999 compared to $787,000 during the three months ended
August 31, 1998, primarily due to an decrease in service revenue which was
partially offset by a increase in lease revenue.
Cost of Sales
- ---------------
Cost of sales increased from $3.3 million during the three months ended
August 31, 1998 to $6.1 million during the three months ended August 31, 1999,
resulting primarily from an increase in sales. As a percentage of total
revenues, cost of sales for the three months ended August 31, 1999 was 68%
compared to 58% for the three months ended August 31, 1998. This increase was
due primarily to an increase in the sale of brokered parts at a lower gross
margin than owned parts and a higher cost of sales for aircraft and engines
during the three months ended August 31, 1999. As the Company continues to
expand its brokered part sales, gross margins should decrease from historical
levels, which reflect higher levels of sales of parts out of inventory.
Selling, General and Administrative Expenses
- ------------------------------------------------
Selling, general and administrative expenses increased 64% from $1.0
million for the three months ended August 31, 1998 to $1.7 million for the three
months ended August 31, 1999, primarily due to the increase in revenue resulting
in increases in commissions, bonuses and outside professional fees.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
Equity in Net Earnings of Unconsolidated Joint Venture
- -------------------------------------------------------------
Equity in Net Earnings of Unconsolidated Joint Venture for the three months
ended August 31, 1999 was $401,000 compared to $0 during the three months ended
August 31, 1998. This increase was due to the Air41 Joint Venture entered into
during September 1998.
Depreciation and Amortization
- -------------------------------
Depreciation and amortization increased from $258,000 for the three months
ended August 31, 1998 to $278,000 for the three months ended August 31, 1999.
Interest Expense
- -----------------
Interest expense for the three months ended August 31, 1998 was $310,000
compared to $329,000 for the three months ended August 31, 1999. This increase
in interest expense was due to a higher average of total debt outstanding during
this period partially offset by a reduction in the interest rate assessed to the
Company. (see Liquidity and Capital Resources)
Net Earnings
- -------------
Earnings for the first quarter of fiscal 1999 were $0.25 per share -
diluted, based on 2,372,705 weighted average shares outstanding, compared to
earnings for the first quarter of fiscal 1998 of $0.16 per share - diluted,
based on 2,820,264 weighted average shares outstanding, due to an increase in
net earnings and a decrease in the number of shares outstanding relating to the
Company's share repurchase program.
Treasury Stock
- ---------------
In the third quarter of 1999, the Company began acquiring shares of its
common stock in connection with a stock repurchase program approved by the
Company's Board of Directors and lender in December 1998. During the three
months ended August 31, 1999, the Company repurchased 6,500 shares of its common
stock at an average price of $4.39 for a total expenditure of $28,542. This
repurchase brings the total number of shares repurchased to 471,525 at an
average price of $4.17 and a total expenditure of $1,975,322. The Company does
not have a formal plan in place to purchase any additional shares; however, the
Company is authorized by the Board to make further purchases if deemed to be in
the best interest of the Company. The Company's lender must also approve any
such purchases.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
Liquidity and Capital Resources
- ----------------------------------
The Credit Agreement originally entered into by the Company in October of
1996 provided for a $3 million term loan and up to an $11 million revolving
credit. The Credit Agreement has been amended to create several new term loan
facilities and to increase the revolving credit to $14 million (collectively
referred to as the "Credit Facility"). The revolving credit facility matures in
October 2001 and the term loans mature between March 2000 and October 2001. The
interest rate that the Company is assessed is subject to fluctuation and may
change based upon certain financial covenants. As of October 5, 1999, the
interest rate under the Credit Facility was the lender's base rate minus 0.25%
(8.00%). The Credit Facility is secured by substantially all of the assets of
the Company and availability of amounts for borrowing is subject to certain
limitations and restrictions. Such limitations and restrictions are discussed
in the Company's Proxy Statement/Prospectus filed with the Securities and
Exchange Commission on August 29, 1996.
