U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1995
TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-10190-0
AERO SERVICES INTERNATIONAL, INC.
(Exact name of small business issuer as
specified in its charter)
LOUISIANA 72-0385274
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
660 Newtown-Yardley Road, Newtown, PA 18940
(Address of principal executive offices
(215) 860-5600
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of January 31, 1996: Common stock (without par
value) 6,998,052 shares.
Transitional Small Business Disclosure Format (Check one): Yes No
x
AERO SERVICES INTERNATIONAL, INC. & SUBSIDIARIES
INDEX
PART I - Financial Information Page Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
December 31, 1995 (unaudited) and
September 30, 1995 (audited) 2
Consolidated Statement of Earnings
three months ended December 31, 1995
and 1994 (unaudited) 3
Condensed Consolidated Statement of Cash Flows
three months ended December 31, 1995 and 1994
(unaudited) 4
Notes to Condensed Consolidated Financial Statements
(unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 8
PART II - Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 11
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
ASSETS As of As of
December 31 September 30
1995 1995
CURRENT ASSETS
Cash $ 217 $ 455
Restricted cash 5 5
Customers receivables, less allowance for
doubtful accounts of $44 and
$37, respectively 338 229
Other receivables 1,087 1,045
Inventories 67 175
Prepaid expenses and other current assets 75 63
TOTAL CURRENT ASSETS 1,789 1,972
PROPERTY AND EQUIPMENT, NET 2,083 2,142
ASSETS HELD FOR SALE AT NET BOOK VALUE 14 25
OTHER ASSETS 364 357
TOTAL ASSETS $ 4,250 $4,496
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt - other $ 52 $ 55
Accounts payable - trade 596 648
Accrued expenses
Property, payroll, and other taxes 3,095 3,037
Other 1,911 1,945
Affiliate 832 532
TOTAL CURRENT LIABILITIES 6,486 6,217
LONG-TERM DEBT, less current maturities
Affiliate 15,610 15,610
Other 3,543 3,554
TOTAL LONG-TERM DEBT 19,153 19,164
OTHER LONG TERM LIABILITIES 296 343
REDEEMABLE PREFERRED STOCK 5,768 5,692
STOCKHOLDERS' DEFICIT
Common stock 8,399 8,399
Additional paid-in capital 3,303 3,380
Accumulated deficit (38,918) (38,462)
(27,216) (26,683)
Less: Common stock in treasury 237 237
TOTAL STOCKHOLDERS' DEFICIT (27,453) (26,920)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 4,250 $ 4,496
NOTE: The balance sheet at September 30, 1995 has been taken from the audited
financial statements at that date and condensed.
See Notes to Condensed Consolidated Financial Statements.
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF EARNINGS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
1995 1994
NET SALES $2,526 $3,442
COST AND EXPENSE
Cost of sales $1,226 $1,744
Departmental costs 1,038 1,507
Administrative costs 294 304
Interest expense - other 52 62
Interest expense - affiliate 387 351
$ (471) $ (526)
Gain on sale of certain FBO
operations 217
Other income/(expense), net 15 129
NET (LOSS) $ (456) $ (180)
(Loss) per common and
common equivalent share $ (.08) $ (.04)
See Notes to Condensed Consolidated Financial Statements.
