<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number 000-30510
---------
AVIATION HOLDINGS GROUP, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2545898
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
15675 Northwest 15th Avenue, Miami, FL 33169
--------------------------------------------
(Address of Principal Executive Offices)
(305) 624-6700
--------------
(Registrant's telephone number, including area code)
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 [ ]
Transitional Small Business Format: 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:
Common Stock, $0.001 par value, outstanding on May 9, 2000: 4,219,315 shares
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Change in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
2
<PAGE>
Item 1. Financial Statements
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the following
condensed consolidated financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission, although Aviation
Holdings Group, Inc. (the "Company") believes that such financial disclosures
are adequate to assure that the information presented is not misleading in any
material respect. The following condensed consolidated financial statements
should be read in conjunction with the year-end financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the entire fiscal year.
AVIATION HOLDINGS GROUP, INC.
Condensed Consolidated Balance Sheet
ASSETS
March 31,
2000
-----------
(Unaudited)
Current Assets
Cash $ 170,853
Trade receivables, net 2,072,005
Inventory 4,359,072
Advances to stockholder - related party 142,539
Other current assets 92,192
-----------
Total Current Assets 6,836,661
-----------
Property and Equipment, Net 304,988
-----------
Other Assets
Investment in joint venture 819,189
Deposits 16,713
Interest receivable from stockholders - related parties 53,062
Intangibles, net 660,557
Deferred offering costs 776,248
-----------
Total Other Assets 2,325,769
-----------
Total Assets $ 9,467,418
===========
See notes to condensed financial statements
3
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Condensed Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
2000
------------
(Unaudited)
Current Liabilities
Short-term borrowings and current portion of
long term debt $ 2,402,168
Accounts payable 1,920,172
Accrued expenses and other current liabilities 542,478
Advances from stockholders 551,000
------------
Total Current Liabilities 5,415,818
Long-term debt, net of current portion 22,697
------------
Total Liabilities 5,438,515
------------
Minority Interest 337,340
------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock; no par value; authorized -2,000,000
shares; issued - none. -
Common stock; $.0001 par value; authorized -
18,000,000 shares; issued, issuable and
outstanding - 4,219,315 422
Additional paid-in capital 6,037,544
Less subsidiary stock subscription receivable -
related parties (280,000)
Accumulated deficit (2,066,403)
------------
Total Stockholders' Equity 3,691,563
------------
Total Liabilities and Stockholders' Equity $ 9,467,418
============
See notes to condensed financial statements.
4
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Condensed Consolidated Statements of Operations
Three Months Ended
March 31,
-------------------------------
1999 2000
------------- ---------------
(Unaudited) (Unaudited)
Net Sales $ 3,147,373 $ 2,218,263
Cost of Goods Sold 2,192,272 1,444,262
------------- ---------------
Gross Profit 955,101 774,001
------------- ---------------
Operating Expenses
Salaries and wages 318,270 353,552
General and administrative 417,810 670,597
Professional fees 56,199 61,279
------------- ---------------
Total Operating Expenses 792,279 1,085,428
------------- ---------------
Income (Loss) from Operations 162,822 (311,427)
Other Income (Expense)
Interest expense (157,109) (53,963)
Interest income 5,376 11,014
Income from joint venture 6,553 9,000
------------- ---------------
Total Other Expense (145,180) (33,949)
------------- ---------------
Income (Loss) Before Income Taxes and
Minority Interest 17,642 (345,376)
Income Tax Expense (27,400) -
------------- ---------------
Income (Loss) Before Minority Interest (9,758) (345,376)
Minority Interest (32,712) 9,603
------------- ---------------
Net Loss $ (42,470) (335,773)
============= ===============
Basic and Diluted Loss Per Common Share $ (0.01) $ (0.08)
============= ===============
Average Common Shares - Basic and Diluted 3,507,483 4,219,315
============= ===============
See notes to condensed financial statements.
