================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
------
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24795
AVIATION GENERAL, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 73-1547645
(State of Incorporation) (IRS Employer
Identification No.)
7200 NW 63rd Street
Hangar 8, Wiley Post Airport
Bethany, Oklahoma 73008
(Address of principal executive offices) (Zip Code)
(405) 440-2255
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days.
Yes__X__ No_____
There were 6,373,786 Shares of Common Stock Outstanding
as of July 31, 2000
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AVIATION GENERAL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $226,984 $281,138
Accounts receivable 714,862 111,403
Current portion of note receivable 19,777 19,535
Inventories 5,789,733 5,143,720
Prepaid expenses and other assets 219,018 172,273
-------------------- --------------------
Total current assets 6,970,374 5,728,069
-------------------- --------------------
Property and equipment
Office equipment and furniture 362,912 355,492
Vehicles and aircraft 84,021 84,021
Manufacturing equipment 364,726 362,205
Tooling 576,618 563,193
Leasehold improvements 311,764 311,764
-------------------- --------------------
1,700,041 1,676,675
Less accumulated depreciation (1,011,666) (951,791)
-------------------- --------------------
688,375 724,884
-------------------- --------------------
Other assets
Notes receivable, less current maturities 113,591 125,331
Available-for-sale equity securities - related party 770,500 317,151
Note receivable from related party 1,695,649 1,736,552
-------------------- --------------------
-------------------- --------------------
2,579,740 2,179,034
-------------------- --------------------
$10,238,489 $8,631,987
==================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $790,821 $451,645
Accrued expenses 518,245 344,525
Refundable deposits 142,426 233,363
Notes payable 1,750,332 731,780
-------------------- --------------------
Total current liabilities 3,201,824 1,761,313
-------------------- --------------------
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares outstanding - -
Common stock, $.50 par value, 20,000,000
shares authorized; 7,043,186 shares issued
At June 30, 2000 and December 31, 1999 3,521,593 3,521,593
Additional paid-in capital 36,881,466 36,881,466
Less: Treasury stock at cost (669,400 shares at
June 30, 2000 and 529,400 shares at
December 31, 1999) (983,615) (658,615)
Accumulated other comprehensive income 339,759 -
Accumulated deficit (32,722,538) (32,873,770)
-------------------- --------------------
Total stockholders' equity 7,036,665 6,870,674
-------------------- --------------------
$10,238,489 $8,631,987
==================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
----------------------- -----------------------
<S> <C> <C>
Net sales - aircraft $3,746,651 $2,660,398
Net sales - service 509,436 394,712
----------------------- -----------------------
Total net sales 4,256,087 3,055,110
----------------------- -----------------------
Cost of sales - aircraft 2,886,393 2,119,402
Cost of sales - service 420,139 275,985
----------------------- -----------------------
Total cost of sales 3,306,532 2,395,387
----------------------- -----------------------
Gross margin 949,555 659,723
----------------------- -----------------------
Other operating expenses
Product development and engineering costs 97,179 75,233
Selling, general and administrative expenses 742,225 573,417
----------------------- -----------------------
Total other operating expenses 839,404 648,650
----------------------- -----------------------
Operating income 110,151 11,073
----------------------- -----------------------
Other income (expenses)
Other income 58,144 54,534
Interest expense (55,039) (17,144)
Other expense (207) (219)
----------------------- -----------------------
Total other income 2,898 37,171
----------------------- -----------------------
Net income $113,049 $48,244
======================= =======================
Net Income per share
Weighted average common shares
Outstanding, basic 6,377,412 7,171,108
----------------------- -----------------------
Net Income per share, basic $0.02 $0.01
======================= =======================
Weighted average common shares
Outstanding, diluted 6,901,422 7,171,108
----------------------- -----------------------
----------------------- -----------------------
Net Income per share, diluted $0.02 $0.01
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
----------------------- -----------------------
<S> <C> <C>
Net sales - aircraft $7,222,401 $4,305,051
Net sales - service 976,261 1,008,351
----------------------- -----------------------
Total net sales 8,198,662 5,313,402
----------------------- -----------------------
Cost of sales - aircraft 5,666,356 3,860,643
Cost of sales - service 738,135 646,737
----------------------- -----------------------
Total cost of sales 6,404,491 4,507,380
----------------------- -----------------------