AERO SERVICES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (456) $ (180)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 81 84
Provisions for obsolete, slow-moving & excess
inventory - 2
Provision for losses on accounts receivable 6 12
Amortization of discounted note payable - 182
(Gain) loss on sale of fixed assets (31) (217)
Other 33 (114)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (115) 550
(Increase) decrease in other receivables (42) -
(Increase) decrease in notes receivable - affiliate - (150)
(Increase) decrease in inventory 108 (20)
(Increase) decrease in other current assets (12) (45)
(Increase) decrease in other assets (7) -
Increase (decrease) in accounts payable (52) (709)
Increase (decrease) in property,
payroll, and other taxes 58 (15)
Increase (decrease) in other current liabilities (34) (281)
Increase (decrease) in other liabilities - affiliate 300 119
Increase (decrease) in other long term liabilities (47) (34)
Total adjustments 246 (636)
Net cash provided by (used in) operating activities (210) (816)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (15) (19)
Proceeds from sale of fixed assets - 393
Net cash from (used in) investing activities (15) 374
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payment of notes payable - (356)
Principal payments of long-term debt (13) (17)
Net cash provided by (used in) financing activities (13) (373)
Net increase (decrease) in cash & cash equivalents (238) (815)
Cash and cash equivalents at beginning of year 455 2,406
Cash and cash equivalents at end of first fiscal
quarter $ 217 $1,591
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 139 $ 114
Income taxes - 2
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of December 31, 1995,
consolidated statement of earnings for the three month period ended
December 31, 1995 and 1994, and the condensed consolidated statement of
cash flows for the three month periods then ended were prepared by the
Company, without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations, and cash flows at
December 31, 1995 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's September
30, 1995 annual report on Form 10-KSB. The results of operations for the
periods ended December 31, 1995 and 1994 are not necessarily indicative of
the operating results for the full year.
NOTE 2: CASH AND SHORT-TERM SECURITIES
The Company considers cash on hand and deposits in banks as cash and cash
equivalents. All items in this category have maturities of less than
three months.
NOTE 3: INVENTORIES
Inventories are classified as follows:
DECEMBER 31 SEPTEMBER 30
1995 1995
Aircraft parts and accessories, oil and
supplies less provisions for obsolete
and slow-moving, and excess quantity
of $48 and $49, respectively $43 $ 55
Fuel 24 47
Work-In-Process - 73
$ 67 $175
NOTE 4: OTHER RECEIVABLES
The balances at December 31 and September 30 both include $756 of
receivables due from insurance companies for lawsuits against the Company.
A liability of $816 is recorded in Accrued Expense - Other, with the
difference representing the Company's deductible amount of insurance.
NOTE 5: OTHER ASSETS
The balance at December 31 and September 30 is the unamortized portion of
goodwill, which totalled $373, that was recorded as the result of the
acquisition of Mountain State Flight Services Inc. on April 1, 1995. The
goodwill is being amortized over 141 months from the date of the
acquisition.
NOTE 6: ACCRUED PROPERTY, PAYROLL, AND OTHER TAXES
Included in the balances both at December 31 and September 30 is an
accrual of $1,457 for a New York motor fuels tax assessment which is being
appealed, and respectively, $1,547 and $1,496 for property taxes.
NOTE 7: LONG-TERM DEBT
The balance of $15,610 in Long-Term Debt-Affiliate are the notes due
Transtech Holding Company, Inc. (Transtech). Included in Long-Term Debt-
Other at December 31 and September 30, respectively, are $3,540 and $3,550
due on industrial revenue bonds.
NOTE 8: RELATED PARTY TRANSACTIONS
The Company is indebted to its major shareholder Transtech (holder of
42.2% of common stock and 34.9% of preferred) in the amount of $15,610.
Relative to this debt, the Company had accrued interest of $532 and $832,
respectively, at December 31 and September 30. During the three months
ended December 31, 1995 the Company paid $90 of interest to Transtech.
The Company provides accounting services to Transtech for two fixed base
operations owned by it for a monthly fee of eighteen hundred dollars.
On November 8, 1995 the Company assigned its interest in the sublease and
purchase option agreement at Houston's Hobby Airport, together with fixed
assets situated at the facility, to TigerAir, Inc., a Texas corporation
formed by Wallace E. Congdon, the then President of the Company. In
consideration of the assignment, TigerAir paid $250 in the form of a non-
interest bearing promissory note. Effective as of the closing, Mr.
Congdon resigned as President and as a Director of the Company.