5
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1999 2000
-------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (42,470) $ (335,773)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Minority interest 32,712 (9,603)
Income from joint venture (6,553) (9,000)
Depreciation and amortization 135,907 34,030
Provision for bad debts - 15,000
Change in assets and liabilities
(Increase) decrease in assets (39,160) (68,764)
Increase (decrease) in liabilities 274,932 (494,194)
-------------- ---------------
Total Adjustments 397,838 (532,531)
-------------- ---------------
Net Cash Provided by (Used in) Operating Activities 355,368 (868,304)
-------------- ---------------
Cash Flows from Investing Activities
Employee advances (560) 8,550
Purchases of equipment (15,852) (2,528)
Investment in joint venture (200,000) (100,000)
-------------- ---------------
Net Cash Used in Investing Activities (216,412) (93,978)
-------------- ---------------
Consolidated Statements of Cash Flows
Cash Flows From Financing Activities
Proceeds from bank line of credit $ - $ 270,000
Repayments of short-term borrowings (5,697) -
Repayments on long-term debt (875) (2,723)
Payments of deferred offering costs - (120,000)
Advances from (to) stockholders, net of repayments (100,000) 559,170
Proceeds from sale of stock, net of offering costs paid 295,000 -
-------------- ---------------
Net Cash Provided by Financing Activities 188,428 706,447
-------------- ---------------
Net Increase (Decrease) in Cash 327,384 (255,835)
Cash, Beginning of Period 363,690 426,688
-------------- ---------------
Cash, End of Period $ 691,074 $ 170,853
============== ===============
Supplemental Disclosure of Cash Flow Information
Cash Paid for Interest and Income Taxes
Interest $ 21,510 $ 53,963
============== ===============
Income Taxes $ - $ -
============== ===============
</TABLE>
See notes to condensed financial statements
6
<PAGE>
AVIATION HOLDINGS GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
In the opinion of the Company's management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting solely of
those adjustments which are of a normal recurring nature, necessary to present
fairly its financial position as of March 31, 2000 and the results of its
operations and its cash flows for the three months ended March 31, 2000 and
1999.
Interim results are not necessarily indicative of results for the full fiscal
year.
Basic and diluted loss per share was calculated based upon the net loss
available to common shareholders divided by the weighted average number of
shares of common stock outstanding during the period. Options and warrants to
purchase common stock are not included in the computation of diluted loss per
share because the effect of these instruments would be anti-dilutive for the
loss periods presented.
NOTE 2 - ADVANCES FROM STOCKHOLDERS
During the first quarter of 2000, the Company borrowed $550,000 from
stockholders to meet the working capital needs of the Company. These advances
are unsecured, bear interest at the rate of 10% per annum and are due on demand.
NOTE 3 - SHORT TERM BORROWING - BANK
On August 12, 1998, the Company's majority owned subsidiary Aviation Holdings
International, Inc. ("AHI") obtained a revolving working capital line of credit
from Comerica Bank. At March 31, 2000 and 1999, the amount outstanding on the
credit line was $2,395,000 and $1,500,000, respectively. The loan agreement
provides for a maximum aggregate borrowing limit of $3,500,000, subject to a
limitation amount of eighty-five percent of eligible Company receivables and
thirty-five percent of eligible Company inventory as defined in the loan
agreement. This revolving line of credit is secured by substantially all of
AHI's assets, and is due on demand. The line of credit bears interest at the
Bank's prime rate plus 1%. The loan agreement contains certain covenants which
require AHI to maintain minimum thresholds on specific financial ratios. At
March 31, 2000, AHI failed to meet the tangible net worth covenant, as defined
by the loan agreement, and therefore was in default under the loan agreement.
7
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis should read in conjunction
with the Company's consolidated financial statements and accompanying notes. The
following discussion contains certain forward-looking information, which
involves risks and uncertainties. The actual results could differ from the
results we anticipate. See "Special Note Regarding Forward-Looking Statements".
Overview
Our principal asset is our ownership of a controlling interest in
Aviation Holdings International. Accordingly, our results of operations are
highly dependent upon the results of operations of Aviation Holdings
International.
Aviation Holdings International currently derives its revenues from
selling, leasing, exchanging and purchasing spare parts for fixed-wing
commercial jet transport aircraft, selling turbine jet engines and management
services.
