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 March 31, 1997
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 April 30, 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
March 31, 1997 (unaudited) and
September 30, 1996 (audited) 2
Consolidated Statement of Earnings
three months and six months ended March 31, 1997
and 1996 (unaudited) 3
Condensed Consolidated Statement of Cash Flows
six months ended March 31, 1997 and 1996
(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 11
Item 6. Exhibits and Reports on Form 8-K 12
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
ASSETS As of As of
March 31 September 30
1997 1996
CURRENT ASSETS
Cash $ 183 $ 390
Customers receivables, less allowance for
doubtful accounts of $20 and
$15, respectively 216 316
Other receivables 165 264
Inventories 53 47
Prepaid expenses and other current assets 55 39
TOTAL CURRENT ASSETS 672 1,056
PROPERTY AND EQUIPMENT, NET 2,632 2,731
NOTES RECEIVABLE - LONG TERM 500 500
OTHER ASSETS 457 440
TOTAL ASSETS $ 4,261 $ 4,727
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long term debt - affiliate $ 8,851 $ 8,851
Current maturities of long term debt - other 3,535 3,544
Notes payable 197 -
Accounts payable - trade 932 970
Accrued expenses
Property, payroll, and other taxes 3,077 3,059
Other 735 1,032
Affiliate 938 684
TOTAL CURRENT LIABILITIES 18,265 18,140
LONG-TERM DEBT, less current maturities
Affiliate 7,390 7,407
Other 13 10
TOTAL LONG-TERM DEBT 7,403 7,417
OTHER LONG TERM LIABILITIES 744 744
REDEEMABLE PREFERRED STOCK 6,146 5,997
STOCKHOLDERS' DEFICIT
Common stock 8,702 8,702
Additional paid-in capital 3,586 3,735
Accumulated deficit (40,348) (39,771)
(28,060) (27,334)
Less: Common stock in treasury 237 237
TOTAL STOCKHOLDERS' DEFICIT (28,297) (27,571)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 4,261 $ 4,727
NOTE: The balance sheet at September 30, 1996 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 SIX MONTHS ENDED
March 31, March 31,
1997 1996 1997 1996
NET SALES $1,786 $1,798 $3,855 $4,324
COST AND EXPENSE
Cost of sales 790 776 1,833 2,002
Departmental costs 768 748 1,490 1,786
Administrative costs 193 172 423 466
Interest expense - other 46 49 110 101
Interest expense - affiliate 364 368 735 755
$ (375) $ (315) $ (736)$ (786)
Gain on sale of certain FBO
operations 98 - 98 -
Other income, net 11 42 61 57
NET LOSS $ (266) $ (273) $ (577) $ (729)
Loss per common and
common equivalent share $ (.05) $ (.04) $ (.10)$ (.13)
See Notes to Condensed Consolidated Financial Statements.
AERO SERVICES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (577) $ (729)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 168 159
Provision for losses on accounts receivable 4 10
Gain on sale of certain FBO operations (98) -
Gain on sale of fixed assets (41) (53)
Debt forgiveness to paid-in-capital - 311
Current period interest included in debt forgiveness - 459
Other 12 49
Change in assets and liabilities:
(Increase) decrease in restricted cash - 5
(Increase) decrease in accounts receivable 96 (109)
Decrease in other receivables 99 264
(Increase) decrease in inventory (6) 120
Increase in other current assets (16) (39)
(Increase) decrease in other assets (17) 2
Increase (decrease) in accounts payable (38) 208
Increase (decrease) in property,
payroll, and other taxes 18 (114)
Decrease in other current liabilities (199) (410)
less deferred gain recognized
Increase (decrease) in other liabilities - affiliate 254 (170)
Decrease in other long term liabilities - (86)
Total adjustments 236 606
Net cash used in operating activities (341) (123)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (40) (67)
Net cash used in investing activities (40) (67)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 225 -
Principal payments of notes payable - affiliate (18) -
Principal payment of notes payable - other (10) (6)
Principal payments of long-term debt (23) (21)
Net cash provided by (used in) financing activities 174 (27)
Net decrease in cash & cash equivalents (207) (217)
Cash and cash equivalents at beginning of year 390 455
Cash and cash equivalents at end of second fiscal
quarter $ 183 $ 238
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 525 $ 345
Income taxes - -
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1997, consolidated
statement of earnings for the six month and three month periods ended March
31, 1997 and 1996, and the condensed consolidated statement of cash flows for
the six 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 March 31, 1997 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, 1996
annual report on Form 10-KSB. The results of operations for the periods
ended March 31, 1997 and 1996 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:
MARCH 31 SEPTEMBER 30
1997 1996
Aircraft parts and accessories, oil and
supplies less provisions for obsolete
and slow-moving, and excess quantity
of $56 and $57, respectively $27 $18
Fuel 26 29
$53 $47
NOTE 4: OTHER RECEIVABLES
The balance at September 30, 1996 includes a note in the amount of $100 due
from Jason IV Aviation, Inc. as partial payment of the selling price of the
company's facility in New Orleans. The note was paid in February 1997.
