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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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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) Securities registered
pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock; $.50 par value
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 Yes X No_____ past 90 days.
Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form (X) 10-K.
Based on the closing sales price of March 10, 1999 the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$2,332,872
The number of shares outstanding of the registrant's common stock, $.50
par value, was 7,280,548 at March 10, 1999.
Total number of pages, including cover page 41
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<PAGE>
PART 1
Item 1. Business
Aviation General Incorporated (the "company") manufactures, markets, and
provides support services for single engine, high performance Commander
aircraft, as well as providing sales and brokerage service for pre-owned jet and
piston-powered aircraft. Originally incorporated in 1988 as Commander Aircraft
Company, the company is one of the few manufacturers in the world that produces
single engine high performance aircraft certified by the Federal Aviation
Administration (FAA).
Incorporated under the laws of the State of Delaware as a holding company,
Aviation General Incorporated succeeded Commander Aircraft Company by a vote of
the shareholders effective August 4, 1998. The company does business through its
two wholly owned subsidiaries: Commander Aircraft Company and Strategic Jet
Services, Inc., both located in Bethany, Oklahoma.
Commander aircraft are derived from a line of single engine high performance
aircraft designed, certified and produced by the General Aviation Division of
Rockwell International in the 1970s. Rockwell later sold its General Aviation
Division to Gulfstream Aerospace Corporation, from whom Commander Aircraft
Company acquired the rights to the single engine high performance Commander
line. Subsequently, the company designed, engineered and implemented
improvements to the Commander line. With an airframe design decades newer than
the competition, Commander aircraft are certified to Federal Aviation Regulation
(FAR) 23 through Amendment 7, meeting more stringent standards for single engine
high performance aircraft than aircraft certified under the older Civil Air
Regulation (CAR) 3.
The company's first production model, the Commander 114B, was certified by the
FAA in 1992. The Commander 114B offers substantially improved performance,
state-of-the-art instrumentation and avionics, and a luxuriously appointed,
spacious cabin, while retaining the proven airframe and other features of the
original Rockwell International design. The Commander 114B features an extensive
range of standard equipment, retractable landing gear, 260 horsepower fuel
injected engine, and a constant speed propeller. The aircraft has received
favorable reviews in the aviation press worldwide and is recognized for its
beautiful design and its excellent flight, landing and handling characteristics.
The Commander 114B, with a standard range of 725 nautical miles (833 statute
miles), 1,216 pound useful load, maximum cruise speed of 164 knots (188 miles
per hour), large luxurious four place cabin and low operating and maintenance
costs, offers an optimum combination of performance, comfort, style, luxury,
utility and safety. The Commander 114B is an ideal airplane for pleasure,
business and flight training.
In 1994, the company added the Commander 114AT All-Purpose Trainer to its line
of single engine, high performance aircraft. The Commander 114AT is a four place
high performance trainer designed for military, professional and civilian flight
training. An all-in-one aircraft, the Commander 114AT All-Purpose Trainer is
ideal for primary
<PAGE>
through instrument flight training. The Commander 114AT shares the same design
heritage as the luxurious Commander 114B, with a modified instrument panel and
utilitarian interior.
In 1995, the company received certification from the FAA for the Commander
114TC, a turbocharged version of the Commander 114B. The Commander 114TC is
equipped with the same beautiful, expansive interior and state-of-the-art
systems as the Commander 114B, but utilizes a 270 horsepower turbocharged
Lycoming engine which provides speeds up to 197 knots (227 miles per hour). The
Commander 114TC is certified to an altitude of 25,000 feet, which makes it an
excellent aircraft for mountainous regions, as well as high density altitude
environments. Like its predecessor, the 114B, the Commander 114TC has received
extensive favorable reviews by the aviation press.
The company continues to upgrade its products each year with new standard and
optional equipment, such as long-range fuel tanks for the 114B, de-ice equipment
for all models, traffic alert system for increased safety in congested airspace,
and a variety of advanced avionics, moving maps and navigation displays.
Business Strategy
The company's business strategy is to capture a significant share of the
existing domestic and international market for the single engine, high
performance aircraft by offering a premium updated version of an established
aircraft design. Commander aircraft have an airframe design decades newer than
the competition and are certified to more stringent standards. The company
believes the domestic and international market for its aircraft includes
individuals and corporations that will purchase the company's aircraft for
business and personal travel, and governments, commercial and military
organizations that will use the aircraft for training and other purposes.
The company believes the market for its products will improve as a result of
attrition of the existing fleet of aging single engine high performance
aircraft, development of new international markets for general aviation
aircraft, increased use of single engine aircraft as a corporate tool for small
and medium-sized businesses, and demand for advanced single engine trainers.
Recognizing that the size of the used aircraft market is significantly larger
than new aircraft sales, the company has structured a separate aviation services
division within the company to purchase, refurbish and sell pre-owned aircraft
at reasonable profit margins. The Aviation Services Division also acts as broker
for pre-owned aircraft and serves as advisor to potential aircraft buyers and
sellers.
Marketing and Sales
The company markets its aircraft through a factory direct sales and marketing
organization comprised of regional sales personnel who are managed and supported
from the company's headquarters in Oklahoma. The marketing organization is
augmented by a worldwide network of Commander Authorized Service Centers (ASCs).
The company's marketing program utilizes a highly focused domestic and
international advertising and
<PAGE>
public relations program that includes product advertising in leading business
and aviation publications.
The company has one of the most comprehensive worldwide service and support
networks in its class. The company grants domestic Commander Authorized Service
Centers the non-exclusive right to sell Commander aircraft. Commander ASCs
receive a referral fee for identifying purchasers, and provide a full complement
of service and support services, including financing, insurance, service and
support, hangar/storage, flight instruction, and professional pilot service. The
company selects ASCs from among experienced independent aviation sales and
service organizations that it believes to have excellent facilities, service
capabilities, reputation and financial strength. Through its ASCs, Commander
Aircraft Company offers a turn-key aircraft ownership program designed to
stimulate ownership of Commander aircraft by companies that have not previously
owned or operated aircraft. This flexible program can be tailored to meet each
customer's specific requirements.
Three new aircraft and two pre-owned aircraft sold in 1998 were delivered to
foreign customers accounting for $1,987,450 or 21% of the revenues from aircraft
sales. Information regarding the company's export sales and major customers is
incorporated herein by reference to Note H - Sales Concentrations, of the Notes
to Financial Statements. The company anticipates that domestic sales will
continue to account for a significant portion of its market in the future,
however it is anticipated that international markets will continue to improve
and account for an increased portion of the company's sales in the future.
The company has been dependent upon its ability to sell a single product line
for which a small market exists, and sales in sufficient quantities and at
prices that will allow it to recover operating costs and earn a profit. Although
the company believes that the market for its new aircraft will grow and its
share will increase, there can be no assurances that economic conditions will
not have an adverse effect on future sales.
Revenues generated by The Aviation Services Division grew significantly in 1998
and are expected to continue to grow in 1999. In addition, the company
established a new subsidiary, Strategic Jet Services, Inc. during 1998 to
include sales and brokering of turboprop and jet aircraft.
Parts and Materials Availability
Aviation General, Incorporated purchases parts and materials from over 100
different suppliers. Though some of these vendors are key to the manufacture of
the company's aircraft, there are no long term commitments or contracts with any
suppliers. The company considers its relationship with its suppliers to be
satisfactory and does not anticipate any shortages or interruption to production
due to lack of available components on a timely basis.
