U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] 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 0-23764
KELLSTROM INDUSTRIES, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3753725
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14000 N.W. 4 ST., SUNRISE, FLORIDA 33325
- ---------------------------------- -------
(Address of principal executive offices) Zip Code
(954) 845-0427
- --------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
-------- --------
State the number of shares of common stock outstanding as of
July 25, 1996: 2,881,818 shares.
Transitional Small Business Disclosure Format (check one):
YES NO X
-------- --------
<PAGE>
KELLSTROM INDUSTRIES, INC.
QUARTERLY REPORT FORM 10-QSB
INDEX
PAGE
----
PART I
Item 1 - Financial Statements:
Condensed Balance Sheet 3
Condensed Statements of Operations 5
Condensed Statements of Cash Flows 7
Notes to Condensed Financial Statements 9
Pro Forma Condensed Statements of Operations 11
Item 2 - Management's Discussion and Analysis of 16
Financial Condition and Results of Operations
PART II
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
ITEM I FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1996 DECEMBER 31, 1995
--------------- ---------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 205,477 $ 210,871
Trade receivables, net of allowance
for returns and doubtful accounts of $125,531
as of June 30, 1996 and December 31, 1995 2,312,581 3,319,025
Inventory 12,724,186 11,852,019
Engines under operating leases, net 1,547,660 --
Prepaid expenses and other current assets 370,852 307,051
Investment in warrants 200,000 --
----------- -----------
Total current assets $17,360,756 $15,688,966
Property, plant and equipment, net 2,464,856 1,738,677
Intangible assets, net 3,784,506 3,921,624
Investment in warrants -- 200,000
Other assets 532,112 368,296
----------- -----------
Total Assets $24,142,230 $21,917,563
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(continued)
(UNAUDITED)
JUNE 30, 1996 DECEMBER 31, 1995
----------------- ---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Short-term notes payable $ 4,281,000 $ 2,251,000
Current maturities of long-term debt and capital lease obligations 100,217 97,915
Accounts payable 1,548,507 2,167,214
Accrued expenses 557,935 858,733
Income taxes payable 283,838 643,732
----------- -----------
Total current liabilities $ 6,771,497 $ 6,018,594
Long-term debt and capital lease obligations, less current maturities 2,886,871 2,760,223
----------- -----------
Total Liabilities $ 9,658,368 $ 8,778,817
Stockholders' Equity
Preferred stock, $.001 par value; 1,000,000 shares authorized;
none issued -- --
Common stock, $.001 par value; 20,000,000 shares authorized;
2,881,818 shares issued and outstanding 2,882 2,882
Additional paid-in capital 12,769,565 12,769,565
Retained earnings 1,711,415 366,299
----------- -----------
Total Stockholders' Equity $14,483,862 $13,138,746
----------- -----------
Total Liabilities and Stockholders' Equity $24,142,230 $21,917,563
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
<TABLE>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
--------
1996 1995
-------------- ------------
<S> <C> <C>
Net revenues $ 5,917,832 $ 153,888
Cost of goods sold (3,630,968) (40,388)
Selling, general and administrative expenses (729,330) (31,884)
Depreciation and amortization (110,631) (9,124)
-------------- ------------
Operating income $ 1,446,903 $ 72,492
SPAC operating costs and expenses --- (77,075)
Investment advisory expenses --- (621,874)
-------------- ------------
Income (loss) before interest and income taxes $ 1,446,903 $ (626,457)
Interest income 7,369 148,641
Interest expense (143,402) (1,584)
-------------- ------------
Income (loss) before income taxes $ 1,310,870 $ (479,400)
Income taxes (482,461) ---
-------------- ------------
Net income (loss) $ 828,409 $ (479,400)
============== ============
Net income (loss) per share $ 0.13 * $ (0.18)
============== ============
Weighted average number of shares outstanding 8,050,454* 2,654,945
============== ============
</TABLE>
See accompanying notes to condensed financial statements
* The net income per share is reported based upon the weighted average of the
common shares outstanding along with the inclusion of the effect of the options
and warrants outstanding during the periods using the modified treasury stock
method in accordance with generally accepted accounting principles. The effect
of this is to increase the weighted average number of common shares outstanding
from 2,881,818 to 8,050,454 for the quarter ended June 30, 1996.
