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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 1998
-OR-
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities And Exchange Act of 1934
for the transaction period from _________ to________
Commission File Number 0-14646
Airship International Ltd.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 06-1113228
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7380 Sand Lake Road, Suite 350, Orlando, FL 32819
- --------------------------------------------------------------------------------
(Address of principal executive offices, Zip Code)
(407) 351-0011
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ____
The number of outstanding shares of the registrant's common stock,
par value $.01, as of June 30, 1998 is 54,047,000.
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
AIRSHIP INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(NOTE 1) (NOTE 1)
<S> <C> <C>
ASSETS
Airships and related equipment, net $ 3,815,000 $ 3,910,000
Cash and cash equivalents - 2,000
Due from related parties 342,000 434,000
Prepaid insurance - 22,000
Other assets 4,000 6,000
------------ -----------
$ 4,161,000 $ 4,374,000
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Bank overdraft $ 7,000 $ -
Accounts payable 1,426,000 1,525,000
Customer payments on future services 514,000 514,000
Insurance financing 21,000 45,000
Accrued expenses and other liabilities 140,000 5,983,000
Notes payable 3,659,000 4,080,000
Obligations under capital lease 2,092,000 2,477,000
Deferred gain on sale of airship 744,000 766,000
Due to stockholders 8,442,000 6,667,000
------------ -----------
Total Liabilities 17,045,000 22,057,000
============ ===========
STOCKHOLDERS' DEFICIT:
Preferred stock, $.01 par value:
Authorized - 0 and 10,000,000 shares,
Issued and outstanding -- 0
and 2,459,000 shares - 24,000
Common stock, $.01 par value:
Authorized -- 80,000,000 shares
Issued and outstanding -- 54,047,000
and 42,523,000 shares 540,000 425,000
Capital in excess of par value-Preferred Stock - 14,447,000
Capital in excess of par value -- Common Stock 36,400,000 22,066,000
Accumulated deficit (49,824,000) (54,645,000)
------------ -----------
Total Stockholders' Deficit (12,884,000) (17,683,000)
------------ -----------
$ 4,161,000 $ 4,374,000
============ ===========
</TABLE>
Unaudited -- See accompanying notes to condensed financial statements.
2
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AIRSHIP INTERNATIONAL LTD.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
AIRSHIP REVENUES: $ 0 $ 0 $ 0 $ 0
--------- --------- --------- ---------
COSTS AND EXPENSES:
Selling, general & administrative 236,000 146,000 414,000 604,000
--------- --------- --------- ---------
236,000 146,000 414,000 604,000
--------- --------- --------- ---------
OPERATING LOSS (236,000) (146,000) (414,000) (604,000)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (332,000) (279,000) (627,000) (534,000)
Gain (loss) on sale of fixed assets (22,000) - (22,000) 39,000
Other income 11,000 14,000 22,000 26,000
--------- --------- --------- ---------
(343,000) (265,000) (627,000) (469,000)
--------- --------- --------- ---------
NET LOSS $(579,000) $(411,000) $(1,041,000) $(1,073,000)
========= ========= =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 45,846,000 42,218,000 44,206,000 41,852,000
========== ========== ========== ==========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK:
NET LOSS $(579,000) $(411,000) $(1,041,000) $(1,073,000)
ABOLISHMENT OF ACCRUED
PREFERRED DIVIDENDS 6,508,000 - 6,508,000 -
PREFERRED STOCK DIVIDEND (277,000) (432,000) (646,000) (863,000)
-------- -------- -------- --------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $5,652,000 $(843,000) $ 4,821,000 $(1,936,000)
========== ========= =========== ===========
NET INCOME (LOSS) PER SHARE $0.13 ( $0.02) $0.11 ( $0.05)
========== ========= =========== ===========
</TABLE>
Unaudited -- See accompanying notes to condensed financial statements.
3
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AIRSHIP INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN EXCESS
PREFERRED STOCK COMMON STOCK OF PAR VALUE
--------------- ------------ ------------ ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PREFERRED COMMON DEFICIT
------ ------ ------ ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31,
1997 2,459,000 $24,000 42,523,000 $425,000 $14,447,000 $22,066,000 $(54,645,000)
SIX MONTHS
ENDED JUNE 30,
1998:
Dividends accrued
on preferred
stock - - - - - - (646,000)
Abolishment of dividends
Accrued on preferred
Stock (see Note 3) - - - - - - 6,508,000
Common stock
issued in
connection with
conversion
of
preferred
stock (2,459,000) (24,000) 11,524,000 115,000 (14,447,000) 14,356,000 -
Reimbursement of 1993
Stock subscriptions (22,000)
Net Loss - - - - - - (1,041,000)
----------------------------------------------------------------------------------------------------
BALANCES AT
JUNE 30,
1998 - $ - 54,047,000 $540,000 $ - $36,400,000 $(49,824,000)
===================================================================================================
</TABLE>
Unaudited--See accompanying notes to condensed financial statements.
