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, 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 January 31, 1998: 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, 1997 (unaudited) 2
Consolidated Statement of Earnings
three months ended December 31, 1997
and 1996 (unaudited) 3
Condensed Consolidated Statement of Cash Flows
three months ended December 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 10
Item 6. Exhibits and Reports on Form 8-K 11
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash $ 54
Customers receivables, less allowance for
doubtful accounts of $24 381
Inventories 63
Prepaid expenses and other current assets 360
TOTAL CURRENT ASSETS 858
PROPERTY AND EQUIPMENT, NET 2,815
OTHER ASSETS 271
TOTAL ASSETS $ 3,944
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 425
Current maturities of long term debt-affiliate 8,333
Current maturities of long term debt-other 9
Accounts payable-trade 1,024
Accrued expenses
Property, payroll, and other taxes 3,208
Other 607
Affiliate 1,810
TOTAL CURRENT LIABILITIES 15,416
LONG-TERM DEBT, less current maturities
Affiliate 7,398
Other 3,688
TOTAL LONG-TERM DEBT 11,086
OTHER LONG TERM LIABILITIES 232
REDEEMABLE PREFERRED STOCK 6,367
STOCKHOLDERS' DEFICIT
Common stock 8,702
Additional paid-in capital 3,365
Accumulated deficit (40,987)
(28,920)
Less: Common stock in treasury 237
TOTAL STOCKHOLDERS' DEFICIT (29,157)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 3,944
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,
1997 1996
NET SALES $2,575 $2,069
COST AND EXPENSE
Cost of sales $1,119 $1,043
Departmental costs 963 722
Administrative costs 267 230
Interest expense - other 57 64
Interest expense - affiliate 373 371
$ (204) $ (361)
Other income, net 21 50
NET LOSS $ (183) $ (311)
Preferred dividends (65) (65)
Accretion of preferred stock (8) (10)
Net loss applicable to common shareholders $ (256) $ (386)
Net loss per share - basic $(0.04) $(0.06)
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,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(183) $(311)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 91 84
Provision for losses on accounts receivable 2 2
Gain on sale of fixed assets - (22)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (64) 83
Decrease in inventory (25) 1
Increase in other current assets (122) (53)
Increase in other assets (29) (2)
Decrease in accounts payable (1) (227)
Increase in property,
payroll, and other taxes 164 45
Decrease in other current liabilities (187) (157)
Increase in other liabilities-affiliate 379 212
Total adjustments 208 (34)
Net cash (used in) provided
by operating activities 25 (345)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (85) (29)
Net cash used in investing activities (85) (29)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds form issuance of notes payable-affiliate 70 -
Proceeds from issuance of notes payable 75 222
Principal payments of notes payable-affiliate (151) (9)
Principal payments of long-term debt (11) (10)
Net cash provided by (used in)
financing activities (17) 203
Net decrease in cash & cash equivalents (77) (171)
Cash and cash equivalents at beginning of year 131 390
Cash and cash equivalents at end of first fiscal
quarter $ 54 $ 219
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 175 $ 247
Income taxes - -
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of December 31, 1997, consolidat-
ed statement of earnings for the three month periods ended December 31, 1997
and 1996, 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, 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, 1997
annual report on Form 10-KSB. The results of operations for the periods
ended December 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:
DECEMBER 31
1997
Aircraft parts and accessories, oil and
supplies less provisions for obsolete
and slow-moving, and excess quantity
of $54 $31
Fuel 32
$63
NOTE 4: OTHER CURRENT ASSETS
Included in the total of $360 is $180 of prepaid expenses such as rent and
insurance. Also included is an escrow deposit of $109, the remainder of $150
required by the City of Scottsdale, Arizona to insure completion of the EPA
cleanup that was ongoing at the time the Company sold the facility in
September 1994.
NOTE 5: OTHER ASSETS
Included in the total of $271 is $161 in a sinking fund established by the
Company for the payment of the industrial revenue bond that matures in
December 2014.
NOTE 6: ACCRUED PROPERTY, PAYROLL, AND OTHER TAXES
Included in the balance of $3,208 is an accrual of $1,668 for a New York
motor fuels tax assessment which is being appealed, and $1,341 for property
taxes.
NOTE 7: FINANCING ARRANGEMENTS
Long Term Debt-Affiliate
Included in this category are $8,204 of various demand loans due to Transtech
Holding Company, (Transtech), the Company's principle shareholder. These
notes, classified as current maturities of long term debt, 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, this category includes $548,
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 is $3,500 due on an industrial revenue bond that
matures in 2014.
NOTE 8: 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 $14,975. Relative
to this debt, the Company had accrued interest of $1,603 at December 31.
During the three months ended December 31, 1997 the Company paid $114 of
interest and $139 of principal 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.
The Company periodically uses an aircraft owned by Valley Air Services, Inc.
(Valley Air) for travel by its employees, primarily management. Valley Air
bills the Company an hourly rate based on flight time. The President and
Chief Executive Officer of Valley Air is R. Ted Brant. During the three
months ended December 31, 1997 the Company was billed $41 for use of the
aircraft.
NOTE 9: 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, 1997 the Company had accrued $402 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. 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,
1997 1996
Net Sales 100.0% 100.0%
Cost of Sales 43.4 50.4
Departmental costs 37.4 34.9
Administrative costs 10.4 11.1
Interest expense (Net) 16.7 21.0
Other income 0.8 2.4
Net loss (7.1) (15.0)
Sales for the three month period ended December 31, 1997 increased $506 (24%)
same period in 1996. Fuel sales increased $241 (18%) and sales of services
to commercial airlines increased $207 (120%). The Company began operations
at Harrisburg International Airport in November 1997 but sales at that
location were only $54 through December because sales and service to general
aviation did not begin until January 1998. The majority of sales were
services to commercial airlines.
Cost of sales in the current year has been reduced by 7% of sales to 43.4%
as compared to 50.4%. About one-half of this reduction can be attributed to
the increase in sales of services to commercial airlines which have very
little related cost of sales. The expenses incurred are labor and equipment
charges, which are classified as departmental costs.
Departmental costs increased $241 over the preceding year but only increased
34.9% to 37.4% as a percentage of sales. $150 of the increase was payroll
and related expenses, and $44 was an increase in equipment rental, both
increases resulting from the increased sales.
Administrative costs increased $37 (16%) but decreased as a percentage of
sales from 11.1% to 10.4%. $22 of the increase was the result of travel
expenses.
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, 1997 increased by $220 to
($14,558) from September 30, 1997. Current assets increased $132 due to an
increase in prepaid expenses of $122. Current liabilities increased $352 as
a result of a $379 increase in accrued interest due to affiliate.
Operations during the three months ended December 31, 1997 provided $25 of
cash. Additional cash of $145 was provided from the issuance of notes
payable. $85 was used to purchase fixed assets and $162 was used to reduce
the principal amount of notes payable.
Management continues to review its options with respect to developing new
business opportunities and to maximize its return from existing businesses.
Management is exploring several new business opportunities, such as the new
facility which opened at Harrisburg International Airport in November 1997.
Management is considering several possible means of restructuring the
Company's debt and has reviewed opportunities to open or acquire additional
FBO's and is also reviewing various options in related business enterprises.
However, there can be no assurance 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:
27.0 Financial Data Schedule
(b) Reports on Form 8-K: None.
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 18, 1998
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