Included in the total at both March 31 and September 30 is an escrow deposit
of $105 and $121, respectively, the remainder of $150 required by the City
of Scottsdale, AZ to insure completion of the EPA cleanup that was ongoing
at the time the Company sold the facility in September 1994.
NOTE 5: NOTES RECEIVABLES
The balance is the face amount of another note due from Jason IV Aviation,
Inc. also as partial payment of the selling price of the New Orleans
facility. The note carries an interest rate of 9% per annum, to be paid
monthly, and is due and payable on March 31, 1999.
NOTE 6: OTHER ASSETS
The balance at March 31 and September 30 includes $310 and $326, respective-
ly, the unamortized portion of goodwill recorded with 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 7: ACCRUED PROPERTY, PAYROLL, AND OTHER TAXES
Included in the balances both at March 31 and September 30 is an accrual of
$1,668 for a New York motor fuels tax assessment which is being appealed, and
$1,314 and $1,316, respectively, for property taxes.
NOTE 8: FINANCING ARRANGEMENTS
Long Term Debt-Affiliate
Included in this category are $8,700 of various demand loans due to Transtech
Holding Company, (Transtech), the Company's principal shareholder. These
notes provide for interest at 2% above the prime rate. Also included is a
note due Transtech in the amount of $6,910, bearing a prime interest rate.
The note is collateralized by a first priority interest on the fixed assets,
inventory, and accounts receivable of the Company. Also, at March 31, and
September 30, respectively, this category includes $516 and $533, the balance
due on the purchase of an airplane in July 1996 from R. Ted Brant, the
Chairman of the Board and Chief Executive Officer of the Company. The note
is due Cessna Corporation but remains in the name of Mr. Brant. The Company
makes payments directly to Cessna.
Long Term Debt-Other
Included in this category at March 31 and September 30 are $3,530 and $3,550,
respectively, due on industrial revenue bonds, with $30 and $50, respective-
ly, being the current maturities. However, due to the uncertainty surround-
ing the renewal of the letter-of-credit (due for renewal in May 1997)
supporting the $3,500 bond that matures in 2014, Management decided to
reclassify that amount as short term debt at September 30.
NOTE 9: RELATED PARTIES 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 $938 and $684, respective-
ly, at March 31 and September 30. During the six months ended March 31, 1997
the Company paid $392 of interest to Transtech.
The Company provides accounting services to Transtech for one fixed base
operation owned by it for a monthly fee of $1.
In January 1996 the Company purchased a 40% interest in a company called
Peakwood, L.L.C. for $150. $115 of this amount was borrowed from the
following related parties: Transportech, a wholly owned subsidiary of
Transtech Holding Co., $20; Maurice Lawruk, Company Director, $40; James
Affleck, Company Assistant Treasurer, $34; R. Ted Brant, Company Director and
CEO, $15; Bobby Adkins, Company Director, $4; and Alice Buford, a shareholder
of Transtech, $2. The Company issued promissory notes bearing an interest
rate of 10% per annum with principal and interest due in February 1997. At
that time the Company exercised its option contained within the notes to
extend them for one additional year. All interest due and payable was paid
at the time of the extension.
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 March 31, 1997 and September 30, 1996, the Company had accrued $453 and
$457, respectively, for expenses related to environmental protection,
assessment and remediation matters at certain locations 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. 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. Arapahoe County Industrial Revenue Bond
The Company sold an FBO in Denver, CO belonging to its wholly-owned
subsidiary, Beckett Aviation Inc. in February 1994. The buyer, Denver
JetCenter, Inc. contractually assumed all liability in connection with the
payment of principal, interest, and related fees of the $3,500 industrial
revenue bond issued by Arapahoe County, CO. These bonds were the source of
construction funds for the facility. Should Denver JetCenter fail to make
any payments when due, the lender could look to the Company for payment. As
such, the Company remains contingently liable for these bonds and their
related expenses.
C. Litigation
Please refer to Part II, Item 1 on page 10 for a discussion of current
litigation matters.
PART 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 Six Months Ended
March 31, March 31,
1997 1996 1997 1996
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 44.2 43.2 47.6 46.3
Departmental costs 43.0 41.6 38.7 41.3
Administrative costs 10.8 9.6 11.0 10.8
Interest expense (Net) 23.0 23.2 21.9 19.8
Other income 6.1 2.4 4.2 1.3
Net loss (14.9) (15.2) (15.0) (16.9)
Revenues for the three months and six months ended March 31, 1997 declined
1% and 11%, respectively as compared to the same period for the previous year
to $1,786 and $3,855, respectively. These declines are the result of certain
FBO sales in fiscal 1996. In order to compare the results of continuing
operations, a comparative statement of earnings for the three month and six
month periods are presented below, including only those which were in
operation during all of both periods.
