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 28, 2002 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
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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 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 __
---
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
2, 2002 was 2,181,497.
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 as of
May 31, 2001 and February 28, 2002 3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months
Ended February 28, 2001 and February 28, 2002 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended February 28, 2001 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
Part II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote
Of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, February 28,
2001* 2002
------------------ --------------
(unaudited)
Current assets
Cash and cash equivalents $ 70,290 $ 185,672
Accounts receivable, net of allowance for doubtful accounts
of approximately $301,424 at May 31, 2001 and $552,895 at
February 28, 2002 2,558,176 1,860,965
Inventories 12,471,871 8,259,698
Deferred tax benefit - current 1,088,953 1,016,250
Other current assets 198,449 409,060
Current portion note receivable - related party 78,454 141,818
----------- ----------
Total current assets 16,466,193 11,873,463
Property and equipment
Aircraft and engines held for lease 13,973,285 17,148,061
Leasehold improvements 166,991 166,991
Machinery and equipment 1,089,341 1,121,069
--------- ---------
15,229,617 18,436,121
Accumulated depreciation (2,643,867) (2,945,050)
----------- -----------
Property and equipment, net 12,585,750 15,491,071
Other assets
Investment in joint ventures 5,559,057 -
Note Receivable - related party 725,714 446,641
Deferred debt costs, net 232,373 118,389
Deferred tax benefit 83,745 2,267,059
Deposits and other assets 152,440 6,246
------- -----
Total other assets 6,753,329 2,838,335
--------- ---------
$ 35,805,272 $ 30,202,869
= ========== = ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 2,387,642 $ 19,006,549
Accounts payable 1,965,179 1,498,679
Accrued expenses 785,867 622,357
------- -------
Total current liabilities 5,138,688 21,127,585
Long-term obligations, less current maturities 18,004,574 -
Commitments and contingencies - -
Stockholders' equity
Preferred stock - $.001 par value; authorized 2,000,000 shares;
0 shares outstanding at May 31, 2001 and February 28, 2002. - -
Common stock - $.001 par value; authorized 20,000,000 shares;
issued and outstanding 2,661,723 shares at May 31, 2001 and
February 28, 2002 2,661 2,661
Additional paid-in capital 13,902,909 13,902,909
Deferred compensation - (66,300)
Retained earnings (accumulated deficit) 871,230 (2,735,110)
Common stock held in treasury, at cost - 640,226 shares at
May 31, 2001 and 480,226 shares at February 28, 2002 (2,114,790) (2,028,876)
----------- -----------
Total stockholders' equity 12,662,010 9,075,284
---------- -----------
$ 35,805,272 $ 30,202,869
= ========== = ==========
*Condensed from audited Financial Statements
The accompanying notes are an integral part of these condensed financial
statements
3
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
February 28, February 28,
2001 2002 2001 2002
----------- ----------- ----------- ------------
Revenues
Net sales $4,318,505 $4,065,845 $14,147,234 $11,665,304
Aircraft operations - - 171,579 -
Lease and service revenue 902,706 720,000 2,347,403 1,993,882
--- ---------
Total revenues 5,221,211 4,785,845 16,666,216 13,659,186
Cost of sales 3,541,039 2,919,164 11,213,916 8,599,654
Selling, general and administrative expenses 1,340,590 940,439 4,226,643 3,233,930
Depreciation and amortization 275,695 380,582 791,446 865,580
------- ------- ------- -------
Total operating costs 5,157,324 4,240,185 16,232,005 12,699,164
Equity in net earnings (loss) of
unconsolidated subsidiaries 412,250 (168,898) 1,391,839 172,520
Impairment of investment in joint venture - - - (6,024,320)
----------- ----------- ---------- -----------
Earnings (loss) from operations 476,137 376,762 1,826,050 (4,891,778)
Interest expense 497,019 273,750 1,510,678 1,041,301
Interest income and other income (101,312) (9,928) (100,578) (216,128)
--------- --------- --------- ---------
Earnings (loss) before income taxes 80,430 112,940 415,950 (5,716,951)
Provision (benefit) for income taxes 50,647 42,279Z 199,507 (2,110,611)
--------- ---------- --------- ----------
Net earnings (loss) $ 29,783 $ 70,661 $ 216,443 $ (3,606,340)
======= =========== ========= ===========
Per share data:
Earnings (loss) per share available
for common stockholders - basic $ 0.01 $ 0.03 $ 0.10 $ (1.70)
Weighted average number of common
stock outstanding - basic 2,190,198 2,181,497 2,190,198 2,127,578
========= ========= ========= =========
Earnings (loss) per share available
for common stockholders - diluted $ 0.01 $ 0.03 $ 0.10 $ (1.70)
Weighted average number of common
stock outstanding - diluted 2,190,198 2,323,402 2,200,034 2,127,578
========= ========= ========= =========