Net cash provided by (used in) operating activities for the three months ended
August 31, 1999 and August 31, 1998 were $656,000 and ($2,866,000),
respectively. The cash provided by operating activities for the three months
ended August 31, 1999 was due primarily to an increase in accounts payables
partially offset by an increase in inventory. The cash used in operating
activities for three months ended August 31, 1998 was due primarily to an
increase in inventories of $2.0 million, an increase in accounts receivables and
a decrease in accounts payables.
Net cash used for investing activities for the three months ended August
31, 1999 amounted to $7,337,000 compared to $768,000 for the three months ended
August 31, 1998. The net cash used for investing activities for the three
months ended August 31, 1999 was primarily the result of the purchase of two
aircraft on lease and a deposit for the purchase of a third aircraft. The net
cash used for investing activities for the three months ended August 31, 1998
was primarily the result of a deposit on an investment in a joint venture that
closed subsequent to the end of the quarter offset by the proceeds from the sale
of an engine that had been held for lease.
Net cash provided by financing activities for three months ended August 31, 1999
amounted to $7,298,000 compared to $3,570,000 for the three months ended August
31, 1998. The net cash provided by financing activities for the three months
ended August 31, 1999 was primarily the result of a net increase in debt
obligations of $7.3 million dollars used primarily to purchase the two aircraft
on lease and a deposit for the purchase of a third aircraft. The net cash
provided by financing activities for the three months ended August 31, 1998 was
primarily the result of a net increase in debt obligations of $3.6 million
dollars, resulting from an increase in inventory and a deposit on an investment
in a joint venture.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
At August 31, 1999, the Company was permitted to borrow up to an additional $4.7
million pursuant to the revolving credit facility. The Company believes that
amounts available to be borrowed pursuant to the Credit Agreement and its
working capital will be sufficient to meet the requirements of the Company's
business for the foreseeable future. The Company had no material commitments
for capital expenditures as of August 31, 1999.
Recent Accounting Pronouncements
- ----------------------------------
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 establishes standards for accounting for internal use software projects.
This Statement is effective for financial statements for fiscal years beginning
after December 15, 1998 for costs incurred in those fiscal years for all
projects, including projects in progress when the SOP was adopted. Management
does not expect this Statement to have a material impact on the Company's
financial statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities." SOP 98-5 provides guidance on accounting for
start-up costs and organization costs, which must be expensed as incurred. This
Statement is effective for financial statements for fiscal years beginning after
December 15, 1998. Management does not expect this Statement to have a material
impact on the Company's financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
FAS No. 133 establishes standards for accounting and reporting for derivative
instruments, and conforms the requirements for treatment of different types of
hedging activities. This statement is effective for all fiscal years beginning
after June 15, 2000. Management does not expect this standard to have a
significant impact on the Company's operations.
Year 2000 Issues
- ------------------
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. These programs
can fail by misinterpreting dates beyond the year 1999, which could cause
possible miscalculations, and a disruption in the operation of such systems.
This is commonly referred to as the Year 2000 issue. The Company has identified
four major areas of concern regarding the Year 2000 issue: Internal Information
Systems, External Facilities, Materials Held for Sale, and Outside Vendors'
Information Systems and Materials.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Internal Information Systems. The Company has developed a plan to address
issues related to the impact of the Year 2000 problem on its internal
information systems ("IT"). Starting in fiscal 1997 the Company began the
process of upgrading or replacing all personal computers. This process was
completed in the third quarter of fiscal 1998. At the same time all critical
software systems were assessed for Year 2000 compliance. The inventory system,
which is written in PICK, required no further action. The accounting package
required a "patch" which sets an assumption for dates between 1975 and 2035. The
Company anticipates no further remediation requirements on the part of either of
these packages. The Company primarily uses Microsoft Operating Systems and
productivity packages. Microsoft continues to find and fix Year 2000 issues as
they appear throughout its product line. To date all patches have been applied
to the Windows NT Servers. The Windows 95 and 98 machines were patched with all
current updates in the second quarter of calendar 1999. Incremental costs,
which include consulting costs and costs associated with internal resources to
modify existing systems in order to achieve Year 2000 compliance, are charged to
expense as incurred. The Company does not expect the financial impact of making
the required system changes, which are being funded from operating cash flows,
to be material to the Company's financial position, results of operations or
cash flows. The anticipated costs of the project and the dates on which the
Company believes it will complete the Year 2000 modifications and assessments
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area and the ability to
locate and correct the remaining relevant systems.