5
<PAGE>
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
----------------
1996 1995
------------ -----------
<S> <C> <C>
Net revenues $ 11,188,827 $ 153,888
Cost of goods sold (7,112,983) (40,388)
Selling, general and administrative expenses (1,477,431) (31,884)
Depreciation and amortization (215,496) (9,124)
------------ ----------
Operating income $ 2,382,917 $ 72,492
SPAC operating costs and expenses -- (345,328)
Investment advisory expenses -- (621,874)
------------ ----------
Income (loss) before interest and income taxes $ 2,382,917 $ (894,710)
Interest income 12,576 304,571
Interest expense (264,583) (1,584)
------------ ----------
Income (loss) before income taxes $ 2,130,910 $ (591,723)
Income taxes (785,794) --
------------ ----------
Net income (loss) $ 1,345,116 $ (591,723)
============ ==========
Net income (loss) per share $ 0.23 * $ (0.22)
============ ==========
Weighted average number of shares outstanding 8,050,454 * 2,652,486
============ ==========
</TABLE>
See accompanying notes to condensed financial statements
* The net income per share is reported based upon the weighted average of the
common shares outstanding along with the inclusion of the effect of the options
and warrants outstanding during the periods using the modified treasury stock
method in accordance with generally accepted accounting principles. The effect
of this is to increase the weighted average number of common shares outstanding
from 2,881,818 to 8,050,454 for the six months ended June 30, 1996.
6
<PAGE>
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,345,116 $ (591,723)
------------ ------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization $ 203,623 $ 9,124
Amortization of deferred finance costs 11,873 ---
Deferred income taxes 23,188 ---
Acquisition expenses --- 381,250
Changes in operating assets and liabilities:
Decrease in trade receivables, net 1,006,444 51,070
(Increase) in inventory (872,167) (945,012)
(Increase) in prepaid expenses and other current assets (271,574) (23,805)
Decrease in other assets 31,770 2,147
(Decrease) Increase in accounts payable (618,707) 586,176
(Decrease) Increase in accrued expenses (300,797) 175,180
(Decrease) Increase in income taxes payable (359,894) 103,145
------------ ------------
Net cash provided by (used in) operating activities $ 198,875 $ (252,448)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government securities sold --- $ 10,786,209
Treasury bills sold --- 594,518
Purchase of KST assets net of cash acquired --- (5,790,800)
Purchase of engines held under operating leases $ (1,550,000) ---
Purchases of property, plant and equipment (788,844) ---
------------ ------------
Net cash provided by (used in) investing activities $ (2,338,844) $ 5,589,927
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds $ 11,311,221 $ ---
Debt repayment, including capital lease obligations (9,152,271) (897,208)
Other (24,375) ---
------------ ------------
Net cash provided by (used in) financing activities $ 2,134,575 $ (897,208)
------------ ------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS $ (5,394) $ 4,440,271
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 210,871 72,356
------------ ------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 205,477 4,512,627
============ ============
</TABLE>
(continued)
See accompanying notes to condensed financial statements
7
<PAGE>
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
SIX MONTHS ENDED
JUNE 30,
--------
1996 1995
------------ -----------
<S> <C> <C>
Supplemental disclosures of non-cash investing and financing activities:
KST assets acquired for notes payable $ 2,230,000
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 194,301 $ 1,584
============ ===========
Income taxes $ 1,128,500 $ ---
============ ===========
Supplemental disclosures of purchase of KST assets, net of liabilities:
Cash $ 209,200
Receivables 2,256,628
Warrants 200,000
Inventory 4,235,059
Prepaid expenses 87,146
Property, plant and equipment 1,522,586
Goodwill 4,060,477
Other assets 64,491
-----------
Total assets $12,635,587
===========
Accrued expenses $ 310,303
Accounts payable 2,533,464
Notes payable 1,561,820
-----------
Total liabilities $ 4,405,587
===========
Net acquisition cost $ 8,230,000
Less discounted present value of note given to seller 2,230,000
-----------
Cash paid to seller at closing $ 6,000,000
Less cash acquired 209,200
-----------
Net cash used in acquisition $ 5,790,800
===========
See accompanying notes to condensed financial statements
</TABLE>
8
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared by the
Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed balance sheet
as of December 31, 1995 has been derived from audited financial
statements. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant
to such rules and regulations of the SEC. These condensed financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest annual report on Form
10-KSB.
