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, 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 January 31, 1999: Common stock (without par value)
7,998,052 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, 1998 (unaudited) 2
Consolidated Statement of Earnings
three months ended December 31, 1998
and 1997 (unaudited) 3
Condensed Consolidated Statement of Cash Flows
three 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 13
Item 6. Exhibits and Reports on Form 8-K 14
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash $ 215
Customers receivables, less allowance for
doubtful accounts of $29 541
Notes receivable - affiliate 1,220
Inventories 41
Assets held for sale at net book value 1,432
Prepaid expenses and other current assets 292
Sinking fund 385
Deferred taxes 5,000
TOTAL CURRENT ASSETS 9,126
PROPERTY AND EQUIPMENT, NET 1,396
OTHER ASSETS 108
TOTAL ASSETS $10,630
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 12
Current maturities of long term debt-affiliate 8,199
Current maturities of long term debt-other 180
Accounts payable-trade 564
Accrued expenses
Property, payroll, and other taxes 1,749
Other 780
Affiliate 2,831
Notes payable - Industrial Revenue Bond 3,500
Property taxes - Chicago 3,060
TOTAL CURRENT LIABILITIES 20,875
LONG-TERM DEBT, less current maturities
Affiliate 7,700
Other 860
TOTAL LONG-TERM DEBT 8,560
OTHER LONG TERM LIABILITIES 214
REDEEMABLE PREFERRED STOCK 3,533
STOCKHOLDERS' DEFICIT
Common stock 10,400
Additional paid-in capital 4,814
Accumulated deficit (37,529)
(22,315)
Less: Common stock in treasury 237
TOTAL STOCKHOLDERS' DEFICIT (22,552)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $10,630
See Notes to Condensed Consolidated Financial Statements.
AERO SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF EARNINGS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
NET SALES $2,835 $2,575
COST AND EXPENSE
Cost of sales $1,023 $1,119
Departmental costs 1,212 963
Administrative costs 375 267
Interest expense - other 95 57
Interest expense - affiliate 346 373
$ (216) $ (204)
Other income, net 496 21
NET INCOME (LOSS) $ 280 $ (183)
Preferred dividends (35) (65)
Accretion of preferred stock (11) (8)
Net income (loss) applicable to common shareholders $ 234 $ (256)
Net income (loss) per share
Basic $ 0.04 $(0.04)
Dilutive $ 0.04 $(0.04)
Weighted average shares outstanding:
Basic 6,371,753 6,998,052
Dilutive 6,948,493 6,998,052
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,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ 280 $(183)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 101 91
Provision for losses on accounts receivable 3 2
Provision for obsolete inventory 2 -
Change in assets and liabilities:
Increase in accounts receivable (151) (64)
Decrease in notes receivable 500 -
Increase in notes receivable - affiliate (1,122) -
Increase in inventory (6) (25)
Increase in other current assets (21) (122)
Increase in assets held for sale (33) -
Increase in sinking fund (55) -
(Increase) decrease in other assets 2 (29)
Increase (decrease) in accounts payable 15 (1)
Increase (decrease) in property,
payroll, and other taxes (10) 164
Decrease in other current liabilities (498) (187)
Increase in other liabilities - affiliate 164 379
Increase in property taxes - Chicago 40 -
Other (2) -
Total adjustments (1,071) 208
Net cash (used in) provided by operating activities (791) 25
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (515) (85)
Net cash used in investing activities (515) (85)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds form issuance of notes payable-affiliate 234 70
Proceeds from issuance of notes payable 1,215 75
Principal payments of notes payable-affiliate (48) (151)
Principal payments of long-term debt (121) (11)
Net cash (used in) provided by financing activities 1,280 (17)
Net decrease in cash & cash equivalents (26) (77)
Cash and cash equivalents at beginning of year 241 131
Cash and cash equivalents at end of first fiscal
quarter $ 215 $ 54
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 248 $ 175
Income taxes - -
See Notes to Condensed Consolidated Financial Statements.
NOTE 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of December 31, 1998, consolidat-
ed statement of earnings for the three month periods ended December 31, 1998
and 1997, 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, 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, 1998
annual report on Form 10-KSB. The results of operations for the periods
ended December 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:
DECEMBER 31
1998
Aircraft parts and accessories, oil and
supplies less provisions for obsolete
and slow-moving, and excess quantity
of $19 $14
Fuel 27
$41
NOTE 4: ASSETS HELD FOR SALE AT NET BOOK VALUE
On March 11, 1999 the Company sold its FBO at Chicago's Midway Airport for
$17,750. (See Note 13, Subsequent Events for details.) At December 31, 1998
those assets being sold, reduced by those liabilities being assumed, have
been reclassified on the balance sheet in this category.
