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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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)
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 6,379,330 Shares of Common Stock Outstanding as of November 10,
2000.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AVIATION GENERAL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $75,370 $281,138
Accounts receivable 931,725 111,403
Current portion of note receivable 18,437 19,535
Inventories 6,774,596 5,143,720
Prepaid expenses and other assets 221,512 172,273
-------------------- --------------------
Total current assets 8,021,640 5,728,069
-------------------- --------------------
Property and equipment
Office equipment and furniture 366,158 355,492
Vehicles and aircraft 84,021 84,021
Manufacturing equipment 381,624 362,205
Tooling 608,526 563,193
Leasehold improvements 311,764 311,764
-------------------- --------------------
1,752,093 1,676,675
Less accumulated depreciation (1,054,675) (951,791)
-------------------- --------------------
697,418 724,884
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Other assets
Notes receivable, less current maturities 109,256 125,331
Available-for-sale equity securities - related party 653,250 317,151
Note receivable from related party 1,695,649 1,736,552
-------------------- --------------------
2,458,155 2,179,034
-------------------- --------------------
$11,177,213 $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)
September 30, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,136,724 $451,645
Accrued expenses 384,522 344,525
Refundable deposits 169,955 233,363
Notes payable 2,267,322 731,780
-------------------- --------------------
Total current liabilities 3,958,523 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; 7,051,519 shares issued at September
30, 2000 and 7,043,186 issued at December 31, 1999 3,525,760 3,521,593
Additional paid-in capital 36,889,800 36,881,466
Less: Treasury stock at cost (652,189 shares at
September 30, 2000 and 529,400 shares at
December 31, 1999) (949,193) (658,615)
Accumulated other comprehensive income 222,509 -
Accumulated deficit (32,470,186) (32,873,770)
-------------------- --------------------
Total stockholders' equity 7,218,690 6,870,674
-------------------- --------------------
$11,177,213 $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 September 30,
2000 1999
----------------------- -----------------------
<S> <C> <C>
Net sales - aircraft $4,307,203 $2,600,952
Net sales - service 497,595 379,187
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Total net sales 4,804,798 2,980,139
----------------------- -----------------------
Cost of sales - aircraft 3,361,773 2,232,918
Cost of sales - service 359,996 281,083
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Total cost of sales 3,721,769 2,514,001
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Gross margin 1,083,029 466,138
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Other operating expenses
Product development and engineering costs 102,261 83,871
Selling, general and administrative expenses 725,181 562,136
----------------------- -----------------------
Total other operating expenses 827,442 646,007
----------------------- -----------------------
Operating income (loss) 255,587 (179,869)
----------------------- -----------------------
Other income (expenses)
Other income 55,872 47,227
Interest expense (59,073) (32,962)
Other expense (33) --
----------------------- -----------------------
Total other income (3,234) 14,265
----------------------- -----------------------
Net income (loss) $252,353 ($165,604)
======================= =======================
Net income per share
Weighted average common shares
outstanding, basic 6,376,334 7,093,322
----------------------- -----------------------
Net income (loss) per share, basic $0.04 ($0.02)
======================= =======================
Weighted average common shares
Outstanding, diluted 6,619,192 7,093,322
----------------------- -----------------------
Net income (loss) per share, diluted $0.04 ($0.02)
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
----------------------- -----------------------
<S> <C> <C>
Net sales - aircraft $11,529,604 $6,906,003
Net sales - service 1,473,856 1,387,538
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Total net sales 13,003,460 8,293,541
----------------------- -----------------------
Cost of sales - aircraft 9,028,129 6,093,561
Cost of sales - service 1,098,131 927,820
----------------------- -----------------------
Total cost of sales 10,126,260 7,021,381
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Gross margin 2,877,200 1,272,160
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Other operating expenses
Product development and engineering costs 295,747 238,142
Selling, general and administrative expenses 2,201,271 1,625,525
----------------------- -----------------------
Total other operating expenses 2,497,018 1,863,667
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Operating income (loss) 380,182 (591,507)
----------------------- -----------------------
Other income (expenses)
Other income 168,475 158,628
Interest expense (144,644) (63,130)
Other expense (428) (916)
----------------------- -----------------------
Total other income 23,403 94,582
----------------------- -----------------------
Net income (loss) $403,585 ($496,925)
