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, 1999
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 requirements for
the past 90 days.
Yes X No
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 10-K. (X)
Based on the closing sales price of March 15, 2000 the aggregate market value of
the voting stock held by non-affiliates of the registrant was $2,271,481.
The number of shares outstanding of the registrant's common stock, $.50 par
value, was 6,513,786 at March 15, 2000.
Total number of pages including cover page 43.
<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, brokerage, and refurbishment services 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 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 which 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 Commander line has the best safety record in its
class, according to an independent study of FAA and National Transportation and
Safety Board (NTSB) statistics conducted by R.E. Breiling Associates, the
leading accident analysis firm in general aviation. The following chart depicts
the results of this study.
Total accident rate per 100,000 flight hours (1977-1998)
Commander 112/114 Series 2.633
Beech Bonanza Series 5.908
Mooney M20 Series 6.342
Piper Saratoga Series 9.298
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, safety features, 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 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.
The company received certification from the FAA in 1995 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.
In early 2000, the company introduced the Commander 115 and Commander 115TC.
These new aircraft are the culmination of eight years of continuous product
development following the certification of the 114B in 1992. They offer new
levels of refinement, comfort, utility and longer range, as well as the latest
advancements in avionics and instrumentation.
The statements in this report that relate to future plans, events or performance
are forward looking statements that involve risks and uncertainties. Actual
results, events and performance may differ materially due to overall changes in
the economy as well as other factors. For example, the company may not achieve
anticipated results if demand for its aircraft subsides or if its Aviation
Services Division does not continue to grow. Readers are cautioned not to place
undue reliance on these forward looking statements, which speak only as of the
date hereof.
<PAGE>
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 public relations program that includes product
advertising in leading business and aviation publications, and ongoing direct
mail programs to owners and pilots.
The company's CFI Referral Program actively engages certified flight instructors
(CFIs) in the evaluation and acquisition process with their students. These key
influencers play an important role in advising potential owners. To date, more
than 1,800 CFIs have enrolled in this program.
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.
One new aircraft and two pre-owned aircraft sold in 1999 were delivered to
foreign customers accounting for $1,158,170 or 10% 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 Consolidated 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 1999, and are expected to continue to grow in 2000. In addition, the
company's new subsidiary, Strategic Jet Services, Inc. generated its first
revenues in 1999 and is expected to grow significantly in 2000.
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 single engine, high performance aircraft choose among competitive
models on the basis of numerous factors, including performance, reliability,
price, appearance, quality of service 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 safety, 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. Raytheon
Aircraft Corporation suspended production of one of its single engine, high
performance models, the F33A Bonanza, in 1994. Raytheon's other single engine,
high performance model, the A36, remains in production. Mooney Aircraft
Corporation produces single engine, high performance aircraft that are
significantly smaller than the 114B and 114TC. New Piper Aircraft Corporation
produces two single engine, high performance, six place aircraft with similar
performance. Socata's 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.
The company's aircraft are decades newer in design than the Bonanza, Mooney and
Piper competitive models and are certified to the newer, more stringent Federal
Aviation Regulation (FAR) 23 through Amendment 7 standard rather than the older
Civil Air Regulation (CAR) 3. The Commander line has the best safety record in
its class, according to an independent study of FAA and National Transportation
and Safety Board (NTSB) statistics conducted by R.E. Breiling Associates, the
leading accident analysis firm in general aviation.
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 models 114B, 114AT and 114TC produced from 1992 through the present. At
December 31, 1999 this totaled approximately 156 aircraft, which includes 71
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. Management
believes that the premiums for this type of insurance are rapacious, the
policies are full of holes, the insurance companies end up controlling any
litigation and are loathe to vigorously defend unwarranted claims, and prefer to
settle and raise premiums rather than defend unwarranted claims. Thus,
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 98 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.
A summary of lease payments is presented in Note G - Leases, of the Notes to
Consolidated Financial Statements for 1999, which is hereby incorporated by
reference.
Item 3. Legal Proceedings
On February 18, 2000, a lawsuit was filed in the Third Judicial District Court
in Salt Lake City, Utah on behalf of the estate of Frank Earl against
Aeroquip-Vickers, Inc., Commander Aircraft Company, and Textron Lycoming, Inc.
