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, 1996
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, 1997: 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, 1996 (unaudited) and
September 30, 1996 (audited) 2
Consolidated Statement of Earnings
three months ended December 31, 1996
and 1995 (unaudited) 3
Condensed Consolidated Statement of Cash Flows
three months ended December 31, 1996 and 1995
(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
1996 1996
CURRENT ASSETS
Cash $ 219 $ 390
Customers receivables, less allowance for
doubtful accounts of $16 and
$15, respectively 231 316
Other receivables 282 264
Inventories 46 47
Prepaid expenses and other current assets 74 39
TOTAL CURRENT ASSETS 852 1,056
PROPERTY AND EQUIPMENT, NET 2,697 2,731
NOTES RECEIVABLE - LONG TERM 500 500
OTHER ASSETS 442 440
TOTAL ASSETS $ 4,491 $ 4,727
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 207 $ -
Current maturities of long term debt-affiliate 8,851 8,851
Current maturities of long term debt-other 3,546 3,544
Accounts payable-trade 743 970
Accrued expenses
Property, payroll, and other taxes 3,104 3,059
Other 875 1,032
Affiliate 896 684
TOTAL CURRENT LIABILITIES 18,222 18,140
LONG-TERM DEBT, less current maturities
Affiliate 7,398 7,407
Other 12 10
TOTAL LONG-TERM DEBT 7,410 7,417
OTHER LONG TERM LIABILITIES 744 744
REDEEMABLE PREFERRED STOCK 6,071 5,997
STOCKHOLDERS' DEFICIT
Common stock 8,702 8,702
Additional paid-in capital 3,661 3,735
Accumulated deficit (40,082) (39,771)
(27,719) (27,334)
Less: Common stock in treasury 237 237
TOTAL STOCKHOLDERS' DEFICIT (27,956) (27,571)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 4,491 $ 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
DECEMBER 31,
1996 1995
NET SALES $2,069 $2,526
COST AND EXPENSE
Cost of sales $1,043 $1,226
Departmental costs 722 1,038
Administrative costs 230 294
Interest expense - other 64 52
Interest expense - affiliate 371 387
$ (361) $ (471)
Other income, net 50 15
NET LOSS $ (311) $ (456)
Loss per common and
common equivalent share $ (.06) $ (.08)
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,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(311) $(456)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 84 81
Provision for losses on accounts receivable 2 6
Gain on sale of fixed assets (22) (31)
Other - 33
Change in assets and liabilities:
(Increase) decrease in accounts receivable 83 (115)
Increase in other receivables (18) (42)
Decrease in inventory 1 108
Increase in other current assets (35) (12)
Increase in other assets (2) (7)
Decrease in accounts payable (227) (52)
Increase in property,
payroll, and other taxes 45 58
Decrease in other current liabilities (157) (34)
Increase in other liabilities-affiliate 212 300
Decrease in other long term liabilities - (47)
Total adjustments (34) 246
Net cash used in operating activities (345) (210)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (29) (15)
Net cash used in investing activities (29) (15)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 222 -
Principal payments of notes payable-affiliate (9) -
Principal payments of long-term debt (10) (13)
Net cash provided by (used in) financing activities 203 (13)
Net decrease in cash & cash equivalents (171) (238)
Cash and cash equivalents at beginning of year 390 455
Cash and cash equivalents at end of first fiscal
quarter $ 219 $ 217
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 247 $ 139
Income taxes - -
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of December 31, 1996, consolidat-
ed statement of earnings for the three month periods ended December 31, 1996
and 1995, 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, 1996 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 December 31, 1996 and 1995 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
1996 1996
Aircraft parts and accessories, oil and
supplies less provisions for obsolete
and slow-moving, and excess quantity
of $56 and $57, respectively $20 $18
Fuel 26 29
$46 $47
NOTE 4: OTHER RECEIVABLES
The balances at December 31 and September 30, 1996 both include 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 at New Orleans. The note was paid
in February 1997. Also included in both balances is an escrow deposit of
$122 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 RECEIVABLE
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 December 31 and September 30 includes $318 and $326,
respectively, 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 December 31 and September 30 is an accrual
of $1,668 for a New York motor fuels tax assessment which is being appealed,
and $1,362 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 principle 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 December 31, and
September 30, respectively, this category includes $524 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 December 31 and September 30 are $3,540 and
$3,550, respectively, due on industrial revenue bonds, with $40 and $50,
respectively, being the current maturities. However, due to the uncertainty
surrounding 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 $896 and $684, respective-
ly, at December 31 and September 30. During the three months ended December
31, 1996 the Company paid $203 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.<PAGE>
OTE 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 December 31, 1996 and September 30, 1996, the Company had accrued $457 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
December 31,
1996 1995
Net Sales 100.0% 100.0%
Cost of Sales 50.4 48.5
Departmental costs 34.9 41.1
Administrative costs 11.1 11.6
Interest expense (Net) 21.0 17.5
Other income 2.4 0.6
Net loss (15.0) (18.1)
Revenues for the three months ended December 31, 1996 declined 18% as
compared to the same period for the previous year to $2,069. These declines
are the result of certain FBO sales in fiscal 1996. 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.
CONTINUING OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
1996 % 1995 %
Net Sales $2,069 100.0 $1,689 100.0
COST AND EXPENSE
Cost of Sales 1,043 50.4 741 43.9
Departmental costs 722 34.9 751 44.5
Administrative costs 230 11.1 262 15.5
Interest expense 435 21.0 439 26.0
(361) (17.4) (504) (29.9)
Other income, Net 50 2.4 16 1.0
NET (LOSS) $ (311) (15.0) $ (488) (28.9)
As shown above, revenues at continuing operations increased $380 (22.4%).
Fuel sales volume increased 18% which provided increased revenues of $286.
Sales of maintenance outside services (subcontracted) increased $53 (140%),
and fees from commercial airline services increased $23 (16%).
Cost of sales increased 6.5% as a percentage of sales 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 decreased $29 because of a $69 reduction at the corporate
level, primarily in salaries and related expenses.
Administrative costs decreased $32 again because of $57 in cost reductions
at the corporate level. The major reductions were in travel ($33), auditing
fees ($15), and legal fees ($7).
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 AND CAPITAL RESOURCES
Working capital deficiency at December 31, 1996 increased by $286 to
($17,370) from September 30, 1996. Current assets decreased $204 primarily
as a result of a reduction in cash of $171. Current liabilities increased
$82.
Operations during the three months ended December 31, 1996 used $345 of cash.
The two major reasons for this were a decrease in other current liabilities
of $157 and a decrease in accounts payable of $227. Cash was used to
purchase fixed assets of $29.
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-
Atlantic 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.
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,
1996 1995
Primary loss per common and common equivalent share
Average common shares outstanding 6,998,052 6,998,052
Net Loss $ (311) (456)
Add:
Dividends on Series A cumulative
convertible preferred stock (65) (65)
Accretion of Series A cumulative
convertible preferred stock (10) (12)
$ (386) $ (533)
Net loss per common and common
equivalent share $ (0.06) $ (0.08)
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.
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 16, 1997
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6,071
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