External Facilities. The Company has received assurances from the owners
of its facilities that the owners are taking steps that are appropriate to
assure uninterrupted access to these facilities and uninterrupted fire
protection and security services. The Company has not sought or received
assurances regarding the uninterrupted services provided by the public
utilities, financial institutions, governmental agencies (e.g., Federal Aviation
Administration) and other similar entities, the services of which the Company
utilizes. The Company believes, based on its analysis of the Year 2000 issue,
that it will not experience significant disruptions of its business as a result
of interruptions in the services provided by such entities.
Materials Held For Sale. Like all other companies in the aircraft parts
redistribution industry, the Company lists parts to indicate their condition.
The parts are categorized as "serviceable", "as removed", or "unserviceable."
The Company makes no representation or warranty with respect to the parts it
sells. Specifically, the Company makes no representation or warranty regarding
whether there are Year 2000 issues with respect to any of the parts available
for sale. All parts purchasers' concerns about the Year 2000 issue are therefore
directed to the manufacturer of such part.
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Outside Vendors Information Systems And Materials. The Company's Year 2000
issues, and any potential business interruptions, costs, damages or losses
related thereto, may be dependent upon the Year 2000 compliance of its suppliers
and vendors. However, the Company believes that it is unlikely that it will be
materially affected by the failure of any of its suppliers, vendors or other
third parties to be Year 2000 compliant. The Company obtains its parts
inventory from a variety of sources. If one or more sources were to experience
a business interruption as a result of its failure to be Year 2000 complaint,
the Company believes it would be able to obtain inventory from another supplier.
Furthermore, the Company does not believe that its aircraft trading activities
are likely to be disrupted by the failure of the entities to which it sells and
leases aircraft and engines to be Year 2000 compliant.
A reasonable worst case scenario is that a large number of third parties
(including lessees and spare parts customers) may be unable to operate and
generate revenues and as a result may be unable to make lease payments on a
timely basis or purchase parts. The Company is unable to estimate the
likelihood or the magnitude of the resulting lost revenue at this time should
the worst case scenario come to pass. However, should it occur, the Company
would attempt to repossess leased engines, aircraft and spare parts from
non-compliant third parties and place such assets with compliant third parties.
The Company can offer no assurances that it would be able to re-lease such
assets at favorable terms or at all. Similarly, the Company would attempt to
find compliant customers for the Company's spare part sales.
Forward Looking Statements
- ----------------------------
This Form 10-Q contains statements that may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those statements include statements regarding the capital spending and future
financing plans of the Company and reflect the intent, belief or current
expectations of the Company and members of its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes to future operating results over time.
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING
<S> <C> <C>
2.4 Credit Incorporated by reference to Exhibit 2.4 to
Agreement Amendment No. 2 to the Company's Registration
between BNY Statement on Form S-4 filed on August 29, 1996 (File
Financial No. 333-08065).
Corporation
and the
Registrant
(the "Credit
Agreement").
2.5 First
Amendment, Filed herewith.
Waiver and
Agreement,
dated as of
March 24,
1997, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.6 Second Filed herewith.
Amendment and
Agreement,
dated as of
September 9,
1997, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
<PAGE>
2.7 Third
Amendment and Filed herewith.
Agreement,
dated as of
October 15,
1997, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.8 Fourth
Amendment and Filed herewith.
Agreement,
dated as of
February 2,
1998, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.9 Fifth
Amendment, Filed herewith.
dated as of
July 16,
1998, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.10 Sixth
Amendment, Filed herewith.
dated as of
May 30, 1998,
between BNY
Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
2.11 Seventh
Amendment, Filed herewith.
dated as of
October 28,
1998, between
BNY Financial
Corporation
and the
Registrant
and related
to the Credit
Agreement.
3.1 Amended and Incorporated by reference to Exhibit 3.1 to the
Restated Company's Annual Report on Form 10-K for the fiscal
Certificate year ended May 31, 1996 (the "1996 Form 10-K").
of
Incorporation
of the
Registrant.