Competition
Purchasers of high performance aircraft choose among competitive models on the
basis of numerous factors, including performance, reliability, price,
appearance, quality of service
<PAGE>
and reputation of the aircraft and the manufacturer. Aviation General,
Incorporated believes that it can favorably compete with its competitors on the
basis of the quality, comfort, and performance of its aircraft, and the quality
and scope of the support services the company provides to its customers. The
company further believes its aircraft are competitively priced and have a number
of features, including certification to stricter standards, newer, more
attractive design and larger cabin size, which make them competitive with or
superior to the single engine, high performance aircraft produced by its four
principal competitors: Beech Aircraft Corporation, which suspended production of
its F33A Bonanzas in 1994; Mooney Aircraft Corporation, which produces a single
engine aircraft that is significantly smaller than the 114B; New Piper Aircraft
Corporation, which produces two single engine, six place retractable gear
aircraft with similar performance; and Socata whose marketing efforts are, for
the most part, focused in Europe and Asia. Each of these competitors has been
well established in the general aviation industry for years and may have access
to greater resources than are available to the company.
Insurance
The company carries most types of insurance customary for a manufacturer of
general aviation aircraft, including coverage for general liability, property
damage, aircraft loss or damage and worker's compensation, but does not carry
product liability insurance. There is no assurance that the amount of insurance
carried by the company would be sufficient to protect it fully in the event of a
serious accident or liability claim, but the company believes that the amounts
and coverage of its insurance protection are reasonable and appropriate for the
company's business operations. Although highly probable, there is no assurance
that such insurance will continue to be available on commercially reasonable
terms.
In mid-1994, Congress enacted the General Aviation Revitalization Act, S. 1458,
which established an 18-year statute of repose for general aviation aircraft and
component manufacturers. This legislation prohibits product liability suits
against aircraft manufacturers when the aircraft involved in an accident is more
than 18 years old when the accident occurs. This action eliminated all Rockwell
manufactured Commanders produced in the 1970's from the company's liability
tail. The only aircraft that the company bears manufacturing responsibility for
are the model 114B, 114AT and 114TC produced from 1992 through the present. At
December 31, 1998 this totaled approximately 143 aircraft, which includes 70
aircraft exported from the United States.
Through March 1, 1995, the company maintained product liability insurance with
coverage of $10 million per occurrence and $10 million in the aggregate, with
deductible of $200,000 for aircraft built through March 1, 1995. To date, there
has been only one claim filed against the company with respect to any of the
aircraft manufactured by Rockwell International or any of the new aircraft
manufactured by the company. This action was dismissed by the court in December
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 claims. As such, the company elected not to retain product liability
insurance coverage commencing March 1, 1995. The company could be exposed to
significant financial risks if losses from products liability were to occur.
The company does not carry business interruption or key man insurance.
<PAGE>
Governmental Regulation
In order for an aircraft model to be manufactured for sale, the FAA must issue a
Type Certificate for the aircraft model and, in order for a particular aircraft
to be operated, an Airworthiness Certificate for that aircraft must be issued.
The company was issued a Type Certificate for the Commander 114B in 1992 and a
Type Certificate for the Commander 114TC in 1995. The company owns Type
Certificates for all predecessor single engine Commander models. The company
received a Production Certificate from The FAA in 1993, which allows the company
to issue Airworthiness Certificates under authority delegated by the FAA. An
Airworthiness Certificate is issued for a particular aircraft when it is
certified to have been built in accordance with specifications approved under
the Type Certificate for that particular model aircraft. Commander aircraft are
certified to FAR 23, Amendment 7 meeting more stringent standards for single
engine aircraft than aircraft certified under the older CAR 3 regulation. The
following table compares these standards:
Certification Requirements: FAR 23 CAR 3
(through Amendment 7)
Increased gust loading 50 ft/sec 30 ft/sec
Fatigue evaluation - Fail-safe Static load
Wing and associated structures Safe life margin
Fail-safe elevator control system Yes No
Gear and door substantiation under
all conditions Yes No
Flap actuated aural warning Yes No
More stringent usable fuel testing Yes No
Non-siphoning fuel caps Yes No
Improved accessibility of fuel
selector switch Yes No
More stringent lightning strike
analysis Yes No
Employees
The company has a total of 86 full-time employees. Aviation General,
Incorporated believes that its future success will depend, in part, upon its
continued ability to recruit and retain highly skilled employees. Although
competition for qualified personnel is strong, the company has been successful
in attracting and retaining skilled employees. None of the company's employees
are covered by a collective bargaining agreement, and Aviation General,
Incorporated considers its employee relations to be good.
Item 2. Properties
The company's 103,650 square foot facility, which consists of three buildings
constructed in 1981, is located at the Wiley Post Airport in Bethany, Oklahoma.
The facility is leased from the Oklahoma City Airport Trust Authority under a
lease that expires in October 2003, with a five year renewal option. The company
performs all of its operations and services from this facility. During the past
ten years, the company has improved its facility to assure safety and compliance
with environmental laws and regulations.
<PAGE>
A summary of lease payments is presented in Note G - Leases, of the Notes to
Financial Statements for 1998, which is hereby incorporated by reference.
Item 3. Legal Proceedings
The company was not a party to any pending legal proceeding as of March 4, 1999.
The company's business activities may from time to time subject it to legal
proceedings. See "Insurance" under Part 1, Item 1.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The common stock of Commander Aircraft Company, $.50 par value, was traded on
the NASDAQ Small-Cap Market (symbol CMDR) prior to the merger in August 1988.
Subsequent to the merger, the stock continues to trade as Aviation General,
Incorporated (symbol AVGE). This table presents its high and low market prices
during the past two years. The company has never paid dividends in the past, and
does not intend to pay dividends in 1999.
Quarterly Common Stock Price Ranges
1998 1997
Quarter High Low High Low
------- ---- --- ---- ---
1st 2 1/2 1 1/2 2 3/4 1 3/4
2nd 3 1 3/8 2 1/2 1 1/4
3rd 4 1/8 1 1/2 2 9/16 1 5/8
4th 3 1/2 1 1/4 4 7/8 1 13/16
There were 315 holders of the company's common stock as of October 14, 1998,
including shareholders whose shares are held in "street" name. No shares were
issued or repurchased by the company during 1998.
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below for each year in the five year
period ended December 31, 1998 have been derived from the company's audited
financial statements. This data should be read in conjunction with the Financial
Statements and related notes thereto and other financial information appearing
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31
(Amounts in thousands, except per share data)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operation Data:
Net sales $10,712 $8,062 $7,958 $9,398 $7,619
Net loss $(1,849) $(2,140) $(3,408) $(2,559) $(4,976)
Loss per share $(.25) $(.31) $(.51) $(.39) $(.84)
Balance Sheet Data:
Total assets $10,148 $10,940 $11,060 $14,715 $12,790
Long-term debt - - $ 2,446 - $ 5,325
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
1998 vs.1997
Total revenues increased by 33% in 1998 to $10,711,827 from $8,062,369 in 1997,
and the net loss was reduced by approximately 14% to $1,849,400 in 1998 from
$2,140,637 in 1997. Net loss per share decreased to $.25 in 1998 from $.31 in
1997.
New aircraft deliveries increased to 13 units in 1998 from 12 in 1997, while
pre-owned and consigned aircraft sales increased to 29 aircraft in 1997 from 22
in 1997. Revenues from aircraft sales increased 37% to $9,375,478 in 1998 from
$6,860,413 in 1997. The increase was due to higher unit prices, especially in
pre-owned aircraft, coupled with an increase in volume of aircraft delivered.
Revenues generated by service and parts sales increased by more than 11% in 1998
to $1,336,349 from $1,201,956 in 1997. This improvement was due to an increase
in refurbishment work in the Service Center, along with an increase in spare
parts sales.