4
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AIRSHIP INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,041,000) $ (1,073,000)
Adjustments to reconcile net loss to net cash flows used in operating
activities:
Depreciation and Amortization 73,000
Realized gain on sale leaseback (22,000) (22,000)
Loss (gain) on sale of equipment 22,000 (39,000)
Changes in operating assets and liabilities (73,000) (166,000)
-------------- --------------
Net cash flows used in operating activities (1,041,000) (1,300,000)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of airship components and vehicles - 75,000
Net change in amounts due from related parties 92,000 (64,000)
-------------- --------------
Net cash flows provided by investing activities 92,000 11,000
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable - 4,709,000
Principal payments on capital leases and
loans payable (806,000) (3,490,000)
Reimbursement of 1993 stock subscriptions (22,000) -
Change in loans from stockholder 1,775,000 78,000
-------------- --------------
Net cash flows provided by financing activities 947,000 1,297,000
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,000) 8,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,000 2,000
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 10,000
============== ==============
SUPPLEMENTAL INFORMATION:
Interest Paid $ 267,000 $ 534,000
============== ==============
Non-cash accrual of common stock dividend on preferred stock $ 646,000 $ 863,000
============== ==============
Non-cash abolishment of accrued preferred dividends $ 6,508,000 -
==============
</TABLE>
Unaudited-See accompanying notes to condensed financial statements.
5
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AIRSHIP INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements. Management believes that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimated. If such differences prove significant and material, the Company will
file an amendment to this report on Form 10-Q.
NOTE 2-TRANSACTIONS WITH RELATED PARTIES:
LOANS FROM TRANS CONTINENTAL AIRLINES, INC. During the six months ended June 30,
1998, Trans Continental Airlines, Inc. ("Trans Continental"), an affiliated
company, loaned the Company $1,442,000. However, there can be no assurance that
Trans Continental will continue to make such loans to the Company.
NOTE 3-CUMULATIVE PREFERRED DIVIDENDS IN ARREARS:
The Company accrued quarterly dividend payments with respect to its Class A
Cumulative Convertible Preferred Voting Stock (the "Preferred Stock") since
August 15, 1994. Dividends on the Preferred Stock accrued at the annual rate
of $.60 per share payable in Common Stock. The Company accrued $646,000 in
dividends from January 1 through June 10, 1998.
On June 10, 1998 a majority of the holders of the Company's common and
preferred stock, voting together, and a majority of the holders of the
preferred stock, voting separately as a class, approved the conversion of each
share of outstanding preferred stock, par value $.01 per share, into three
shares of the Company's Common Stock, par value $.01 per share. All shares were
converted as of June 10, 1998.
In connection with such vote, the shareholders waived their rights to the
accrued but undeclared preferred dividends and the authorized but unissued
shares of preferred stock were removed as authorized stock.
NOTE 4-RELATED PARTY PAYABLES AND DEBT
Trans Continental, which is a shareholder of the Company, Transcontinental
Leasing, Inc. (a wholly-owned subsidiary of Trans Continental), and Louis J.
Pearlman, the Chairman of the Company and a shareholder, have agreed to
waive their rights to receive certain amounts owed to them by the Company.
This agreement was conditional upon the shareholders passing certain proposals
set forth in the Proxy Statement for the Annual Meeting of Shareholders held
on June 10, 1998, which were passed.
As of June 30, 1998, the balances owed to Trans Continental, Transcontinental
Leasing, Inc., and Louis J. Pearlman were $7,151,000, $3,647,000 and $2,081,000,
respectively, for a total of $12,879,000. As of June 10, 1998, the Company and
the parties began the process of finalizing the extinguishment of this debt.
6
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Historically, Airship International Ltd. (the "Company") has operated
lighter-than-air airships, also commonly known as blimps, which were used to
advertise and promote the products and services of the Company's clients. The
Company's clients utilized its airships at major sporting and special events and
over urban and beach locations as an informative advertising and promotional
vehicle. The Company did not operate any airships during 1996, 1997 or the first
six months of 1998.
Since 1995, the Company generally has had no operations and no opportunity to
commence operations in the airship industry in which it has historically
conducted its business operations. As a result, the Company has experienced
significant operating losses and negative cash flow from its operations.
Management's strategy for the future is to arrange for funding from affiliated
entities, of which there can be no assurance, and to separately consider
acquiring new business operations or merging (whether through direct,
indirect, reverse, or other form of merger) with an entity that has ongoing
business operations. As of the date hereof, the Company has no agreements with
any third party to effect any acquisition or merger, and no assurances can be
given that any such acquisition or merger will be effected in the future. As
noted in the auditor's report in the Company's 10-K Report for the fiscal year
ended 1997, there exists the substantial doubt that the Company may have the
ability to continue as a going concern.