The accompanying notes are an integral part of these condensed financial
statements
4
FORM 10-Q
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
February 28,
2001 2002
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ 216,443 $ (3,606,340)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Impairment of investment in joint venture - 6,024,320
Depreciation and amortization 758,518 865,580
Equity in net earnings of unconsolidated subsidiaries
(1,494,314) (172,520)
Provision (benefit) for income taxes 242,632 (2,110,611)
Changes in other assets and liabilities 4,936,190 581,746
---------- ----------
Total adjustments 4,443,026 5,188,515
Net cash provided by operating activities 4,659,469 1,582,175
Cash flows from investing activities:
Capital equipment additions (19,596) (31,728)
Investment in unconsolidated joint ventures (380,382) (48,595)
Distributions received from joint venture, net 270,000 140,886
Additions to aircraft and engines held for lease, net (5,456,699) (357,398)
Payment of notes receivable - 215,709
---------- ----------
Net cash used in investing activities (5,586,677) (81,126)
Cash flows from financing activities:
Net increase (decrease) in debt obligations 405,664 (1,385,667)
--------- ---------
Net cash used in financing activities 405,664 (1,385,667)
--------- -----------
Net increase (decrease) in cash (521,544) 115,382
Cash and cash equivalents at beginning of period 721,111 70,290
--------- -----------
Cash and cash equivalents at end of period $ 199,567 $ 185,672
= ======= = =======
The accompanying notes are an integral part of these condensed financial
statements
5
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 Subsidiaries' condensed consolidated balance sheets as
of May 31, 2001 and February 28, 2002, the condensed consolidated statements of
operations for the three and nine months ended February 28, 2001 and February
28, 2002, and the condensed consolidated statements of cash flows for the nine
months ended February 28, 2001 and February 28, 2002.
The accounting policies followed by the Company are described in the May
31, 2001 financial statements.
The results of operations for the three and nine months ended February 28,
2002 are not necessarily indicative of the results to be expected for the full
year.
2. Inventories consisted of the following:
May 31, 2001 February 28, 2002
-------------- -------------------
Aircraft parts $ 6,644,053 $ 6,014,870
Aircraft and Engines
available for sale 5,827,818 2,244,828
------------ -----------
$ 12,471,871 $ 8,259,698
============ ===========
3. Earnings (Loss) Per Share:
The Company's basic earnings (loss) per share are calculated by dividing
net earnings (loss) by the weighted average shares outstanding during the
period. The computation of diluted earnings (loss) 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 computations is as
follows:
Three Months
Ended Net Basic Basic Diluted Diluted
February 28, Earnings (loss) Shares EPS Shares EPS
- ------------- ---------------- ------ --- ------ ---
2001 $ 29,783 2,190,198 $ 0.01 2,190,198 $0.01
2002 $ 70,661 2,181,497 $ 0.03 2,323,402 $0.03
Nine Months
Ended Net Basic Basic Diluted Diluted
February 28, Earnings (loss) Shares EPS Shares EPS
- ------------- ---------------- ------ --- ------ ---
2001 $ 216,443 2,190,198 $ 0.10 2,200,034 $ 0.10
2002 $(3,606,340) 2,127,578 $(1.70) 2,127,578 $(1.70)
6
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share (cont.):
Stock options to purchase 417,774 shares of the Company's common stock at
exercise prices ranging from $2.75 to $3.31 have been excluded from the diluted
share calculation for the three months ended February 28, 2002 as the exercise
prices are greater than the Company's average stock price during the period.
Stock options to purchase 767,774 shares of the Company's common stock at
exercise prices ranging from $0.55 to $3.31 have been excluded from the diluted
share calculation for the nine months ended February 28, 2002 as the Company
incurred a net loss in the period and their inclusion would have been
anti-dilutive.
In August 2001, the Board of Directors approved the adoption of a
Restricted Stock Plan (the "Plan") to make restricted stock grants to employees
of the Company. The Board reserved 167,800 shares of the Company's common stock
to be issued under the Plan. On September 1, 2001, the Company issued 160,000
shares of the Company's common stock under the Plan from the Company's treasury
stock. The stock issued pursuant to the Plan vests if the employee
participating in the Plan remains in the Company's employ on the fifth
anniversary of the date of the grant to the employee. If the employee ceases to
be an employee of the Company prior to the fifth anniversary date, the employee
forfeits the shares of restricted stock issued to him or her, with certain
exceptions. Accordingly, the Company recorded Deferred Compensation of $85,914
upon issuance of the stock and amortized $9,805 and $19,614 into expense during
the three and nine months ended February 28, 2002 respectively.