NOTE 9: CERTAIN FIXED BASED OPERATION (FBO) MATTERS
In consideration of the assignment of the Company's interest at Houston's
Hobby Airport (see Note 8) TigerAir paid $250 in the form of a non-
interest bearing promissory note due and payable on the first to occur of:
(1) TigerAir's subsequent sale of the Houston FBO; (2) a change in
ownership of TigerAir; or (3) the third anniversary date of the closing.
Based on the results of operations during 1995, the Company believes
significant uncertainties exist as to the ability of TigerAir to generate
the required cash necessary to repay the note. Therefore, the Company has
elected to defer recognition of a $236 gain generated by this sale. This
gain has been recorded in the financial statements at December 31 as an
offset to the $250 note receivable and the net result of $14 is included
in Other Assets.
On January 30, 1996 the Company entered into an agreement with Jason IV
Aviation, Inc. (Jason IV) to participate in the ownership of a combination
of the Company's current facility and one owned by Jason IV at Lakefront
Airport in New Orleans. Details of the agreement are being worked out.
NOTE 10: CONTINGENT LIABILITIES
A. Environmental Matters
The Company's business involves the storage, handling and sale of aviation
fuel; and the provision of mechanical maintenance and refurbishing
services which involve the use of hazardous chemicals. Accordingly, the
Company is required to comply with federal, state and local regulations
which have been enacted to control the discharge of material into the
environment or otherwise relate to the protection of the environment. As
a normal course of business, the Company from time to time discusses
environmental compliance with the appropriate environmental agency.
At September 30, 1995, the Company had accrued $490 for expenses related
to environmental protection, assessment and remediation matters at certain
locations. At December 31, 1995, the financial statements of the Company
included accruals for resolution of environmental matters in the amount of
$502 based upon identified situations and cost estimates provided by firms
and individuals knowledgeable of such matters. These estimates are
subject to change dependent upon additional information and revisions to
governing regulations.
The expenditures and accruals for environmental matters are specific in
nature to identified situations at Company locations. The Company is
presently responsible for remediation projects at two locations previously
sold. Closure of one of these locations has been requested of the
appropriate EPA officials, but it may be many months before a decision is
rendered. Due to uncertainties related to estimating both elapsed
correction time and the effectiveness of environmental remediation
techniques utilized to correct non-compliance situations, the Company may
incur additional costs in future periods related to these same situations.
B. Litigation
Please refer to Part II, Item 1 on page 10 for a full discussion of
current litigation matters.
ART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS)
Results of Operations:
The following table presents as a percentage of total sales certain
selected financial data for the Company for the periods indicated.
Three Months Ended
December 31,
1995 1994
Net Sales 100.0% 100.0%
Cost of Sales 48.5 50.7
Departmental costs 41.1 43.8
Administrative costs 11.6 8.8
Interest expense (Net) 17.4 12.0
Other income/(expense) 0.6 10.1
Net loss (18.1) (5.2)
Revenues for the three months ended December 31, 1995 declined 27% as
compared to the same period for the previous year to $2,526. These
declines are the result of certain FBO sales in fiscal 1994 and 1995. In
order to compare the results of continuing operations, a statement of
earnings for both periods is presented below, including only those two
FBOs which were in operation during all of both periods, plus Mountain
State Flight Services, Inc., which was acquired on April 1, 1995.
CONTINUING OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
1995 % 1994 %
Net Sales $2,139 100.0 $1,824 100.0
COST AND EXPENSE
Cost of Sales 999 46.7 876 48.0
Departmental costs 924 43.2 726 39.8
Administrative costs 275 12.9 208 11.4
Interest expense 440 20.5 409 22.4
(499) (23.3) (395) (21.7)
Other income, Net 16 0.7 36 2.0
NET (LOSS) $ (483) (22.6) $ (359) (19.7)
As shown above, revenues at continuing operations increased $315 (17.3%)
with $224 being attributed to Morgantown. Fuel volume increased 2.4% with
no significant increase in revenue. The major source of increased revenue
resulted from a fueling contract with an airline which began in October
1995, and contributed $141 of additional sales.
Cost of sales decreased 1.3% as a percentage of sales in the current
quarter.
