AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 2000
REGISTRATION NO. 333-8061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 JUNE 30, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934
For the transition period from to
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Commission file number 0-29028
AVIATION DISTRIBUTORS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0715685
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(State or Other Jurisdiction of (I.R.S. employer
Incorporation or Organization) Identification No.)
ONE CAPITAL DRIVE LAKE FOREST, CALIFORNIA 92630
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (949) 586-7558
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Indicate by check (X) whether the issuer (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 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 ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 3,352,278 SHARES OF
COMMON STOCK, $.01 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF AUGUST 11, 2000.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Accounts receivable, net of allowance for
doubtful accounts of $250,000 at December 31,
1999 and June 30, 2000 ........................................................... $ 7,548,474 $ 11,420,013
Other receivables ................................................................. 44,739 78,073
Inventories ....................................................................... 9,008,560 12,364,377
Prepaid expenses .................................................................. 85,554 154,290
Deferred tax asset ................................................................ 101,000 101,000
------------ ------------
Total current assets ......................................................... 16,788,327 24,117,753
------------ ------------
PROPERTY AND EQUIPMENT ................................................................... 1,016,165 1,083,901
Less - accumulated depreciation ................................................... 466,998 563,112
------------ ------------
549,167 520,789
------------ ------------
Note receivable from founder ............................................................. 408,718 408,718
Debt issue costs ......................................................................... -- 1,933,332
Other assets ............................................................................. 131,484 132,760
------------ ------------
540,202 2,474,810
------------ ------------
$ 17,877,696 $ 27,113,352
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Checks issued not yet presented for payment ....................................... $ 256,957 $ 866,431
Accounts payable .................................................................. 2,587,403 2,864,851
Accrued liabilities ............................................................... 606,997 673,462
Lines of credit ................................................................... 15,677,982 22,458,249
Current portion of long-term debt ................................................. 965,388 549,177
Current portion of capital lease obligations ...................................... 9,828 5,654
------------ ------------
Total current liabilities .................................................... 20,104,555 27,417,824
------------ ------------
Long-term debt, net of current portion ................................................... 978,304 725,000
------------ ------------
Capital lease obligations, net of current portion ........................................ 19,427 19,879
------------ ------------
Promissory Note Payable .................................................................. -- 2,000,000
------------ ------------
Deferred tax liability ................................................................... 101,000 101,000
------------ ------------
STOCKHOLDERS' DEFICIT:
Preferred stock, par value of $.01, 3,000,000
shares authorized; none issued and outstanding ................................... -- --
Common stock, par value of $.01, 10,000,000
shares authorized; 3,387,500 and 3,395,278 shares
issued and 3,344,500 and 3,352,278 outstanding at
December 31, 1999 and June 30, 2000 ............................................ 33,875 33,953
Additional paid in capital ........................................................ 6,213,749 6,244,923
Accumulated deficit ............................................................... (9,499,910) (9,355,923)
Treasury stock, 43,000 shares at cost ............................................. (73,304) (73,304)
------------ ------------
Total stockholders' deficit .................................................. (3,325,590) (3,150,351)
------------ ------------
$ 17,877,696 $ 27,113,352
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
1999 2000 1999 2000
NET DISTRIBUTED SERVICES
AND INVENTORY SALES................ $ 3,227,622 $ 9,998,011 $ 10,938,733 $ 18,272,039
COST OF SALES ..................... 2,610,741 7,463,507 8,651,391 13,680,503
------------ ------------ ------------ ------------
Gross profit ................... 616,881 2,534,504 2,287,342 4,591,536
SELLING AND ADMINISTRATIVE
EXPENSES .......................... 1,448,541 1,596,078 2,858,251 3,023,899
NON RECURRING EXPENSES ............ 71,172 16,676 88,915 22,376
------------ ------------ ------------ ------------
Income (loss) from operations .. (902,832) 921,750 (659,824) 1,545,261
OTHER (EXPENSES) INCOME:
Interest expense ............... (511,702) (858,463) (936,818) (1,418,425)
Interest income ................ 17,808 12,262 49,863 12,262
Other income ................... 325 4,889 1,412 4,889
------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes ............. (1,396,401) 80,438 (1,545,367) 143,987