We have only a limited operating history upon which you may base an
evaluation of our operations and prospects. Although we have since our inception
experienced increasing net sales, we may experience significant fluctuations in
our gross margins and operating results in the future, both on an annual and a
quarterly basis. Various factors cause these fluctuations, including general
economic conditions, specific economic conditions in the commercial aviation
industry, the availability and price of surplus aviation material, the size and
timing of customer orders, returns by and allowances to customers and our cost
of capital.
Three Months Ended March 31, 2000 v. Three Months Ended March 31, 1999
Results of Operations
Net sales of aircraft and engine spare parts were $2,218,263 for the
three months ended March 31, 2000 as compared to $3,147,373 for the three months
ended March 31, 1999. The decrease in net sales of aircraft and engine spare
parts was due to a cyclical downturn in the industry caused in part by
reductions in demand brought on by higher fuel and borrowing costs for the
Aviation Industry. Due to the stabilization in fuel costs after the first
quarter, we expect demand to return to more normal levels.
Cost of goods sold was $1,444,262 and our cost of sales percentage was
65% for the three months ended March 31, 2000. Cost of goods sold was $2,192,272
and our cost of sales percentage was 70% for the three months ended March 31,
1999. Our decrease in cost of goods sold was due to the decrease in sales for
the period. The decrease in the cost of sales percentage results from the change
in product mix with lower cost parts.
Salary and wage expenses increased to $353,552 in the three months
ended March 31, 2000 from $318,270 in the three months ended March 31, 1999, an
increase of $35,282. This increase is primarily the result of increased sales
personnel hired in the second half of 1999.
General and administrative expenses increased to $670,597 in the three
months ended March 31, 2000 from $417,810 in the three months ended March 31,
1999, an increase of $257,787. The increase is primarily the result of an
increase in credit insurance, bank fees and travel expense related to our
efforts to increase our presence in the Asian market as compared to the three
months ended March 31, 1999.
8
<PAGE>
Professional fees increased to $61,279 in the three months ended March
31, 2000 from $56,199 in the three months ended March 31, 1999. We incurred
additional accounting and legal expenses related to our efforts to acquire
additional inventory and collection efforts on our accounts receivables.
Interest expense was $53,963 in the three months ended March 31, 2000
and $157,109 in the three months ended March 31, 1999. This decrease was due to
the discount on the notes payable to the John G. Jacobs Trust and Nancy Plotkin,
recorded for stock issued as an inducement for making loans to unrelated
investors in the three months ended March 31, 1999. These loans were repaid in
November 1999.
Interest income was $11,014 in the three months ended March 31, 2000
and $5,376 in the three months ended March 31, 1999.
Income from the SYNOR-A joint venture was $9,000 in the three months
ended March 31, 2000 compared to $6,553 in the three months ended March 31,
1999. We expect increased income starting in the third quarter of 2000 and
forward since SYNOR-A completed its FAA certifications in the quarter ended
March 31, 2000.
Income tax benefit was zero in the three months ended March 31,
2000 and income tax expense was $27,400 in the three months ended March 31,
1999. As of March 31, 1999, we qualified to file a consolidated income tax
return under the Internal Revenue Code. Therefore, as of April 1, 1999 we are
able to offset any earnings of Aviation Holdings International against our
losses.
Minority interest was ($9,603) in the three months ended March 31, 2000
and $32,712 in the three months ended March 31, 1999. The decrease is the result
of losses incurred by Aviation Holdings International in the first quarter of
2000 versus a profit in the first quarter of 1999.
As a result of the foregoing, our net loss was $355,773 for the three
months ended March 31, 2000, which was a increase from a net lost of $42,470 for
the three months ended March 31, 1999. Basic and diluted loss per common share
increased from $.01 for the three months ended March 31, 1999 to $.08 for the
three months ended March 31, 2000.