The plaintiff alleges that Mr. Earl was killed in the crash of a Commander 114TC
July 18, 1998 due to the failure of a clamp manufactured by Aeroquip-Vickers,
Inc. that secured the turbocharger to the exhaust pipe, which ultimately caused
the aircraft to crash. Amounts of damages are not specified in the complaint.
Although it is too early for the ultimate outcome of this claim to be
determined, management does not believe the company bears any responsibility and
will vigorously defend against this claim and currently believes that this
action will not have a material impact on the company's operations.
Item 4. Submission of Matters to a Vote of Security Holders
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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 1998.
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 2000.
Quarterly Common Stock Price Ranges
1999 1998
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Quarter High Low High Low
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1st 3 1 1/2 2 1/2 1 1/2
2nd 2 1/8 1 1/4 3 1 3/8
3rd 2 1 1/8 4 1/8 1 1/2
4th 1 31/32 7/16 3 1/2 1 1/4
There were 111 holders of record of the company's common stock as of December
31, 1999. The company issued no shares during 1999.
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below for each year in the five year
period ended December 31, 1999 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
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(Amounts in thousands, except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operation Data:
Net sales $13,667 $10,712 $8,062 $7,958 $9,398
Net loss $(385) $(1,849) $2,140) $(3,408) $(2,559)
Loss per share $(.05) $(.25) $(.31) $(.51) $(.39)
Balance Sheet Data:
Total assets $8,632 $10,148 $10,940 $11,060 $14,715
Long-term debt - - - $2,446 -
</TABLE>
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations:
1999 vs. 1998
Revenues increased 28% in 1999 to $13,667,245 from $10,711,827 in 1998, and the
net loss was reduced 79% to $385,018 from $1,849,400 in 1998. Net loss per share
decreased to $.05 per share in 1999 from $.25 per share in 1998.
Revenues from aircraft sales increased 27% in 1999 to $11,926,234 from
$9,375,478 in 1998. New aircraft deliveries remained constant in 1999 and 1998
at 13 units, while pre-owned and consigned aircraft sales increased to 35
aircraft in 1999 from 29 in 1998. A portion of the increase in revenues was due
to an increase in selling prices of new aircraft, but most of the increase was
due to the additional number of pre-owned aircraft sold, particularly late model
114Bs and 114TCs.
The revenues generated by the service, parts and refurbishment business
increased 30% in 1999 to $1,741,011 from $1,336,349 in 1998. The increase in
revenue was due to a major rebuild of a customer's aircraft, along with higher
volume of parts shipments.
Aircraft cost of sales increased by 17% to $10,198,033 in 1999 from $8,751,936
in 1998. The increase was significantly smaller than the increase in revenue
from aircraft sales which resulted in substantially higher margins in 1999. The
increase in aircraft cost of sales was due to the increased number of pre-owned
aircraft sold and higher costs for material and labor for new aircraft produced.
Service and parts cost of sales increased to $1,178,633 in 1999 from $1,094,075
in 1998. The increase of only 8% in costs on a sales increase of 30% was
accomplished by higher prices for parts and refurbishment work and continued
control of labor and overhead costs in the Completion Center.
Engineering and product development costs increased 9% in 1999 to $336,855 from
$308,772 in 1998. The increase was due primarily to expenses involved with the
certification of new avionics and electrical equipment introduced as standard or
optional equipment for new aircraft. The balance of costs was incurred for
routine sustaining engineering projects.
Sales and marketing expenses decreased 18% to $1,430,266 in 1999 from $1,745,732
in 1998. Advertising expenses accounted for the decrease as they were reduced
from $590,000 in 1998 to $270,000 in 1999. General and administrative expenses
were reduced 4% in 1999 to $1,006,306 from $1,044,266 in 1998. The decrease was
due to a reduction in insurance expense and lower expenses in virtually all
areas. Included in general and administrative expenses for 1999 is $178,500 for
costs associated with the operations of Strategic Jet Services, Inc. compared to
$128,000 in 1998.
Interest income totaled $200,010 in 1999, down from $324,043 in 1998. Most of
the reduction in interest income in 1999 was due to the redemption of $800,000
notes receivable from a related party in February, which bore interest at 10%
per annum. The balance of the change was due to interest earned on certificates
of deposit that were redeemed during 1998.