Aircraft cost of sales increased nearly 30% in 1998 to $8,751,936 from
$6,750,525 in 1997. The increase was due primarily to the volume of aircraft
sold in 1998. Margins on both new and pre-owned aircraft improved due to the
company's products commanding higher prices and continued cost controls that
reduced the incremental unit costs. Service
<PAGE>
and parts cost of sales increased in proportion to the increase in revenues,
increasing to $1,094,075 in 1998 from $1,025,367 in 1997.
Engineering and product development costs decreased more than 2% in 1998 to
$308,772 from $316,158 in 1997. This reduction in expense occurred primarily due
to the completion of the flight into known icing project, which was certified by
the FAA in 1998. Most of the costs in 1998 were incurred for sustaining
engineering and routine product improvements.
Sales and marketing expenses increased in 1998 by 18% to $1,745,732 from
$1,483,439 in 1997. Expenditures for advertising and trade shows increased by
nearly $217,000 in 1998, as new advertising was strategically placed in various
business and trade publications. Other sales and marketing expenses increased
slightly in 1998. General and administrative expenses increased 8% in 1998 to
$916,266 from $850,233. Legal and administrative fees associated with the merger
accounted for approximately $20,000 in 1998. Printing costs, healthcare and
professional fees accounted for the balance of the increase in general and
administrative costs in 1998. Included in selling, general and administrative
expenses for 1998, is $128,000 for costs associated with the creation and start
up of Strategic Jet Services, Inc., a wholly owned subsidiary.
Interest income increased in 1998 to $324,043 from $292,949 in 1997. The
increase was due to the interest earned on certificates of deposit during 1998
and interest earned on the note due from an affiliated company. Interest from
notes receivable decreased slightly as only one aircraft is now financed by the
company. All other notes receivable have been paid in full. Income from
miscellaneous sources totaled $83,346 in 1998 compared to $73,848 in 1997.
Interest expense decreased to $12,619 in 1998 from $131,768 in 1997. The company
had virtually no debt outstanding during 1998 and most of the expense arose from
trade payables and miscellaneous sources.
1997 vs. 1996
Revenues increased slightly more than 1% in 1997 to $8,062,369 from $7,958,138
in 1996, and the net loss from operations was reduced by more than 37% to
$2,140,637 in 1997 from $3,408,200 in 1996. Net loss per share decreased to $.31
in 1997 from $.51 in 1996. During 1997 the company delivered 12 new aircraft and
22 pre-owned or consigned aircraft compared to 15 new aircraft and 18 pre-owned
or consigned aircraft in 1996. Overall, 1997 revenues from aircraft sales of
$6,860,413 were relatively flat compared to 1996 revenues from aircraft sales of
$6,893,896.
Revenues from service and parts increased 13% to $1,201,956 in 1997 from
$1,064,242 in 1996. The increase was due to additional pre-owned aircraft
serviced by the company's service facility prior to their resale and an increase
in revenues generated by refurbishment of customer-owned aircraft and
sub-contracted paint work.
Aircraft cost of sales changed very little, totaling $6,750,525 in 1997 compared
to $6,814,750 in 1996, as revenues from aircraft sales remained relatively flat.
Cost of sales
<PAGE>
for service and parts increased approximately 11% in 1997 to $1,025,367 from
$921,089 in 1996. The increase in cost was due to the increase in the volume of
revenue from service work and parts sales in 1997.
Engineering and product development expenses decreased 13% in 1997 to $316,158
from $363,215 in 1996. Development efforts were limited to routine product
improvements and production refinements. The majority of the cost of the
company's de-icing project certification was borne by the equipment supplier.
Sales and marketing expenses were reduced by 40% to $1,483,439 in 1997 from
$2,482,025 in 1996. The decrease was accomplished by a consolidation of several
sales territories, a reduction in personnel and substantial re-focusing of
advertising expenditures. General and administrative expenses decreased to
$850,234 in 1997 from $862,788 in 1996. The decrease was due to lower legal
expenses as all litigation was brought to a successful conclusion by the end of
1997.
Interest income decreased to $292,949 in 1997 from $377,517 in 1996. The
decrease was due to Commander International reducing its note payable to the
company by over $1.1 million during 1997, and payment in full of one of the
three remaining notes for retail financing held by the company. Other income
resulting from miscellaneous sales and adjustments totaled $73,848 in 1997
compared to $41,223 in 1996.
Interest expense totaled $131,768 for 1997 compared to $316,913 for 1996. A
total of $86,795 interest was recognized on the demand notes, which were
exchanged for equity February 1, 1997 or redeemed October 15,1997. An additional
$34,251 interest expense was incurred on borrowings under the company's line of
credit at Will Rogers Bank. Interest expense for 1996 related to the demand
notes totaled $275,998 and $40,915 for the bank line at Will Rogers Bank.
Liquidity and Capital Resources
Working capital decreased $1,788,773 during 1998 primarily due to the net loss
of $1,849,400 incurred during the year. Cash, including certificates of deposit,
decreased $1,601,163 during 1998, while investment in securities from a related
party increased by $1,000,000. Accounts receivable decreased by $335,976 due to
the collection of the final payment in early January 1998 for an aircraft
delivered in late 1997. Notes receivable decreased $155,439 during 1998 as one
of the two remaining aircraft notes were paid in full. The company holds only
one note receivable for aircraft financed, which is due in February 2005. Notes
receivable from related parties increased slightly during 1998 to $1,507,843
plus accrued interest of $143,588. The note is secured by Aviation General,
Incorporated stock pledged, as well as a personal guarantee from the principal
shareholder of Commander International.
Raw materials and work in process inventories remained virtually unchanged at
the end of 1998 at $3,714,714 compared to $3,721,240 at December 31, 1997. Three
new demonstration aircraft were on hand at the end of 1998 totaling $987,325
compared to four new aircraft on hand at a cost of $1,132,713 at the end of
1997. Six pre-owned
<PAGE>
aircraft were on hand as of December 31, 1998 carried at a cost of $1,081,359
compared to four used aircraft on hand December 31, 1997 at $756,176.
Accounts payable were $352,364 higher at the end of 1998 due primarily to a
pre-owned aircraft purchased on terms allowing a final payment in February 1999.
Other trade payables increased slightly in 1998 from 1997. Accrued expenses for
payroll taxes, 401(k) costs, and other expenses increased approximately $30,000
at the end of 1998. Deposits increased as of December 31, 1998 to $252,498 from
$75,180 the previous year end due primarily to a large deposit received to
rebuild a customer's aircraft damaged in Mexico. The company had no long-term
debt as of December 31, 1998 and 1997.
Capital expenditures totaled $167,936 in 1998. The company invested
approximately $70,000 in leasehold improvements, primarily to provide offices
for Strategic Jet Services, at the corporate headquarters. Approximately $45,000
was spent for new computer equipment to insure compliance with the year 2000
change, and $20,000 was invested in a new telephone system. The balance of the
expenditures for capital assets was used for new tooling and manufacturing
equipment
The company maintains a line of credit with a local bank in the amount of
$600,000. At December 31, 1998 borrowings under this line totaled $600,000. The
revolving notes bear interest at 9.25% and are secured by aircraft. The notes
mature May 1, 1999, and have been classified as short-term debt at December 31,
1998. Management expects the line of credit to be extended for at least one
year.
The company has financed its cash needs since inception with debt, private
investor capital, proceeds from an initial public offering and from subsequent
stock issuances. The company plans to secure a line of credit to be used for the
expansion of its Aviation Services Division in 1999 and to provide funds if cash
requirements exceed income. Management does not believe additional outside
funding will be required in 1999. A more detailed discussion of the company's
plans to maintain liquidity for 1999, are included in Note M - Management Plans,
of the Notes to Financial Statements for 1998.