PROVISION FOR INCOME TAXES ........ 800 -- 800 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) .............. $ (1,397,201) $ 80,438 $ (1,546,167) $ 143,987
============ ============ ============ ============
Basic net income (loss)
per share: ...................... $ (0.44) $ 0.02 $ (0.49) $ 0.04
============ ============ ============ ============
Diluted net income (loss)
per share ....................... $ (0.44) $ 0.02 $ (0.49) $ 0.04
============ ============ ============ ============
Basic weighted average shares
outstanding ..................... 3,179,000 3,348,261 3,179,000 3,346,380
Effect of dilutive stock options
and warrants .................. -- 609,514 -- 718,993
------------ ------------ ------------ ------------
Diluted weighted average shares
outstanding ..................... 3,179,000 3,957,775 3,179,000 4,065,373
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON STOCK TREASURY STOCK
------------------------- ----------------------
ADDITIONAL TOTAL
NUMBER NUMBER PAID ACCUMULATED STOCKHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT IN CAPITAL DEFICIT DEFICIT
---------- ------------ --------- ----------- ----------- ------------ -------------
Balance at January 1, 1999 3,165,000 $ 31,650 43,000 $ (73,304) $ 5,658,099 $(7,710,282) $(2,093,837)
Stock issued in
legal settlement ............. 80,000 800 -- -- 479,200 -- 480,000
Fair value of stock options
issued for debt forgiveness .... -- -- -- -- 42,250 -- 42,250
Stock options exercised ........ 142,500 1,425 -- -- 34,200 -- 35,625
Net loss ....................... -- -- -- -- -- (1,789,628) (1,789,628)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ....... 3,387,500 33,875 43,000 (73,304) 6,213,749 (9,499,910) (3,325,590)
Fair value of warrants
issued for debt in
connection with amendment
of credit facility ............. -- -- -- -- 500,000 -- 500,000
Unamortized debt discount ...... (483,332) (483,332)
Stock option exercise .......... 7,778 78 -- -- 14,506 -- 14,584
Net Income ..................... -- -- -- -- -- 143,987 143,987
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 ........... 3,395,278 $ 33,953 43,000 $ (73,304) $ 6,244,923 $(9,355,923) $(3,150,351)
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
-------------------------------------
1999 2000
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,546,167) $ 143,987
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Principal payments on note receivable . . . . . . . . . . . . . . 954,806 -
Principal payments on notes payable
related to inventory purchases . . . . . . . . . . . . . . . . (954,806) -
Reduction in amount due on notes payable
related to inventory purchases in exchange for
reduction in accounts receivable . . . . . . . . . . . . . . . (444,327) -
Depreciation and amortization . . . . . . . . . . . . . . . . . . 108,371 179,451
Immaculate cashless stock option exercise . . . . . . . . . . . . - 14,584
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . 771,552 (3,688,694)
Other receivables . . . . . . . . . . . . . . . . . . . . . (132,352) (33,334)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 70,266 (3,355,817)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 191,090 (68,736)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . (1,971) (1,277)
Checks issued not yet presented for payment. . . . . . . . . (72,173) 609,474
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 298,165 277,448
Accrued liabilities . . . . . . . . . . . . . . . . . . . . (135,915) 66,465
------------ -----------
Net cash used in operating activities . . . . . . . . (893,461) (5,856,449)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . . . . . . (1,991) (67,736)
Decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . 7,617 -
------------ -----------
Net cash provided by (used in) investing activities . . 5,626 (67,736)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit . . . . . . . . . . . . . . . . . . . . 11,618,532 21,050,995
Principal payments on lines of credit . . . . . . . . . . . . . . . . (10,841,733) (14,453,573)
Borrowings on long-term debt . . . . . . . . . . . . . . . . . . . . 125,000 -
Principal payments of long-term debt . . . . . . . . . . . . . . . . (4,050) (669,515)
Principal payments of capital lease obligations . . . . . . . . . . . (9,914) (3,722)
------------ -----------
Net cash provided by financing activities . . . . . . . 887,835 5,924,185
------------ -----------
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . - -
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . - -
------------ -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ $
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 933,971 $ 1,335,088
============ ===========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800 $ -
============ ===========
Noncash financing activities:
Issuance of 80,000 shares of common stock in settlement
of long term liability $ 480,000 $ -
============ ===========
Capitalized loan issue costs, due in the form of a
promissory note payable $ - $ 2,000,000
============ ===========
Warrants issued in connection with the amendment of the
Company's credit facility $ - $ 500,000
============ ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements of the Company contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of June 30, 2000, and the results of its operations for the three and
six month periods ended June 30, 2000, and 1999, and cash flows for the six
month periods ended June 30, 2000, and 1999. The results of operations and cash
flows for the six month period ended June 30, 2000, are not necessarily
indicative of the results of operations or cash flows which may be reported for
the remainder of 2000.