Interest expense increased to $115,405 in 1999 from $12,619 in 1998. This
increase was due to the company's line of credit with several financial sources
that provided floor planning for aircraft held for sale.
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 1998 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 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.
Liquidity and Capital Resources
Cash used in operations totaled only $61,505 for 1999 compared to cash used in
operations of $932,295 in 1998. Notes and accounts receivable increased by
$79,393 due to the sale of one pre-owned aircraft, paid in full shortly after
year-end, and the changes in the balance of the note receivable for a new
aircraft. Notes receivable from related parties increased during 1999 to
$1,736,552 from $1,507,843 at December 31, 1998 due to the sale of one aircraft
on account less payments on account. Accrued interest due on the note receivable
from the related party at year-end 1999 was $0, compared to $143,588 at December
31, 1998. The note is secured by Aviation General, Incorporated stock pledged,
as well as a personal guarantee from the principal shareholder of Commander
International. The note was reclassified from current assets to other assets due
to the probability that payment in full will not occur within the next year.
Inventories were reduced $639,678 as raw materials and purchased parts inventory
declined $245,000 and pre-owned aircraft held for resale at December 31, 1999
declined $365,000. Three new demonstration aircraft were on hand at the end of
1999 carried at a value of $964,324 compared to three aircraft on hand at the
end of 1998 totaling $987,325. Six pre-owned aircraft were held for sale at
December 31, 1999 at a total value of $716,701 compared to six pre-owned
aircraft on hand as of December 31, 1998 carried at a cost of $1,081,359.
Accounts payable were reduced to $451,645 at December 31, 1999 from $622,618 at
the end of the prior year as payments were made more timely and purchases on
account for inventories were lower. Refundable deposits for aircraft and service
decreased as of December 31, 1999 to $233,363 from $252,498 the previous year
end due primarily to a large deposit received prior to year-end 1998 to rebuild
a customer's aircraft damaged in Mexico. The company had no long-term debt as of
December 31, 1999 and 1998.
Capital expenditures totaled $61,633 in 1999. The company invested approximately
$38,000 in new tooling. The balance of the expenditures was primarily for
computer hardware and software to insure compliance with the year 2000 change.
The company established a line of credit with a bank in the amount of $1,500,000
for the purpose of funding used aircraft for inventory. At December 31, 1999
borrowings under this line totaled $431,780. The notes bear interest at prime
plus 1% and are secured by individual aircraft and certain guarantees. In
addition, the company established a line of credit with a financial institution
in the amount of $3,000,000 to provide funding for new aircraft as well as
pre-owned piston and turbine aircraft. The notes contain variable interest rates
up to 12.5%, mature in six month intervals and are renewable at the option of
the company for an additional six months. Borrowings under this line totaled
$300,000 at December 31, 1999.
Pursuant to the company's 1,000,000 share stock repurchase plan, 910,284 shares
of Aviation General, Incorporated common stock have been repurchased through
December 31, 1999. During 1999, the stock repurchased by the company totaled
784,184 shares at a cost of $1,108,904. Subsequent to December 31, 1999 the
company repurchased an additional 80,000 shares for $100,000. The company
expects to announce another stock repurchase program in 2000.
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. Management does not believe additional outside funding will be
required in 2000. A more detailed discussion of the company's plans to maintain
liquidity for 2000 is included in Note N - Management Plans, of the Notes to
Consolidated Financial Statements for 1999.
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.
In 1999 these plans continued the implementation started in 1998. Revenues from
aircraft deliveries rose 29% in 1999 and 37% in 1998. Most of this increase was
due to the expansion of the Aviation Services Division's efforts to buy,
refurbish and sell more pre-owned aircraft. Revenues from service and parts
sales increased 30% in 1999 as well. 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 2000. 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.
