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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 July 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_______
Commission file number 2-87778A
THE FLIGHT INTERNATIONAL GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-1476225
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
NEWPORT NEWS/WILLIAMSBURG INTERNATIONAL AIRPORT, NEWPORT NEWS, VA 23602
(Address of principal executive offices)
(757) 886-5500
Issuer's telephone number
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has 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[ ] No[X].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes[ ] No[X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date: AS OF SEPTEMBER 10, 1999,
THERE WERE 1,013,976 SHARES OF THE ISSUER'S NEW COMMON STOCK, PAR VALUE $.01 PER
SHARE, ISSUED AND OUTSTANDING.
Transitional Small Business Disclosure Format [check one]: Yes[ ] No [X] U.S.
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Flight International Group, Inc. (the "Company") files herewith
unaudited condensed consolidated balance sheets of the Company and its
subsidiaries as of July 31, 1999 (unaudited) and April 30, 1999 (the Company's
most recent fiscal year), unaudited condensed consolidated statements of
operations for the three months ended July 31, 1999 and 1998, and unaudited
condensed consolidated statements of cash flows for the three months ended July
31, 1999 and 1998, together with unaudited condensed notes thereto. In the
opinion of management of the Company, the financial statements reflect all
adjustments, all of which are normal recurring adjustments, necessary to fairly
present the financial condition of the Company for the interim period presented.
The financial statements included in this report on Form 10-QSB should be read
in conjunction with the audited financial statements of the Company and the
notes thereto included in the annual report of the Company on Form 10-KSB for
the year ended April 30, 1999.
2
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THE FLIGHT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, 1999 April 30, 1999
(Unaudited)
------------- --------------
CURRENT ASSETS
Cash $ 135,147 $ 79,292
Accounts Receivable, net 5,073,473 3,517,018
Inventories 2,810,506 2,886,665
Prepaid expenses and other 296,884 138,286
Deposits 599,265 681,799
------------- --------------
Total current assets 8,915,275 7,303,060
PROPERTY AND EQUIPMENT, NET 4,484,920 4,600,619
OTHER ASSETS 11,187 11,703
------------- --------------
$ 13,411,382 $ 11,915,382
============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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THE FLIGHT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 31, 1999 April 30, 1999
(Unaudited)
--------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,360,784 $ 555,609
Deferred revenue 332,302 727,586
Accrued fuel expense 1,066,010 923,715
Accrued expenses and other liabilities 2,145,236 1,644,703
Note payable 1,591,536 1,080,505
Long-term debt due currently 764,864 750,950
Income tax payable 0 0
--------------- --------------
Total current liabilities 7,260,732 5,683,068
DEFERRED REVENUE 0 0
ACCRUED ENGINE RESERVES 537,109 448,469
LONG-TERM DEBT, LESS CURRENT MATURITIES 2,374,820 2,570,261
--------------- --------------
Total liabilities 10,172,661 8,701,798
--------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,013,976 issued and outstanding 10,140 10,140
Additional paid in capital 1,007,617 1,007,617
Treasury stock
Retained Earnings 2,220,964 2,195,827
--------------- --------------
Total stockholders' equity 3,238,721 3,213,584
$ 13,411,382 $ 11,915,382
=============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
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THE FLIGHT INTERNATIONAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
July 31, 1999 July 31, 1998
---------------------------------
REVENUES $ 6,877,552 $ 6,182,499
OPERATING COSTS AND EXPENSES
Costs of services 5,941,294 5,305,389
Gain on disposal of assets 0 (18,167)
Depreciation and amortization 179,662 141,827
General, corporate and administrative 655,233 622,349
---------------------------------
Total operating costs and expenses 6,776,189 6,051,398
INCOME (LOSS) BEFORE OTHER 101,363 131,101
EXPENSES
OTHER EXPENSES
Interest expense 76,226 81,231
---------------------------------
Total other expenses 76,226 81,231
INCOME BEFORE TAXES 25,137 49,870
Income tax expense 0 0
---------------------------------
NET INCOME (LOSS) $ 25,137 $ 49,870
=================================
NET INCOME (LOSS) PER COMMON
SHARE - BASIC $ 0.02 $ 0.05
=================================
WEIGHTED AVERAGE NUMBER OF SHARES 1,013,976 1,013,976
=================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
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THE FLIGHT INTERNATIONAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
July 31, 1999 July 31, 1998
-----------------------------
OPERATING ACTIVITIES
Net income $ 25,137 $ 49,870
Adjustments to reconcile net income
to net cash provided (absorbed) by operating
activities
Depreciation and amortization 179,662 141,827
Engine reserve 88,640 18,231
Gain on sale of assets 0 (18,167)
Net cash provided (absorbed) by
Accounts receivable (1,556,455) 1,238,204
Inventories 76,159 (219,241)
Prepaid expenses and other assets (76,064) (212,254)
Accounts payable 805,175 (90,516)
Accrued expenses and other liabilities 642,828 161,488