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim consolidated financial
statements should be read in connection with the Company's December 31, 1999
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB.
NOTE 2 - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company sustained a substantial loss
from operations in 1999; has used, rather than provided, cash in its operations;
and has deficits in working capital and stockholders' equity at December 31,
1999 and June 30, 2000. In addition, the Company is in an over advance position
on its line of credit, which could limit its ability to obtain additional
operating capital from its primary lender. Also, as discussed in note 3, the
impact on the Company of certain governmental investigations cannot be
determined at this time.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheets are dependent upon continued operations of the Company. This in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing, and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Management has taken steps to revise its operations and financial requirements,
which it believes are sufficient to provide the Company with the ability to
continue in existence. Ongoing expenses have been reduced by salary reductions,
headcount reductions and other cost saving measures implemented. The class
action lawsuits have been settled. Settlement of remaining legal issues will
also allow management to concentrate on managing, improving and expanding the
business. In addition, as described in Note 4, the Company has increased its
availability under its line of credit and extended the loan maturity date.
NOTE 3 - CLASS ACTION LAWSUITS AND GOVERNMENT INVESTIGATIONS:
In October 1997, three separate class action lawsuits were filed against the
Company, its founder, directors and certain current and former officers and
directors, and others. In February 1998, a motion was approved to consolidate
all three class action lawsuits in Federal court.
In April 1998, the Company entered into a settlement in principle, which is
memorialized in a Memorandum of Understanding (the "M.O.U."), with counsel for
the plaintiffs to settle the suits. Terms of the settlement include cash
consideration of $740,000 and 210,000 shares of the Company's common stock, of
which the Company issued 80,000 shares and the Company's founder, Osamah S.
Bakhit, contributed 130,000 shares. The Company recorded a $620,000 charge in
1997 related to this settlement, of which $480,000 was attributable to the
issuance of 80,000 shares of common stock and $140,000 represented the Company's
portion of the cash consideration. The Federal Court approved this settlement
agreement on March 15, 1999.
Both a Federal grand jury and the Securities and Exchange Commission (SEC)
previously commenced investigations into the allegations referred to above. The
investigation by the federal grand jury continues and the Company is unable, at
this time, to evaluate the possible outcome of the investigations or their
impact on the Company.
The Company has entered into a proposed settlement with the SEC staff related to
the ongoing SEC investigation of the Company. Under the terms of the proposed
settlement, the Company would consent to the entry of a federal court
injunction, in which the Company would not admit or deny any allegations made by
the SEC, enjoining it from future violations of the federal securities laws. The
proposed settlement with the SEC's staff must be approved by the Securities and
Exchange Commission. The Company does not know when the proposed settlement will
be presented to the Commission for approval.
NOTE 4 - DEBT ARRANGEMENTS
On February 23, 2000, the Company amended its Credit Facility with GMAC to
extend the loan maturity date to December 1, 2010. Additionally, the 126,600
warrants previously issued to GMAC were increased to provide GMAC with warrants
equal to 9.9% of the outstanding stock of the Company or approximately 335,362
warrants. The exercise price of the previously issued warrants was reduced from
$1.00 to $.25 per share. The additional 208,762 warrants were issued at an
exercise price of $.25 per share. The total warrants issued to GMAC expire on
February 28, 2010. The fair value of the new warrants and the repriced warrants
issued to GMAC, estimated at $500,000, is being amortized to interest expense
over the term of the credit facility. The unamortized discount ($483,332), which
was netted against the line of credit in the consolidated balance sheet as of
March 31, 2000, included in the Company's first quarter Form 10-Q, has been
reclassified as a contra equity account, as presented in the accompanying
consolidated statement of stockholders' deficit.