CONTINUING OPERATIONS
THREE MONTHS ENDED MARCH 31,
1997 % 1996 %
Net Sales $1,786 100.0 $1,656 100.0
COST AND EXPENSE
Cost of Sales 789 44.2 694 41.9
Departmental costs 770 43.1 705 42.6
Administrative costs 191 10.7 169 10.2
Interest expense 409 22.9 418 25.2
(373) (20.9) (330) (19.9)
Other income, Net 11 0.6 44 2.6
NET (LOSS) $ (362) (20.3) $ (286) (17.3)
As shown above, revenues at continuing operations increased $130 (8%) during
the three months ended March 31, 1997 compared to the previous year. The
volume of fuel sold increased 8% from the previous year providing $134
additional revenue.
Departmental costs increased $65 (9%) during the three months ended March 31,
1997. The single largest increase was $25 for employee health insurance.
Administrative costs increased $22 (13%) due to increased legal expenses
($23).
PART 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 (continued):
CONTINUING OPERATIONS
SIX MONTHS ENDED MARCH 31,
1997 % 1996 %
Net Sales $3,855 100.0 $3,345 100.0
COST AND EXPENSE
Cost of Sales 1,832 47.5 1,435 42.9
Departmental costs 1,492 38.7 1,456 43.5
Administrative costs 421 10.9 431 12.9
Interest expense 844 21.9 857 25.6
(734) (19.0) (834) (24.9)
Other income, Net 61 1.6 60 1.8
NET (LOSS) $ (673) (17.4) $ (774) (23.1)
As shown above, revenues at continuing operations increased $510 (15%). Fuel
volume sold increased 13% and contributed $420 of the increased revenue.
Airline fueling contracts have contributed $41 of the increased revenue.
Cost of sales increased 4.6% as a percentage of sales in the current year,
primarily in fuel sales because of numerous periodic increases in the cost
of fuel during the three months ended December 31, 1996. Increases totalled
7.5% and could not be reflected in proportionally increased selling prices
due to competitive pressures.
Departmental costs increased $36 (2.5%) during the current year.
Administrative costs decreased $10 (2%) during the current year.
PART 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
Working capital deficiency at March 31, 1997 increased by $509 to ($17,593).
Current assets decreased by $384 and current liabilities increased by $125.
Reductions in cash ($207), accounts receivable ($100) and other receivables
($99) were the major causes of the decrease in current assets. Increases in
notes payable ($197) reduced by reductions in accrued expenses ($43) and
accounts payable ($38) were the major causes of the increase in current
liability.
Operations during the six months ended March 31, 1997 used $341 of cash with
an additional $40 used for the purchase of fixed assets. During the six
month period, the Company issued notes payable of $225, of which $182 was a
conversion of accounts payable to short term notes payable and $18 was used
to finance the purchase of fixed assets.
As discussed in the Company's Form 10-KSB for the year ended September 30,
1996 Management, in an attempt to maintain the viability of the Company, is
examining an offer to purchase the Company's Chicago FBO. Also being
explored, is the possibility of obtaining a line of credit using the Chicago
FBO as collateral, with the proceeds used to pay current liabilities. Also,
the Company is in negotiations with an airport authority located in the
Mid-Atlan-
tic region to open a new FBO. The lease would require minimum start-up
costs. The Company has also hired an investment banking firm to assist it
in planning the best method of utilizing the Company's approximate $33
million of net operating loss carryforwards. 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.
In May 1997 Barclays Bank agreed to extend its letter-of-credit supporting
the $3,500 bond that matures in 2014 to November 30, 1997. Also the Denver
JetCenter, purchaser of the Company's FBO in Denver, CO obtained a substitute
letter-of-credit supporting the $3,500 bond that matures in 2013, obviating
the need for the Barclays Bank letter-of-credit which was then cancelled.
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
March 31,
1997 1996
Primary loss per common and common
equivalent share
Average common shares outstanding 6,998,052 6,998,052
Net Loss $ (266)$ (273)
Less:
Dividends on Series A cumulative
convertible preferred stock 65 65
Accretion of Series A cumulative
convertible preferred stock 10 12
$ (341)$ (350)
Net loss per common and common
equivalent share $ (0.05)$ (0.05)
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 antidilut-
ive.
Fully diluted loss per share is antidilutive and therefore not presented.
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF PER SHARE LOSS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Six Months Ended
March 31,
1997 1996
Primary loss per common and common
equivalent share
Average common shares outstanding 6,998,052 6,998,052
Net Loss $ (577)$ (729)
Less:
Dividends on Series A cumulative
convertible preferred stock 129 129
Accretion of Series A cumulative
convertible preferred stock 20 23
$ (726)$ (881)
Net loss per common and common
equivalent share $ (0.10)$ (0.13)
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: May 21, 1997
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