3.2 Restated and Incorporated by reference to Exhibit 3.2 to the 1996
Amended Form 10-K.
Bylaws of the
Registrant.
4.1 Specimen Incorporated by reference to Exhibit 4.1 to the 1996
Common Stock Form 10-K.
Certificate.
10.1.1 Employment Incorporated by reference to Exhibit 10.1.1 to the
Agreement, 1996 Form 10-K
dated as of
December 1,
1995, between
the
Registrant
and Alexius
A. Dyer III,
as amended on
October 3,
1996.
10.1.2 Employment Incorporated by reference to Exhibit 10.1.2 to the
Agreement Company's Quarterly Report for the quarter ended
dated as of February 28, 1997.
October 3,
1996, between
the
Registrant
and George
Murnane III.
10.2.1 1996 Long- Incorporated by reference to Appendix B to the Proxy
Term Statement/Prospectus included in the Company's
Incentive and Registration Statement on Form S-4 (File
Share Award No. 333-08065), filed on July 12, 1996.
Plan.
22
<PAGE>
10.2.2 401(k) Plan. Incorporated by reference to Exhibit 10-H to the
Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1992 (the "1992 Form 10-K").
10.2.3 Bonus Plan. Incorporated by reference to Exhibit 10.2.4 to the
1992 Form 10-K.
10.2.4 Cafeteria Incorporated by reference to Exhibit 10.2.5 of the
Plan. Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993.
10.2.5 Form of Incorporated by reference to Exhibit 10.2.5 to the
Option 1996 Form 10-K.
Certificate
(Employee
Non-Qualified
Stock
Option).
10.2.6 Form of Incorporated by reference to Exhibit 10.2.6 to the
Option 1996 Form 10-K.
Certificate
(Director
Non-Qualified
Stock
Option).
10.2.7 Form of Incorporated by reference to Exhibit 10.2.7 to the
Option 1996 Form 10-K.
Certificate
(Incentive
Stock
Option).
10.14 Commission Incorporated by reference to Exhibit 10.14 to the
Agreement 1996 Form 10-K.
dated
December 1,
1995 between
the
Registrant
and J.M.
Associates,
Inc.
10.15 Operating Filed herewith.
Agreement of
Air41 LLC,
dated as of
September 9,
1998, by and
between
AirCorp, Inc.
and the
Company
10.16 Office Lease Incorporated by reference to Exhibit 10.17 to the
Agreement 1997 Form 10-K.
dated January
31, 1997
between the
Registrant
and Globe
Corporate
Center, as
amended.
10.17 Lease Incorporated by reference to Exhibit 10.18 to the
Agreement 1997 Form 10-K.
dated March
31, 1997
between the
Registrant
and Port 95-
4, Ltd.
21 Subsidiaries. Filed herewith.
27 Financial Filed herewith.
Data
Schedule.
</TABLE>
27 Financial Data Schedule. Filed herewith.
-- -------------------------- ----------------
(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/James M. Isaacson October 7, 1999
- ---------------------- -----------------
James M. Isaacson Date
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> May-31-1999
<PERIOD-END> Aug-31-1999
<CASH> 1,509,497
<SECURITIES> 0
<RECEIVABLES> 2,848,465
<ALLOWANCES> 389,000
<INVENTORY> 11,658,380
<CURRENT-ASSETS> 18,168,029
<PP&E> 12,144,113
<DEPRECIATION> 2,003,474
<TOTAL-ASSETS> 32,499,847
<CURRENT-LIABILITIES> 6,088,760
<BONDS> 14,568,587
<COMMON> 2,463
0
0
<OTHER-SE> 13,946,793
<TOTAL-LIABILITY-AND-EQUITY> 32,499,847
<SALES> 8,329,082
<TOTAL-REVENUES> 8,998,513
<CGS> 6,118,332
<TOTAL-COSTS> 8,102,970
<OTHER-EXPENSES> (401,065)
<LOSS-PROVISION> 47,914
<INTEREST-EXPENSE> 329,165
<INCOME-PRETAX> 971,385
<INCOME-TAX> 374,189
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597,196
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.25
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