Market Risk
The company's market risk is impacted by changes in interest rates, foreign
currency exchange rates and certain commodity prices. The note receivable held
by the company includes 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 have 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 Accountants 15
Financial Statements:
Consolidated Balance Sheets December 31, 1999 and 1998 16
Consolidated Statements of Operations for the years ended 18
December 31, 1999, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the 19
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended 20
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 22
Supplementary Financial Data:
Selected Quarterly Financial Data for the years ended
December 31, 1999 and 1998 (unaudited) 36
<PAGE>
15
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, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. 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, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1999 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 N to the
consolidated 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 N. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
February 12, 2000
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------------ ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 281,138 $ 645,706
Investment in debt securities - related parties - 1,000,000
Accounts receivable 111,403 6,941
Notes receivable from related party - 1,507,843
Current portion of note receivable 19,535 21,286
Inventories 5,143,720 5,783,398
Prepaid expenses and other assets 172,273 259,860
------------- -------------
Total current assets 5,728,069 9,225,034
PROPERTY AND EQUIPMENT - AT COST
Office equipment and furniture 355,492 347,565
Vehicles and aircraft 84,021 84,021
Manufacturing equipment 362,205 358,332
Tooling 563,193 525,536
Leasehold improvements 311,764 309,144
------------- -------------
1,676,675 1,624,598
Less accumulated depreciation 951,791 850,313
------------- -------------
724,884 774,285
OTHER ASSETS
Note receivable, less current maturities 125,331 148,649
Available-for-sale equity securities - related party 317,151 -
Note receivable from related party 1,736,552 -
------------ -------------
2,179,034 148,649
------------ -------------
$ 8,631,987 $ 10,147,968
============ =============
</TABLE>
<PAGE>
Aviation General, Inc. and Subsidiaries
17
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------ ---------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 451,645 $ 622,618
Accrued expenses 344,525 343,100
Refundable deposits 233,363 252,498
Notes payable 731,780 600,000
------------- -------------
Total current liabilities 1,761,313 1,818,216
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,
7,043,186 shares in 1999; issued and outstanding,
7,280,548 shares in 1998 3,521,593 3,640,274
Additional paid-in capital 36,881,466 37,178,230
Treasury stock - at cost (529,400 shares) (658,615) -
Accumulated deficit (32,873,770) (32,488,752)
----------- -----------
6,870,674 8,329,752
------------ ------------
$ 8,631,987 $ 10,147,968
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- -------------
<S> <C> <C> <C>
NET SALES
Aircraft $11,926,234 $ 9,375,478 $ 6,860,413
Service 1,741,011 1,336,349 1,201,956
----------- ----------- ----------
13,667,245 10,711,827 8,062,369
COST OF SALES
Aircraft 10,198,033 8,751,936 6,750,525
Service 1,178,633 1,094,075 1,025,367
----------- ----------- ----------
11,376,666 9,846,011 7,775,892
---------- ----------- ----------
Gross margin 2,290,579 865,816 286,477
OTHER OPERATING EXPENSES
Product development and engineering costs 336,855 308,772 316,158
Selling, general, and administrative expenses 2,436,578 2,792,826 2,333,673
----------- ----------- ----------
2,773,433 3,101,598 2,649,831
----------- ----------- ----------
Operating loss (482,854) (2,235,782) (2,363,354)
OTHER INCOME (EXPENSES)
Interest income 200,010 324,043 292,949
Other income 14,858 83,346 73,848
Interest expense (115,405) (12,619) (131,768)
Other expense (1,627) (8,388) (12,312)
------------ ------------ -----------
97,836 386,382 222,717
------------ ------------ -----------
NET LOSS $ (385,018) $ (1,849,400) $(2,140,637)
============ =========== ==========
BASIC AND DILUTED LOSS PER SHARE
Weighted average common shares outstanding 7,037,267 7,280,548 6,980,494
============ =========== ==========
Loss per share $ (.05) $ (.25) $ (.31)
============ =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Additional Total
Common stock paid-in Treasury Accumulated Stockholders'
Shares Amount capital stock deficit equity
------------ ------------- ------------ --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 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
Purchase of treasury stock - - - (1,108,904) - (1,108,904)
Retirement of treasury stock (237,362) (118,681) (296,764) 415,445 - -
Sale of treasury stock - - - 34,844 - 34,844
Net loss - - - - (385,018) (385,018)
------------ ------------- ------------ --------------- ------------- ------------
Balance at December 31, 1999 7,043,186 $3,521,593 $36,881,466 $ (658,615) $(32,873,770) $ 6,870,674
============ ============= ============ =============== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Aviation General, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (385,018) $(1,849,400) $(2,140,637)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 111,034 106,130 101,853
Noncash interest earnings (17,151) - -