Management Plans
Since commencement of production in 1992, annual revenues have increased
significantly and annual losses have substantially declined, concurrent with
ongoing investment. The company has had losses and net cash outflows since its
inception, and its independent public accountants have indicated that there is
doubt about its ability to continue as a going concern. In 1997, management
implemented plans to improve the company's operational performance and liquidity
and capital resources. The principal elements of these plans are (i) to expand
its Aviation Services Division, which purchases, refurbishes, and sells
pre-owned aircraft; (ii) offer additional options on its new aircraft; (iii)
reduce inventory costs through just-in-time production scheduling; and (iv)
reduce marketing expenses through more focused advertising and implementation of
a more efficient marketing organization.
During 1998 these plans were further refined and implemented. Revenues from
aircraft deliveries rose 37% from 1997. Most of this increase was due to the
expansion of the
<PAGE>
Aviation Services Division's efforts to buy, refurbish and sell more pre-owned
aircraft. Strategic Jet Services was created to add the potential for increased
profits in the jet brokerage business. Management continues to minimize
inventory costs through just-in-time scheduling as planned. Efforts to reduce
marketing expenses have been successful while increasing the number of potential
customer contacts. The programs to optimize marketing costs continue to be
refined in 1999. The company has reorganized its service center, paint and
upholstery facilities into a completion center to effectively meet the growth in
refurbishment and pre-owned aircraft sales. The creation of Strategic Jet
Services gives the company an opportunity to expand into the more lucrative used
jet aircraft sales and brokerage business.
Year 2000 Compliance
The Y2K problem, or millennium bug, refers to the possibility that computers may
not perform properly on or after January 1, 2000, because their programming may
recognize dates ending with 00 as the year 1900, rather than the year 2000. The
problem is worldwide in scope and affects computers both large and small,
including virtually any machine or electronic equipment that uses computer
chips.
Aviation General, Incorporated, like most organizations from industry to
government, has taken the Y2K challenge seriously. During 1998, the company
invested considerable effort, as well as $45,000 to upgrade its computer
hardware and software to be year 2000 compliant. The Information Systems Manager
led the review and upgrade of internal software applications affecting virtually
all areas of the company including invoicing, receivables, payroll, purchasing,
inventory control, engineering, manufacturing, accounts payable, sales and
marketing and general ledger. The company's fixed asset and depreciation system
will be replaced by mid-1999 with a year 2000 compliant system, which is the
last internal module requiring updating. One additional file server will be
purchased in 1999 to insure complete system reliability and to speed processing
time. The estimated costs of additional equipment and software, including
installation, are not expected to exceed $10,000. The company is confident that
its internal systems are year 2000 compliant.
The company's ability to produce and service aircraft is dependent upon timely
receipt of parts and equipment. Accordingly, the company has requested its major
suppliers to provide information regarding their efforts to address year 2000
compliance issues. Most suppliers responded that they have evaluated and
addressed the impact of Y2K on their operations, and are either compliant or
nearing compliance. If a major supplier is not successful in resolving Y2K
problems and is unable to provide critical parts to the company, delays in
delivery of aircraft, parts and services could occur. Even though the company
maintains certain critical parts in inventory and expects to locate alternative
suppliers, it is possible that it may not be able to do so, or may be able to do
so only at increased expense.
Over the past year, the company has invested a substantial amount of time and
money to insure that it will be ready and able to continue its operations
uninterrupted after December 31, 1999. The effort included upgrades of all
internal information, production and communication systems, as well as inquiries
into supplier's readiness plans. In May
<PAGE>
1999, the Federal Aviation Administration (FAA) will conduct a review of the
company's Y2K plan during a quality assurance audit. Although the company does
not believe that the key systems in its aircraft, its internal systems, or
critical materials or services supplied by outside sources will be affected, the
complexity of the year 2000 challenge and the interdependence between companies,
government agencies, utilities, financial institutions and other entities, it is
impossible to guarantee that the company's year 2000 readiness program will be
completely successful.
The Information Systems Manager, along with senior management, is evaluating
contingency plans should the Y2K problem result in unexpected delays or
shortages resulting from external sources. This contingency plan, expected to be
complete by July 31, 1999, will address all known potential problems that could
result from financial and banking failures, utility and communication shutdowns,
parts and equipment shortages, government operations problems and other possible
scenarios.
Market Risk
The company's market risk is impacted by changes in interest rates, foreign
currency exchange rates and certain commodity prices. The notes receivable held
by the company include a quarterly adjustment clause, which permits the company
to increase or decrease, the amount of interest charged based on bank prime
rates. Virtually all transactions with international customers are made in U.S.
dollars, thereby minimizing the risk associated with foreign currency exchange
rates. The company has no significant risk associated with commodity prices. The
company has no other financial instruments that are subject to material market
risk.
Inflation
Management believes that the overall effects of inflation on the company's costs
of materials and supplies has been minimal. For each of the past five years,
cost of sales was virtually the same as it would have been on a current cost
basis. The company uses a moving average cost for inventory valuation and cost
changes are not readily recognized in the short-term.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data:
Page
Report of Independent Public Accountant 15
Financial Statements:
Balance Sheets December 31, 1998 and 1997 16
Statements of Operations for the years ended 17
December 31, 1998, 1997 and 1996
Statement of Stockholder's Equity for the 19
years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended 20
December 31, 1998, 1997 and 1996
Notes to Financial Statements 21
Supplementary Financial Data:
Selected Quarterly Financial Data for the years ended
December 31, 1998 and 1997 (unaudited) 34
<PAGE>
Report of Independent Certified Public Accountants
Stockholders
Aviation General, Inc.