======================= =======================
Net Income (loss) per share
Weighted average common shares
Outstanding, basic 6,401,065 7,168,012
----------------------- -----------------------
Net Income (loss) per share, basic $0.06 ($0.07)
======================= =======================
Weighted average common shares
outstanding, diluted 6,721,703 7,168,012
----------------------- -----------------------
Net Income (loss) per share, diluted $0.06 ($0.07)
======================= =======================
</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>
Nine Months Ended September 30,
2000 1999
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $403,585 ($496,925)
Adjustments to reconcile net income (loss) to
net cash used by operating activities
Depreciation and amortization 107,302 82,272
Non-cash interest earnings (105,319) (93,977)
Receipts on notes receivable - related party 41,045 -
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable (820,322) (972,860)
Notes receivable 17,173 18,511
Notes receivable - related party (142) --
Inventories (1,630,876) (102,207)
Prepaid expense and other assets 56,079 (136,159)
Increase (decrease) in
Accounts payable 685,079 33,524
Accrued expenses 74,419 288,572
Refundable deposits (63,408) (137,668)
-------------------- --------------------
Net cash used by operating activities (1,235,385) (1,516,917)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities of related party (113,590) -
Capital expenditures (79,836) (21,658)
Payment on related party note receivable - 800,000
-------------------- --------------------
Net cash (used) provided by investing activities (193,426) 778,342
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 5,212,430 2,584,247
Payments on borrowings (3,676,888) (1,630,980)
Exercise of stock options 12,501 --
Purchase of treasury stock (325,000) (415,645)
-------------------- --------------------
Net cash provided by financing activities 1,223,043 537,622
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Net decrease in cash (205,768) (200,953)
Cash and cash equivalents at beginning of period 281,138 645,706
-------------------- --------------------
Cash and cash equivalents at end of period $75,370 $444,753
==================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $130,834 $53,093
Income taxes - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AVIATION GENERAL, INCORPORATED
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 September 30, 2000 and December 31, 1999, and the
results of operations and cash flows for the three and nine month periods ended
September 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>
Nine months ending
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Numerator
Net income (loss) $403,585 ($496,925)
Denominator
Weighted average shares outstanding,
basic 6,401,065 7,168,012
Effect of dilutive securities
Stock options 320,638 -
----------- -----------------
Denominator for income (loss) per share
assuming dilution 6,721,703 7,168,012
========== ===========
Income (loss) per share, basic $ 0.06 ($ 0.07)
============= ==============
Income (loss) per share, assuming dilution $ 0.06 ($ 0.07)
============= ==============
</TABLE>
<TABLE>
<CAPTION>
Three months ending
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Numerator
Net income $252,353 ($165,604)
Denominator
Weighted average shares outstanding,
Basic 6,376,334 7,093,322
Effect of dilutive securities
Stock options 242,858 -
----------- -----------------
Denominator for income per share,
assuming dilution 6,619,192 7,093,322
========== ==========
Income (loss) per share, basic $ 0.04 ($ 0.02)
============= ==============
Income (loss) per share, assuming dilution $ 0.04 ($ 0.02)
============= ==============
</TABLE>
<PAGE>
4. Total comprehensive income (loss) for the periods presented is as follows:
For the nine months ending September 30,
2000 1999
---- ----
Net income (loss) $403,585 ($496,925)
Other comprehensive income 222,509 -
---------- ------------
Comprehensive income (loss) $626,094 ($496,925)
========= ============
For the three months ending September 30,
2000 1999
---- ----
Net income $252,353 ($165,604)
Other comprehensive income (loss) (117,250) -
------------ ---------------
Comprehensive income (loss) $135,103 ($165,604)
========== ===========
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:
September 30, 2000 December 31, 1999
Raw materials $3,539,482 $2,867,102
Work in process 884,192 595,593
New and pre-owned aircraft 2,350,922 1,681,025
----------- ------------
Total inventories $6,774,596 $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.
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.
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 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 nine months of 2000 and are expected to remain
strong in the fourth quarter of 2000. In addition, the Company's subsidiary,
Strategic Jet Services, Inc. generated its first revenues in 1999 and continued
to contribute additional revenues in the first nine months of 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS FROM OPERATIONS
Revenues from the sale of aircraft for the third quarter of 2000
totaled $4,307,203 compared to $2,600,952 for the comparable period of 1999. For
the third quarter of 2000, thirteen new and pre-owned aircraft were sold,
compared with ten new and pre-owned aircraft sold in the same period for 1999.