4. Credit Facility:
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 and the
term loan facilities mature on December 2005. The interest rate that the
Company is assessed is subject to fluctuation and may change based upon certain
financial covenants. As of March 29, 2002, the interest rate under the Credit
Facility was the lender's base rate minus 0.25% (4.50%). 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 and in the Amendments to the Credit Facility filed on various dates as
listed below in Item 6. Exhibits and Reports on Form 8-K.
7
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Credit Facility (cont.):
As of the date hereof, the Company was not in compliance with the covenant set
forth in the Credit Agreement that requires the Company to maintain a specified
amount of consolidated tangible net worth. The Company was not in compliance
with the covenant because of the impairment of its investment in the Air 41
Joint Venture (as defined below). Had Air 41 not written down its investment in
its aircraft, the Company would be in compliance with all of the covenants in
its Credit Agreement. The circumstances resulting in the impairment are
described below in Note 7--Unconsolidated Subsidiaries and Note 8--Recent
Events. As a result of the default, $16,666,549 of the Company's total
long-term debt has been classified as a current liability in the accompanying
balance sheet at February 28, 2002. The Company is negotiating an amendment to
the Credit Agreement that, among other things, would cure the default by
reducing the amount of consolidated tangible net worth that the Company is
required to maintain. The Company believes that the amendment will be executed
prior to the end of its current fiscal year on May 31, 2002. The Company's
senior lender has agreed that it will not refuse to extend credit to the Company
under the revolving credit facility due to the occurrence of the default. If
the amendment is not executed by the lender, the Company's liquidity would be
significantly impacted which could result in the inability of the Company to
satisfy its obligations in the normal course of business.
5. Supplemental Cash Flow Disclosures:
Cash payments for interest were $1,368,000 and $964,000 for the nine months
ended February 28, 2001 and February 28, 2002, respectively. Cash and cash
equivalents include $54,000 and $43,000 of restricted cash at May 31, 2001 and
February 28, 2002, 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. Related Party Transactions:
The Company had notes receivables from an affiliate in the principal amount
of $588,000 as of February 28, 2002, relating to loans provided to North-South
Airways, which are secured by aircraft operated by the airline. The loans are
priced at market rates, ranging from 8.75% to 9.50%, with monthly principal
payments extending through August 2004. For more information, see Note 7 -
Unconsolidated Subsidiaries.
As of February 28, 2002, the Company leased six EMB-120 aircraft to
North-South Airways. The leases originated from September 2000 to February 2002
and have three-year terms. The leases contain similar terms and conditions to
other EMB-120 aircraft leases completed by the Company. Total lease revenue
from these aircraft leases was $450,000and $900,000 for the three and nine
months ended February 28, 2002. As of February 28, 2002 and May 31, 2001, the
Company had receivables due from North-South Airways, in addition to the notes
discussed in the previous paragraph, of $412,000 and $80,000, respectively,
related to unsecured advances made by the Company.
8
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Unconsolidated Subsidiaries:
On September 16, 1998, the Company entered into a joint venture (the "Air
41 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 Air
41 Joint Venture was approximately $1.5 million. The Company's Air 41 Joint
Venture partner is AirCorp, Inc., a privately held company. The aircrafts were
financed through the joint venture, utilizing non-recourse debt to the partners.
In connection with this financing, the Company was required to post a $1.15
million letter of credit. The letter of credit is drawable, up to the letter of
credit amount, with respect to an event of default under the Air 41 loan
agreement. If a drawing is made, the Company's outstanding revolving debt would
be increased by the drawing amount, resulting in additional interest expenses.
As of the date hereof, the Company's lender has not received any default notice.
Substantially all of the Air 41 Joint Venture's cash flow is pledged to service
the non-recourse debt. The Air 41 Joint Venture is accounted for under the
equity method and the leases are treated as operating leases.
As a result of the recent events discussed below in Note 8--Recent Events,
the Company recorded an impairment charge of $6,024,320 related to its Air 41
Joint Venture in the second quarter of fiscal 2002. Before the $6,024,320 write
down in the aircraft of the Air 41 Joint Venture, Equity in Net Earnings of
Unconsolidated Joint Ventures related to the Air 41 Joint Venture for the first
six months of fiscal 2002 was $600,000. This write down was a non-cash charge.