We have audited the accompanying consolidated balance sheets of Aviation
General, Inc. (a Delaware corporation) and Subsidiaries (Note A), as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aviation General,
Inc. and Subsidiaries, as of December 31, 1998 and 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note M to the
financial statements, the Company has suffered recurring losses and net cash
outflows from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note M. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
February 5, 1999
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1998 1997
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 645,706 $ 1,022,024
Certificates of deposit - 1,224,845
Investment in debt securities - related party 1,000,000 -
Accounts receivable 6,941 342,917
Notes receivable from related party 1,507,843 1,496,971
Current portion of notes receivable 21,286 55,269
Inventories 5,783,398 5,610,129
Prepaid expenses and other assets 259,860 203,815
------------- -------------
Total current assets 9,225,034 9,955,970
PROPERTY AND EQUIPMENT - AT COST
Office equipment and furniture 347,565 296,729
Vehicles and aircraft 84,021 84,021
Manufacturing equipment 358,332 354,837
Tooling 525,536 518,648
Leasehold improvements 309,144 237,161
------------- -------------
1,624,598 1,491,396
Less accumulated depreciation 850,313 777,940
------------- -------------
774,285 713,456
OTHER ASSETS
Notes receivable, less current maturities 148,649 270,105
------------- -------------
$ 10,147,968 $ 10,939,531
=========== ===========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------------ ------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 622,618 $ 270,254
Accrued expenses 343,100 312,945
Refundable deposits 252,498 75,180
Notes payable 600,000 102,000
----------- -----------
Total current liabilities 1,818,216 760,379
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value; authorized, 5,000,000 shares; none issued - -
Common stock - $.50 par value; authorized, 20,000,000 shares; issued and
outstanding, 7,280,548 shares in 1998 and 1997 3,640,274 3,640,274
Additional paid-in capital 37,178,230 37,178,230
Accumulated deficit (32,488,752) (30,639,352)
----------- -----------
8,329,752 10,179,152
$ 10,147,968 $ 10,939,531
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
NET SALES
Aircraft $ 9,375,478 $ 6,860,413 $ 6,893,896
Service 1,336,349 1,201,956 1,064,242
----------- ---------- ----------
10,711,827 8,062,369 7,958,138
COST OF SALES
Aircraft 8,751,936 6,750,525 6,814,750
Service 1,094,075 1,025,367 921,089
----------- ---------- -----------
9,846,011 7,775,892 7,735,839
----------- ---------- ----------
Gross margin 865,816 286,477 222,299
OTHER OPERATING EXPENSES
Product development and engineering costs 308,772 316,158 363,215
Selling, general, and administrative expenses 2,792,826 2,333,673 3,344,813
----------- ---------- ----------
3,101,598 2,649,831 3,708,028
----------- ---------- ----------
Operating loss (2,235,782) (2,363,354) (3,485,729)
OTHER INCOME (EXPENSES)
Interest income 324,043 292,949 377,517
Other income 83,346 73,848 41,223
Interest expense (12,619) (131,768) (316,913)
Other expense (8,388) (12,312) (24,298)
------------ ----------- ------------
386,382 222,717 77,529
------------ ----------- ------------
NET LOSS $ (1,849,400) $(2,140,637) $(3,408,200)
=========== ========== ==========
BASIC AND DILUTED LOSS PER SHARE
Weighted average common shares outstanding 7,280,548 6,980,494 6,720,548
=========== ========== ==========
Loss per share $ (.25) $ (.31) $ (.51)
============= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additional Total
Common stock paid-in Accumulated stockholders'
Shares Amount capital deficit equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 6,720,548 $3,360,274 $31,770,862 $(25,090,515) $10,040,621
Net loss - - - (3,408,200) (3,408,200)
--------- --------- ---------- ----------- -----------
Balance at December 31, 1996 6,720,548 3,360,274 31,770,862 (28,498,715) 6,632,421
Exchange of notes payable for common stock 200,000 100,000 1,987,368 - 2,087,368
Sale of common stock 360,000 180,000 3,420,000 - 3,600,000
Net loss - - - (2,140,637) (2,140,637)
--------- --------- ---------- ----------- -----------
Balance at December 31, 1997 7,280,548 3,640,274 37,178,230 (30,639,352) 10,179,152
Net loss - - - (1,849,400) (1,849,400)
--------- --------- ---------- ----------- -----------
Balance at December 31, 1998 7,280,548 $3,640,274 $37,178,230 $(32,488,752) $ 8,329,752
========= ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $(1,849,400) $(2,140,637) $(3,408,200)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 106,130 101,853 165,523
Sale of aircraft and parts on notes receivable (17,044) (73,352) (97,820)
Receipts on aircraft notes receivable 161,611 952,147 2,485,324
(Gain) loss on retirement of property and equipment (91) (8,425) 3,542
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable 335,976 (319,479) 243,794
Inventories (173,269) 1,697,969 851,524
Prepaid expenses and other assets (56,045) (199,893) 97,391
Increase (decrease) in
Accounts payable 352,364 (237,390) (850,016)
Accrued expenses 30,155 (264,271) (174,458)
Refundable deposits 177,318 65,200 (17,820)
----------- ------------ ------------
Net cash used in operating activities (932,295) (426,278) (701,216)
Cash flows from investing activities
Change in short-term investments 1,224,845 (1,106,453) (94,541)
Capital expenditures (167,936) (23,356) (43,572)
Proceeds on sales of property and equipment 1,068 42,700 8,000
Purchase of debt securities (1,000,000) - -
----------- ------------ ------------
Net cash provided by (used in) investing activities 57,977 (1,087,109) (130,113)
Cash flows from financing activities
Proceeds from borrowings 873,000 645,000 1,645,600
Payments on borrowings (375,000) (1,788,500) (850,100)
Proceeds from sale of stock - 3,600,000 -
----------- ------------ ------------
Net cash provided by financing activities 498,000 2,456,500 795,500
----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (376,318) 943,113 (35,829)
Cash and cash equivalents at beginning of year 1,022,024 78,911 114,740
---------- ------------ -----------
Cash and cash equivalents at end of year $ 645,706 $ 1,022,024 $ 78,911
=========== ========== ============
Cash paid during the year for:
Interest $ 8,368 $ 104,666 $ 277,690
Income taxes - - -
</TABLE>
Noncash investing and financing activities:
1997
Transfer of aircraft with a net book value of $178,778 from property and
equipment to inventory and exchange of $484,765 in notes receivable and
$65,235 in accrued interest receivable from related party for used aircraft
inventory. Exchange of $2,000,000 in notes payable and $87,368 in accrued
interest for 200,000 shares of common stock.
20
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - ORGANIZATION AND OPERATIONS
Aviation General, Inc. ("AGI") was incorporated August 4, 1998 under the
laws of the State of Delaware, and is the successor to the operations of
Commander Aircraft Company ("CAC"). AGI is a holding company which, through
its wholly-owned subsidiaries, CAC and Strategic Jet Services, Inc. ("SJS")
(collectively referred to as the "Company"), manufactures, markets, and
provides support services for single engine, high performance Commander
aircraft and to a lesser extent provides sales and service of other used
aircraft. On August 5, 1998, CAC (incorporated under the laws of the
Commonwealth of Virginia on June 22, 1988) was merged with AGI. Each share
of CAC common stock was converted into one share of AGI common stock. All
outstanding stock options of CAC were converted into AGI stock options on a
one to one basis and all terms of the options remained unchanged. On August
6, 1998, SJS was incorporated under the laws of the State of Delaware. SJS
provides consulting, sales, brokerage, and refurbishment services for jet
aircraft. The reorganization and merger had no effect on previously reported
stockholders' equity or loss per share amounts.
The Board of Directors of AGI is authorized to issue preferred stock in one
or more series. The Board of Directors is further authorized to fix the
number of shares constituting such series and to fix the relative rights and
preferences of the shares of the series.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
The Company consolidates the accounts of its subsidiaries, CAC and SJS. All
intercompany balances and transactions are eliminated in consolidation.
2. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less and money market funds to be cash
equivalents. The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risks on cash and cash equivalents. As of December
31, 1998 and 1997, the Company has approximately $600,000 and $2,116,000,
respectively, on deposit at one financial institution.
3. Investment in Debt Securities
Debt securities that the Company has both the positive intent and ability to
hold until maturity are classified as held-to-maturity, and are carried at
amortized cost.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
4. Revenue Recognition
Sales of aircraft are recognized upon execution and funding of the purchase
agreement by the buyer which occurs after the Company receives the
airworthiness certificate from the Federal Aviation Administration ("FAA")
and for financed aircraft sales when it has been determined that the buyer's
initial and continuing investments in the aircraft are adequate to
demonstrate a commitment to pay. Sales of used aircraft are recognized upon
execution and funding of the purchase agreement. Service revenue is
recognized when the services are performed and billable.
5. Inventories
Inventories consist primarily of finished goods and parts for manufacturing
and servicing of 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 December 31 were as follows:
1998 1997
--------------- -----------------
Raw materials $3,112,257 $2,901,798
Work in process 602,457 819,442
Demonstration aircraft 987,325 1,132,713
Used aircraft 1,081,359 756,176
--------- ----------
$5,783,398 $5,610,129
========= =========
6. Property and Equipment
Depreciation is computed using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes over estimated
useful lives ranging from three to fifteen years.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
7. Income Taxes
Deferred income taxes are provided on carryforwards and on temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future years. Deferred income tax assets and liabilities are
determined by applying the presently enacted tax rates and laws.
The Company provides for a valuation allowance on deferred tax assets if,
based on the weight of available evidence, it is more likely than not that
some portion or all of the deferred tax asset will not be realized.