Sale of aircraft and parts on notes receivable (493,977) (17,044) (73,352)
Receipts on aircraft notes receivable 290,337 161,611 952,147
Gain on retirement of property and equipment (850) (91) (8,425)
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable (104,462) 335,976 (319,479)
Inventories 639,678 (173,269) 1,697,969
Prepaid expenses and other assets 87,587 (56,045) (199,893)
Increase (decrease) in
Accounts payable (170,973) 352,364 (237,390)
Accrued expenses 1,425 30,155 (264,271)
Refundable deposits (19,135) 177,318 65,200
----------- ----------- ------------
Net cash used in operating activities (61,505) (932,295) (426,278)
Cash flows from investing activities
Change in short-term investments - 1,224,845 (1,106,453)
Capital expenditures (61,633) (167,936) (23,356)
Proceeds on sales of property and equipment 850 1,068 42,700
Purchase of debt securities - (1,000,000) -
Proceeds from investment in debt securities 800,000 - -
Purchase of available-for-sale equity securities (100,000) - -
----------- ----------- ------------
Net cash provided by (used in) investing activities 639,217 57,977 (1,087,109)
Cash flows from financing activities
Proceeds from borrowings 3,819,714 873,000 645,000
Payments on borrowings (3,687,934) (375,000) (1,788,500)
Proceeds from sale of stock - - 3,600,000
Purchase of treasury stock (1,108,904) - -
Sale of treasury stock 34,844 - -
----------- ----------- ------------
Net cash provided by (used in) financing activities (942,280) 498,000 2,456,500
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (364,568) (376,318) 943,113
Cash and cash equivalents at beginning of year 645,706 1,022,024 78,911
----------- ---------- ------------
Cash and cash equivalents at end of year $ 281,138 $ 645,706 $ 1,022,024
=========== =========== ==========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 115,000 $ 8,000 $ 105,000
Income taxes - - -
</TABLE>
Noncash investing and financing activities:
1999
Exchange of debt securities - related party with a carrying value
of $200,000 and accrued interest of $17,151 for available-for-sale
equity securities - related party.
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.
The accompanying notes are an integral part of these statements.
<PAGE>
43
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
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, 1999 and 1998, the Company has approximately $279,000 and $600,000,
respectively, on deposit at one financial institution.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
3. Investments
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.
The Company's investment in equity securities is classified as
available-for-sale with unrealized gains or losses excluded from income and
reported as other comprehensive income. Declines in the fair value of
securities that are other than temporary result in write-downs included in
earnings. At December 31, 1999, the fair value of available-for-sale
securities approximates cost.
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:
1999 1998
-------------- -------------
Raw materials $2,867,102 $3,112,257
Work in process 595,593 602,457
Demonstration aircraft 964,324 987,325
Used aircraft 716,701 1,081,359
---------- ---------
$5,143,720 $5,783,398
========= =========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
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, 1999, 1998,
and 1997 was approximately $270,000, $590,000, and $390,000, 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. 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).
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
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.
NOTE C - NOTE 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 note
receivable matures February 1, 2005 and bears interest at prime plus 1.5%.
A summary of the note receivable as of December 31 is as follows:
1999 1998
------------ -----------
Amounts due within one year $ 19,535 $ 21,286
Amounts due after one year 125,331 148,649
------- -------
Total note receivable $144,866 $169,935
======= =======
NOTE D - NOTES PAYABLE
Notes payable consist of outstanding draws under revolving credit
facilities. The revolving credit facilities may be drawn down to purchase
new and used aircraft. Interest is payable monthly at fixed rates of 9.25%
to 9.5% and variable rates of 4% over prime (effective rate at December 31,
1999 of 12.5%).
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, 1999 and 1998 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. The balance sheet carrying amounts of cash and
cash equivalents approximate fair values of such assets.
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 TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE E - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Notes Receivable. The carrying amount approximates fair value because of
the fluctuating interest rate associated with the notes receivable.
Notes Receivable From Related Party (see Note I). The carrying amount
approximates fair value because of the fluctuating interest rate
associated with the line of credit and its short-term nature.
Available-For-Sale Equity Securities - Related Party. The estimated fair
value is based on quotes from independent pricing sources.
Notes Payable. The carrying value of notes payable approximates fair
value because of variable interest rates and the short-term nature of
the instruments.
All of the Company's financial instruments are for purposes other than
trading.