In the opinion of management of the Company, the condensed financial
statements reflect all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the condensed
financial position of Kellstrom Industries, Inc. as of June 30, 1996, and
the condensed results of operations for the three month periods and six
month periods ended June 30, 1996 and 1995 and the condensed cash flows
for the six month periods ended June 30, 1996 and 1995. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
NOTE 2 - ACQUISITION
On June 22, 1995, Israel Tech Acquisition Corp. ("ITAC" or the "Company")
acquired substantially all of Kellstrom Industries, Inc.'s ("KST") right,
title and interest in and to all of the assets and liabilities of the
commercial jet aircraft engine part distribution and refurbishing
business of KST of every kind, nature and description, whether real,
personal, or mixed, tangible or intangible ("Acquisition"). Upon
consummation of the transaction, ITAC changed its name to Kellstrom
Industries, Inc. In consideration for KST, the Company paid $9,000,000,
of which $6,000,000 was paid in cash and the remaining $3,000,000 was
paid in the form of an unsecured, non-interest bearing note.
Additionally, Rada Electronic Industries, Inc. ("Rada"), the indirect
parent of KST prior to the June 22, 1995 acquisition, will pay the
Company an annual $200,000 consulting fee for the next five years. The
acquisition has been accounted for using the purchase method. Actual and
Pro forma Condensed Statements of Operations - unaudited have been
provided herein to report the results of operations for the six month
periods ended June 30, 1996 and 1995 as though the Acquisition had
occurred at the beginning of the period being reported.
NOTE 3 - DEBT AND CAPITAL LEASE OBLIGATIONS
Upon the consummation of the acquisition by ITAC of the assets of KST,
the Company assumed a mortgage note in the amount of $666,820 and a
revolving line of credit in the amount of $895,000. The mortgage note is
secured by a first mortgage on the Company's land and building. The line
of credit is secured by the Company's accounts receivable, inventory, and
equipment. A payment of $894,000 was made on the line of credit on June
23, 1995. On November 7, 1995, the revolving line of credit was replaced
by a $3,000,000 revolving note which was subsequently replaced on May 8,
1996 by a $5,000,000 revolving note which bears interest payable monthly
at 1% above the bank's prime rate (which was 8.25% at June 30, 1996).
As part of the purchase of the assets of KST, the Company issued an
unsecured non-interest bearing note in the amount of $3,000,000. The note
is payable in eight equal semi-annual payments of $125,000 with the
remaining $2,000,000 to be paid on the fourth anniversary of the
acquisition in cash or, under certain circumstances, in whole or in part
by the issuance of additional shares of Common Stock which for such
purpose shall be valued at the higher of the market price per share at
such time or $5.00 per share. The note is discounted at a rate of 9%.
On May 8, 1996 the Company entered into a $3,000,000 guidance note with
BankAtlantic to finance the purchase of specific jet engines. The note,
which bears interest at 1% above the bank's prime rate (which was 8.25%
at June 30, 1996), is due on the earlier of the sale of the acquired jet
engine or May 31, 1997. Interest is payable monthly. In January of 1996
the Company entered into a $750,000 credit facility in the form of a
construction/mortgage loan to fund the Company's expansion of its
existing office and warehouse complex. Interest at prime (8.25% at June
30, 1996) plus 1.5% is payable monthly; principal is due to become part
of the existing first mortgage note upon completion of the construction
process. The Company contracted for the expansion of its office and
warehouse facilities during the third quarter of 1995 and completion is
expected to be in the late summer of 1996.
9
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
The Company is authorized to issue 20,000,000 shares of common stock, par
value $.001 per share. At June 30, 1996 and December 31, 1995 the
Company had 2,881,818 shares of common stock outstanding.
At June 30, 1996 and December 31, 1995 the Company had 5,010,000 and
4,910,000 warrants, respectively, outstanding. Each warrant entitles the
holder to the purchase of one share of the Company's common stock at a
stated price of $5.00 for 4,910,000 of the warrants and at $8.75 for the
additional 100,000 warrants that were outstanding at June 30, 1996. These
warrants are exercisable at various times principally commencing on June
22, 1995 and expiring on or before April 11, 2001. The Company has
reserved 5,010,000 common shares for the exercise of these warrants.
At June 30, 1996 and December 31, 1995 the Company had 200,000 unit
purchase options outstanding. Each unit purchase option entitles the
holder to the purchase of one unit for $7.62 per unit. Each unit consists
of one share of the Company's common stock, $.001 par value, and two
warrants (such warrants are exercisable as previously defined). These
unit purchase options are exercisable commencing on April 11, 1995 and
expiring on April 11, 1999. As of June 30, 1996 none of the unit purchase
options had been exercised.