AGI files a consolidated income tax return with its wholly-owned
subsidiaries.
8. Refundable Deposits
Refundable deposits consist of payments made by customers prior to having
repairs performed on their aircraft and deposits on aircraft sold. These
deposits are recognized as revenue in the period the services are completed
or the aircraft sale is recognized.
9. Prepaid Advertising and Advertising Costs
The Company expenses the cost of advertising as incurred, except for prepaid
advertising. Prepaid advertising consists of costs for future magazine
advertisement. These costs are expensed when the advertisements are
published. Advertising expense for the years ended December 31, 1998, 1997,
and 1996 was approximately $590,000, $390,000, and $1,058,000, respectively.
10. Loss Per Common Share
Loss per common share is calculated based on the weighted average number of
shares outstanding during the year pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share, which was adopted
during the year ended December 31, 1997. Because the conversion prices for
warrants and options are greater than the average market price for the
periods presented, the assumed conversion of such securities are
antidilutive (see Note F). All loss per share amounts have been presented
and, where appropriate, restated to conform to SFAS No. 128 requirements.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
11. Use of Estimates
In preparing the Company's consolidated financial statements, management
makes estimates and assumptions that affect certain reported amounts and
disclosures; accordingly, actual results could differ from those estimates.
NOTE C - NOTES RECEIVABLE
From time to time, the Company finances the sale of new aircraft with notes
receivable from customers which are collateralized by the aircraft. The
notes range in length up to ten years with the average being approximately
six years and bear interest at rates up to New York Prime plus 1.5%.
A summary of such notes receivable as of December 31 is as follows:
1998 1997
------------ -----------
Amounts due within one year $ 21,286 $ 55,269
Amounts due after one year 148,649 270,105
------- -------
Total notes receivable $169,935 $325,374
======= =======
NOTE D - NOTES PAYABLE
Notes payable consist of outstanding draws under revolving credit facilities
of $600,000. The revolving credit facilities may be drawn down through May
1, 1999, and are secured by aircraft. Interest is payable monthly at 9.25%.
NOTE E - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments as of December 31, 1998 and 1997 as
required by SFAS No. 107, Disclosure About Fair Value of Financial
Instruments. Such information, which pertains to the Company's financial
instruments, is based upon the requirements of SFAS No. 107 and does not
purport to represent the aggregate net fair value of the Company:
Cash and Cash Equivalents and Certificates of Deposit. The balance sheet
carrying amounts of cash and cash equivalents and certificates of deposit
approximate fair values of such assets.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE E - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Investment in Debt Securities - Related Party (see Note I). The fair
values of investments in debt securities are estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
Notes Receivable From Related Party (see Note I). At December 31, 1998,
the carrying amount approximates fair value because of the fluctuating
interest rate associated with the line of credit and management's
intention to collect the outstanding balance by June 30, 1999. At
December 31, 1997, because of the related party nature of these
receivables, and the uncertainty of the timing of ultimate collection, it
was not practicable to estimate the fair value.
Notes Payable. The fair value of notes payable is the discounted amount
of future cash flows using the Company's incremental rate of borrowing
for similar liabilities.
All of the Company's financial instruments are for purposes other than
trading.
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 645,706 $ 645,706 $1,022,024 $1,022,024
Certificates of deposit - - 1,224,845 1,224,845
Notes receivable 169,935 169,935 325,374 324,064
Investment in debt securities - related party 1,000,000 1,007,137 - -
Notes receivable from related party 1,507,843 1,507,843 1,496,971 -
Notes payable (600,000) (601,474) (102,000) (102,000)
</TABLE>
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE F - STOCK OPTION PLANS
In December 1993, the Company approved a stock option plan for issuance of
up to 300,000 shares of stock to employees at the discretion of the
committee appointed by the Board of Directors. The number of shares
authorized for issuance under this plan was changed to 500,000 during 1995,
800,000 during 1996, and 1,300,000 during 1998. The stock option plan also
provides for automatic grants of options to purchase 20,000 shares of common
stock to each director on an annual basis. At December 31, 1998,
approximately 312,000 shares remain to be granted under the plan. The stock
warrants and options generally vest ratably over a three-year period.
The Company uses the intrinsic value method to account for its warrants and
stock option plan in which compensation is recognized only when the fair
value of each option exceeds its exercise price at the date of grant.
Accordingly, no compensation cost has been recognized for the warrants and
options issued. Had compensation cost been determined based on the fair
value of the warrants and options at the grant dates, the Company's net loss
and loss per share would have been increased to the pro forma amounts for
the years ended as indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
Net loss
As reported $(1,849,400) $(2,140,637) $(3,408,200)
Pro forma $(2,069,761) $(2,362,514) $(3,569,838)
Loss per share
As reported $ (.25) $ (.31) $ (.51)
Pro forma $ (.28) $ (.34) $ (.53)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1995. The fair value of each grant is estimated on the
date of grant using the Black-Scholes options-pricing model with the
following weighted-average assumptions used for grants in 1998, 1997, and
1996, respectively: no expected dividends; expected volatility of 66%, 64%,
and 60%; risk-free interest rate of 5.5%, 5.9%, and 6.2%; and expected lives
of five years. The exercise price of all options equaled or exceeded market
price of the stock at the date of grant.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE F - STOCK OPTION PLANS - CONTINUED
A summary of the status of the Company's warrants and stock option plan as
of December 31, 1998, 1997, and 1996 and changes during the years ending on
those dates is presented below.
<TABLE>
<CAPTION>
1998 1997 1996
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 691,349 $3.65 510,500 $4.21 463,833 $4.40
Granted 672,400 $2.67 206,850 $2.28 190,000 $3.78
Exercised - - - - - -
Forfeited (382,869) $3.68 (26,001) $4.73 (143,333) $4.09
-------- -------- --------
Outstanding at end of year 980,880 $2.97 691,349 $3.65 510,500 $4.21
======== ======= ========
Options exercisable at year end 234,360 $3.89 304,327 $4.37 165,504 $4.56
Weighted average fair value of options
granted during the year $1.33 $1.33 $1.91
</TABLE>
The following table summarizes information about fixed-price warrants and
stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Weighted-
average Weighted- Weighted-
Number remaining average Number average
outstanding contractual exercise exercisable exercise
at 12/31/98 life price at 12/31/98 price
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$1.94 to $2.75 774,880 3.95 years $2.59 61,693 $2.28
$2.76 to $4.00 43,000 1.96 years $3.30 28,666 $3.30
$4.01 to $5.25 163,000 1.04 years $4.67 144,001 $4.70
------- -------
$1.94 to $5.25 980,880 234,360
======= =======
</TABLE>
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE G - LEASES
The Company leases office space, hangar space, its manufacturing and service
facility, and certain office equipment under agreements classified as
operating leases that expire at various dates through 2003. Rental expense
under these leases was approximately $264,000, $256,000, and $243,000 for
the years ended December 31, 1998, 1997, and 1996, respectively. The future
annual minimum lease payments under these leases at December 31, 1998 are as
follows:
Year ending December 31
1999 $ 263,232
2000 252,774
2001 260,357
2002 268,168
2003 229,033
----------
Total future minimum lease payments $1,273,564
NOTE H - SALES CONCENTRATIONS
The geographic sales of the Company's new aircraft are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Number Amount Number Amount Number Amount
<S> <C> <C> <C> <C> <C> <C>
United States 10 $4,182,703 12 $4,583,063 9 $3,349,046
Europe 2 828,750 - - 3 991,683
South America 1 511,700 - - - -
Middle East - - - - 3 901,000
</TABLE>
The Company's 1998 used aircraft sold in the United States and Europe
were 21 and 2, respectively, totaling $3,205,325 and $647,000,
respectively.