Gross margin 1,794,171 806,022
----------------------- -----------------------
Other operating expenses
Product development and engineering costs 193,486 154,271
Selling, general and administrative expenses 1,476,090 1,063,389
----------------------- -----------------------
Total other operating expenses 1,669,576 1,217,660
----------------------- -----------------------
Operating income (loss) 124,595 (411,638)
----------------------- -----------------------
Other income (expenses)
Other income 112,603 111,401
Interest expense (85,571) (30,168)
Other expense (395) (916)
----------------------- -----------------------
Total other income (expenses) 26,637 80,317
----------------------- -----------------------
Net income (loss) $151,232 ($331,321)
======================= =======================
Net Income (loss) per share
Weighted average common shares
Outstanding, basic 6,413,566 7,220,001
----------------------- -----------------------
Net Income (loss) per share, basic $0.02 ($0.05)
======================= =======================
Weighted average common shares
Outstanding, diluted 6,769,467 7,220,001
----------------------- -----------------------
Net Income (loss) per share, diluted $0.02 ($0.05)
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $151,232 ($331,321)
Adjustments to reconcile net income (loss) to
net cash used by operating activities
Depreciation and amortization 64,293 54,989
Non-cash interest earnings (70,442) (40,435)
Receipts on notes receivable - related party 41,045 -
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable (603,459) (206,211)
Notes receivable 11,498 13,046
Notes receivable - related party (142) (477)
Inventories (646,013) (34,836)
Prepaid expense and other assets 23,697 (24,261)
Increase (decrease) in
Accounts payable 339,176 (234,127)
Accrued expenses 173,720 13,968
Refundable deposits (90,937) (105,643)
-------------------- --------------------
Net cash used by operating activities (606,332) (895,308)
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities of related party (113,590) -
Capital expenditures (27,784) (5,338)
Payment on related party note receivable - 800,000
-------------------- --------------------
Net cash (used) provided by investing activities (141,374) 794,662
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 3,088,670 960,350
Payments on borrowings (2,070,118) (779,200)
Purchase of treasury stock (325,000) (361,694)
-------------------- --------------------
Net cash provided (used) by financing activities 693,552 (180,544)
-------------------- --------------------
Net decrease in cash (54,154) (281,190)
Cash and cash equivalents at beginning of period 281,138 645,706
-------------------- --------------------
Cash and cash equivalents at end of period $226,984 $364,516
==================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $69,711 $28,796
Income taxes - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of the Company,
all adjustments necessary to present fairly the financial position of Aviation
General, Incorporated as of June 30, 2000 and December 31, 1999, and the results
of operations and cash flows for the three and six month periods ended June 30,
2000 and 1999 have been included and are of a normal, recurring nature. The
results of operations for such interim periods are not necessarily indicative of
the results for the full year. It is suggested that these condensed financial
statements be read in conjunction with the Company's 1999 Annual Report on Form
10-K.
2. Basic income (loss) per share of common stock has been computed by using the
weighted average number of shares of common stock outstanding during the period.
Diluted income (loss) per share has been computed based on the assumption that
all dilutive options are exercised.
<TABLE>
<CAPTION>
Six months ending
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Numerator
Net income (loss) $151,232 ($331,321)
Denominator
Weighted average shares outstanding,
basic 6,413,566 7,220,001
Effect of dilutive securities
Stock options 355,896 -
----------- -----------------
Denominator for income (loss) per share
assuming dilution 6,769,462 7,220,001
========== ==========
Income (loss) per share, basic $ 0.02 ($ 0.05)
============= ==============
Income (loss) per share, assuming dilution $ 0.02 ($ 0.05)
============= ==============
Three months ending
June 30, 2000 June 30, 1999
------------- -------------
Numerator
Net income $113,049 $48,244
Denominator
Weighted average shares outstanding,
basic 6,377,412 7,171,108
Effect of dilutive securities
Stock options 524,010 -
----------- -----------------
Denominator for income per share,
assuming dilution 6,901,422 7,171,108
========== ==========
Income per share, basic $ 0.02 $ 0.01
============= ============
Income per share, assuming dilution $ 0.02 $ 0.01
============= ============
</TABLE>
3. The Company purchased 30,000 shares of its common stock from a major
shareholder on April 12, 2000 at a price consistent with shares trading freely
on the NASDAQ SmallCap Market on that date.