Deferred revenue (395,284) (51,466)
Income taxes payable 0 (11,412)
--------------------------
Net cash absorbed by operating activities (210,202) 1,006,564
INVESTING ACTIVITIES
Purchase of property and equipment (63,963) (418,527)
Net (increase) decrease in other assets 516 (16,902)
--------------------------
Net cash absorbed by investing activities (63,447) (435,429)
FINANCING ACTIVITIES
Proceeds from credit line, net 511,031 (451,097)
Repayment of long-term debt (181,527) (140,108)
--------------------------
Net cash provided by financing activities 329,504 (591,205)
NET (DECREASE) INCREASE IN CASH AND 55,855 (20,070)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 79,292 104,008
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 135,147 $ 83,938
==========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
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THE FLIGHT INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Flight International Group, Inc. (the "Company") is an aviation
services company that performs military training services using specially
modified commercial aircraft, principally under contracts with the United States
Department of Defense, other government agencies and foreign countries. In
addition, the Company has established a market for training and testing in the
aerospace industry. The Company also operates a fixed base operation ("FBO") and
licensed repair station at the Newport News/Williamsburg International Airport.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Net income/loss per common share is computed by dividing the income/loss by
the weighted average number of shares of common stock outstanding during the
year.
2. NOTES PAYABLE
During the year ended April 30, 1998, the Company entered into a $2,000,000
asset based borrowing agreement with a bank in Newport News, Virginia. Under the
terms of the Agreement, the Company may obtain advances up to 85% of amounts
billed by the Company on government contracts. The Company must pay interest at
prime plus .50% on outstanding advances. Under the Agreement, the Company must
maintain certain net worth ratios. The Company was in compliance with these
ratios at July 31, 1999. As of July 31, 1999, $1,591,536 was outstanding.
3. INCOME TAXES
The provision for income taxes differs from the amount determined by
applying federal statutory tax rates to pre-tax income as a result of the
utilization of net operating loss carry forwards. Income tax expense is
comprised of federal alternative minimum tax and state taxes.
As of April 30, 1999, the cumulative net operating loss available for
federal income tax purposes was $8,325,000, which will expire primarily in the
2006-2011 and 2019 period, subject to certain limitations due to reorganization,
if not previously utilized.
7
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND GENERAL INFORMATION
The Flight International Group, Inc. (the "Company") was incorporated in
Georgia on May 7, 1982. The Company is an aviation services company that
performs military training services using specially modified commercial
aircraft, principally under contract with the Untied States Department of
Defense, other government agencies and foreign countries, operating through its
direct and indirect subsidiaries described in the next paragraph. In addition,
with the use of these aircraft, the Company has established a market for
training and testing in the aerospace industry. The Company also operates a
fixed base operation ("FBO") at the Newport News/Williamsburg International
Airport ("NN/W Airport").
Flight International, Inc., a Georgia corporation ("FII"), Flight
International Aviation, Inc., a Georgia corporation ("FIA"), and Flight
International Sales and Leasing, Inc., a Delaware corporation, are wholly-owned
subsidiaries of the Company. Flight International of Florida, Inc., a Florida
corporation ("FIF") is a wholly-owned subsidiary of FII.
CAS-MOS CONTRACT
In August 1996, the Company was awarded a major contract. The Commercial
Air Services-Military Operations Support (CAS-MOS) Contract is a derivative of
the original government contract won by the Company in 1980 and operated until
September 1993. The new contract began on October 1, 1996 and has completed two
base years and is currently in its second option year, with two additional
option years remaining. Annual revenues from this contract have been $15.2
million and $13.9 million for the fiscal year ended April 30, 1999 and 1998,
respectively. This contract currently constitutes a substantial portion of the
Company's revenues.
8
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RESULTS OF OPERATIONS
REVENUES
Total revenues for the three months ended July 31, 1999 and 1998 were
$6,877,552 and $6,182,499, respectively. Total revenue for the quarter increased
11.2% over the prior year, with Flight Operations leading the way with an
increase of 18% to $6,094,000. This increase was principally due to a 10%
increase in CAS-MOS operations and a 30% increase in Alaska operations. Revenues
declined 13% at the Newport News FBO, due to weak fuel sales. Maintenance
operations declined 38% due to an increase in work on fleet aircraft, while work
on customer aircraft declined.
COST OF SERVICES
Cost of services for the three months ended July 31, 1999 and 1998 were
$5,941,296 and $5,305,389, respectively. The 12% increase is due to an increase
in aircraft operating costs in the current quarter. The operations in Alaska
also contributed substantially to the cost increase.
