SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24795
AVIATION GENERAL, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 73-1547645
(State of Incorporation) (IRS Employer
Identification No.)
7200 NW 63rd Street
Hangar 8, Wiley Post Airport
Bethany, Oklahoma 73008
(Address of principal executive offices) (Zip Code)
(405) 440-2255
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 requirement for
the past 90 days.
Yes__X___ No_____
There were 7,230,548 Shares of Common Stock Outstanding as of March 31, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NOTE: The purpose of this amendment is to include the amount of notes payable
in the Company's balance sheet as of March 31, 1999. This amount was
inadvertently omitted from this report as originally filed while it was being
prepared for electronic filing.
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31,
1999 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 605,233 $ 645,706
Investment in debt securities - related party 200,000 1,000,000
Accounts receivable 21,111 6,941
Notes receivable from related party 1,507,843 1,507,843
Notes receivable 16,516 21,286
Inventories 5,890,366 5,783,398
Prepaid expenses and other assets 268,592 259,860
---------------- ---------------
Total current assets 8,509,661 9,225,034
---------------- ---------------
Property and equipment:
Office equipment and furniture 348,323 347,565
Vehicles and aircraft 84,021 84,021
Manufacturing equipment 358,332 358,332
Tooling 527,496 525,536
Leasehold improvements 309,144 309,144
---------------- ---------------
1,627,316 1,624,598
Less: Accumulated depreciation (878,043) (850,313)
---------------- ---------------
Net property and equipment 749,273 774,285
---------------- ---------------
Other assets:
Notes receivable - less current maturities 144,753 148,649
---------------- ---------------
$ 9,403,687 $ 10,147,968
================ ===============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable $ 427,714 $ 622,618
Accrued expenses 382,909 343,100
Refundable deposits 162,427 252,498
Notes payable 580,450 600,000
---------------- ---------------
Total current liabilities 1,553,500 1,818,216
---------------- ---------------
Long-term debt -- --
Shareholders' investment (deficit):
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares outstanding -- --
Common stock, $.50 par value, 20,000,000
shares authorized; 7,280,548 shares
issued and 7,230,548 outstanding at March 31, 1999
and 7,280,548 issued and outstanding
at December 31, 1998 3,640,274 3,640,274
Additional paid-in capital 37,178,230 37,178,230
Retained earnings (deficit) (32,868,317) (32,488,752)
---------------- ---------------
7,950,187 8,329,752
Less: Treasury stock (100,000) --
---------------- ---------------
Total shareholders' investment 7,850,187 8,329,752
--------------- ---------------
$ 9,403,687 $ 10,147,968
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Net sales - aircraft $ 1,644,653 $ 2,638,683
Net sales - service 613,639 284,546
---------------- ---------------
Total net sales 2,258,292 2,923,229
---------------- ---------------
Cost of sales - aircraft 1,741,241 2,353,714
Cost of sales - service 370,752 241,844
---------------- ---------------
Total cost of sales 2,111,993 2,595,558
---------------- ---------------
Gross margin (deficit) 146,299 327,671
---------------- ---------------
Other operating expenses:
Product development and engineering costs 79,038 78,152
Selling, general and administrative expenses 489,972 639,011
---------------- ---------------
Total other operating expenses 569,010 717,163
---------------- ---------------
Operating income (loss) (422,711) (389,492)
----------------- ----------------
Other income (expenses):
Other income 56,867 152,865
Interest expense (13,024) (2,761)
Other expense (697) (2,108)
----------------- -----------------
Total other income (expenses) 43,146 147,996
----------------- -----------------
Net loss $ (379,565) $ (241,496)
================= =================
Net loss per share:
Weighted average common shares
Outstanding 7,269,437 7,280,548
----------------- -----------------
Loss per share $ (0.05) $ (0.03)
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (379,565) $ (241,496)
Adjustments to reconcile net loss to
net cash used in operating activities---
Depreciation and amortization 27,730 25,683
Changes in operating assets and liabilities,
excluding cash:
Accounts receivable (14,170) 326,737
Notes receivable - related parties - (10,390)
Notes receivable 8,666 26,533
Inventories (106,968) 288,834
Prepaid expense and other assets (8,732) (18,365)
Accounts payable (194,904) 76,487
Accrued expenses 39,809 170,903
Refundable deposits (90,071) 41,428