As a condition for the extension of the credit facility, the Company entered
into a $2,000,000 promissory note, due in a balloon payment on the earlier of
February 1, 2010, or if the Company's stock reaches a $6 per share value over 10
consecutive days, or the occurrence of one of several events, none of which
have occurred. The $2,000,000 has been reflected as debt issue costs in the
accompanying consolidated balance sheet and is being amortized to interest
expense over the term of the promissory note. The note bears interest at GMAC's
Alternate Base Rate and interest is payable semi-annually.
On April 5, 2000 the Company obtained an additional $3,800,000 increase in its
credit facility for an eighteen month period, at an interest rate of prime plus
1%, to finance the purchase of inventory.
At June 30, 2000, the Company was not in compliance with certain of the
covenants of its line of credit with GMAC. GMAC has waived the covenant
violations for the quarter ended June 30, 2000.
NOTE 5 - EXPORT SALES
For the six months ended June 30, 1999 and 2000, approximately 68.7% and 68.5%,
respectively, of the Company's net sales were export sales. Export sales by
region were approximately as follows:
JUNE 30,
------------------
1999 2000
----- -----
Pacific Rim................................... 16.5% 2.7%
Europe........................................ 27.2 31.8
Latin/South America........................... 18.1 24.6
Africa/Middle East............................ 6.9 9.4
----- -----
68.7% 68.5%
===== =====
NOTE 6 - EARNINGS PER SHARE
Approximately 797,000 options were excluded from the computation of diluted net
income per share, as presented in the accompanying consolidated statement of
operations, because the option's exercise price exceeded the average market
price of the common shares. Approximately 600,000 options have an exercise price
of $1.22 and approximately 197,000 have an exercise price of $5.00.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes the operations of the Company for each of the
periods discussed. This discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the related notes
thereto, which are included elsewhere in this document.
This discussion contains "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. Although the Company believes that
the expectations reflected in such forward looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Such
forward looking statements involve risks and uncertainties and actual results
could differ from those described herein and future results may be subject to
numerous factors, many of which are beyond the control of the Company.
OVERVIEW
Net sales consist primarily of gross sales, net of allowance for returns and
other adjustments. Cost of sales consists primarily of product costs, freight
charges and an inventory provision for damaged and obsolete products. Product
costs consist of the acquisition costs of the products and costs associated with
repairs, maintenance and certification.
Net sales and gross profit depend in large measure on the volume and timing of
sales orders received during the period and the mix of aircraft parts contained
in the Company's inventory. The timing of bulk inventory purchases can impact
sales and gross profit. In general, bulk inventory purchases allow the Company
to obtain large inventories of aircraft parts at a lower cost than can
ordinarily be obtained by purchasing such parts on an individual basis. Thus,
these bulk purchases allow the Company to seek larger gross margins on its sale
of aircraft parts since the cost of purchase is reduced.
The following table sets forth certain information relating to the Company's
operations for the three months ended June 30, 1999 and 2000 (dollars in
thousands):
THREE MONTHS ENDED JUNE 30,
-------------------------------------------
1999 2000
-------------------- --------------------
Net sales $ 3,228 100.0% $ 9,998 100.0%
Cost of sales 2,611 80.9 7,463 74.6
--------- --------- --------- ---------
617 19.1 2,535 25.4
Selling and administrative expenses 1,449 44.9 1,596 16.0
Non-recurring expenses 71 2.2 17 0.2
--------- --------- --------- ---------
Income (loss) from operations (903) (28.0) 922 9.2
Interest expense, net 494 15.3 846 8.4
Other income 0 - 5 -
--------- --------- --------- ---------
Net income (loss) $(1,397) (43.3)% $ 81 0.8%
========= ========= ========= =========
NET SALES. Net sales increased from $3.2 million for the three months ended
June 30, 1999 to $10.0 million for the three months ended June 30, 2000, an
increase of $6.8 million or 210%. This increase was mainly a result of the
increase in financing availability that allowed the Company to focus on the
business, which resulted in increased sales and the ability of the company to
purchase material for its customers. The improved financing availability
allowed the Company to obtain sales previously passed over due to a lack of
financing.
COST OF SALES. Cost of sales increased from $2.6 million for the three months
ended June 30, 1999 to $7.5 million for the three months ended June 30, 2000,
an increase of $4.9 million or 188.0%. This increase was primarily
attributable to the 210% increase in net sales.