NOTE 5: NOTES RECEIVABLE - AFFILIATE
Of the total of $1,220 in this category, $832 is a note from R. Ted Brant,
chairman of the Company's Board of Directors, dated November 4, 1998, due and
payable on January 4, 2004. It bears an interest rate of 8% per annum, due
and payable monthly in arrears, beginning April 30, 1999. In January 1999,
this note was endorsed to RTB/AS, L.L.C. as the Company's initial capital
contribution. RTB/AS, L.L.C. is a limited liability company formed for the
purpose of investing in the auto racing industry, having as its members R.
Ted Brant and Aero Services International, Inc. The remaining balance of
$388 is the outstanding balance against a $500 line-of-credit given to Brant
Motor Sports, Inc., whose principals include R. Ted Brant and Bobby Adkins,
both members of the Company's Board of Directors and Company employees. The
interest rate on this loan is prime less 1%.
NOTE 6: DEFERRED TAXES
The deferred tax benefit was recorded at September 30, 1998 as a result of
the sale of the Company's FBO at Chicago in March 1999. It is expected that
the gain on the sale of approximately $17,100 will be offset by the net
operating loss carryforwards exceeding $34,000.
NOTE 7: SINKING FUND
The sinking fund was established pursuant to an agreement with PHH Corpora-
tion (PHH), a guarantor of the letter-of-credit supporting the industrial
revenue bond with Cook County, Illinois, whereby the Company would make
certain agreed-to monthly payments into the fund. The purpose of the fund
was to provide for payment of the $3,500 bond due in 2014. However, with the
sale of the Chicago FBO, the $3,500 bond was paid in full on April 15, 1999.
Under the agreement with PHH, however, the Company will continue to make
monthly payments into the fund for three months after the bonds are paid, at
which time the balance will be returned to the Company.
NOTE 8: ACCRUED EXPENSES
The major component of the $1,749 accrued for property, payroll, and other
taxes is an accrual of $1,668 for a New York motor fuels tax assessment which
has been appealed.
Of the $2,831 of accrued expenses - affiliate, $2,828 is interest on the
notes due Transtech Holding Company.
NOTE 9: FINANCING ARRANGEMENTS
Notes Payable - Industrial Revenue Bond
This $3,500 bond was due for redemption in 2014, but was paid in full in
April 1999 from the proceeds of the sale of the Company's Chicago FBO. It
was reclassified to short term at September 30, 1998.
Long Term Debt-Affiliate
Included in this category are $7,987 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 $790,
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
In October 1998, the Company entered into a fuel supply agreement with Avfuel
Corporation (Avfuel) whereby Avfuel will be the exclusive fuel provider at
the Company's FBOs for a period of seven years. In addition, the Company
borrowed $1,000 from Avfuel. Under the terms of the note, Aero must make
monthly payments equal to $0.045 per gallon for each gallon of jet aviation
fuel delivered by Avfuel to Aero under the fuel supply agreement during the
preceding month. Each of the monthly payments shall be funded by means of
a financing rebate issued by Avfuel at the rate of $0.045 per gallon of jet
aviation fuel delivered to Aero during the previous month. At the end of
each 12 month period, Aero must make an annual payment equal to the amount,
if any, by which the aggregate of the monthly payments of the preceding 12
months was less than $180. The note carries an interest rate of prime plus
1.75% and has a maturity date of September 15, 2006. In March 1999, the
buyer of the Company's Chicago FBO assumed $750 of this debt. However, at
December 31, 1998 the outstanding balance of $982, less the current portion
of $180, is included in long term debt.
NOTE 10: INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share includes no dilution and is calculated by
dividing net income by the weighted average number of common shares
outstanding for the period. Dilutive net income (loss) per share reflects
the potential dilution of securities that could share in the net income of
the Company through the exercise of stock options and the conversion of
preferred stock.
NOTE 11: RELATED PARTIES TRANSACTIONS
The Company is indebted to its major shareholder Transtech (holder of 50.4%
of common stock and 71.8% of preferred) in the amount of $14,896. Relative
to this debt, the Company had accrued interest of $2,940 at December 31.
During the three months ended December 31, 1998 the Company paid $157 of
interest and $3 of principal to Transtech. In December 1998 the Company
issued 500,000 shares of common stock to Transtech in exchange for $315 of
debt forgiveness.
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 Director and Vice President, $34; R. Ted Brant, Company
Director and CEO, $15; Bobby Adkins, Company Director, $4; and Alice Buford,
a Company Director, $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 January 1998, all parties agreed
to convert the promissory notes to one year installment loans with unpaid
interest added to the principal and the balance to be paid in 12 monthly
installments with interest at 10%. The total unpaid balance at December 31,
1998 was $22.
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, 1998 the Company was billed $30 for use of the
aircraft.