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
amount value amount value
------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 281,138 $ 281,138 $ 645,706 $ 645,706
Notes receivable 144,866 144,866 169,935 169,935
Investment in debt securities - related party - - 1,000,000 1,007,137
Notes receivable from related party 1,736,552 1,736,552 1,507,843 1,507,843
Available-for-sale equity securities - related party 317,151 317,151 - -
Notes payable (731,780) (731,780) (600,000) (601,474)
</TABLE>
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 has subsequently been increased to 1,800,000 shares. The stock
option plan also provides for automatic grants to purchase 20,000 shares of
common stock to each director on an annual basis. At December 31, 1999,
approximately 332,000 shares remain to be granted under the plan. The stock
options generally vest ratably over a three-year period.
The Company uses the intrinsic value method to account for its 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 options issued. Had
compensation cost been determined based on the fair value of the 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - STOCK OPTION PLANS - CONTINUED
1999 1998 1997
-------------- ---------------- --------------
Net loss
As reported $(385,018) $(1,849,400) $(2,140,637)
Pro forma (708,612) $(2,069,761) $(2,362,514)
Loss per share
As reported $ (.05) $ (.25) $ (.31)
Pro forma $ (.10) $ (.28) $ (.34)
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 1999, 1998, and 1997, respectively: No
expected dividends; expected volatility of 66%, 66%, and 64%, risk-free
interest rate of 5.5%, 5.5%, and 5.9%, 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.
A summary of the status of the Company's stock option plan as of December 31,
1999, 1998, and 1997 and changes during the years ending on those dates is
presented below.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------------ -----------------
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 980,880 $2.97 691,349 $3.65 510,500 $4.21
Granted 700,000 $1.58 672,400 $2.67 206,850 $2.28
Exercised - - - - - -
Forfeited (220,000) $3.30 (382,869) $3.68 (26,001) $4.73
---------- -------- --------
Outstanding at end of year 1,460,880 $2.27 980,880 $2.97 691,349 $3.65
========= ======== =======
Options exercisable at year end 398,983 $3.01 234,360 $3.89 304,327 $4.37
Weighted average fair value of options
granted during the year $0.74 $1.33 $1.33
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - STOCK OPTION PLANS - CONTINUED
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Weighted-
average Weighted- Weighted-
Number remaining average Number average
outstanding contractual exercise exercisable exercise
at 12/31/99 life price at 12/31/99 price
----------- ---------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$1.38 to $1.75 643,000 3.26 years $1.57 - -
$1.76 to $2.75 713,880 2.88 years $2.59 294,983 $2.52
$2.76 to $4.00 40,000 1 year $3.25 40,000 $3.25
$4.01 to $5.25 64,000 .37 years $5.08 64,000 $5.08
----------- --------
$1.38 to $5.25 1,460,880 398,983
========= =======
</TABLE>
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 2004. Rental expense
under these leases was approximately $271,000, $264,000, and $256,000 for
the years ended December 31, 1999, 1998, and 1997, respectively. The future
annual minimum lease payments under these leases at December 31, 1999 are as
follows:
Year ending December 31
2000 $ 274,278
2001 281,861
2002 289,672
2003 250,536
2004 21,504
-----------
Total future minimum lease payments $1,117,851
=========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE H - SALES CONCENTRATIONS
The geographic sales of the Company's new aircraft are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ------------------------
Number Amount Number Amount Number Amount
------ ------------ ------ ------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
United States 12 $5,757,791 10 $4,182,703 12 $4,583,063
Europe - - 2 828,750 - -
South America 1 424,770 1 511,700 - -
</TABLE>
The Company's 1999 used aircraft sold in the United States and Europe were
29 and 2, respectively, totaling $4,853,789 and $733,400, respectively.
Brokerage commissions of $156,484 were received in 1999 as a selling agent
for used aircraft.
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.