4. Total comprehensive income (loss) for the periods presented is as follows:
For the six months ending June 30
2000 1999
---- ----
Net income (loss) $151,232 ($331,321)
Other comprehensive income 339,759 -
---------- ------------
Comprehensive income (loss) $490,991 ($331,321)
========= ============
For the three months ending June 30
2000 1999
---- ----
Net income (loss) $113,049 $ 48,244
Other comprehensive income (loss) (259,384) -
---------- ------------
Comprehensive income (loss) ($138,335) $ 48,244
========= ============
5. Inventories consist primarily of finished goods and parts for manufacturing
and servicing aircraft. Inventory costs include all direct manufacturing costs
and applied overhead. These inventories, other than used aircraft, are stated at
the lower of cost or market, and cost is determined by the average-cost method.
Used aircraft are valued on a specific-identification basis at the lower of cost
or current estimated realizable wholesale price. Inventory components at the
balance sheet dates were as follows:
June 30, 2000 December 31, 1999
Raw materials $3,370,318 $2,867,102
Work in process 833,334 595,593
New and pre-owned aircraft 1,586,081 1,681,025
----------- ------------
Total inventories $5,789,733 $5,143,720
---------- ----------
6. The effective tax rate differs from the statutory rate primarily to
utilization of net operating loss carryforwards and the change in the valuation
allowance for deferred income tax assets
7. 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 manufacturers. This
legislation prohibits product liability suits against manufacturers when the
aircraft involved in an accident is more than eighteen years old. This action
effectively eliminated all potential liability for the Company with respect to
aircraft produced in the 1970s as of December 31, 1997. 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. 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.
<PAGE>
The Company is routinely involved in various legal matters arising in
the normal course of business, including product liability claims. Management
intends to vigorously defend against these claims and currently believes that
legal matters 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 uncertainty of these matters, it is at least reasonably possible that
management's view of the outcome will change in the near term.
8. 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. In addition,
Commander aircraft have a significantly better safety record and higher resale
value than all other aircraft in their class. 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 pre-owned 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 piston aircraft at reasonable profit margins. The Aviation
Services Division also acts as broker for pre-owned piston aircraft and serves
as advisor to potential aircraft buyers and sellers.
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,
ongoing direct mail programs to owners and pilots, and internet marketing
communications.
The Company's CFI Referral Program actively engages certified flight
instructors (CFIs) in the aircraft evaluation and acquisition process with their
students. CFIs play an important role in advising potential owners. To date,
more than 1900 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 ASCs the
non-exclusive right to refer prospects for new 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.
Revenues generated by the Aviation Services Division grew significantly
in 1998, 1999 and the first half of 2000 and are expected to remain strong in
2000. In addition, the Company's subsidiary, Strategic Jet Services, Inc.
generated its first revenues in 1999 and continued to contribute additional
earnings in the second quarter of 2000.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
Aviation General, Incorporated announced on March 22, 2000 that the
Board of Directors authorized the purchase of up to 2,000,000 shares of the
Company's outstanding common stock. Purchases of shares will be made from time
to time, in either open market or negotiated transactions, subject to market
conditions. The previous stock repurchase of 1,000,000 shares announced on April
7, 1999 was completed during the first quarter of 2000. The Company purchased
30,000 shares of its common stock during the second quarter of 2000 at prices
consistent with shares trading freely on the NASDAQ SmallCap Market on the
respective purchase dates.
RESULTS FROM OPERATIONS
Revenues from the sale of aircraft for the second quarter of 2000
totaled $3,746,651 compared to $2,660,398 for the comparable period of 1999. For
the second quarter of 2000, thirteen new and pre-owned aircraft were sold and
one twin turbine aircraft was brokered, compared with eleven new and pre-owned
aircraft sold and one jet aircraft brokered in the same period for 1999.
For the six month period ended June 30, 2000, revenues were $7,222,401
compared to $4,305,051 for the six month period ending June 30, 1999. Revenues
were higher because the company sold 28 new and pre-owned aircraft in the first
half of 2000 compared to 18 in the comparable period in 1999.