NOTE 5 - EARNINGS PER SHARE
Net earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
assume the exercise of all dilutive stock options and warrants. Primary
and fully diluted earnings per common and common equivalent share are
essentially the same. Quarterly and year-to-date computations of per
share amounts are made independently; therefore, the sum of per share
amounts for the quarters may not equal per share amounts for the year.
10
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
The Company acquired substantially all of the assets and operations of KST on
June 22, 1995 ("Acquisition Date").
Subsequent to the Acquisition Date, the operations that were unique to the
Company prior to the Acquisition Date are no longer needed and have accordingly
been discontinued. Certain significant expense items that are directly related
to these unique activities will not recur in future periods including
acquisition expenses, ITAC operating costs and expenses and ITAC interest
expenses. Also, the interest income that was realized by ITAC will no longer
occur, although the Company expects to continue to invest excess cash in
interest-bearing accounts and securities.
Pro forma Condensed Statements of Operations have been provided herein to report
the results of operations for the first six months of the prior year as though
the companies had combined at the beginning of the period being reported.
11
<PAGE>
KELLSTROM INDUSTRIES, INC.
ACTUAL and PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED
----------------
JUNE 30, 1996 JUNE 30, 1995
PRO FORMA
ACTUAL COMBINED
-------------- ------------
Net revenues $ 11,188,827 $ 6,264,967
Cost of goods sold (7,112,983) (4,208,729)
Selling, general and administrative expenses (1,477,431) (920,899)
Depreciation and amortization (215,496) (152,486)
------------ -----------
Operating income $ 2,382,917 $ 982,853
Interest income 12,576 126,536
Interest expense (264,583) (206,516)
------------ -----------
Income before income taxes $ 2,130,910 $ 902,873
Income taxes (785,794) (338,578)
------------ -----------
Net income $ 1,345,116 $ 564,295
============ ===========
Net income per share (B) $ 0.23 * $ 0.14 *
============ ===========
Weighted average number of shares outstanding(B) 8,050,454 * 7,300,141 *
============ ===========
See accompanying notes to condensed and pro forma condensed statements
of operations
* The net income per share is reported based upon the weighted average of the
common shares outstanding along with the inclusion of the effect of the options
and warrants outstanding during the periods using the modified treasury stock
method in accordance with generally accepted accounting principles. The effect
of this is to increase the weighted average number of common shares outstanding
from 2,881,818 to 8,050,454 for the six months ended June 30, 1996 and from
2,836,364 to 7,300,141 for the six months ended June 30, 1995.
12
<PAGE>
<TABLE>
<CAPTION>
KELLSTROM INDUSTRIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
ITAC KST ADJUSTMENTS(A) COMBINED
--------------------------- -------------- ---------
<S> <C> <C> <C> <C>
Net revenues -- $ 6,183,648 $ 81,319 $ 6,264,967
Cost of goods sold -- (4,208,729) -- (4,208,729)
Selling, general and administrative expenses -- (835,486) 4,587 (920,899)
(90,000)
Depreciation and amortization -- (57,054) 33,912 (152,486)
(128,644)
(700)
----------- ----------- --------- -----------
Operating income (loss) -- $ 1,082,379 $ (99,526) $ 982,853
SPAC operating costs and expenses $ (345,328) -- 345,328 --
Investment advisory expenses (621,874) (13,823) 635,697 --
----------- ----------- ---------- -----------
Income (loss) before interest and
income taxes $ (967,202) $ 1,068,556 $ 881,499 $ 982,853
Interest income 304,571 23,154 (201,189) 126,536
Interest expense (1,584) (132,609) 1,584 (206,516)
61,093
(135,000)
----------- ----------- --------- -----------
Income (loss) before income taxes $ (664,215) $ 959,101 $ 607,987 $ 902,873
Income taxes 249,081 (359,663) (227,995) (338,578)
----------- ----------- --------- -----------
Net income (loss) $ (415,134) $ 599,438 $ 379,992 $ 564,295
=========== =========== ========= ===========
Net income (loss) per share (B) $ (0.15) -- -- $ 0.14*
=========== ===========
Weighted average number of shares outstanding(B) 2,700,000 -- -- 7,300,141*
=========== ===========
</TABLE>
See accompanying notes to pro forma condensed statement of operations
* The net income per share is reported based upon the weighted average of the
common shares outstanding along with the inclusion of the effect of the options
and warrants outstanding during the period using the modified treasury stock
method in accordance with generally accepted accounting principles. The effect
of this is to increase the weighted average number of common shares outstanding
from 2,836,364 to 7,300,141 for the six months ended June 30, 1995.