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, 2000. The line of credit bears interest at 1% over the Morgan
Guaranty of New York prime rate (9.5% at December 31, 1999), payable
quarterly, in arrears. Following is a summary of transactions under this
line of credit for 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- -------------
<S> <C> <C> <C>
Balance at beginning of year $1,508,000 $1,497,000 $2,648,000
Sale of used aircraft 493,000 - -
Sale of spare parts - 11,000 57,000
Purchase of aircraft for inventory - - (485,000)
Cash payments received (265,000) - (723,000)
---------- -------------- ----------
Balance at end of year $1,736,000 $1,508,000 $1,497,000
========= ========= =========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - RELATED PARTY TRANSACTIONS - CONTINUED
Accrued interest receivable under this line of credit agreement totaled $0
and $143,588 as of December 31, 1999 and 1998, respectively. Interest income
under this line of credit was approximately $144,000, $142,000, and $207,000
for 1999, 1998, and 1997, respectively.
The line of credit is collateralized by one used aircraft, approximately
1,000,000 shares of the Company's stock owned directly by the majority
stockholder, and the personal guarantee of the majority stockholder.
During 1998, the Company purchased debt securities with detachable stock
purchase warrants for $1,000,000 from an entity under common control. During
1999, $800,000 of the debt securities were paid off and the balance of the
securities plus accrued interest was converted into 133,333 shares of common
stock of the affiliate in exchange for shortening the expiration date of the
accompanying warrants. The Company purchased an additional 66,667 shares of
the entity for $100,000 during 1999.
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.
In January 1997, the Board of Directors of the Company voted to accept the
stockholder's 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.
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:
1999 1998
-------------- -------------
deferred tax assets (liabilities)
Inventories $ 270,000 $ 280,000
Depreciation and amortization (163,000) (167,000)
Accrued liabilities 142,000 149,000
Net operating loss carryforwards 11,225,000 11,066,000
----------- ----------
11,474,000 11,328,000
Valuation allowance (11,474,000) (11,328,000)
----------- -----------
Total deferred tax assets $ - $ -
============== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - INCOME TAXES - CONTINUED
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
2018 1,681,538
2019 378,948
------------
Total net operating loss carryforwards $28,062,436
==========
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.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE K - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company has been named in a lawsuit concerning the crash of a Commander
114TC resulting in the death of the pilot and has further been notified of a
claim by the insurer of the aircraft hull. In addition, although no
litigation has been filed, the Company has been contacted by the attorneys
for the estates and survivors of the decedents concerning the crash of a
Commander 114B resulting in the death of four passengers. Although it is too
early for any factual development to take place concerning these claims, the
ultimate outcome of these matters cannot be determined; however, management
intends to vigorously defend against these claims and currently believes
that these will not result in any material adverse effect on the Company's
financial position or results of operations. Accordingly, no provision for
any liabilities that may result have been recorded in the financial
statements. Due to the uncertainties of these matters, it is at least
reasonably possible that management's view of the outcome will change in the
near term.
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 $45,000, $53,000, and $44,000 for 1999,
1998, and 1997, 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
$110,000, $160,000, and $142,000 for 1999, 1998, and 1997, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE M - SEGMENT INFORMATION
The Company operates in the segments of piston engine aircraft manufacturing
sales and service and jet aircraft brokerage and refurbishment. The Company
had no segments prior to 1998. Information concerning the Company's
reportable segments for the year ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Revenues
Jet aircraft brokerage and refurbishment $ 107,750 $ -
Aircraft sales and service 13,559,495 10,711,827
---------- ----------
Total $13,667,245 $10,711,827
========== ==========
Operating loss
Jet aircraft brokerage and refurbishment $ (70,758) $ (127,795)
Aircraft sales and services (412,096) (2,107,987)
------------ -----------
Total $ (482,854) $ (2,235,782)
============ ===========
Assets
Jet aircraft brokerage and refurbishment $ 9,978 $ 25,921
Aircraft sales and service 8,622,009 10,122,047
----------- ----------
Total $ 8,631,987 $10,147,968
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Jet aircraft
brokerage and Aircraft sales Consolidated
refurbishment and service total
--------------- --------------- ------------
<S> <C> <C> <C>
Other significant items - 1999
Interest income $ - $200,010 $200,010
Interest expense - 115,405 115,405
Depreciation and amortization 5,295 105,739 111,034
Expenditures for long-lived assets 782 60,851 61,633
Other significant items - 1998
Interest income $ - $324,043 $324,043
Interest expense - 12,619 12,619
Depreciation and amortization 1,229 104,901 106,130
Expenditures for long-lived assets 10,461 157,475 167,936
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE N - 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 the high performance,
single engine Commander aircraft.