The overall gross margin remained constant at 14%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the three months ended July 31, 1999 and
1998 were $178,662 and $141,827, respectively. The 27% increase is due to
equipment purchases and aircraft modifications completed in the fourth quarter
of fiscal year 1999.
GENERAL CORPORATE AND ADMINISTRATIVE
General corporate and administrative expenses for the three months ended
July 31, 1999 and 1998 were $655,233 and $622,349, respectively. The 5% increase
is a result of certain executive and marketing expenses incurred to secure
expanded business opportunities.
INTEREST
Interest expense for the three months ended July 31, 1999 and 1998 was
$76,226 and $81,231, respectively. The 7% reduction in interest expenses is due
to a decrease in long term debt.
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NET INCOME
As a result of the foregoing, the Company's net income for the three months
ended July 31, 1999 was $25,137, or $.02 per share of the Company's common
stock, compared with to $48,870, or $.05 per share for the three months ended
July 31, 1998. The weighted average number of shares used in computing per share
earnings for the three months ended July 31, 1999 and 1998 was $1,013,976.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through cash flow from
operations and bank indebtedness. The Companys operating activities used cash of
$210,202 for the three months ended July 31, 1999, while providing $1,006,564 in
the comparable prior year period. An increase in accounts receivable of
$1,556,000 absorbed cash during the quarter, which was due to the timing of the
billing cycle on the CAS-MOS Contract. This was offset by an increase in
accounts payable and borrowings under the Company's line of credit.
On February 25, 1998, the Company entered into a line of credit with
Crestar Bank ("Crestar") for all short term financing needs. The agreement
provides for up to $2,000,000 in credit. The loan is represented by a demand
note which may be payable at any time upon the demand of Crestar. The Company
will be obligated to pay Crestar interest at prime rate plus one-half percent of
the average balance outstanding. The line is secured by the Company's accounts
receivable and an assignment of the CAS-MOS Contract.
The Company operates in a capital intensive industry. Typically, major
expenses are incurred in connection with the initiation of a new contract. These
costs can consist of acquisition of additional aircraft, equipment and training.
These costs can be reduced through leasing arrangements and advance payments
from customers, if these are obtainable. The Company believes that it will be
able to arrange through available means the financing of these initial contract
costs when necessary, although no assurance can be given.
YEAR 2000 PLANNING AND PREPARATION
The Company continues to evaluate and prepare for the potential impact of
the "Year 2000" problem on its systems and operations. The Company's Year 2000
evaluation and remediation plan is dual faceted focusing both on information
technology ("IT") systems as well as imbedded, non-IT systems that are integral
to specific operating and support functions. The Company's Year 2000 efforts
began in 1996 with IT systems with long lead time dates. Remediation of the
Company's IT systems is expected to be substantially complete by October 1999.
While the total cost of the new IT systems will be substantial ($400,000 based
on current estimates) the vast majority of the new system costs will go towards
enhancing and upgrading existing capability, not the specific
10
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Year 2000 issue. The actual costs of the Year 2000 reparations is not expected
to be material on future earnings. Non-IT systems are being evaluated and
corrected or replaced as identified. The costs of ensuring compliance in non-IT
systems is not anticipated to have a material impact on earnings. All
non-compliant non-IT systems are expected to be replaced or corrected by
December 1999. Notwithstanding this, the Year 2000 readiness of the Company's
suppliers and customers (including the DOD) may vary, and the Company cannot
determine whether or to what extent the Company may be affected thereby.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. Not applicable.
Item 2. CHANGES IN SECURITIES. None
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
Item 5. OTHER INFORMATION. None
Item 6. (a) EXHIBITS
EXHIBIT NUMBER AND DESCRIPTION
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K. None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 11, 1999 THE FLIGHT INTERNATIONAL GROUP, INC.
By:/s/ David E. Sandlin
----------------
David E. Sandlin
Principal Executive Officer
By:/s/ Wayne M. Richmon
----------------
Wayne M. Richmon
Principal Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 135,147
<SECURITIES> 0
<RECEIVABLES> 5,144,959
<ALLOWANCES> 71,486
<INVENTORY> 2,810,506
<CURRENT-ASSETS> 8,915,275
<PP&E> 7,050,026
<DEPRECIATION> 2,565,106
<TOTAL-ASSETS> 13,411,382
<CURRENT-LIABILITIES> 7,260,732
<BONDS> 0
0
0
<COMMON> 10,140
<OTHER-SE> 3,228,581
<TOTAL-LIABILITY-AND-EQUITY> 13,411,382
<SALES> 6,877,552
<TOTAL-REVENUES> 6,877,552
<CGS> 5,941,294
<TOTAL-COSTS> 6,776,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,226
<INCOME-PRETAX> 25,137
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,137
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