Departmental costs increased $198 during the current quarter, with $97 of
the increase at Morgantown. Another $89 was due to additional employees
and equipment rental needed as a result of the airline fueling contract.
Administrative costs increased $67 during the current quarter, with $11 of
the increase at Morgantown. Last year included $50 of bad debt recovery,
a non-recurring event.
ART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS)
LIQUIDITY AND CAPITAL RESOURCES
Working capital deficiency at December 31, 1995 increased by $452 to
($4,697) from September 30, 1995. Current assets decreased $183 primarily
as a result of a reduction in cash of $238. Current liabilities increased
$269 primarily as a result of a $300 increase in accrued interest due to
affiliate.
Operations during the three months ended December 31, 1995 used $210 of
cash. The two major reasons for this were an increase in accounts
receivable of $115 and a decrease in accounts payable of $52. Cash was
used to purchase fixed assets of $15 and to reduce long term debt of $13,
accounting for the total reduction in cash of $238.
As discussed in the Company's Form 10-KSB for the year ended September 30,
1995 management has decided that the best chance to maintain the viability
of the Company is to sell the remaining assets and use the proceeds to pay
the current liabilities. The market value of these assets is estimated to
be such that, if sold, they would produce sufficient cash to achieve this
goal with some additional remaining to be used for reinvestment. Several
investment bankers have indicated an interest in financing two or three
major acquisitions if this plan is successful and Transportech subordinat-
ed its debt, primarily because the Company would retain approximately $24
million of net operating loss carryforward for tax purposes. Negotiations
are underway for the sale of the Company's facility at Chicago. The
successful completion of this plan, however, can be no guarantee that the
Company can be returned to profitability or maintained as a going concern.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
PART II - OTHER INFORMATION
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS)
ITEM 1. - LEGAL PROCEEDINGS
The Company is subject to several complaints filed over the last several
years in different courts or administrative agencies by different
individual former employees challenging the termination of their
employment by the Company on a variety of grounds. These claims are
encountered in the ordinary course of business, and in the opinion of
management, the resolution of these matters, either individually or in the
aggregate, will not have a material adverse effect on the Company's
financial position in excess of what has already been recorded.
Management believes that it has established adequate reserves for all of
these claims. Management also believes it has strong defenses and intends
to vigorously defend its position.
The Company is also exposed to a number of asserted and unasserted
potential claims encountered in the normal course of business. In the
opinion of management, the resolution of these matters, as well as those
discussed above or referenced elsewhere in this report, will not have a
material adverse effect on the Company's financial position in excess of
what has already been recorded. Management believes that it has
established adequate reserves for all of these claims.
PART II - OTHER INFORMATION
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
(DOLLAR AMOUNTS IN THOUSANDS)
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Computation of per Share Loss.
27.0 Financial Data Schedule
(b) Reports on Form 8-K: None.
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF PER SHARE LOSS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended
December 31,
1995 1994
Primary loss per common and common equivalent share
Average common shares outstanding 6,998,052 6,998,052
Net Loss $ (456) $ (180)
Add:
Dividends on Series A cumulative
convertible preferred stock (65) (65)
Accretion of Series A cumulative
convertible preferred stock (12) (11)
$ (533) $ (256)
Net loss per common and common
equivalent share $ (0.08) $ (0.04)
Note (1)
The Series A cumulative convertible preferred stock is not considered
common stock equivalents in the computation of primary loss per share
because, at the time of issuance, the effective yield was greater than two
thirds of the then current average A corporate bond yield.
Note (2)
The effect of the assumed exercise of the common stock options is
antidilutive.
Fully diluted loss per share is antidilutive and therefore not presented.
SIGNATURES
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.
AERO SERVICES INTERNATIONAL, INC.
(Registrant)
____________________________________
(Signature)
Paul R. Slack
Chief Accounting Officer
and Controller
_____________________________________
(Signature)
R. Ted Brant
Chairman of the Board
Date: March 1, 1996
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