The Air 41 Joint Venture is in discussion with certain carriers for the
re-lease of these aircraft as they are returned off-lease, however there can be
no assurance that any of these aircraft will be able to be re-leased on as
favorable terms, if at all. Should the Air 41 Joint Venture be unable to
re-lease or sell these aircraft, the Company's stated operating income would be
significantly impacted. Furthermore, because substantially all of the Air 41
Joint Venture's cash flow is pledged to service its debt, the Company does not
expect to receive cash distributions from the Air 41 Joint Venture in the near
future. Although the Air 41 Joint Venture had positive operating earnings
during the three months ended February 28, 2002, the Air 41 Joint Venture
decided to take an additional impairment charge of $656,000 against net
operating income, resulting in no before-tax earnings, and the Air 41 Joint
Venture will continue to take such a reserve until the Air 41 Joint Venture gets
more aircraft released.
The Company is exploring opportunities for the aircraft after the end of
the term of the leases with SAS. Such opportunities include leasing the
aircraft to one or more different lessees, 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.
During the second quarter of fiscal 2001, the Company's regional airline
subsidiary, doing business as North-South Airways, sold additional shares of
stock raising approximately $1,000,000. This sale of stock reduced the
Company's ownership interest in North-South Airways from 100% to approximately
35%. Accordingly commencing September 1, 2000, the Company is accounting for
its investment in North-South Airways under the equity method. Equity in Net
Loss of Unconsolidated Joint Ventures related to North-South Airways was
$169,000 and $428,000 for the three and nine months ended February 28, 2002,
respectively.
9
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Recent Events
The aviation industry has been negatively impacted by the September 11,
2001 terrorist attack on the United States. As a result, many airlines are
facing extremely difficult financial situations and have significantly reduced
the number of flights and aircraft operated. Accordingly, many aspects of the
Company's business have been impacted and the Company is evaluating their
long-term effect. The lasting results of the terrorist attack on the aviation
industry have adversely affected the Company's operating results by 1) reducing
aircraft parts sales from historical levels, 2) making it difficult to attract
and retain employees and 3) limiting the Company's access to capital at
competitive rates. The Company is unable to predict how long the results of the
terrorist attacks and downturn in market conditions will adversely affect the
Company's operations.
Given the recent events, the Air 41 Joint Venture evaluated the market value of
its aircraft and determined that their value was negatively impacted by the
events described above. As a result of such impairment, the Air 41 Joint
Venture wrote down the carrying value of its aircraft, which was reflected as a
write down to the investment in IASG's unconsolidated subsidiaries. As of
February 28, 2002, the Company's investment in the Air 41 Joint Venture was
completely written off. Although there was no cash flow impact, the write down
to the Air 41 Joint Venture has a negative impact on the Company's statement of
operations and overall net worth. As of February 28, 2002, seven of the AIR 41
Joint Venture aircraft were off lease. Although it is actively marketing these
aircraft, there can be no assurance that any of these aircraft will be able to
be re-leased on as favorable terms.
Although the Air 41 Joint Venture had positive operating earnings, the Air
41 Joint Venture decided to take an additional impairment charge of $656,000
against net operating income, resulting in no before-tax earnings, and the Air
41 Joint Venture will continue to take such a reserve until the Air 41 Joint
Venture gets more aircraft released.
9. Net Operating Loss Carryforwards:
As of February 28, 2002, the Company had net operating loss carryforwards
for federal tax purposes of approximately $11.3 million, which results in a
deferred tax asset of approximately $4.2 million. The Company's policy is to
record a valuation allowance against its deferred tax assets if the Company
believes that it is more likely than not that it will not recognize the deferred
tax benefits. Based on the Company's recent earnings history and management's
estimate of future profits, the Company believes that it is more likely than not
that its future profits and the expected timing of temporary difference
reversals will be sufficient to realize these benefits. However, management
will continue to monitor the realizability of these benefits. If in the future
the Company no longer believes that it is more likely than not that it will
recognize the deferred tax benefits, a valuation allowance will be recorded,
which could have a significant impact on the Company's statement of earnings and
net worth.
10
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. New Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business
combinations to be accounted for using the purchase method of accounting and is
effective for all business combinations initiated after June 30, 2001. SFAS 142
requires goodwill to be tested for impairment under certain circumstances and
written off when impaired rather than being amortized as previous standards
required. The adoption of SFAS 141 did not have a material effect on the
Company's operating results or financial position and, as the Company has no
goodwill or intangibles generated as a result of a business combination, the
adoption of SFAS 142 is not expected to have an impact on the Company's
operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of." SFAS No. 144 retained substantially
all of the requirements of SFAS No. 121 while resolving certain implementation
issues. SFAS No. 144 is effective for fiscal 2003, with early application
encouraged. The adoption of SFAS No. 144 is not expected to have an impact on
the Company's operations.
