AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-8061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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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 _______________________
Commission file number 0-29028
Aviation Distributors, Inc.
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(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 ( ) NO (X)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 3,165,000 SHARES OF COMMON
STOCK, $.01 PAR VALUE PER SHARE, WERE OUTSTANDING AS OF JUNE 19, 1998.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
Restated Restated
1996 1997
---- ----
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . $ 16,985 $ 14,132
Restricted cash . . . . . . . . . . . . . . 63,458 57,763
Accounts receivable, net of allowance for
doubtful accounts of $410,500 at December 31,
1996 and $75,000 at March 31, 1997,
respectively. . . . . . . . . . . . . . . 4,390,479 6,853,196
Other receivables . . . . . . . . . . . . . 66,272 73,597
Inventories, net of reserve . . . . . . . . 2,866,756 3,241,663
Prepaid expenses. . . . . . . . . . . . . . 69,724 535,205
Current portion of notes receivable . . . . 1,615,528 1,654,201
Notes receivable from founder . . . . . . . 408,718 408,718
Deferred tax asset. . . . . . . . . . . . . 386,000 410,919
---------- ----------
Total current assets. . . . . . . . . 9,883,920 13,249,394
---------- ----------
PROPERTY AND EQUIPMENT 1,784,853 1,860,315
Less - accumulated depreciation . . . . . . 278,686 313,380
---------- ----------
1,506,167 1,546,935
---------- ----------
Notes receivable, net of current portion. . . . 3,056,855 2,626,153
Other assets. . . . . . . . . . . . . . . . . . 167,797 -
---------- ----------
3,224,652 2,626,153
---------- ----------
$14,614,739 $17,422,482
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Checks issued not yet presented for payment $ 530,440 $ 1,033,211
Accounts payable. . . . . . . . . . . . . . 2,844,798 3,470,671
Accrued liabilities . . . . . . . . . . . . 377,044 392,679
Lines of credit . . . . . . . . . . . . . . 5,583,475 4,115,309
Income taxes payable. . . . . . . . . . . . - 103,000
Current portion of long-term debt . . . . . 3,066,540 1,699,993
Current portion of capital lease obligations 18,867 16,654
---------- ----------
Total current liabilities . . . . . . . . . 12,421,164 10,831,517
---------- ----------
Long-term debt, net of current portion. . . . . 3,985,205 3,551,860
---------- ----------
Capital lease obligations, net of current portion 34,372 31,239
---------- ----------
Deferred tax liability. . . . . . . . . . . . . 86,000 86,000
---------- ----------
STOCKHOLDERS' EQUITY (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; 3,165,000 shares issued
and outstanding at December 31, 1996 and
March 31, 1997 . . . . . . . . . . . . . 17,850 29,850
Additional paid in capital . . . . . . . . 389,150 4,884,528
Accumulated deficit. . . . . . . . . . . . (2,319,002) (1,992,512)
---------- ----------
Total stockholders' equity (deficit) (1,912,002) 2,921,866
---------- ----------
$14,614,739 $17,422,482
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated balance
sheets.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
-----------------------------
Restated Restated
(UNAUDITED) (UNAUDITED)
1996 1997
---- ----
NET DISTRIBUTED SERVICES AND INVENTORY SALES. . $ 4,119,601 $ 9,188,370
NET SALES ON CONSIGNMENT AND MARKETING
AGREEMENTS. . . . . . . . . . . . . . . . . . 491,658 274,852
----------- -----------
TOTAL NET SALES . . . . . . . . . . . . . . . . 4,611,259 9,463,222
COST OF SALES . . . . . . . . . . . . . . . . . 3,885,716 7,686,922
----------- -----------
Gross profit 725,543 1,776,300
SELLING AND ADMINISTRATIVE EXPENSES . . . . . . 1,095,207 1,184,056
----------- -----------
Income (loss) from operations. . . . . . . (369,664) 592,244
OTHER (EXPENSES) INCOME:
Interest expense . . . . . . . . . . . . . (304,426) (275,650)
Interest income. . . . . . . . . . . . . . 151,771 112,445
Other income . . . . . . . . . . . . . . . 11,639 451
----------- -----------
Income (loss) before provision for
(benefit from) income taxes . . . . . . . (510,680) 429,490
PROVISION (BENEFIT) FOR INCOME TAXES. . . . . . (78,000) 103,000
----------- -----------
NET INCOME (LOSS). . . . . . . . . . . . . $ (432,680) $ 326,490
----------- -----------
----------- -----------
Primary and fully diluted net
income (loss) per share . . . . . . . . . . . $ (0.24) $ 0.15
----------- -----------
----------- -----------
Weighted average shares outstanding . . . . . . 1,785,000 2,185,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated statements.