During 1997, used aircraft sold in the United States and Europe were 13 and
2, respectively, totaling $1,876,350 and $401,000, respectively. During
1996, all used aircraft were sold in the United States for a total of
$1,652,167.
During 1996, 12% and 11% of the Company's revenues represented sales to two
international customers.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE I - RELATED PARTY TRANSACTIONS
The Company extends financing for aircraft and spare parts sold either
directly to a director of the corporate general partner of the Company's
majority stockholder or to an Authorized Sales and Service Representative
owned by the director under a line of credit of $5,000,000. All outstanding
advances under this line of credit and accrued interest thereon are due on
June 30, 1999. It is management's intention not to extend the due date at
maturity, therefore, the entire outstanding balance under the line of credit
is reflected as a current asset at December 31, 1998. The line of credit
bears interest at 1% over the Morgan Guaranty of New York prime rate (8.75%
at December 31, 1998), payable quarterly, in arrears. Following is a summary
of transactions under this line of credit for 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of year $1,497,000 $2,648,000 $ 4,223,000
Sale of spare parts 11,000 57,000 88,000
Purchase of aircraft for inventory - (485,000) -
Cash payments received - (723,000) (1,663,000)
----------- ---------- ----------
Balance at end of year $1,508,000 $1,497,000 $ 2,648,000
========= ========= ==========
</TABLE>
Accrued interest receivable under this line of credit agreement totaled
$143,588 and $22,205 as of December 31, 1998 and 1997, respectively.
Interest income under this line of credit was approximately $142,000,
$207,000, and $309,000 for 1998, 1997, and 1996, respectively.
During 1998, the Company purchased debt securities with detachable stock
purchase warrants for $1,000,000 from an entity under common control. The
debt securities bear interest at 10%, payable semi annually, with principal
and accrued interest thereon due on December 31, 1999 and are collateralized
by the entity's receivables. The debt securities are convertible into common
stock of the affiliate at the rate of one share of common stock for each
$8.50 of debt converted. The Company also received 100,000 stock purchase
warrants at an exercise price of $2.50 a share expiring three years from the
date of issuance. Management believes that the warrants had no economic
value when granted, and accordingly, no amount has been assigned to such
warrants in the financial statements. Accrued interest receivable relating
to these securities totaled $44,384 as of December 31, 1998. Interest income
from these securities was approximately $54,000 for 1998. During 1998, the
Company also purchased one used aircraft from this entity for $240,000.
In January 1997, the Board of Directors of the Company voted to accept the
stockholders' offer to exchange $2,000,000 of outstanding notes payable for
common stock at approximately $10 per share. The repayment of accrued
interest of approximately $87,000 was waived. Effective February 1, 1997,
the stockholder and its affiliate exchanged $1,450,000 and $550,000,
respectively, of notes payable for a total of 200,000 shares of common stock
at $10 per share.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE I - RELATED PARTY TRANSACTIONS - CONTINUED
The Chairman of the Board of Directors of the Company is also a stockholder,
director, and the Managing Director of the corporate general partner of the
Company's majority stockholder.
NOTE J - INCOME TAXES
No current tax provisions have been recognized in the accompanying
statements of operations given the operating losses incurred.
Components of the net deferred tax assets at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
deferred tax assets (liabilities)
Inventories $ 280,000 $ 212,000
Depreciation and amortization (167,000) (181,000)
Accrued liabilities 149,000 78,000
Net operating loss carryforwards 11,066,000 10,481,000
----------- -----------
11,328,000 10,590,000
Valuation allowance (11,328,000) (10,590,000)
----------- -----------
Total deferred tax assets $ - $ -
============= ==============
</TABLE>
The Company's net operating loss carryforwards will expire as follows:
December 31
2004 $ 220,657
2005 3,196,640
2006 17,434
2007 6,466,819
2008 3,982,473
2009 4,523,401
2010 2,279,486
2011 3,445,366
2012 1,869,674
2013 1,662,921
-----------
Total net operating loss carryforwards $ 27,664,871
==========
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE K - COMMITMENTS AND CONTINGENCIES
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.
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 aircraft
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, 1998. The Company's product liability insurance policy with
coverage of $10 million per occurrence and $10 million annually in the
aggregate with a deductible of $200,000 per occurrence and annually in the
aggregate expired March 1, 1995. Subsequent to March 1, 1995, the Company is
not insured for product liability claims.
The Company is routinely involved in various legal matters arising in the
normal course of business. Management believes that losses, if any, arising
from such actions will not have a material adverse effect on the financial
position or operations of the Company.
NOTE L - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing 401(k) plan covering substantially all
employees. Eligible employees may contribute up to 15% of their
compensation. The Company contributes an amount equal to at least 25% of
each employee's contributions not in excess of 10% of compensation. However,
additional contributions may be made at the Company's discretion. Expense
under the plan was approximately $53,000, $44,000, and $45,000 for 1998,
1997, and 1996, respectively.
The Company has a contributory health care benefit plan covering
substantially all employees and eligible dependents. The plan provides for
covered major medical expense benefits subject to certain deductibles,
coinsurance provisions, and lifetime maximums. Employee and Company
contributions are determined by the Company from time to time based on the
amounts of claims and other expenses incurred. The plan has certain
stop-loss coverage under an insurance policy that provides for payments of
covered benefits in excess of $25,000 per year per covered person. The
policy also provides an aggregate monthly stop-loss for the plan based on
number of covered persons. Expense under the plan was approximately
$160,000, $142,000, and $125,000 for 1998, 1997, and 1996, respectively.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE M - MANAGEMENT PLANS
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 in net loss 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
("ASD"), 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 at a reasonable profit. 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 SJS, 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 FAA 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 reorganization of its service center,
paint, and interior shops into a completion center to focus on the growing
after-market refurbishment business.
<PAGE>
Aviation General, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE M - MANAGEMENT PLANS - CONTINUED
The Company has expanded its operations to include the ASD and SJS, improved
its products, dramatically decreased sales and marketing expenses, and
reduced debt and interest expense. Management believes that is 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.
<PAGE>
AVIATION GENERAL, INCORPORATED
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales $2,923,229 $2,633,898 $3,675,194 $1,479,506
Net loss ($241,496) ($435,352) ($95,189) ($1,077,363)
Loss per share ($0.03) ($0.06) ($0.01) ($0.15)
Weighted average shares outstanding 7,280,548 7,280,548 7,280,548 7,280,548
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales $1,074,409 $1,984,776 $2,970,196 $2,032,988
Net loss ($789,952) ($559,867) ($393,107) ($397,711)
Loss per share ($0.12) ($0.08) ($0.06) ($0.06)
Weighted average shares outstanding 6,851,659 6,920,548 6,920,548 7,221,852
</TABLE>
Quarterly and year to date computation of per share amounts are made
independently. Therefore, the sum of quarterly per share amounts may not
agree with per share amounts for the year.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no Form 8-K filings in fiscal year ended December 31, 1998 and there
were no changes in or disagreements with accountants on accounting and financial
disclosure in 1998.
PART III
Certain information required by Part III is omitted from this report in that
registrant will file a definitive proxy statement pursuant to Regulation 14A for
its 1999 Annual Meeting of Shareholders, and the information included therein is
incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors of the Registrant required by this item is
incorporated herein by reference form the company's 1999 Proxy Statement under
the caption "Election of Directors - Nominees".
The information regarding executive officers of the company required by this
item appearing in the company's 1999 Proxy Statement under the caption "Election
of Directors - Other Officers" is hereby incorporated by reference.