------------- ---------------
Net cash used in operating activities (718,205) 686,354
------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments - (1,004,208)
Capital expenditures (2,718) (61,175)
Purchase treasury stock (100,000) --
Proceeds from repayment of debt by related party 800,000 --
------------ ---------------
Net cash used in investing activities 697,282 (1,065,383)
------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings on bank line (19,550) (100,000)
------------- ---------------
Net cash provided by financing activities (19,550) (100,000)
------------- ---------------
Net increase (decrease) in cash (40,473) (479,029)
Cash and cash equivalents at beginning of period 645,706 1,022,024
------------ ---------------
Cash and cash equivalents at end of period $ 605,233 $ 542,995
============ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 4,983 $ 3,682
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed 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 financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of the Company,
all adjustments necessary to present fairly the financial position of Aviation
General, Incorporated as of March 31, 1999 and December 31, 1998, and the
results of operations for the three month periods ended March 31, 1999 and 1998,
and the cash flows for the three month periods ended March 31, 1999 and 1998
have been included and are of a normal, recurring nature. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year. It is suggested that these condensed financial
statements be read in conjunction with the Company's 1998 Annual Report on Form
10-K.
2. The earnings per share of common stock were computed by using the weighted
average number of shares of common stock outstanding during the period. Basic
and diluted amounts are the same for all periods presented.
3. The Company purchased 50,000 shares of its common stock at an aggregate
purchase price of $100,000, or $2.00 per share from its majority shareholder on
March 11, 1999. This price was consistent with shares trading freely on the
Nasdaq SmallCap Market on that date. Some of the shares will be issued to
employees under the Company's 401(k) plan and the balance will be cancelled.
4. Inventories consist primarily of finished goods and parts for manufacturing
and servicing aircraft. Inventory costs include all direct manufacturing costs
and applied overhead. These inventories, other than used aircraft, are stated at
the lower of cost or market, and cost is determined by the average-cost method.
Used aircraft are valued on a specific-identification basis at the lower of cost
or current estimated realizable wholesale price. Inventory components at the
balance sheet dates were as follows:
March 31, 1999 December 31, 1998
Raw materials $3,479,747 $3,112,257
Work in process 670,186 602,457
Demonstration aircraft 979,495 987,325
Used aircraft 760,938 1,081,359
---------- ----------
Total inventories $5,890,366 $5,783,398
---------- ----------
5. The Company is subject to regulation by the FAA. The Company is subject to
inspections by the FAA and may be subjected to fines and other penalties
(including orders to cease production) for noncompliance with FAA regulations.
The Company has a Production Certificate from the FAA, which delegates to the
Company the inspection of each aircraft. The sale of the Company's product
internationally is subject to regulation by comparable agencies in foreign
countries.
<PAGE>
The Company faces the inherent business risk of exposure to product
liability claims. In 1988, the company agreed to indemnify a former manufacturer
of the Commander single engine aircraft against claims asserted against the
manufacturer with respect to aircraft built from 1972 to 1979. In 1994, Congress
enacted the General Aviation Revitalization Act, which established an
eighteen-year statute of repose for general aviation manufacturers. This
legislation prohibits product liability suits against manufacturers when the
aircraft involved in an accident is more than eighteen years old. This action
effectively eliminated all potential liability for the Company with respect to
aircraft produced in the 1970s as of December 31, 1997. Management believes that
the interest of shareholders is better served by vigorously defending claims
through the services of highly qualified specialists and attorneys rather than
retaining product liability insurance to settle exorbitant and unjustified
claims. The Company is not insured for product liability claims. Management
believes there is no litigation outstanding which would have a material adverse
effect on the financial position or operations of the Company.