The Company was incorporated in New York on June 9, 1982 and commenced
operations in August 1985 following the completion of the Company's initial
public offering in June 1985. The Company's principal executive offices are
located at 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819 and its
telephone number is (407) 351-0011.
OVERALL FINANCIAL CONDITION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. For the first six months ended June 30, 1998, the
Company incurred a loss of $1,041,000 and had negative cash flows of $1,041,000
from operations. The $1,041,000 loss was comparable to the prior period loss
of $1,073,000 but in 1998 the Company showed lower selling, general and
administrative costs due to commissions paid on refinancing the Company's debt
in 1997 offset by increased interest expense. The accompanying financial
statements do not include any adjustments that might result from the Company's
current liquidity shortage. The Company experienced a net loss of $579,000 for
the three month period ended June 30, 1998, compared to a net loss of $411,000
for the same period during the prior year. The change was due primarily to an
increase in interest expense and professional fees.
The Company had a stockholders' deficit of $12,884,000 at June 30, 1998, as
compared to the stockholders' deficit of $17,683,000 at December 31, 1997
representing a decrease of $4,799,000. The decrease was primarily due to the
waiver of accrued preferred stock dividends in the amount of $6,508,000
after the accrual of $646,000 of such dividends for the six months ended June
30, 1998. In addition, the Company sustained a loss in the amount of $1,041,000
for the six months ended June 30, 1998.
RESULTS OF OPERATIONS
The Company had no revenue during the first six months of 1998 and 1997.
Selling, general, and administrative costs for the six months ended June 30,
1998, were $414,000 compared to $604,000 for the comparable period in 1997. The
difference of $190,000 resulted from the net effect of commissions paid on
refinancing the Company's debt in 1997. For the three months ended June 30,
1998, selling, general and administrative expenses increased $90,000 to $236,000
from the $146,000 for the comparable period in 1997, primarily due to increased
professional fees.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company continues to experience negative cash flows from operating
activities. Due to the continued negative cash flow and existing encumbrances on
its assets, the Company has relied on loans, cash advances, and guarantees from
Louis Pearlman, the Company's president and principal stockholder, and Trans
Continental, a shareholder of the company. There can be no assurance that Mr.
Pearlman or Trans Continental will make additional loans, cash advances, and
guarantees on an ongoing basis. At June 30, 1998, the Company owed Mr. Pearlman
$1,292,000, net of unamortized discounts, and owed Trans Continental $7,151,000
(see Note 2).
On June 10, 1998 a majority of the holders of the Company's common and preferred
stock, voting together, and a majority of the holders of the Company's preferred
stock, voting separately as a class, approved the conversion of each share of
outstanding preferred stock, par value $.01 per share, into three shares of
the Company's Common Stock, par value $.01 per share. All shares were converted
as of June 10, 1998.
In connection with such vote, the shareholders waived their rights to the
accrued but undeclared preferred dividends and the authorized but unissued
shares of preferred stock were removed as authorized stock.
Trans Continental, which is a shareholder of the Company, Transcontinental
Leasing, Inc. (a wholly-owned subsidiary of Trans Continental), and Louis J.
Pearlman, the Chairman of the Company and a shareholder, have agreed to
waive their rights to receive certain amounts owed to them by the Company.
This agreement was conditional upon the shareholders passing certain proposals
set forth in the Proxy Statement for the Annual Meeting of Shareholders held on
June 10, 1998, which were passed.
As of June 30, 1998, the balances owed to Trans Continental, Transcontinental
Leasing, Inc., and Louis J. Pearlman were $7,151,000, $3,647,000 and $2,081,000,
respectively, for a total of $12,879,000. As of June 10, 1998, the Company
and the parties began the process of finalizing the extinguishment of this debt.
8
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ITEM 3 - Not applicable.
Part II
ITEMS 1 and 2 - Not applicable
ITEM 3 - Not applicable.
ITEMS 4 and 5 - Not applicable.
ITEM 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibits
27. Financial data schedule
9
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
AIRSHIP INTERNATIONAL LTD.
Dated: August 14, 1998 By: /s/ Louis J. Pearlman
--------------------------
Louis J. Pearlman
Chairman of the Board of
Directors, President and
Treasurer (Principal Executive
and Financial Officer)
Dated: August 14, 1998 By: /s/ Alan A. Siegel
-----------------------
Alan A. Siegel
Secretary & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Dated: August 14, 1998 By: /s/ James J. Ryan
---------------------
James J. Ryan
Director
10
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 342,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 346,000
<PP&E> 5,373,000
<DEPRECIATION> 1,558,000
<TOTAL-ASSETS> 4,161,000
<CURRENT-LIABILITIES> 3,929,000
<BONDS> 0
<COMMON> 540,000
0
0
<OTHER-SE> (13,424,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,161,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 414,000
<OTHER-EXPENSES> 414,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 627,000
<INCOME-PRETAX> (1,041,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,041,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,041,000)
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
