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, 1998
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, 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
March 31, 1997 (unaudited) 2
Consolidated Statement of Earnings
three months and six months ended March 31, 1998
and 1997 (unaudited) 3
Condensed Consolidated Statement of Cash Flows
six months ended December 31, 1998 and 1997
(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
MARCH 31, 1998
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash $ 93
Customers receivables, less allowance for
doubtful accounts of $26 542
Inventories 94
Prepaid expenses and other current assets 415
TOTAL CURRENT ASSETS 1,144
PROPERTY AND EQUIPMENT, NET 2,751
OTHER ASSETS 331
TOTAL ASSETS $ 4,226
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 115
Current maturities of long term debt-affiliate 8,592
Current maturities of long term debt-other 10
Accounts payable-trade 1,216
Accrued expenses
Property, payroll, and other taxes 3,158
Other 707
Affiliate 1,923
TOTAL CURRENT LIABILITIES 15,721
LONG-TERM DEBT, less current maturities
Affiliate 7,522
Other 3,606
TOTAL LONG-TERM DEBT 11,128
OTHER LONG TERM LIABILITIES 232
REDEEMABLE PREFERRED STOCK 6,440
STOCKHOLDERS' DEFICIT
Common stock 8,702
Additional paid-in capital 3,292
Accumulated deficit (41,052)
(29,058)
Less: Common stock in treasury 237
TOTAL STOCKHOLDERS' DEFICIT (29,295)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 4,226
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,
1998 1997 1998 1997
NET SALES $2,728 $1,786 $5,303 $3,855
COST AND EXPENSE
Cost of sales 1,089 790 2,208 1,833
Departmental costs 1,072 768 2,035 1,490
Administrative costs 238 193 505 423
Interest expense - other 37 46 94 110
Interest expense - affiliate 377 364 750 735
(85) (375) (289) (736)
Gain on sale of certain FBO
operations - 98 - 98
Other income, net 20 11 41 61
NET LOSS (65) (266) (248) (577)
Preferred dividends (64) (65) (129) (129)
Accretion of preferred stock (8) (10) (16) $ (20)
Net loss applicable to
common shareholders $ (137) $ (341) $ (393) $ (726)
Net loss per share - basic $(0.02) $(0.05) $(0.06) $(0.10)
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,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (248) $ (577)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 186 168
Provision for losses on accounts receivable 5 4
Gain on sale of certain FBO operations - (98)
Gain on sale of fixed assets - (41)
Other (2) 12
Change in assets and liabilities:
(Increase) decrease in accounts receivable (228) 96
Decrease in inventory (56) (6)
(Increase) decrease in other current assets (177) 83
Increase in other assets (89) (17)
Increase (decrease) in accounts payable 191 (38)
Increase in property, payroll, and other taxes 114 18
Decrease in other current liabilities (86) (199)
Increase in other liabilities - affiliate 492 254
Decrease in other long term liabilities (1) -
Total adjustments 349 236
Net cash (used in) provided by operating activities 101 (341)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (114) (40)
Net cash used in investing activities (114) (40)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable - affiliate 100 -
Proceeds from issuance of notes payable 75 225
Principal payments of notes payable - affiliate (185) (18)
Principal payment of notes payable - other - (10)
Principal payments of long-term debt (15) (23)
Net cash provided by (used in) financing activities (25) 174
Net decrease in cash & cash equivalents (38) (207)
Cash and cash equivalents at beginning of year 131 390
Cash and cash equivalents at end of second fiscal
quarter $ 93 $ 183
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 285 $ 525
Income taxes - -
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1998, consolidated
statement of earnings for the six month and three month periods ended March
31, 1998 and 1997, 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, 1998 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 March 31, 1998 and 1997 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
1998
Aircraft parts and accessories, oil and
supplies less provisions for obsolete
and slow-moving, and excess quantity
of $12 $27
Fuel 67
$94
NOTE 4: OTHER CURRENT ASSETS
Included in the total of $415 is $231 of prepaid expenses such as rent and
insurance. Also included is an escrow deposit of $111, 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. However, in March closure of the remediation project was
received by the Arizona Department of Environmental Quality and the escrow
was returned to the Company in April.