For the nine months ended September 30, 2000, revenues were $11,529,604
compared to $6,906,003 for the nine months ended September 30, 1999. Revenues
were higher because the company sold 41 new and pre-owned aircraft in the first
nine months of 2000 compared to 28 in the comparable period in 1999.
Service revenues totaled $497,505 for the quarter ended September 30,
2000 compared to $379,187 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 $1,473,856 for the nine months ended September
30, 2000 compared to $1,387,538 for the nine months ended September 30, 1999.
The increase was due to higher service work and parts sales in the current year.
Cost of aircraft sales for the three months ended September 30, 2000
increased to $3,361,773 compared to $2,232,918 for the three months ended
September 30, 1999. The additional cost was due to higher new and pre-owned
aircraft sales during the period.
Cost of aircraft sales for the nine months ended September 30, 2000
increased to $9,028,129 compared to $6,093,561 for the nine months ended
September 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 September 30,
2000 increased to $359,996 compared to $281,083 for the quarter ended September
30, 1999. The increase was due to the increase in service activity and parts
shipments.
Cost of sales for service and parts for the nine months ended September
30, 2000 were $1,098,131 compared to $927,820 for the nine months ended
September 30, 1999. The increase was due to the increase in service activity and
parts shipments.
Aircraft sales margins were higher for the three and nine months ended
September 30, 2000 compared to the prior periods due to higher new aircraft
pricing and lower new aircraft unit costs. Service margins were for up for the
three months ended September 30, 2000 compared to the prior period due to sales
price increases and higher volume, partially offset by higher costs. For the
nine months ended September 30, 2000 service margins were lower than the prior
period because of higher costs, partially offset by higher prices and higher
service and parts volume.
Product development and engineering costs increased to $102,261 for the
third quarter of 2000, from $83,871 for the comparable period in 1999. For the
nine months ended September 30, 2000 product development and engineering costs
were $295,747 compared to $238,142 for the nine months ended September 30, 1999.
The increase was for higher technical consulting to support various product
improvement initiatives currently underway.
Sales, general and administrative expense increased for the three-month
period ended September 30, 2000, to $725,181 from $562,136 for the comparable
period ended September 30, 1999. Sales, general and administrative expense for
the nine months ended September 30, 2000 were $2,201,271 compared to $1,625,525
for the nine months ended September 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.
Interest expense increased to $59,073 for the third quarter of 2000
from $32,962 for the comparable period in 1999 due to higher borrowings to
finance aircraft held for resale. For the nine months ended September 30, 2000,
interest expense was $144,644 compared to $63,130 due to higher borrowings to
finance aircraft held for sale.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances decreased to $75,370 at September 30, 2000 from $281,138
at December 31, 1999. Accounts receivable increased by $820,232 at September 30,
2000 due to a trade balance from the sale of three aircraft, secured by the
aircraft.
Notes receivable decreased to $127,693 at September 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
September 30, 2000 based on a principal payment. Accrued interest due on the
note receivable from the related party at September 30, 2000 was $125,440. 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 $6,774,596 at September 30, 2000 from
$5,143,720 at December 31, 1999. Raw materials, parts and work in process
increased approximately $960,979 as the Company increased production of new
aircraft to meet higher market demand. Consistent with the increase in sales,
new and pre-owned aircraft inventory increased by $669,897. The Company added
one new aircraft to satisfy the demand for use in new sales demonstrations and
acquired additional pre-owned aircraft for resale.
During the first nine months of 2000, expenditures for fixed assets
totaled $79,836, which included replacement of machinery, fabrication tooling
and an upgrade to the Company's business software.
Accounts payable increased to $1,136,724 at September 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 $384,522 at September 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 $169,955 at September 30, 2000 from
$233,363 at December 31, 1999. Borrowings from bank lines increased to
$2,267,322 at September 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, yielding
to quarterly profits for the last four consecutive quarters. Cash needs have
been financed with debt, private investor capital, proceeds from an initial
public offering, profits, 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 that the four consecutive quarters of profitability
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 nine 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 revenues in the first nine months of 2000, and is expected to
contribute additional revenue in the fourth quarter 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 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. Demand for the new 115
model has contributed to increased revenues and profitability in 2000.
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 15 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 three 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Summary
(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: November 14, 2000