GROSS PROFIT. Gross profit increased from $.6 million or 19.1% of net sales
for the three months ended June 30, 1999 to $2.5 million or 25.4% of net
sales for the three months ended June 30, 2000, an increase of $1.9 million
or 317%. This increase was a result of the 210% increase in net sales from
the prior period and gross profit percent of sales increasing from 19.1% to
25.4% for the three months ended June 30, 2000, due to increased sales of
bulk purchase inventory compared to the prior period.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of wages and commission expense, rent expense,
professional fees, consulting expense and travel expense. The Company's
selling and administrative expenses increased from $1.4 million for the three
months ended June 30, 1999 to $1.6 million for the three months ended June
30, 2000, an increase of $200,000 or 14.3%. This increase was principally due
to an increase in employee compensation as a result of the increased
commission from increased sales.
NON-RECURRING EXPENSES. In the second quarter of 1999 and 2000, the Company
incurred $71,000 and $17,000, respectively, of expenses related to its
investigation of allegations concerning its previously issued financial
statements, restatement of those financial statements, class action lawsuits
and investigations by a Federal grand jury and the Securities and Exchange
Commission. Management expects these expenses to continue to decrease, as the
shareholder lawsuit was settled on March 15, 1999. These expenses primarily
consist of legal, accounting and consulting fees. See "Part II, Item 1 -
Legal Proceedings."
INCOME (LOSS) FROM OPERATIONS. The Company had a loss from operations of $.9
million for the three months ended June 30, 1999 compared to income from
operations of $.9 million for the three months ended June 30, 2000. The
increase in income from operations is due to the increase in net sales and
improved gross profit.
INTEREST EXPENSES, NET. Net interest expense increased from $494,000 for the
three months ended June 30, 1999 to $846,000 for the three months ended June
30, 2000. The $352,000 increase in interest expense was due to increased
financing to support the increase in sales.
The following table sets forth certain information relating to the Company's
operations for the six months ended June 30, 1999 and 2000 (dollars in
thousands):
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1999 2000
-------------------- --------------------
Net sales $10,938 100.0% $18,272 100.0%
Cost of sales 8,651 79.1 13,681 74.9
--------- --------- --------- ---------
Gross profit 2,287 20.9 4,591 25.1
Selling and administrative expenses 2,858 26.1 3,024 16.5
Non-recurring expenses 89 0.8 22 0.1
--------- --------- --------- ---------
Income (loss) from operations (660) (6.0) 1,545 8.5
Interest expense, net 887 8.1 1,406 7.7
Other income 1 - 5 -
--------- --------- --------- ---------
Net income (loss) $(1,546) (14.1)% $ 144 0.8%
========= ========= ========= =========
NET SALES. Net sales increased from $10.9 million for the six months ended June
30, 1999 to $18.3 million for the six months ended June 30, 2000, an increase of
$7.3 million or 67%. This increase was mainly a result of increased availability
that allowed the Company's to receive critical parts from its suppliers. The
increase in financing ability has allowed the company to increase sales, improve
margins and position itself for growth.
COST OF SALES. Cost of sales increased from $8.7 million for the six months
ended June 30, 1999 to $13.7 million for the six months ended June 30, 2000, an
increase of $5.0 million or 57.5%. This increase was primarily attributable to
the 67% increase in net sales.
GROSS PROFIT. Gross profit increased from $2.3 million or 20.9% of net sales for
the six months ended June 30, 1999 to $4.6 million or 25.1% of net sales for the
six months ended June 30, 2000, an increase of $2.3 million or 100.0%. This
increase was primarily a result of the 67% increase in net sales and improved
buying capability.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of wages and commission expense, rent expense, professional
fees, consulting expense and travel expense. The Company's selling and
administrative expenses increased from $2.9 million for the six months ended
June 30, 1999 to $3.0 million for the six months ended June 30, 2000, an
increase of $100,000 or 3.4%. This increase was principally due to an increase
in employee compensation as a result of increased commissions.