AVIATION DISTRIBUTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------
Restated Restated
1996 1997
---- ----
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . $ (432,680) $ 326,490
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Principal payments on note receivable . . . . . . . 336,428 392,029
Borrowings on notes payable related to inventory
purchases. . . . . . . . . . . . . . . . . . . . . 66,944 -
Principal payments on notes payable
related to inventory purchases . . . . . . . . . - (897,028)
Principal payments on note payable
related to legal settlement . . . . . . . . . . . - (820,000)
Legal Settlement. . . . . . . . . . . . . . . . . . - (80,000)
Depreciation and amortization . . . . . . . . . . . 27,609 36,641
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . (209,765) (2,462,717)
Other receivables . . . . . . . . . . . . . . (38,118) (7,325)
Inventories . . . . . . . . . . . . . . . . . (313,527) (374,907)
Prepaid expenses . . . . . . . . . . . . . . . (70,493) (465,481)
Income tax receivable. . . . . . . . . . . . . (78,000) -
Deferred tax asset . . . . . . . . . . . . . . 28,192 (24,919)
Other assets . . . . . . . . . . . . . . . . . 5,401 167,797
Checks issued not yet presented for payment. . (72,881) 502,771
Accounts payable . . . . . . . . . . . . . . . 69,050 625,873
Accrued liabilities . . . . . . . . . . . . . 5,714 15,635
Income taxes payable . . . . . . . . . . . . . - 103,000
Deferred tax liability . . . . . . . . . . . . (28,192) -
------------ ------------
Net cash used in operating activities. . . . . . . (704,318) (2,962,141)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . (48,028) (75,462)
Decrease in restricted cash . . . . . . . . . . . . (477,218) 5,695
--------- -----------
Net cash used in investing activities . . . . . . (525,246) (69,767)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit . . . . . . . . . . . 5,685,227 6,207,319
Principal payments on lines of credit . . . . . . . (4,938,580) (7,675,485)
Borrowings on long-term debt . . . . . . . . . . . - 500,000
Principal payments of long-term debt . . . . . . . (365,505) (504,811)
Principal payments of capital lease obligations . . (5,669) (5,346)
Net proceeds from initial public offering . . . . . - 4,507,378
------------ ------------
Net cash provided by financing activities . . . . 375,473 3,029,055
------------ ------------
Net decrease in cash and cash equivalents . . . . . . (854,091) (2,853)
Cash and cash equivalents at beginning of period . . 867,721 16,985
------------ ------------
Cash and cash equivalents at end of period . . . . . $ 13,630 $ 14,132
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . $ 1,156,696 $ 332,482
------------ ------------
------------ ------------
Income taxes. . . . . . . . . . . . . . . . . . . . $ 20,000 $ 375,000
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated statements.
AVIATION DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 _ GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND OPERATIONS
Aviation Distributors, Inc. and its subsidiaries (collectively, the "Company")
established operations in 1988, incorporated in the state of California in 1992
and reincorporated in the state of Delaware in 1996. The Company is a supplier,
distributor and broker of commercial aircraft parts and supplies worldwide.
On March 3, 1997 the Company's Registration Statement on Form SB-2 relating to
the Company's initial public offering of 1,200,000 shares of its common stock
was declared effective. On March 7, 1997 the Company closed its public offering
of 1,200,000 shares of its common stock at $5 per share. In connection with the
initial public offering, the Company granted the underwriters a 45-day option to
purchase up to 180,000 additional shares of its common stock to cover
over-allotments. The underwriters exercised such over-allotment option and on
April 22, 1997, the Company sold an additional 180,000 shares of its common
stock at $5 per share.
The net proceeds from the offering after all expenses were approximately $4.5
million, of such proceeds, $3,800,000 was used to repay a portion of the amount
outstanding under two revolving lines of credit, $400,000 was used to repay
loans made to the Company by certain of its employees, and the remaining
proceeds were used to fund a portion of a legal settlement entered into by the
Company. (See Note 3)
On April 22, 1997 the Company received net proceeds of approximately $792,000
from the exercise of the underwriter's over-allotment option. The proceeds were
used for working capital and to reduce vendor payables.