13
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(A) For purposes of presenting the pro forma condensed statement of operations,
the following adjustments have been made:
SIX MONTHS ENDED
JUNE 30, 1995
--------------------
<S> <C>
Increase (decrease) in income:
Increase in consulting income relating to consulting agreement with Rada $ 81,319
Marketing, management and director fees charged to Kellstrom
by its former parent and affiliates 4,587
Annual $90,000 payments to Directors (90,000)
Decrease in amortization expense resulting from write-off of existing goodwill 33,912
Amortization of goodwill (15 year life) (128,644)
Depreciation of property (40 year life) (700)
Elimination of all ITAC S. G. & A. expenses since all business activities will be conducted
by Kellstrom after the Acquisition 345,328
Elimination of all acquisition expense since it is non-recurring 635,697
Decrease in interest income resulting from the sale of U.S. Government securities (201,189)
Elimination of all ITAC interest expense since all business activities will be conducted 1,584
by Kellstrom after the Acquisition
Elimination of interest charged to Kellstrom by its former parent company 61,093
Imputed interest on $2,230,000 note payable to Rada issued at 9% (135,000)
------------------
$ 607,987
(227,995)
Tax effect of pro forma adjustments ------------------
Net adjustment $ 379,992
==================
</TABLE>
14
<PAGE>
KELLSTROM INDUSTRIES, INC.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(B) The following table reconciles net income to the amount used for purposes of
determining net income per share under the modified treasury stock method:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
ACTUAL PRO FORMA
1996 1995
---------- ----------
<S> <C> <C>
Net income $1,345,116 $ 564,295
Adjustments to pro forma net income for proceeds from exercise
of common stock equivalents:
Elimination of interest expense (net of tax) 165,364 129,072
Interest income on U.S. Government Securities (net of tax) 314,121 306,556
---------- ----------
Adjusted net income $1,824,601 $ 999,923
Weighted average actual common shares outstanding 2,881,818 2,836,364
Weighted average common stock equivalents outstanding 5,168,636 4,463,777
---------- ----------
Weighted average shares outstanding 8,050,454 7,300,141
---------- ----------
Earnings per share $ .23 $ .14
========== ==========
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following should be read in conjunction with the Company's
financial statements and the related notes thereto included elsewhere herein.
The Company acquired substantially all of the assets, liabilities and
operations of KST on June 22, 1995 and changed its name from Israel Tech
Acquisition Corporation ("ITAC") to Kellstrom Industries, Inc. as of that date.
This acquisition was the primary objective of the Company when it was formed as
a Specified Purpose Acquisition Company ("SPAC"). The operations of the SPAC are
no longer pertinent and, accordingly, this analysis of results of operations
will focus upon the pro forma combined operating results of Kellstrom and the
SPAC for the six months ended June 30, 1995 and on the actual operating results
of the Company for the six months ended June 30, 1996 as reported on pages 12 to
15.
RESULTS OF OPERATIONS.
The unaudited actual results of operations for the six months ended
June 30, 1996, as compared with the pro forma results of the period ended June
30, 1995, indicate that net revenue increased by 79% to $11,188,827 from
$6,264,967 in 1995 and gross profits increased by 98% to $4,075,844 from
$2,056,238 in 1995. Operating income increased by 142% to $2,382,917 from
$982,853 pro forma in 1995 and net income increased by 138% to $1,345,116 from
$564,295 pro forma in 1995. The increase in net revenue is due primarily to
additional inventory availability as a result of an increase in working capital
made available from the SPAC and from the Company's increased bank credit
facility. Also contributing to the increase in revenues is the expansion of the
Company's sales department and product lines coupled with the growth of the
Company's customer base. Gross margins have been unusually strong in the first
half of 1996 and management expects these margins to return to the Company's
historical level during the second half of the year.