NON-RECURRING EXPENSES. For the six months ended June 30, 1999 and 2000, the
Company incurred $89,000 and $22,000, respectively, of expenses related to
its investigation of allegations concerning its previously issued financial
statements, restatement of those financial statements, class action lawsuits
and investigations by a Federal grand jury and the Securities and Exchange
Commission. Management expects these expenses to continue to decrease, as the
shareholder lawsuit was settled on March 15, 1999. These expenses primarily
consist of legal, accounting and consulting fees. See "Part II, Item 1 -
Legal Proceedings."
INCOME (LOSS) FROM OPERATIONS. The Company had a loss from operations of
$700,000 and income from operations of $1.5 million for the six months ended
June 30, 1999 and 2000, respectively. The $800,000 increase in income from
operations is due to the increased sales and margins.
INTEREST EXPENSES, NET. Net interest expense increased from $.9 million for
the six months ended June 30, 1999 to $1.4 million for the six months ended
June 30, 2000. The $500,000 increase in interest expense was due to the
increased financing to support the increase in sales.
YEAR 2000 COMPLIANCE
To become fully Year 2000 compliant, the Company successfully implemented a
new software system at a cost of approximately $120,000. The Company did not
separately track the internal costs incurred for the Y2K project. The Company
did not incur any systems problems as a result of the successful
implementation of the new systems.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $.9 million and $6.0 million in the
six months ended June 30, 1999 and 2000, respectively. The largest cash uses
in the 1999 period were a $.4 million reduction of notes payable for the
purchase of inventory, offset by a $.8 million reduction in accounts
receivable and a $.3 million increase in accounts payable. For the 2000
period, the largest uses of cash were a $3.7,increase in accounts receivable,
a $3.4 million increase in inventory, offset by a $.3 million increase in
accounts payable, a $.1 million increase in accrued liabilities and a $.6
million increase in checks not presented for payment.
The 1999 financing activities provided cash of $.9 million, primarily
resulting from the $.8 million net increase in line of credit borrowings and
a $.1 million increase in borrowings of long term debt. The 2000 financing
activities provided $5.9 million of cash due to a net increase in borrowings
of $6.6 million, offset by a reduction of long term debt of $.7 million.
As of June 30, 2000, the Company had a working capital deficit of $2.8
million. This was primarily due to the increase in the borrowings on the line
of credit resulting from the cash requirements for increases in accounts
receivable, reduction of accounts payable with an offset of reduced inventory.
As of December 31, 1999, the Company was in default on certain covenants of
its credit facility with GMAC Commercial Credit (GMAC). On April 7, 2000, the
financial institution issued the Company a waiver of the covenants that were
in default and set new covenants for 2000 with the first measurement date
effective for the quarter ended June 30, 2000. As of June 30, 2000, the
Company was in default on certain covenants of the credit facility with GMAC.
On August 10, 2000, the financial institution issued the Company a waiver for
those covenants that were in default.
On February 23, 2000, the Company amended its Credit Facility with GMAC to
extend the loan maturity date to December 1, 2010. Additionally, the 126,600
warrants previously issued to GMAC were increased to provide GMAC with
warrants equal to 9.9% of the outstanding stock of the Company or
approximately 335,362 warrants. The exercise price of the previously issued
warrants was reduced from $1.00 to $.25 per share. The additional 208,762
warrants were issued at an exercise price of $.25 per share. The total
warrants issued to GMAC expire on February 28, 2010. The fair value of the
new warrants and the repriced warrants issued to GMAC, estimated at
approximately $500,000, is being
amortized to interest expense over the term of the credit facility.
As a condition for the extension of the credit facility, the Company entered
into a $2,000,000 promissory note, due in a balloon payment on the earlier of
February 1, 2010, or if the Company's stock reaches a $6 per share value over
10 consecutive days, or the occurrence of one of several other events, none
of which have occurred. The $2,000,000 is being amortized to interest expense
over the term of the promissory note. The note bears interest at GMAC's
Alternate Base Rate and interest is payable semi-annually.
On April 5, 2000 the Company obtained an additional $3,800,000 increase in
its credit facility for an eighteen month period, at an interest rate of
prime plus 1%, to finance the purchase of inventory.
The Company's long-term debt consists of the following: (i) term loan of
$1,000,000 at June 30, 2000 to GMAC, due in quarterly principal installments
of $125,000 with an interest rate of 2.0 percent above the lenders alternate
base rate; (ii) note payable of $449,177 at June 30, 2000 to corporations',
secured by specific inventory; (iii) note payable of $100,000 at March 31,
2000 to the founder of the Company (iv) capital lease obligations of $25,533
and Promissory Note Payable for $2,000,000.