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 March 31, 1997 and the results of its operations for the three
month periods ended March 31, 1997 and 1996 and cash flows for the three month
periods ended March 31, 1997 and 1996. The results of operations and cash flows
for the three month period ended March 31, 1997 are not necessarily indicative
of the results of operations or cash flows which may be reported for the
remainder of 1997.
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-QSB. 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, 1996
restated financial statements and the notes thereto included in the Company's
Form 10-KSB Registration Statement for the fiscal year ended December 31, 1997.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board (FASB) issued
SFAS # 128 "Earnings Per Share." The statement requires, at a minimum, new
calculations of earnings per share and disclosures. The Company has reviewed
the provisions of SFAS No. 128 and has determined that adoption of this
pronouncement will have no material effect on the Company's reporting of its
results of operations.
NOTE 2 - RESTATEMENT OF MARCH 31, 1996 AND 1997 FINANCIAL STATEMENTS:
The Company has restated its previously issued consolidated financial
statements for the quarterly periods ended March 31, 1996 and 1997, for
matters related to: previously reported sales and accounts receivables,
inventory costs and valuation reserves, revisions to the previous policy
regarding the capitalization of costs associated with the bulk purchase of
inventory, correction of prior accounting for capitalization of bulk purchase
and certain other costs, unrecorded liabilities, additional bad debt expenses
and the related income tax effects. Retained earnings at January 1, 1996 and
1997, was reduced by $499,265 and $2,380,245, respectively, as a result of
adjustments to 1995 and 1996 financial statements.
The effect on the Company's previously issued financial statements for the
quarterly periods ended March 31, 1996 and 1997 are summarized as follows:
Statement of Operations for the three months ended March 31, 1996:
Previously Increase
Reported (Decrease) (Restated)
-------- ---------- ----------
(000's Omitted)
Total Net Sales . . . . . . . . . . . . . . $4,636 $ (25) $4,611
Cost of Sales . . . . . . . . . . . . . . . 3,767 119 3,886
Gross Profit . . . . . . . . . . . . . . . 869 (144) 725
Selling and Administration Expenses . . . . 1,110 (15) 1,095
Loss from Operations . . . . . . . . . . . (241) (129) (370)
Interest Expense, net . . . . . . . . . . . 130 23 153
Other Income . . . . . . . . . . . . . . . - 12 12
Loss Before Taxes . . . . . . . . . . . . . (371) (140) (511)
Benefit from Taxes . . . . . . . . . . . . - 78 78
Net Loss . . . . . . . . . . . . . . . . . (371) (62) (433)
Net Loss Per Share . . . . . . . . . . . . $(0.21) $(0.03) $(0.24)
Balance Sheet as of March 31, 1997:
Previously Increase
Reported (Decrease) (Restated)
-------- ---------- ----------
(000's Omitted)
Current Assets . . . . . . . . . . . . . . $15,032 $(1,783) $13,249
Total Assets . . . . . . . . . . . . . . . 19,205 (1,783) 17,422
Total Current Liabilities . . . . . . . . . 10,387 445 10,832
Deferred Tax Liability . . . . . . . . . . 51 35 86
Total Liabilities . . . . . . . . . . . . . 14,021 480 14,501
Additional Paid in Capital . . . . . . . . 4,785 99 4,884
RETAINED EARNINGS (ACCUMULATED DEFICIT):
December 31, 1996 . . . . . . . . . . . . . 61 (2,380) (2,319)
Net Income . . . . . . . . . . . . . . . . 307 19 326
------- ------- -------
March 31, 1997 . . . . . . . . . . . . . . 368 (2,361) (1,993)
------- ------- -------
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . . . . $19,205 $(1,783) $17,422
Statement of Operations for the three months ended March 31, 1997:
Previously Increase
Reported (Decrease) (Restated)
-------- ---------- ----------
(000'S Omitted)
Total Net Sales . . . . . . . . . . . . . . $9,454 $ 9 $9,463
Cost of Sales . . . . . . . . . . . . . . . 7,570 117 7,687
Gross Profit . . . . . . . . . . . . . . . 1,884 (108) 1,776
Selling and Administration Expenses . . . . 1,226 (42) 1,184
Income from Operations . . . . . . . . . . 658 (66) 592
Interest Expense, net . . . . . . . . . . . 163 - 163
Income Before Taxes . . . . . . . . . . . . 495 (66) 429
Provision for Taxes . . . . . . . . . . . . 188 (85) 103
Net Income . . . . . . . . . . . . . . . . 307 19 326
Net Income Per Share . . . . . . . . $ 0.14 $ 0.01 $ 0.15
NOTE 3 - LEGAL SETTLEMENT:
In February 1996, an action was brought against the Company arising out of a
dispute relating to an agreement between the Company and a customer. The
plaintiff claimed, among other things, damages of $3,518,000, interest,
attorney fees and punitive damages. In August 1996, the Company made a
partial payment to such customer of $166,000. Although the Company believed
it had meritorious defenses to this dispute, in August 1996, counsel advised
the Company that final judicial resolution of such matter could take several
years. Consequently, in order to prevent future strain on the Company's
financial and human resources necessary to defend the dispute, to avoid the
uncertainties associated with litigation generally and to pursue an initial
public offering in a timely manner, the Company made a strategic business
decision to resolve this dispute, and on November 1, 1996, entered into a
settlement agreement with such customer.