Service revenues totaled $509,436 for the quarter ended June 30, 2000
compared to $394,712 for the comparable quarter in 1999. The increase was due to
higher spare parts shipments and increased aircraft repair and refurbishment
activity.
Service revenues were $976,261 for the six month period ending June 30,
2000 compared to $1,008,351 for the six month period ending June 30, 1999. The
slight decrease was due to a single large rebuild job in the prior year,
partially offset by higher service work and parts sales in the current year.
Cost of aircraft sales for the three month period ended June 30, 2000
increased to $2,886,393 compared to $2,119,402 for the three month period ended
June 30, 1999. The additional cost was due to higher new and pre-owned aircraft
sales during the period.
Cost of aircraft sales for the six month period ended June 30, 2000
increased to $5,666,356 compared to $3,860,643 for the six month period ended
June 30, 1999. The additional cost was due to higher new and pre-owned aircraft
sales during the period.
Cost of sales for service and parts for the quarter ended June 30, 2000
increased to $420,139 compared to $275,985 for the quarter ended June 30, 1999.
The increase was due primarily to the increase in revenues from service activity
and parts shipments as explained above.
Cost of sales for service and parts for the six month period ended June
30, 2000 were $738,135 compared to $646,737 for the six month period ended June
30, 1999. The increase was due primarily to higher margins on service work in
the prior period, partially offset by lower volume.
Product development and engineering costs increased to $97,179 for the
second quarter of 2000, from $75,233 for the comparable period in 1999. For the
six month period ended June 30, 2000 product development and engineering costs
were $193,486 compared to $154,271 for the six month period ended June 30, 1999.
The increase was primarily for higher technical consulting to support various
product improvement initiatives currently underway.
Sales, general and administrative expense increased for the three-month
period ended June 30, 2000, to $742,225 from $573,417 for the comparable period
ended June 30, 1999. Sales, general and administrative expense for the six-month
period ended June 30, 2000 were $1,476,090 compared to $1,063,389 for the six
month period ended June 30, 1999. Consistent with the increase in sales volume,
higher commissions were incurred. Higher salaries, payroll burden, advertising,
legal and travel costs were also noted, partially offset by lower costs for
administration of Strategic Jet Services.
Interest expense increased to $55,039 for the second quarter of 2000
from $17,144 for the comparable period in 1999 due to higher borrowings at banks
to finance aircraft held for resale.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances decreased to $226,984 at June 30, 2000 from $281,138 at
December 31, 1999. Accounts receivable increased by $603,459 at June 30, 2000
due to a trade balance from the sale of three pre-owned piston aircraft and a
$54,850 international parts order. The parts order is secured by an irrevocable
letter of credit. The trade receivable balance from the sale of aircraft is
secured by the aircraft.
Notes receivable decreased to $133,368 at June 30, 2000 from $144,866
at December 31, 1999 due to regular quarterly payments from the debtor. Notes
receivable from related parties decreased from December 31, 1999 to June 30,
2000 based on a principal payment. Accrued interest due on the note receivable
from the related party at June 30, 2000 was $70,442. The note is secured by
Aviation General, Incorporated stock pledged, as well as a personal guarantee
from the principal shareholder of the debtor. The note is classified as
non-current due to the probability that payment in full will not occur within
the next year.
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 are included in earnings.
This investment is in the common stock of a related party.
Inventories increased to $5,789,733 at June 30, 2000 from $5,143,720 at
December 31, 1999. Raw materials, parts and work in process increased
approximately $740,957 as the Company increased production of new aircraft to
meet higher market demand. New and pre-owned aircraft inventory decreased from
$1,681,025 at December 31, 1999 to $1,586,081 at June 30, 2000.
During the first six months of 2000, expenditures for fixed assets
totaled $27,784, which included replacement of fabrication tooling and an
upgrade to the Company's business software.
Accounts payable increased to $790,821 at June 30, 2000 from $451,645
at December 31, 1999, as increased production of new aircraft in 2000 resulted
in higher material and parts inventory purchased on open account. Accrued
expenses increased to $518,245 at June 30, 2000 from $344,525 at December 31,
1999. The increase in accrued expenses is attributable to amounts accrued for
payroll taxes, warranty, employee benefits, and miscellaneous expenses.