The net income per share is reported based upon the weighted average of
the common shares outstanding along with the inclusion of the effect of the
options and warrants outstanding during the periods using the modified treasury
stock method in accordance with generally accepted accounting principles. The
effect of this is to increase the weighted average number of common shares
outstanding from 2,881,818 to 8,050,454 for the six months ended June 30, 1996
and from 2,836,364 to 7,300,141 shares for the six months ended June 30, 1995.
Total selling, general and administrative expenses increased from
$920,899 in the first six months of 1995 to $1,477,431 in the first six months
of 1996, but decreased by 1.5% as a percentage of net revenue. The increase in
these expenses was a result of 1) expanding the Company's internal structure
related to conducting business as a publicly held company; and 2) putting in
place the marketing and management personnel necessary to achieve the revenue
growth opportunities that are available due to the Company's expanded level of
inventory investment, and, 3) operating costs associated with the expansion of
the Company's warehouse and office facilities. Based upon current projections,
revenues and operating expenses can be expected to grow, but operating expenses
are expected to grow at a rate that is less than the revenue growth. These
expectations are based upon management's current projections and there can be no
assurance that such expectations will be achieved.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
During May of 1996, the Company and its bank, BankAtlantic, completed
the increase to the Company's working capital line of credit from $3.0 million
to $5.0 million and also agreed upon a new guidance line of $3.0 million to fund
the acquisition of specific jet engines. The interest rate on these lines is 1%
over the bank's prime rate and the interest is payable monthly. Principal on the
guidance line is payable upon the earlier of the disposition of the underlying
collateral or the line maturity date. The working capital line and the guidance
line both mature on May 31, 1997. The Company's working capital was $10,589,259
as of June 30, 1996, an increase of $918,887 since December 31, 1995.
The Company plans to utilize its capital base to take advantage of
growth opportunities that are consistent with the Company's expansion and profit
objectives. These growth opportunities will require the investment of cash into
inventories of jet engines and jet engine parts. Greater availability of such
inventories will enable the Company to continue to increase its revenues and
profits as well as to develop strategic relationships with new customers.
The Company's expansion program will be financed through its increased
bank credit facilities and through the employment of its cash flows along with
the effective management of trade credits. Based upon ongoing negotiations with
the Company's bank, management expects that the amount available under the
Company's bank credit facilities will continue to increase over time.
The Company contracted for the expansion of its warehouse and office
facilities during the third quarter of fiscal 1995. Completion date is expected
to be in the late summer of fiscal 1996. These expanded facilities will
accommodate increased inventory purchases to enable the Company's future growth
and will also allow the Company to eliminate the cost of leasing off-site
warehouse facilities. The cost of this expansion will be paid primarily from the
construction/mortgage loan commitment that the Company obtained from its bank
during the fourth quarter of 1995 and executed during January of 1996.
The Company entered the short-term engine leasing business during the
six month period ended June 30, 1996. This activity will allow the Company to
liquidate the remaining maintenance value of jet engines on a profitable basis
by realizing both rental income as well as maintenance reserve fees charged to
the Company's engine lease customers for their utilization of such engines. Upon
the full consumption of the remaining maintenance value in each engine, the
Company will evaluate the engine's condition in order to determine if such
engine should be refurbished or should be disassembled into piece parts in
support of the Company's parts supply business. These leases are accounted for
as operating leases. Management expects that the gross profit percentage from
its engine leasing activity will be similar to the gross profit percentage
realized from its parts supply business.
17
<PAGE>
During the six month period ended June 30, 1996 the Company's highest
utilization of its $5,000,000 working capital line was $4,251,000. The balance
due under this line as of June 30, 1996 was $2,946,000. Also during this period,
the Company's highest utilization of the guidance line was $1,335,000. The
balance due under the guidance line as of June 30, 1996 was $1,335,000. The
highest utilization of the construction loan during the period, as well as the
balance due as of June 30, 1996, was $501,221.
The Company's management believes that cash flow from operations,
available cash as a result of the Acquisition, and its increased borrowing
facilities will be adequate for its current liquidity needs, as well as to
enable the completion of its warehouse and office expansion and also to support
the Company's continued growth and expansion.
18
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) A Current Report on Form 8-K was filed by the Company during the
first quarter of 1996. A Current Report on Form 8-K reporting the
release of the Company's financial results as of, and for the
quarter ended, March 31, 1996 was filed on April 26, 1996.
19
<PAGE>
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.
August _______, 1996 KELLSTROM INDUSTRIES, INC.
(Registrant)
-------------------------
John S. Gleason
Chief Financial Officer
and Treasurer
20
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