Liquidity and Capital Resources
As of March 31, 2000 our principal source of liquidity included cash
and cash equivalents of $170,853 compared with cash and cash equivalents of
$691,074 as of March 31, 1999. As of March 31, 2000, total outstanding debt was
$2,975,865 compared to $2,571,665 as of March 31, 1999. Aviation Holdings
International renewed a revolving working capital line of credit from Comerica
Bank in September 1999. At March 31, 2000, the amount of principal owed to the
bank was $2,395,000. The credit agreement governing the revolving line of credit
provides for a maximum aggregate borrowing limit of $3,500,000, subject to
certain borrowing restrictions and is secured by substantially all of Aviation
Holdings International's assets. The line of credit bears interest per annum at
Comerica Bank's prime rate plus 1%. As of March 31, 2000, Aviation Holdings
International did not meet the tangible net worth covenant of $4,250,000 in the
Comerica Bank credit agreement, which puts it in technical default under the
terms of the credit agreement.
Cash used in operations for the three months needed March 31, 2000 was
$868,304 as compared to cash provided by operations for the three months ended
March 31, 1999 was $355,368. The increase in cash used in operations in 2000 was
a result of an increase in net losses and larger increases in operating assets
and a reduction in accounts payable over
9
<PAGE>
1999 levels. Cash provided by operations in 1999 was a result of smaller
operating losses and decreases in operating assets over 1998 levels.
Cash used in investing activities for the three months ended March 31,
2000 was $93,978 compared to $216,412 of cash used for investing activities in
the three months ended March 31, 1999. Cash used in the three months ended March
31, 2000 was related primarily to the purchases of equipment of $2,528 and
additional investment in SYNOR-A Joint Venture of $100,000, net of employee
advances of $8,550. Cash used for the three months ended March 31, 1999 was for
purchases of equipment of $15,852 and additional investment in SYNOR-A Joint
Venture of $200,000.
Cash provided by financing activities for the three months ended March
31, 2000 was $706,447 compared to $188,428 for the three months ended March 31,
1999. The cash provided in 2000 primarily related to $270,000 borrowed on the
bank line of credit and advances from stockholders of $559,170, partially offset
by repayments on long- term debt of $2,723 and deferred offering costs of
$120,000. The source of cash provided from the three months ended March 31, 1999
was $295,000 proceeds from the sale of stock, repayment of $5,697 of short-term
borrowings, and advances to stockholders, net of repayments, of $100,000.
We believe that existing cash balances and the credit agreement with
Comerica will be sufficient to meet the capital requirements of our current
business for the next twelve months. We will, however, require additional equity
or debt financing in order to implement our expansion plans and, in particular,
the expansion of our business into turbine engine and aircraft sales.
Thereafter, if our capital requirements increase, we could be required to secure
additional sources of capital. There can be no assurance we will be capable of
securing additional capital or that the terms upon which such capital will be
available to us will be acceptable.
Inflation
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material effect on our results of operations or
financial condition. Increases in fuel costs due to inflation my adversely
affect demand for used aircraft that typically are less fuel efficient, thereby
decreasing demand for aircraft and engine components and spare parts for these
aircraft.
Year 2000
We have not experienced any material business interruptions or supplier
delays from year 2000 computer issues to date and have not discovered any Year
2000 problems in internal computer systems material to our operations. However,
the failure of our internal systems or those of any of our customers, vendors,
suppliers or service providers could have a material adverse affect on our
operations.
Plan of Operation
Over the next twelve months, we intend to expand our inventory of
aircraft and engine spare parts and to acquire turbine jet engines and/or
aircraft. We also anticipate hiring additional employees, particularly in the
marketing area. These plans will require additional capital, which we intend to
obtain through a public offering of equity securities and/or through additional
debt financing.
10
<PAGE>
Aviation Holdings International owns a one-half interest in a DC10-30
flight simulator. Our management, and the co-owner of the DC10-30 flight
simulator, have determined that the flight simulator will be best utilized in
disassembled and sold as spare parts to current users of DC10 parts and
peripheral equipment. We anticipate this liquidation will be completed by
September 30, 2001.