Pursuant to such settlement agreement, the Company was to pay such customer
$1.2 million, of which $300,000 was paid upon execution of the settlement
agreement. On March 14, 1997 the Company modified the settlement agreement by
paying the customer $850,000 in exchange for full satisfaction of all
remaining monetary obligations owed to the customer under the settlement
agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis should be read in conjunction with the
information set forth under: Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 10 through 15 of the
Company's Annual Report on Form 10KSB for the year ended December 31, 1997.
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
have been 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
The Company's business as a supplier, distributor and seller of commercial
aircraft parts and supplies was established in October 1988. The Company was
incorporated in California in February 1992 and reincorporated in Delaware in
July 1996.
GENERAL
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. Sales and gross profit can be impacted
by the timing of bulk inventory purchases. 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 receive
larger gross margins on its sale of aircraft parts since the cost of purchase
is reduced.
Sales can be impacted by marketing and consignment agreements because such
agreements give the Company increased access to aircraft parts. Net profits
are impacted by marketing agreements because the Company does not incur costs
associated with carrying owned inventory due to the fact that a party who has
entered into a marketing agreement with the Company is responsible for
storing and maintaining the inventory to which the Company has access
pursuant to such marketing agreement. Generally, sales from consignment and
marketing agreements are not as profitable as sales from bulk inventory
purchases.
The following table sets forth certain information relating to the Company's
operations for the three months ended March 31, 1996 and 1997 (dollars in
thousands):
1996 Restated 1997 Restated
-------------------- --------------------
Net distributed services and inventory sales $4,119 89.3% $9,188 97.1%
Net sales on consignment and marketing
agreements 492 10.7 275 2.9
------ ----- ------ -----
Net sales 4,611 100.0 9,463 100.0
Cost of sales 3,886 84.3 7,687 81.2
------ ----- ------ -----
Gross profit 725 15.7 1,776 18.8
Selling and administrative expenses 1,095 23.7 1,184 12.5
------ ----- ------ -----
Income (loss) from operations (370) (8.0) 592 6.3
Interest expense, net 153 3.3 163 1.7
Other income 12 .2 - 0.0
Provision for (benefit from) income taxes (78) (1.7) 103 1.1
------ ----- ------ -----
Net income (loss) $ (433) (9.4)% $ 326 3.5%
------ ----- ------ -----
------ ----- ------ -----
NET DISTRIBUTED SERVICES AND INVENTORY SALES. Net distributed services
represents sales of aircraft parts purchased at the point of sale through
outside parties. Inventory sales represent sales of the Company's owned
inventory. Net distributed services and inventory sales increased from $4.1
million for the three months ended March 31, 1996 to $9.2 million for the
three months ended March 31, 1997, an increase of $5.1 million or 124.4%.
This increase was primarily due to an increase in the Company's availability
of aircraft parts as a result of a bulk inventory purchase received during
the first three quarters of 1996 and the first quarter of 1997, the addition
of new sales personnel and emphasis on development of new domestic customers
and some larger international customers. The Company also had two large
transactions during the first quarter of 1997 that contributed approximately
$1.6 million of distributed services sales.
Sales from distributed services represented approximately 98.1% and 94.7% of
total distributed services and inventory sales for the three months ended
March 31, 1996 and 1997, respectively. Sales of Company-owned inventory
represented approximately 1.9% and 5.3% of total distributed services and
inventory sales for the three months ended March 31, 1996 and 1997,
respectively. The increase in the percentage of the sales of Company-owned
inventory was primarily due to a bulk inventory purchase during the first
three quarters of 1996.