During fiscal year 1998, the Company's Board of Directors approved a $500
line-of-credit, later increased to $1,500 in March 1999, for a company called
Brant Motor Sports, Inc. (See Note 5 for details.)
NOTE 12: CONTINGENT LIABILITIES
A. Environmental Matters
The Company's business involves the storage, handling and sale of 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 provisions which have been enacted
to regulate the discharge of material into the environment or otherwise
relate to the protection of the environment.
The Company is presently responsible for ongoing remediation of underground
contamination at one previously owned location in Milwaukee, Wisconsin. At
another previously owned location on the Raleigh-Durham Airport in North
Carolina, the Company is one of several former operators of fuel tanks at the
facility responsible for sharing remediation costs. The Company reached a
settlement agreement with the airport authority there during fiscal year 1996
which limits the Company's liability to $85 with payments to the authority
not to exceed $20 in any calendar year. The Company has been billed and paid
$38 through December 31, 1998.
At December 31, 1998 the Company has included in its financial statements an
accrual for environmental remediation of $354. Based on estimates by the
engineering firms conducting the remediation projects, the Company has
sufficient reserves should any additional problems arise during remediation.
The Company, in addition, is reimbursed by the Wisconsin Petroleum Environ-
mental Cleanup Fund in excess of 95% of remediation expenses. The accrual
of $354 has not been reduced by any expected future reimbursements from
Wisconsin.
B. Litigation
Please refer to Part II, Item 1 on page 10 for a discussion of current
litigation matters.
NOTE 13: SUBSEQUENT EVENTS
In January 1999 the Company, in conjunction with R. Ted Brant, Jr. formed a
limited liability company named RTB/AS, L.L.C. The purpose of this company
is to invest in the auto racing industry. The Company's initial investment
was $832.
On March 11, 1999 the Company sold its FBO at Chicago's Midway Airport to
Atlantic Aviation Flight Support, Inc. for $17,750 plus the assumption of
certain debt of $1,012. The sale will generate a gain of about $17,100.
From the proceeds of the sale, three escrow funds were established. One was
for $3,511 which was used to pay the industrial revenue bond, including
interest, on April 15, 1999. Another $3,020 is for payment of real estate
taxes in arrears. The Company has disputed this amount and has legal
representation negotiating a settlement with Cook County and the State of
Illinois. Resolution of this matter is expected within six months. A third
escrow of $390 is being held for possible EPA compliance when the underground
fuel storage tanks are removed. This event is expected to occur within 18
to 24 months. $9,043 of the remaining proceeds were invested in RTB/AS,
L.L.C.
Following are a pro-forma balance sheet and statement of operations for the
quarter ended December 31, 1998 giving effect to the sale of the Chicago
facility as if it had occurred on October 1, 1998. The pro-forma balance
sheet and statement of operations are presented for informational purposes
only and do not purport to be indicative of the results of operations that
would actually have been obtained if the transaction had occurred in the
period indicated below.
AERO SERVICES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS)
As Pro Forma
Reported Adjustments Pro Forma
ASSETS
CURRENT ASSETS
Cash $ 215 ($60) $ 155
Customers receivables 541 (470) 71
Notes receivable - affiliate 1,220 1,220
Inventories 41 41
Assets held for sale at net book value 1,432 (1,432) 0
Prepaid expenses and other current assets 292 (135) 157
Sinking fund 385 385
Deferred taxes 5,000 5,000
TOTAL CURRENT ASSETS 9,126 (2,097) 7,029
PROPERTY AND EQUIPMENT, NET 1,396 1,396
OTHER ASSETS 108 108
TOTAL ASSETS $10,630 ($2,097) $ 8,533
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable $ 12 $ 12
Current maturities of long term
debt - affiliate 8,199 8,199
Current maturities of long term
debt - other 180 180
Accounts payable - trade 564 (217) 347
Accrued expenses
Property, payroll, and other taxes 1,749 (49) 1,700
Other 780 (129) 651
Affiliate 2,831 2,831
Notes payable - Industrial Revenue Bond 3,500 3,500
Property taxes - Chicago 3,060 (40) 3,020
TOTAL CURRENT LIABILITIES 20,875 (435) 20,440
LONG TERM DEBT, less current maturities
Affiliate 7,700 7,700
Other 860 860
TOTAL LONG TERM DEBT 8,560 8,560
OTHER LONG TERM LIABILITIES 214 214
REDEEMABLE PREFERRED STOCK 3,533 3,533
STOCKHOLDERS' DEFICIT
Common stock 10,400 10,400
Additional paid-in-capital 4,814 4,814
Accumulated deficit (37,529) (1,662) (39,191)
(22,315) (1,662) (23,977)
Less: Common stock in treasury 237 237
TOTAL STOCKHOLDERS' DEFICIT (22,552) (1,662) (24,214)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $10,630 ($2,097) $ 8,533
AERO SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED: DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
For the three months ended December 31, 1998
Pro Forma
Reported Adjustments Pro Forma
NET SALES $2,835 ($2,379) $ 456
COST AND EXPENSES
Cost of sales 1,023 (818) 205
Departmental costs 1,212 (784) 428
Administrative costs 375 (119) 256
Interest expense - other 95 (44) 51
Interest expense - affiliate 346 346
(216) (614) (830)
Other income, net 496 (1) 495
NET INCOME (LOSS) 280 (615) (335)
Preferred dividends (35) (35)
Accretion of preferred stock (11) (11)
Net income (loss) applicable to
common shareholders $ 234 ($615) ($381)
Net income (loss) per share
Basic $0.04 ($0.06)
Dilutive $0.04 ($0.05)
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,
1998 1997
Net Sales 100.0% 100.0%
Cost of Sales 36.1 43.4
Departmental costs 42.8 37.4
Administrative costs 13.2 10.4
Interest expense (Net) 15.6 16.7
Other income 17.6 0.8
Net income (loss) 9.9 (7.1)
Sales for the three month period ended December 31, 1998 increased $260 (10%)
as compared to the same period in 1997. Fuel sales increased $86 (6%) and
sales of services to commercial airlines increased $111 (30%). 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. Sales in 1998
increased $190 at the Harrisburg facility.