11
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
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 for the three and nine months ended February 28, 2002 was
$4.8 million and $13.7 million, respectively, compared to $5.2 million and $16.7
million, respectively, during the three and nine months ended February 28, 2001.
Net sales for the three and nine months ended February 28, 2002 were $4.1
million and $11.7 million, respectively, compared to $4.3 million and $14.1
million, respectively, during the three and nine months ended February 28, 2001.
Net sales include parts sales as well as aircraft and engine sales. The
decreases in parts and engine sales of $4.5 million during the nine months ended
February 28, 2002 were partially off set by $1.5 million inaircraft sales.
There were no aircraft sales during the nine months ended February 28, 2001.
Net sales have been negatively impacted due to increased pricing pressure
arising from the financial difficulties of many airlines and other spare parts
redistributors. The airlines have faced significant declines in traffic, while
banks are electing to liquidate insolvent competitors as opposed to
reorganization. The Company has attempted to offset and mitigate these negative
sales trends by expanding its product lines, but no assurances can be made that
sales revenue will increase in the short term. Although the events of September
11, 2001 have certainly exacerbated these negative trends, the Company was
already experiencing these trends due to an overall slowdown in the aviation
industry as a whole causing decreased demand for the Company's inventory 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 $720,000 for the three
months ended February 28, 2002 from $903,000 for the three months ended February
28, 2001, primarily due to fewer assets being under lease. Lease and service
revenue decreased to $2.0 million for the nine months ended February 28, 2002
from $2.3 million for the nine months ended February 28, 2001, primarily due to
fewer assets under lease during the second and third quarter of fiscal 2002.
There was no revenue from aircraft operations for the three or nine months ended
February 28, 2002, because commencing September 1, 2000, the Company began
accounting for its investment in North-South Airways under the equity method.
Cost of Sales
- ---------------
Cost of sales decreased 17.1% from $3.5 million during the three months
ended February 28, 2001 to $2.9 million during the three months ended February
28, 2002. This decrease was primarily due to the decrease in sales in this
period. For the nine months ended February 28, 2002, cost of sales decreased
23.2% from $11.2 million during the nine months ended February 28, 2001 to $8.6
million during the nine months ended February 28, 2002. The decrease was due
primarily to a corresponding decrease in revenue. As a percentage of total
revenues, cost of sales for the three and nine months ended February 28, 2001
was 68% and 67%, respectively, compared to 61% and 63% during the three and nine
months ended February 28, 2002, respectively. The decrease in cost of sales as
a percentage of total revenue for the three and nine months period is due to the
increased percentage of the higher margin parts sale and increased parts
exchange, which typically carry a higher margin than parts sale, during the
corresponding period.
12
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Selling, General and Administrative Expenses
- ------------------------------------------------
Selling, general and administrative expenses decreased 29.9% from $1.3
million during the three months ended February 28, 2001 to $940,000 during the
three months ended February 28, 2002. Selling, general and administrative
expenses decreased 23.5% from $4.2 million during the nine months ended February
28, 2001 to $3.2 million during the nine months ended February 28, 2002. The
decrease in selling, general and administrative expenses for fiscal 2002 was
primarily due to decreases in salaries, accrued bonuses, commissions, travel,
entertainment and telephone expenses, professional fees, advertising and
promotion expenses, partially offset by slightly increased insurance expenses,
rent and owned aircraft expenses.
Impairment of Investment in Joint Venture
- ----------------------------------------------
Given the events of September 11, 2001, the Air 41 Joint Venture evaluated
the market value of its aircraft and determined that their value was negatively
impacted by these events. As a result of such impairment, the Air 41 Joint
Venture wrote down the carrying value of its aircraft, which was reflected as a
write down to the investment in IASG's joint venture and an impairment charge of
$6,024,000 in the second quarter of fiscal 2002 (see Recent Events).
Although the Air 41 Joint Venture had positive operating earnings, the Air
41 Joint Venture decided to take an additional reserve as deferred revenue
against net operating income, resulting in no before-tax earnings, and the Air
41 Joint Venture will continue to take such a reserve until the Air 41 Joint
Venture gets more aircraft released. For the three months ended February 28,
2002, the Air 41 Joint Venture has taken an additional impairment charge of
$656,000.