NET SALES ON CONSIGNMENT AND MARKETING AGREEMENTS. Net sales on consignment
and marketing agreements represent total revenue, including commissions,
related to sales of inventory held on consignment and sales of inventory
obtained through marketing agreements. Net sales on consignment and marketing
agreements decreased from $492,000 for the three months ended March 31, 1996
to $275,000 for the three months ended March 31, 1997, a decrease of $217,000
or 44.1%. This decrease was primarily due to a decrease in the number of
consignment and marketing agreements the Company had entered into during the
first quarter of 1997.
NET SALES. Net sales increased from $4.6 million for the three months ended
March 31, 1996 to $9.5 million for the three months ended March 31, 1997, an
increase of $4.9 million or 106.5%. This increase was primarily due to
additional sales personnel hired in the third and fourth quarters of 1996,
continued efforts to strengthen relationships with customers and the
availability of additional parts as a result of a bulk inventory purchase
received during the first three quarters of 1996. See "Net distributed
services and inventory sales."
COST OF SALES. Cost of sales increased from $3.9 million for the three
months ended March 31, 1996 to $7.7 million for the three months ended March
31, 1997, an increase of $3.8 million or 97.4%. This increase was
attributable to the increase in net sales.
GROSS PROFIT. Gross profit increased from $725,000 for the three months
ended March 31, 1996 to $1.8 million for the three months ended March 31,
1997, an increase of $1.1 million or 151.7%. This increase was a result of
the increase in net sales. Gross profit margin slightly increased from 15.7%
for the three months ended March 31, 1996 to 18.8% for the three months ended
March 31, 1997. The increase in gross profit margin was attributable to
lower product acquisition costs attained primarily from the bulk inventory
purchases. See "Net distributed services and inventory sales."
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
consisted primarily of management compensation, commission expense,
professional fees, consulting expense and travel expense. The Company's
selling and administrative expenses slightly increased from $1.1 million for
the three months ended March 31, 1996 to $1.2 million for the three months
ended March 31, 1997, an increase of $100,000 or 9.1%. This increase was
principally due to higher personnel costs necessary to respond to the
Company's growth, including salaries, taxes, insurance and commission
expenses. As a percentage of net sales, selling and administrative expenses
decreased from 23.7% for the three months ended March 31, 1996 to 12.5% for
the three months ended March 31, 1997. The decrease as a percentage of net
sales was primarily due to management effectively controlling administrative
expenses.
INCOME (LOSS) FROM OPERATIONS. As a result of the above factors, income
from operations for the three months ended March 31, 1997 increased $962,000
compared to the three months ended March 31, 1996. The increase primarily
reflects higher net sales and gross profit realized during the first quarter
of 1997. See "Net Sales" and "Gross profit."
INTEREST EXPENSES, NET. Net interest expense slightly increased from
$153,000 for the three months ended March 31, 1996 to $163,000 for the three
months ended March 31, 1997. The increase in interest expense was due to an
increase in borrowings under the Company's lines of credit during the first
quarter of 1997.
NET INCOME (LOSS). Net income (loss) increased from ($433,000) for the three
months ended March 31, 1996 to $326,000 for the three months ended March 31,
1997, an increase of $759,000. This increase was attributable to the
increase in net sales and gross profit, somewhat offset by slightly higher
selling and administrative expenses. See "Net sales," "Gross profit" and
"Selling and administrative expenses."
LIQUIDITY AND CAPITAL RESOURCES
On March 3, 1997 the Company's Registration Statement on Form SB-2 relating
to the Company's initial public offering of 1,200,000 shares of its common
stock was declared effective. On March 7, 1997 the Company closed its
initial public offering of 1,200,000 shares of its common stock at $5 per
share. In connection with the initial public offering, the Company granted
the underwriters a 45-day option to purchase up to 180,000 additional shares
of its common stock to cover over-allotments. The underwriters exercised
such over-allotment option and on April 22, 1997, the Company sold an
additional 180,000 shares of its common stock at $5 per share.
The net proceeds from the offering after all expenses were approximately
$4.75 million, of such proceeds, $3,800,000 was used to repay a portion of
the amount outstanding under two revolving lines of credit, $400,000 was used
to repay loans made to the Company by certain of its employees, and the
remaining proceeds were used to fund a portion of a legal settlement entered
into by the Company.
On April 22, 1997 the Company received net proceeds of approximately $760,000
from the exercise of the underwriter's over-allotment option. The proceeds
were used for working capital and to reduce vendor payables.