Refundable deposits decreased to $142,426 at June 30, 2000 from
$233,363 at December 31, 1999. Borrowings from bank lines increased to
$1,750,332 at June 30, 2000 from $731,780 at December 31, 1999.
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 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. In the first six months of 2000, this division continued
efforts to purchase and accept trade-in of pre-owned aircraft, refurbish these
aircraft and sell them at a reasonable profit. The Company continues to take
advantage of its factory facilities to market upgrades to existing aircraft
owners for new paint, interior and equipment. Management expects growth to
continue in 2000 for refurbishment and pre-owned aircraft sales.
The Company formed Strategic Jet Services, Inc. (SJS), a wholly owned
subsidiary, to provide brokerage, sale, consulting and refurbishment work for
jet aircraft. This line of business generated first activity in 1999, has
contributed earnings in the first half of 2000, and is expected to contribute
additional earnings in the second half of 2000.
The Company continues to certify 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, 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.
During the first half of 2000, the Company introduced the 115 series of
high performance, single engine aircraft. The Commander 115 represents the
culmination of a multitude of improvements to the Commander line, and features
numerous airframe, engine and systems refinements, as well as significantly
increased range capability and an upgraded standard avionics package which
includes dual Garmin 430 global navigation, communication and moving map
displays. The Commander 115 series is the latest of a thoroughbred line of
aircraft that offer the ultimate combination of performance, comfort, safety,
and utility, and has become recognized as the Mercedes of the single engine
fleet.
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. Management has reduced
the costs incurred to advertise new aircraft by focusing 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 has organized its service center, paint, interior and avionics 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,
enhanced the Commander brand with the introduction of the Commander 115, and
more effectively targeted sales and marketing expenditures. With continued
activity in the parts, service and pre-owned aircraft sales, the Company has
lowered its break even sales to only 14 new aircraft per year. With the large
investment complete, management believes it has made significant progress
towards the building of a world class aviation company and has achieved
sustained profitability. Based on performance in the first two quarters of 2000,
the Company believes that annual results for the year ending December 31, 2000
should exceed the prior year. Due to numerous factors beyond the control of the
Company, there can be no assurances that these results will be achieved.
Forward Looking Statements
This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act. All statements, other than statements of historical fact, included in this
Form 10-Q that addresses activities, events or developments that the Company
expects, projects, believes, or anticipates will or may occur in the future,
including matters having to do with expected and future aircraft sales and
services revenues, the Company's ability to fund its operations and repay debt,
business strategies, expansion and growth of operations and other such matters,
are forward-looking statements. These statements are based on certain
assumptions and analyses made by our management in light of its experience and
its perception of historical trends, current conditions, expected future
developments, and other factors it believes are appropriate in the
circumstances. These statements are subject to a number of assumptions, risks
and uncertainties, including general economic and business conditions, the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, the Company's performance on its current contracts and its success
in obtaining new contracts, the Company's ability to attract and retain
qualified employees, and other factors, many of which are beyond the Company's
control. You are cautioned that these forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in such statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 3. QUANITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The registrant has no material market risk associated with interest
rates, foreign currency exchange rates or commodity prices.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Between May 10th and May 12th, 2000, lawsuits were filed in the United States
District Court for the Western District of Oklahoma on behalf of the estates of
Steven Daleo, Gary Daleo, Kathleen Daleo Bay and Michael Thompson Bay against
Commander Aircraft Company. The plaintiffs allege that the above named
individuals were killed in the crash of a Commander 114B on May 15, 1998 due to
defective manufacture of the aircraft. 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
The Company held its annual meeting of shareholders on June 16, 2000.
At the meeting, shareholders elected the following individuals as members of the
Board of Directors:
Wirt D. Walker, III
Mishal Yousef Saud Al Sabah
N. Gene Criss
Stephen R. Buren
There were 5,877,559 votes for each of the directors and 22,925 votes were
withheld.
The shareholders approved an Amendment of the 1993 Stock Option Plan. There were
5,177,331 votes for and 44,682 against and 678,471 votes withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIATION GENERAL INCORPORATED
-----------------------------
(Registrant)
By: /s/ Ronald F. Thomason
Ronald F. Thomason
Vice President Finance
(Chief Financial Officer and
Authorized Signatory)
Date: August 14, 2000