Depreciation and Amortization
- -------------------------------
Depreciation and amortization for the three and nine months ended February
28, 2002 totaled $381,000 and $866,000, respectively, compared to $276,000 and
$791,000, respectively, for the three and nine months ended February 28, 2001,
respectively.
Interest Expense
- -----------------
Interest expense for the three and nine months ended February 28, 2002 was
$274,000 and $1,014,000, respectively, compared to $497,000 and $1,511,000 for
the three and nine months ended February 28, 2001, respectively. This decrease
in interest expense was due to lower interest rates during the corresponding
periods.
Net Earnings
- -------------
As a result of the above, Earnings per share - diluted for the third
quarter of fiscal 2001 were $0.01, based on 2,190,198 weighted average shares
outstanding, compared to earnings per share - diluted for the third quarter of
fiscal 2002 of $0.03, based on 2,323,402 weighted average shares outstanding.
Earnings per share - diluted for the first nine months of fiscal 2001 were $0.10
per share - diluted, based on 2,200,034 weighted average shares outstanding,
compared to loss per share - diluted for the first nine months of fiscal 2002 of
$(1.70) per share - diluted, based on 2,127,578 weighted average shares
outstanding.
13
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
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 and the
term loan mature on December 2005. The interest rate that the Company is
assessed is subject to fluctuation and may change based upon certain financial
covenants. As of March 29, 2002, the interest rate under the Credit Facility
was the lender's base rate minus 0.25% (4.50%). The Credit Facility is secured
by substantially all of the assets of the Company and the 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 and in the Amendments to the Credit Facility filed on various dates as
listed below in Item 6. Exhibits and Reports on Form 8-K.
As of the date hereof, the Company was not in compliance with the covenant
set forth in the Credit Agreement that requires the Company to maintain a
specified amount of consolidated tangible net worth. The Company was not in
compliance with the covenant because of the impairment of its investment in the
Air 41 Joint Venture. Had Air 41 not written down its investment in its
aircraft, the Company would be in compliance with all of the covenants in its
Credit Agreement. The circumstances resulting in the impairment are described
above under the caption "Impairment of Investment in Joint Venture." As a
result of the default, $16,666,549 of the Company's total long-term debt has
been classified as a current liability in the accompanying balance sheet at
February 28, 2002. The Company is negotiating an amendment to the Credit
Agreement that, among other things, would cure the default by reducing the
amount of consolidated tangible net worth that the Company is required to
maintain. The Company believes that the amendment will be executed prior to the
end of its current fiscal year on May 31, 2002. The Company's senior lender has
agreed that it will not refuse to extend credit to the Company under the
revolving credit facility due to the occurrence of the default. If the
amendment is not executed by the lender, the Company's liquidity would be
significantly impacted which could result in the inability of the Company to
satisfy its obligations in the normal course of business. At April 9, 2002, the
Company was permitted to borrow up to an additional $1.4 million pursuant to the
revolving credit facility. As operations are currently conducted, 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.
In connection with the financing for the Air 41 Joint Venture (see Footnote
7, Unconsolidated Subsidiaries), the Company was required to post a $1.15
million letter of credit. The letter of credit is drawable, up to the letter of
credit amount, with respect to an event of default under the Air 41 loan
agreement. If a drawing is made, the Company's outstanding revolving debt
amount would be increased by the drawing amount, resulting in additional
interest expenses. As of the date hereof, the Company's lender has not received
any default notice.
Net cash provided by operating activities for the nine months ended February 28,
2002 and February 28, 2001 was $1,582,000 and $4,659,000, respectively. The
cash provided by operating activities for nine months ended February 28, 2001
was due primarily the result of the addition of aircraft and engines held for
lease. The cash provided by operating activities for the nine months ended
February 28, 2002 was due primarily to the net earnings for the period before
the non-cash charge for the impairment of investment.
14
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Liquidity and Capital Resources (cont.)
- -------------------------------------------
Net cash used for investing activities for the nine months ended February
28, 2001 amounted to $5,587,000 compared to $81,000 for the nine months ended
February 28, 2002. The net cash used for investing activities for the nine
months ended February 28, 2001 was primarily the result of addition of aircraft
and engines held for lease. The net cash used for investing activities for the
nine months ended February 28, 2002 was primarily the result of addition of
aircraft and engines held for lease partially offset by the payment of notes
receivable from the Company's subsidiary as a result of the sale of an aircraft.
Net cash provided by financing activities for the nine months ended February 28,
2001 amounted to $406,000 compared to $1,386,000 for net cash used in financing
activities for the nine months ended February 28, 2002. The net cash provided
by financing activities for the nine months ended February 28, 2001 was
primarily the result of a net increase in debt obligations. The net cash used
in financing activities for the nine months ended February 28, 2002 was
primarily the result of a net decrease in debt obligations.