We believe that anticipated cash flows from operations will meet our
anticipated short term cash needs for working capital and will enable us to make
future inventory expenditures for the foreseeable future. On August 12, 1998,
Aviation Holdings International entered into a credit agreement with Comerica
Bank whereby Comerica Bank agreed to extend a revolving line of credit to
Aviation Holdings International of up to $3,500,000. The revolving line of
credit is intended to fund working capital needs such as inventory purchases
and, subject to Comerica's approval, strategic acquisitions. The funds advanced
to Aviation Holdings International by Comerica are secured by the assets of
Aviation Holdings International. The outstanding balance may not at any time
exceed the sum of (a) 85% of Aviation Holdings International's eligible accounts
receivable and (b) 35% of Aviation Holdings International's eligible inventory.
This credit facility has been renewed through September 2000. As of March 31,
2000 the maximum amount available to Aviation Holdings International under this
formula was approximately $2,695,040 million, and the outstanding balance was
approximately $2,395,000 million.
We do not anticipate material capital expenditures for the coming
fiscal year.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements regarding, among other
things, the anticipated financial and operating results of Aviation Holdings
Group, Inc. For this purpose, forward looking statements are any statements
contained herein that are not statements of historical fact and include, but are
not limited to, those preceded by or that include the words, "believe," "may,"
"will," "estimate," "continue," "intend," "plan," "expect," "anticipate" or
similar expressions. In connection with the "safe harbor" provisions in the
Private Securities Litigation Reform Act of 1995, we are including this
cautionary statement identifying important factors that could cause our actual
results to differ materially from those projected in forward looking statements
made by us, or on our behalf. Although we believe that the forward-looking
statements contained herein are reasonable, it can give no assurance that our
expectations will be met. All forward-looking statements are expressly qualified
in their entirety by this cautionary statement.
Important factors that may cause actual results to differ from
forward-looking statements may include, for example,
o the success or failure of our efforts to implement our business
strategy, including expanding our international operations;
o our ability to raise sufficient capital to expand our business;
o the effect of changing economic conditions on the airline and aircraft
industries;
o changes in government regulations, tax rates and similar matters;
o our ability to attract and retain quality employees; and
o other risks which may be described in our future filings with the SEC.
11
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PART II
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27. Financial Data Schedule
(b) We did not file any reports on Form 8-K during the quarter for
which this report is filed.
12
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, hereunto duly authorized.
AVIATION HOLDINGS GROUP, INC.
Date: May 15, 2000 By:/s/ Joseph F. Nelson
--------------------
Joseph F. Nelson,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 By:/s/ Joseph J. Janusz
--------------------
Joseph J. Janusz,
Vice President-Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in this report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> MAR-31-1999 MAR-31-2000
<CASH> 691,074 170,583
<SECURITIES> 0 0
<RECEIVABLES> 3,196,375 2,437,005
<ALLOWANCES> (320,000) (365,000)
<INVENTORY> 3,244,744 4,359,072
<CURRENT-ASSETS> 7,902,518 6,836,661
<PP&E> 391,094 478,014
<DEPRECIATION> (90,690) (173,026)
<TOTAL-ASSETS> 10,072,210 9,468,418
<CURRENT-LIABILITIES> 5,674,428 5,415,818
<BONDS> 12,201 22,697
0 0
0 0
<COMMON> 409 422
<OTHER-SE> 3,695,315 3,691,141
<TOTAL-LIABILITY-AND-EQUITY> 10,072,210 9,467,418
<SALES> 3,147,373 2,218,263
<TOTAL-REVENUES> 3,147,373 2,218,263
<CGS> 2,192,272 1,444,262
<TOTAL-COSTS> 2,192,272 1,444,262
<OTHER-EXPENSES> 792,279 1,070,428
<LOSS-PROVISION> 0 15,000
<INTEREST-EXPENSE> 157,109 53,963
<INCOME-PRETAX> 17,642 (345,376)
<INCOME-TAX> 27,400 0
<INCOME-CONTINUING> (9,758) (345,376)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (42,740) (335,773)
<EPS-BASIC> (0.01) (0.08)
<EPS-DILUTED> (0.01) (0.08)
</TABLE>