6. Since commencement of production in 1992, annual revenues have increased
significantly and annual losses have substantially declined, concurrent with
ongoing investment in the Company's future. Cash needs have been financed with
debt, private investor capital, proceeds from an initial public offering, and
proceeds from subsequent stock issuances. The Company continues to broaden its
general aviation capabilities by increasing its business in the pre-owned piston
and jet markets. These markets are much larger than the market for new high
performance, single engine aircraft. Furthermore, this diversifies the Company's
business and revenue base and is synergistic with the manufacturing, marketing
and support services of our high performance, single engine Commander aircraft.
Management believes the reduction for 1998 in net loss from operations
is attributable to plans implemented in late 1996 and 1997 to provide new
revenues for the Company. During 1998 the Company continued to expand the
Aviation Services Division, which sells pre-owned aircraft and markets
refurbishment services. Also in 1998, the Company expanded its efforts to
purchase pre-owned aircraft, accept aircraft on trade for new units, and
refurbish and sell the aircraft. Revenue from sales of pre-owned aircraft
increased by 69% in 1998 and revenues from refurbishment and service increased
over 11%. Management expects growth to continue in 1999 for both refurbishment
services and pre-owned aircraft sales. The Company continues to take advantage
of its factory facilities to market upgrades to existing aircraft owners for new
paint, interior and equipment.
In October 1998 the Company announced the formation of Strategic Jet
Services, Inc., a wholly owned subsidiary established to provide brokerage,
sale, consulting and refurbishment work for jet aircraft. Income from this line
of business is expected to begin improving the Company's profitability in 1999.
The Company introduced a new de-icing option and received certification
from the Federal Aviation Administration in 1998, allowing equipped aircraft to
operate in known icing conditions similar to larger, more expensive aircraft.
Sales of this optional equipment not only provide additional revenues and
earnings, but also increase the value of the aircraft relative to its
competition.
In addition to the above actions by the Company to increase revenue,
management has made efforts to reduce costs and cash requirements by optimizing
its production schedule using just-in-time scheduling, thereby systematically
decreasing inventories and payables since production commenced in 1992.
Management has reduced the costs incurred to advertise new aircraft by focusing
its marketing efforts at a specific customer profile.
The Company continues to advertise in industry and trade publications
at a significantly reduced level, while directly contacting potential customers
whose demographic characteristics closely match the typical customer, especially
in the areas of income, pilot experience, and types of businesses with
demonstrated regional travel requirements. Further reducing selling expenses,
the Company completed a
<PAGE>
reorganization of its service center, paint and interior shops into a completion
center to focus on the growing after-market refurbishment business.
The Company has expanded its operations to include the Aviation
Services Division and Strategic Jet Services, Inc., improved its products,
dramatically decreased sales and marketing expenses and reduced debt and
interest expense. Management believes that it has made significant progress in
1998 and it is reasonable to expect the Company to improve revenues, reduce
costs, improve operating results and stabilize cash flow in 1999. Due to
numerous factors beyond the control of the Company, there can be no assurances
that these results will be achieved.
7. On August 5, 1998, Commander Aircraft Company was merged with Aviation
General, Incorporated, a Delaware holding company. Each share of Commander
Aircraft Company common stock was converted into a share of Aviation General,
Incorporated common stock. The merger had no direct affect upon the operations
or management of the company. The stock continued to trade on the NASDAQ
SmallCap Market under the name of Aviation General, Incorporated and the ticker
symbol "AVGE".
<PAGE>
SIGNATURE
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.
AVIATION GENERAL INCORPORATED
(Registrant)
By: /s/ Stephen R. Buren
Stephen R. Buren
Vice President Finance
(Chief Financial Officer and
Authorized Signatory)
Date: July 2, 1999