The Company's two revolving lines of credit provide working capital of up to
$6.5 million with interest at prime plus 1.0 to 1.5 percent subject to an
availability calculation based on the eligible borrowing base. The eligible
borrowing base, currently reduced by a letter of credit for $150,000,
includes certain receivables and inventories of the Company. The $4.5
million line of credit matures on March 31, 1998. The $2.0 million line of
credit matures on August 31, 1997. The Company is currently in discussions
with financial institutions with respect to additional sources of financing.
The two revolving lines of credit provide for their suspension and repayment
of all debt (i) in the event of a material adverse change in the Company's
financial condition, (ii) if the lender believes the prospect of payment or
performance of the indebtedness is impaired, or (iii) upon a change of
control. The $4.5 million line of credit requires the Company to have a
tangible net worth of at least $750,000 beginning January 31, 1997. The
Company is in compliance with the tangible net worth requirement at March 31,
1997. In addition, the two revolving lines of credit require mandatory
repayments from excess cash flow. Substantially all of the Company's assets
are pledged as collateral for amounts borrowed.
In February 1996, an action was brought against the Company arising out of a
contract dispute between the Company and one of its customers. In August
1996, the Company made a partial settlement payment to such customer in the
amount of $166,000, which was financed through additional borrowings under
the Company's lines of credit. Although the Company believed it had
meritorious defenses to this dispute, counsel advised the Company that final
judicial resolution of such matter could take several years. Consequently,
in order to prevent future strain on the Company's financial and human
resources necessary to defend the dispute, to avoid the uncertainties
associated with litigation generally and to pursue an initial public offering
in a timely manner, the Company made a strategic business decision to resolve
this dispute, and on November 1, 1996, entered into a settlement agreement
with such customer. Pursuant to such settlement agreement, the Company was
to pay such customer $1.2 million, of which $300,000 was paid upon execution
of the settlement agreement, which was financed through additional borrowings
under the Company's lines of credit.
On March 14, 1997 the Company modified the settlement agreement by paying the
customer $850,000 in exchange for full satisfaction of all remaining monetary
obligations owed to the customer under the settlement agreement. This amount
was financed through the proceeds from the offering and through additional
borrowings under the Company's lines of credit.
On April 16, 1997, the Company entered into an agreement to lease
approximately 33,000 square feet of office and warehouse space located in
Lake Forest, California. In addition, the Company has listed to sell the
building presently owned. Net proceeds resulting from the sale are expected
to offset the costs associated with relocation and improvements to the new
leased facility.
The Company expects its cash requirements to increase significantly in future
periods. The Company will require substantial funds to purchase inventory on
a bulk basis.
The Company believes that the net proceeds from its initial public offering
will be sufficient to meet its cash requirements for at least the next twelve
months. There can be no assurance that the Company will not require
additional financing during such period or that financing will be available
on a timely basis and at acceptable terms, if at all.
As part of its growth strategy, the Company intends to pursue acquisitions of
bulk inventories of aircraft parts. Financing for such acquisitions will be
provided from operations and from borrowings under the Company's lines of
credit. The Company may also issue additional debt and/or equity securities
in connection with one or more of these acquisitions.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
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
In February 1996, an action was brought against the Company arising out of a
dispute relating to an agreement between the Company and a customer. The
plaintiff claimed, among other things, damages of $3,518,000, interest,
attorney fees and punitive damages. In August 1996, the Company made a
partial payment to such customer of $166,000. Although the Company believed
it had meritorious defenses to this dispute, in August 1996, counsel advised
the Company that final judicial resolution of such matter could take several
years. Consequently, in order to prevent future strain on the Company's
financial and human resources necessary to defend the dispute, to avoid the
uncertainties associated with litigation generally and to pursue an initial
public offering in a timely manner, the Company made a strategic business
decision to resolve this dispute, and on November 1, 1996, entered into a
settlement agreement with such customer.
Pursuant to such settlement agreement, the Company was to pay such customer
$1.2 million, of which $300,000 was paid upon execution of the settlement
agreement. On March 14, 1997 the Company modified the settlement agreement by
paying the customer $850,000 in exchange for full satisfaction of all
remaining monetary obligations owed to the customer under the settlement
agreement.
Item 6. EXHIBITS AND 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 June 19, 1998 AVIATION DISTRIBUTORS, INC.
----------------------------
By: /SS/ Kenneth A. Lipinski
---------------------------------
Ken Lipinski
Chief Operating Officer
By: /SS/ Gary L. Joslin
---------------------------------
Gary Joslin
Chief Financial Officer and
Vice President of Finance