As of February 28, 2002, the Company had net operating loss carryforwards
for federal tax purposes of approximately $11.3 million, which results in a
deferred tax asset of approximately $4.2 million. The Company's policy is to
record a valuation allowance against its deferred tax assets if the Company
believes that it is more likely than not that it will not recognize the deferred
tax benefits. Based on the Company's recent earnings history and management's
estimate of future profits, the Company believes that it is more likely than not
that its future profits and the expected timing of temporary difference
reversals will be sufficient to realize these benefits. However, management
will continue to monitor the realizability of these benefits. If in the future
the Company no longer believes that it is more likely than not that it will
recognize the deferred tax benefits, a valuation allowance will be recorded,
which could have a significant impact on the Company's statement of earnings and
net worth.
Recent Events
- --------------
The aviation industry has been negatively impacted by the September 11,
2001 terrorist attack on the United States. As a result, many airlines are
facing extremely difficult financial situations and have significantly reduced
the number of flights and aircraft operated. Accordingly, many aspects of the
Company's business have been impacted and the Company is evaluating their
long-term effect. The lasting results of the terrorist attack on the aviation
industry have already affected the Company's operating results by 1) reducing
aircraft parts sales from historical levels, 2) making it difficult to attract
and retain employees and 3) limiting the Company's access to capital at
competitive rates. The Company is unable to predict how long the results of the
terrorist attacks and downturn in market conditions will adversely affect the
Company's operations.
15
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
Recent Events (cont.)
- -----------------------
As of February 28, 2002, seven of the AIR 41 Joint Venture aircraft were
off lease. Although it is actively marketing these aircraft, the AIR 41 Joint
Venture currently has only one commitment related to the disposition of these
aircraft. Given the recent events, the Air 41 Joint Venture evaluated the
market value of its aircraft and determined that their value was negatively
impacted by the events described above. As a result of such impairment, the Air
41 Joint Venture wrote down the carrying value of its aircraft, which was
reflected as a write down to the investment in IASG's unconsolidated
subsidiaries. As of February 28, 2002, the Company's investment in the Air 41
Joint Venture was completely written off. Although there is no cash flow
impact, the write down to the Air 41 Joint Venture had a negative impact on the
Company's statement of earnings and overall net worth.
Although the Air 41 Joint Venture had positive operating earnings, the Air 41
Joint Venture decided to take an additional reserve as deferred revenue against
net operating income, resulting in no before-tax earnings, and the Air 41 Joint
Venture will continue to take such a reserve until the Air 41 Joint Venture gets
more aircraft released. As of February 28, 2002, the Air 41 Joint Venture has
taken an additional reserve of $656,000 as deferred revenue.
New Accounting Pronouncements
- -------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business
combinations to be accounted for using the purchase method of accounting and is
effective for all business combinations initiated after June 30, 2001. SFAS 142
requires goodwill to be tested for impairment under certain circumstances and
written off when impaired rather than being amortized as previous standards
required. The adoption of SFAS 141 did not have a material effect on the
Company's operating results or financial position and, as the Company has no
goodwill or intangibles generated as a result of a business combination, the
adoption of SFAS 142 is not expected to have an impact on the Company's
operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of." SFAS No. 144 retained substantially
all of the requirements of SFAS No. 121 while resolving certain implementation
issues. SFAS No. 144 is effective for fiscal 2003, with early application
encouraged. The adoption of SFAS No. 144 is not expected to have an impact on
the Company's operations.
16
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks that may impact the Consolidated
Balance Sheets, Consolidated Statements of Operations and Consolidated
Statements of Cash Flows due to changing interest rates. The Company does not
currently participate in any significant hedging activities, nor does it
currently utilize any significant derivative financial instruments. However,
interest rate fluctuations expose the Company's variable-rate debt to changes in
interest expense and cash flows. The Company's variable-rate debt, primarily
short-term secured borrowings, amounted to approximately $19 million at February
28, 2002. Based on outstanding borrowings at quarter-end, a 10% adverse change
in market interest rates at February 28, 2002 would result in additional
after-tax interest expense of approximately $21,000 and $63,000 for the three
and nine months ended February 28, 2002, respectively.