Item 11. Executive Compensation
The information required by this item appearing in the company's 1999 Proxy
Statement under the captions "Election of Directors Director Compensation" and
"Executive Compensation" is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appearing in the company's 1999 Proxy
Statement under the caption "Information Concerning Solicitation and Voting -
Security Ownership of Certain Beneficial Owners and Management" is hereby
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Note E - Disclosures About Fair Value of Financial Instruments and Note I -
Related Party Transactions, of the Notes to Financial Statements for 1998 are
hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K:
Page
(a) (1) The following financial statements are included in Part II Item 8:
Report of Independent Public Accountant 15
Financial Statements:
Balance Sheets December 31, 1998 and 1997 16
Statements of Operations for the years ended December 31,
1998, 1997 and 1996 18
Statement of Stockholders' Equity for the years ended
1998, 1997 and 1996 19
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 20
Notes to Financial Statements 21
(2) The following financial schedule for the years 1998, 1997 and
1996 is submitted herewith:
Selected Quarterly Financial Data for the years ended
December 31, 1998 and 1997 (unaudited) 34
All other schedules are omitted because they are not
applicable or the required information has been
presented in the financial statements or
notes thereto.
(3) Exhibits included are hereby incorporated by reference to the
Exhibit Index, page 37 of this report.
<PAGE>
INDEX OF EXHIBITS
Exhibit No Description
3.1 Certificate of Incorporation of Aviation General, Incorporated. This
exhibit is incorporated by reference to Exhibit 3.1 of the Registrant's
Form S-4 filed June 12, 1998 (Reg. No. 333-56731).
3.2 Bylaws of Aviation General, Incorporated. This exhibit is incorporated by
reference to Exhibit 3.2 of the Registrant's Form S-4 filed June 12, 1998
(Reg. No. 333-56731).
4.1(a) Certificate of Incorporation, describing the Common Stock (included in
Exhibit 3.1). This exhibit is incorporated by reference to Exhibit 4.1(a)
of the Registrant's Form S-4 filed June 12, 1998 (Reg. No. 333-56731).
10.1 Federal Aviation Administration ("FAA") Type Certificates issued to
Commander Aircraft Company (the "Company") for models 112, 114, 112TC,
112B, 112TCA 114A, and 114B. This exhibit is incorporated by reference to
Exhibit 10.1 of the Registrant's Form S-1 filed March 4, 1993 (Reg. No.
33-59128).
10.2 FAA Repair Station Air Agency Certificate issued to the Company. This
exhibit is incorporated by reference to Exhibit 10.2 of the Registrant's
Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.3 Lease and operations Agreement between the Company and the Trustees of the
Oklahoma City Airport Trust dated August 9, 1988, as amended by the
Supplemental Agreement No. 1 dated December 18, 1991, and the Supplemental
Agreement No. 2 dated April 2, 1992. This exhibit is incorporated by
reference to Exhibit 10.19 of the Registrant's Form S-1 filed March 4, 1993
(Reg. No. 33-59128).
10.4 Textron Lycoming Finance Plan No. 1 between Textron Financial Corporation
and the Company dated June 26, 1991, as amended to the Finance Plan No. 1
dated as of May 28, 1992, the Second Amendment dated as of September 29,
1992, and the Third Amendment dated as of December 10, 1992. This exhibit
is incorporated by reference to Exhibit 10.29 of the Registrant's Form S-1
filed March 4, 1993 (Reg.No. 33-59128).
<PAGE>
INDEX OF EXHIBITS
Exhibit No Description
10.5 International Distributorship Agreement between the Company and Com-Air
Flugzeughandel Gmbh. This exhibit is incorporated by reference to Exhibit
10.31 of the Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.6 International Distributorship Agreement between the Company and Aero
Service b.v. This exhibit is incorporated by reference to Exhibit 10.32 of
the Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.7 International Dealership Agreement between the Company and Commander
Khaleej Trading Establishment. This exhibit is incorporated by reference to
Exhibit10.28 of the Registrant's Form 10-K filed March 30, 1994.
10.8 Form of the Company's Authorized Sales and Service Representative Policy
and Procedures Manual. This exhibit is incorporated by reference to Exhibit
10.37 of the Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.9 Form of the Company's Authorized Sales and Service Representative
Agreement. This exhibit is incorporated by reference to Exhibit 10.38 of
the Registrant's Form S-1 filed March 4, 1993 (Reg. No. 33-59128).
10.10Form of the Company's Service Center Agreement. This exhibit is
incorporated by reference to Exhibit 10.39 of the Registrant's Form S-1
filed March 4, 1993 (Reg. No. 33-59128).
10.11The Commander Aircraft Company Profit Sharing Plan. This exhibit is
incorporated by reference to Exhibit 10.40 of the Registrant's Form S-1
filed March 4, 1993 (Reg. No. 33-59128).
10.12Nonstatutory Stock Option Agreement between the Company and Wirt D.
Walker, III dated January 31, 1994. This exhibit is incorporated by
reference to Exhibit 10.48 of the Registrant's Form 10-K filed March 30,
1994.
10.13Nonstatutory Stock Option Agreement between the Company and Mishal Y.S. Al
Sabah dated January 31, 1994. This exhibit is incorporated by reference to
Exhibit 10.49 of the Registrant's Form 10-K filed March 30, 1994.
10.14Form of Company's Aircraft Delivery and Acceptance Agreement. This exhibit
is incorporated by reference to Exhibit 10.63 of the Registrant's Form S-1
filed March 4, 1993 (Reg. No. 33-59128).
<PAGE>
INDEX OF EXHIBITS
Exhibit No Description
10.15Form of the Company's Aircraft Retail Warranty. This exhibit is
incorporated by reference to Exhibit 10.64 of the Registrant's Form S-1
filed March 4, 1993 (RNo. 33-59128).
10.16Commander Aircraft Company 1993 Stock Option Plan. This exhibit is
incorporated by reference to Exhibit 10.53 of the Registrant's Form 10-K
filed March 28, 1996.
21 List of subsidiaries
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of 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, thereunto authorized on the 19th day of March, 1999.
AVIATION GENERAL INCORPORATED
/s/ WIRT D. WALKER, III
By: Wirt D. Walker, III
Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
Wirt D. Walker,III President and
Chief Executive Officer March 19, 1999
Principal Financial Officer and Accounting Officer:
Stephen R. Buren Chief Financial Officer March 19, 1999
- ----------------
Directors:
Wirt D. Walker, III Director March 19, 1999
- -------------------
Mishal Y.S. Al Sabah Director March 19, 1999
- --------------------
N. Gene Criss Director March 19, 1999
EXHIBIT 21
LIST OF SUBSIDIARIES OF AVIATION GENERAL, INCORPORATED
Commander Aircraft Company (a Delaware corporation)
7200 NW 63rd Street
Bethany, Oklahoma 73008
Strategic Jet Services, Inc. (a Delaware corporation)
7200 NW 63rd Street
Bethany, Oklahoma 73008
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 645,706
<SECURITIES> 0
<RECEIVABLES> 2,536,070
<ALLOWANCES> 0
<INVENTORY> 5,783,398
<CURRENT-ASSETS> 9,225,034
<PP&E> 1,624,598
<DEPRECIATION> (850,313)
<TOTAL-ASSETS> 10,147,968
<CURRENT-LIABILITIES> 1,818,216
<BONDS> 0
0
0
<COMMON> 3,640,274
<OTHER-SE> 4,689,478
<TOTAL-LIABILITY-AND-EQUITY> 10,147,968
<SALES> 10,711,827
<TOTAL-REVENUES> 10,711,827
<CGS> 9,846,011
<TOTAL-COSTS> 9,846,011
<OTHER-EXPENSES> 3,101,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,619
<INCOME-PRETAX> (1,849,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,849,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,849,400)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