Management believes the reduction in net loss from operations is attributable
to plans implemented in late 1996 and 1997 to provide new revenues for the
Company. During 1999, the Company continued to expand the Aviation Services
Division ("ASD"), which sells pre-owned aircraft and markets refurbishment
services. Also in 1999, the Company continued expansion of 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 45% in 1999 after increasing 69% in 1998 and
revenues from refurbishment and service increased over 30% in 1999 and 11% in
1998. Management expects growth to continue in 2000 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 Stategic Jet
Services, Inc. ("SJS"), a wholly-owned subsidiary established to provide
brokerage, sale, consulting, and refurbishment work for jet aircraft. While
results from this start-up were less than planned in 1999, income from this
line of business is expected to begin improving the Company's profitability
in 2000.
During 1999, the Company began certification of new state-of-the-art
avionics systems that offer the customer the latest technology in
navigational and communication equipment. 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
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE N - MANAGEMENT PLANS - CONTINUED
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.
The Company has expanded its operations to include ASD and SJS, improved its
products, dramatically decreased sales and marketing expenses, and reduced
debt and interest expense. Through the above efforts, the Company has
lowered its break-even sales to only 13 new aircraft per year. With the
large investment complete, management believes that it has made significant
progress towards the building of a world class aviation company and is
poised to break into profitability. Furthermore, it is reasonable to expect
the Company to continue improving revenues, reducing costs, increasing
operating profits, and generating positive cash flow in 2000. 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 AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales $2,258,292 $3.055,110 $2,980,139 $5,373,704
Net income/(loss) ($379,565) $48,244 ($165,604) $111,907
Income/(loss) per share ($0.05) $0.01 ($0.02) $0.02
Weighted average shares outstanding 7,269,437 7,171,108 7,093,322 6,643,156
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
------------------- ------------------ ------------------ -------------------
Net Sales $2,923,229 $2,633,898 $3,675,194 $1,479,506
Net income/(loss) ($241,496) ($435,352) ($95,189) ($1,077,363)
Income/(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>
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>
37
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, 1999 and there
were no changes in or disagreements with accountants on accounting and financial
disclosure in 1999.
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 2000 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 to the company's 2000 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 2000 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 2000 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 2000 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 Consolidated Financial Statements
for 1999 are hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K:
- ---------------------------------------------------------------------------
(a) (1) The following financial statements are included in Part II Item 8:
Report of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the
years ended 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) The following financial schedule for the years 1999, 1998 and
1997 is submitted herewith:
Selected Quarterly Financial Data for the years ended
December 31, 1999 and 1998 (unaudited)
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 39 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).
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 (Reg. No. 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 29th day of March, 2000.
AVIATION GENERAL INCORPORATED
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.
<TABLE>
<CAPTION>
Principal Executive Officers:
<S> <C> <C>
Wirt D. Walker,III Chief Executive Officer March 29, 2000
- ------------------
Dean N. Thomas President and Chief
- -------------- Operating Officer March 29, 2000
Principal Financial Officer and Accounting Officer:
Stephen R. Buren Chief Financial Officer March 29, 2000
- ----------------
Directors:
Wirt D. Walker, III Director March 29, 2000
- -------------------
Mishal Y.S. Al Sabah Director March 29, 2000
- --------------------
N. Gene Criss Director March 29, 2000
- -------------
</TABLE>
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 281,138
<SECURITIES> 317,151
<RECEIVABLES> 1,867,490
<ALLOWANCES> 0
<INVENTORY> 5,143,720
<CURRENT-ASSETS> 5,728,069
<PP&E> 1,676,675
<DEPRECIATION> (951,791)
<TOTAL-ASSETS> 8,631,987
<CURRENT-LIABILITIES> 1,761,313
<BONDS> 0
0
0
<COMMON> 3,521,593
<OTHER-SE> 4,808,159
<TOTAL-LIABILITY-AND-EQUITY> 8,631,987
<SALES> 13,667,245
<TOTAL-REVENUES> 13,667,245
<CGS> 11,276,666
<TOTAL-COSTS> 11,376,666
<OTHER-EXPENSES> 2,773,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,405
<INCOME-PRETAX> (385,018)
<INCOME-TAX> 0
<INCOME-CONTINUING> (385,018)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385,018)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