Cost of sales in the current year has been reduced by 7.3% of sales to 36.1%
as compared to 43.4%. 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. The balance of the
decrease is due to lower fuel costs.
Departmental costs increased $249 over the preceding year and increased 5.4%
as a percentage of sales. $109 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 $108 (40%) and increased as a percentage of
sales from 10.4% to 13.2%. $98 of the increase was advertising expense.
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, 1998 decreased by $1,347 to
($11,749) from September 30, 1998. Current assets increased by $804, with
the majority of the change resulting from an increase in notes receivable-
affiliate of $1,122, an increase in accounts receivable of $148, and a
reduction in notes receivable of $500. Current liabilities decreased $543.
The major components of this change are a decrease in accrued expense-other
of $498, a decrease in current maturities of long term debt-affiliate of
$330, a decrease in notes payable of $103, an increase in current maturities
of long term debt-other of $179, and an increase in accrued expense-affiliate
of $164.
Operations during the three months ended December 31, 1998 used $791 of cash.
Cash of $1,449 was provided from the issuance of notes payable. $515 was
used to purchase fixed assets and $169 was used to reduce the principal
amount of notes payable.
In January 1999, the Company and R. Ted Brant formed a limited liability
company named RTB/AS, L.L.C. to invest in the auto racing industry. The
Company's total investment in RTB/AS, L.L.C. to date is approximately $10
million and could eventually be approximately $12.5 million. The Company
continues to explore other business opportunities not related to the aviation
industry. One such opportunity under consideration is a joint venture for
the construction and operation of an indoor motor speedway and exhibition
center. Management is continuing to search for business opportunities that
could produce profits whereby the approximately $34 million of net operating
loss carry forward could be utilized to produce cash flow. 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 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, cash flow, and operations in excess of accruals already
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.
ITEM 5. - OTHER INFORMATION
The Company has reviewed the potential impact of Year 2000 issues on its
business operations and has determined the following:
The main computers used by Aero and the software operated on the computer
require only minor corrections to become year 2000 compliant. Aero is
considering changing its computer operations to a PC based system using new
software that is year 2000 compliant. If Aero elects not to pursue the PC
based and year 2000 compliant software, Aero will cause its present system
to be year 2000 compliant by the Fall of 1999.
Aero has contacted its principal insurers and suppliers, especially the
supplier of aviation fuel to ascertain that those suppliers will be able to
deliver product in a timely fashion. The Company has received written
confirmation from the majority of its insurers and fuel suppliers that they
are year 2000 compliant.
Aero has also been in contact with the managers of the airports where it
operates FBOs to determine that they will be able to continue to operate and
will be year 2000 compliant. The Company has not yet received written
confirmation.
The Company's main banks and its utility companies have confirmed in writing
of their compliance and or compliance status. At the time of the filing of
this report, the Company has no contingency plan relating to potential year
2000 issues. Aero does not expect to incur any significant expense in
becoming year 2000 compliant, except the expense of converting its computer
system if in fact it determines that it should convert that system to a PC
based system.
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 3, 1999
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 215
<SECURITIES> 0
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<ALLOWANCES> 0
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3,533
0
<COMMON> 10,400
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<SALES> 2,835
<TOTAL-REVENUES> 2,835
<CGS> 1,023
<TOTAL-COSTS> 1,023
<OTHER-EXPENSES> 1,587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 441
<INCOME-PRETAX> 280
<INCOME-TAX> 0
<INCOME-CONTINUING> 280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