The Company's credit facility with GMAC is an asset based line of credit
secured by account receivable and inventory and is the primary source for the
Company to finance its operations and growth. At June 30, 2000 the balance on
the credit facility was $22,458,249. Because of the non-recurring costs
associated with the re-auditing of the Company's financial statements and the
ongoing federal investigations, the Company has used its line of credit to
pay these costs. As a result, the Company may need to increase its capital
base in order to continue to meet its growth objectives. There can be no
assurance that such additional capital will be available on a timely basis or
at acceptable terms.
See note 2 to the consolidated financial statements included in this form
10-Q regarding realization of assets and steps management has taken with
respect to its operations and financing requirements.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in certain legal and administrative proceedings and
threatened legal and administrative proceedings arising in the normal course
of its business. While the outcome of such proceedings and threatened
proceedings cannot be predicted with certainty, management believes the
ultimate resolution of these matters individually or in the aggregate will
not have a material adverse effect on the Company. Also, see Note 3 to the
consolidated financial statements in Part I.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the
Registrant. (1)
3.2 Bylaws, as amended, of the Registrant. (1)
3.3 Amendment to Amended and Restated Certificate of Incorporation
of the Registrant. (1)
4.1 Specimen Common Stock Certificate. (1)
9.1 Voting Trust Agreement, dated November 17, 1997, by and among
Osamah Bakhit, Aviation Distributors, Inc., and Dirk O.
Julander, as trustee. (2)
10.2 1996 Stock Option and Incentive Plan. (1)
10.3 Aircraft Purchase Agreement, dated August 8, 1995, by and
between Alia The Royal Jordanian Airlines and Aviation Distributors,
Inc. (1)
10.4 Credit and Security Agreement, dated June 25, 1997, by and
between Aviation Distributors, Inc. and BNY Financial Corporation.(3)
10.5 Amendment dated December 15, 1999 between the Company and GMAC
Commercial Credit LLC to the June 25, 1997 Credit and Security
Agreement between the company and BNY Financial Corporation,
including related Common Stock Purchase Warrant for 335,362 shares
dated February 28, 2000 issued to GMAC Commercial Credit LLC.(4)
10.6 Amended and Restated Employment Agreement, dated as of July 16,
1996, by and between Osamah S. Bakhit and Aviation Distributors,
Inc. (1)
10.7 Employment Agreement, dated as of January 5, 2000 by and between
William D. King and Aviation Distributors, Inc. (4)
10.8 Employment Agreement, dated as of July 16, 1996, by and between
Jeffrey G. Ward and Aviation Distributors, Inc. (1)
10.9 Amendment to Employment Agreement, dated November 17, 1997, by and
between Osamah S. Bakhit and Aviation Distributors, Inc.(3)
10.10 Lease, dated as of July 9, 1997, by and between Olen Properties
Corp. and Aviation Distributors, Inc. (3)
10.11 Amended and Restated Promissory Note from Osamah S. Bakhit to
Aviation Distributors, Inc., dated as of December 31, 1995. (1)
10.12 Form of Indemnity Agreement. (1)
10.13 Promissory Note between Aviation Distributors, Inc. and Osamah S.
Bakhit, dated December 31, 1996. (1)
10.16 Employment Agreement dated as of June 1, 1998 by and between Gary L.
Joslin and Aviation Distributors, Inc. (4)
(1) Filed with the Company's Registration Statement on Form SB-2 dated
March 3, 1997.
(2) Filed with the Company's Current Report on Form 8-K dated
August 29, 1997.
(3) Filed with the Company's Registration Statement on Form 10-KSB
dated April 20, 1998.
(4) Filed with the Company's Form 10-KSB dated April 11, 2000
(b) Reports on Form 8-K.
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.
Date AUGUST 11, 1999 AVIATION DISTRIBUTORS, INC.
By: /s/ WILLIAM D. KING
----------------------------------
William D. King
Chief Executive Officer
Chairman and Director
(Principal Executive Officer)
By: /s/ GARY L. JOSLIN
---------------------------------
Gary Joslin
Gary L. Joslin
Chief Financial Officer
and Director (Principal
Accounting Officer)