Forward Looking Statements
- ----------------------------
This Form 10-Q may contain forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995 and 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. These forward-looking
statements are based on beliefs of Company management, as well as assumptions
and estimates based on information currently available to the Company, and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results or those anticipated, including: the
impact of the events of September 11, 2001 on the economy, the
aviation/aerospace industry and the Company; general economic conditions;
ability to acquire inventory at favorable prices; integration of acquisitions;
marketplace competition; economic and aviation/aerospace market stability and
Company profitability. Should one or more of these risks or uncertainties
materialize adversely, or should underlying assumptions or estimates prove
incorrect, actual results may vary materially from those described. These
events and uncertainties are difficult or impossible to predict accurately and
many are beyond the Company's control. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risk and uncertainties and that actual results may differ materially
from those contemplated by such forward-looking statements reflecting changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time. The Company assumes no obligation to publicly
release the result of any revisions that may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
17
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
As of the date hereof, the Company was not in compliance with the covenant
set forth in the Credit Agreement that requires the Company to maintain a
specified amount of consolidated tangible net worth. The Company was not in
compliance with the covenant because of the impairment of its investment in the
Air 41 Joint Venture. Had Air 41 not written down its investment in its
aircraft, the Company would be in compliance with all of the covenants in its
Credit Agreement. As a result of the default, $16,666,549 of the Company's
total long-term debt has been classified as a current liability in the
accompanying balance sheet at February 28, 2002. The Company is negotiating an
amendment to the Credit Agreement that, among other things, would cure the
default by reducing the amount of consolidated net worth that the Company is
required to maintain. The Company believes that the amendment will be executed
prior to the end of its current fiscal year on May 31, 2002. The Company's
senior lender has agreed that it will not refuse to extend credit to the Company
under the revolving credit facility due to the occurrence of the default. If
the amendment is not executed by the lender the Company's liquidity would be
significantly impacted which could result in the inability of the Company to
satisfy its obligations in the normal course of business
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING
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, Incorporated by Reference.
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 Incorporated by Reference.
Amendment and Agreement,
dated as of September 9,
1997, between BNY Financial
Corporation and the Registrant
and related to the Credit
Agreement.
2.7 Third
Amendment and Incorporated by Reference.
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 Incorporated by Reference.
Agreement, dated as of
February 2, 1998, between
BNY Financial Corporation
and the Registrant and
related to the Credit
Agreement.
2.9 Fifth
Amendment, Incorporated by Reference.
dated as of July 16, 1998,
between BNY Financial
Corporation and the
Registrant and related
to the Credit Agreement.
2.10 Sixth
Amendment, Incorporated by Reference
dated as of May 30, 1998,
between BNY Financial
Corporation and the
Registrant and related
to the Credit Agreement.
2.11 Seventh
Amendment, Incorporated by Reference.
dated as of October 28,
1998, between BNY Financial
Corporation and the Registrant
and related to the Credit
Agreement.
18
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING
2.12 Eight
Amendment and Agreement Incorporated by Reference.
dated as of December 8,
1998, by and among BNY
Financial Corporation and
the Registrant and related
to the Credit Agreement.
2.13 Ninth
Amendment and Agreement Incorporated by Reference.
dated as of July 1,
1999, by and between the
Registered and BNY Factoring
LLC, as successor in interest
to BNY Financial Corporation and
related to the Credit Agreement.
2.14 Tenth
Amendment and Agreement Incorporated by Reference.
dated as of November 17,
1999, by and between the
Registered and GMAC Commercial
Credit LLC, as successor in interest
By merger to BNY Financial Corporation
And related to the Credit Agreement.
2.15 Eleventh
Amendment, Waiver and Incorporated by Reference.
Agreement dated as of
January 5, 2001, by and between the
Registered and GMAC Commercial
Credit LLC, as successor in interest
By merger to BNY Financial Corporation
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.
19
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER OR METHOD OF FILING
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 Incorporated by reference to Exhibit 10.14 to the
Air41 LLC, Exhibit 10.15 to the 1999 Form 10-K
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.
10.18 Securities Purchase Incorporated by reference to Exhibit 10.18 to the Company's
Agreement, dated September, Quarterly Report for the quarter ended November 30, 2000
18, 2000, among Diamond
Aviation, Inc., the Registrant
And the purchasers named therein.
10.19 Stockholders Agreement, dated Incorporated by reference to Exhibit 10.19 to the Company's
September 18, 2000, among Quarterly Report for the quarter ended November 30, 2000
Diamond Aviation, Inc., and
The stockholders therof.
10.20 international Airline Support Incorporated by reference to Exhibit 10.19 to the Company's
Group, Inc. Broad-Based Quarterly Report for the quarter ended August 31, 2001
(b) Reports on Form 8-K
----------------------
None
20
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/John Wang April 15, 2002
- ------------- ----------------
John Wang Date
VP Finance and Chief Accounting Officer