NOTE 5: OTHER ASSETS
Included in the total of $331 is $222 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 $3,158 is an accrual of $1,668 for a New York
motor fuels tax assessment which is being appealed, and $1,308 for property
taxes.
NOTE 7: FINANCING ARRANGEMENTS
Long Term Debt-Affiliate
Included in this category are $8,311 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 $612,
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 $15,221. Relative
to this debt, the Company had accrued interest of $1,923 at March 31. During
the six months ended March 31, 1998 the Company paid $152 of interest and
$141 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. In February 1998 the notes, along with accrued
and unpaid interest, were converted to one year installment loans to be paid
in 12 equal monthly payments. The first payments were made in March.
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 six months
ended March 31, 1998 the Company was billed $64 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 March 31, 1998 the Company had accrued $390 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. On March 27 the
Company was notified by the Arizona Department of Environmental Quality that
the remediation requirements of the Scottsdale project had been met and the
case closed. The Company is now responsible for a remediation project at one
location previously sold. Since that one location is covered by a state
superfund, more than 95% of previous expenses incurred in the remediation
there have been refunded to the Company. Therefore, the existing accrual of
$390 is more than sufficient to cover future EPA expenditures and no charges
to current operations is expected.
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 Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 39.9 44.2 41.6 47.6
Departmental costs 39.3 43.0 38.4 38.7
Administrative costs 8.7 10.8 9.5 11.0
Interest expense (Net) 15.2 23.0 16.0 21.9
Other income 0.7 6.1 0.8 4.2
Net loss (2.4) (14.9) (4.7) (15.0)
Sales for the six month period ended March 31, 1998 increased $1,448 (38%)
over the same period in 1997. $198 of that increase was due to the
operations at Harrisburg International Airport that began in November 1997.
Fuel sales increased $734 (30%) and sales of services to commercial airlines
increased $446 (127%). During the three months ended March 31, 1998, sales
increased $942 (53%) over the same period in 1997, with $144 of the increase
provided by the Harrisburg operation. Fuel sales increased $493 (44%) and
sales of services to commercial airlines increased $239 (134%).
Cost of sales for the six month period in 1998 decreased by 6% of sales to
41.6% as compared to 47.6% in 1997. About one-half of the decrease 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. Cost of sales
for the three month period in 1998 decreased by 4.3% of sales to 39.9% as
compared to 44.2% in 1997. Again, about one-half of the reduction was due
to sales to commercial airlines.
Departmental costs increased by $545 during the six month period in 1998 as
compared to 1997, but remained in proportion to sales; 38.4% in 1998 and
38.7% in 1997. Payroll and related costs increased by $307 and rental of
equipment increased by $111 during the six month period. During the three
month period departmental costs increased $304 in 1998 compared to 1997. Of
this amount, $160 was payroll and related costs, and $68 was rental of
equipment.
Administrative costs increased $82 to $505 during the six month period in
1998 compared to 1997, but was reduced as a percentage of sales from 11.0%
to 9.5%. Administrative costs increased $45 during the three month period
in 1998 compared to 1997, but decreased as a percentage of sales to 8.7% from
10.8%.
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 March 31, 1998 increased by $239 to ($14,577)
from September 30, 1997. Current assets increased $418 due to an increase
in accounts receivable of $223 and prepaid expenses of $177. Current
liabilities increased $657 as a result of a $492 increase in accrued interest
due to affiliate and a $191 increase in accounts payable.
Operations during the six months ended March 31, 1998 provided $101 of cash.
Additional cash of $175 was provided from the issuance of notes payable.
$114 was used to purchase fixed assets and $200 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: June 2, 1998
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