SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
/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
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21540
COMMANDER AIRCRAFT COMPANY
(Exact name of registrant as specified in its charter)
Virginia 62-1363505
(State of Incorporation) I.R.S. Employer Identification No.
7200 NW 63rd Street 73008
Hangar 8, Wiley Post Airport (Zip Code)
Bethany, Oklahoma
(Address of principal executive offices)
(405) 495-8080
(Registrant's telephone number
including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 requirement for
the past 90 days.
Yes X No
There were 7,280,548 Shares of Common Stock Outstanding as of April 20, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Commander Aircraft Company
Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1998 1997
------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................... $ 542,995 $ 1,022,024
Certificates of deposits................................................ 2,229,053 1,224,845
Accounts receivable..................................................... 16,180 342,917
Notes receivable from related party..................................... 1,007,361 996,971
Notes receivable........................................................ 39,916 55,269
Inventories............................................................. 5,321,295 5,610,129
Prepaid expenses and other assets....................................... 222,180 203,815
------------- -------------
Total current assets.................................................... 9,378,980 9,455,970
Property and equipment:
Office equipment and furniture............................................ 338,052 296,729
Vehicles and aircraft..................................................... 84,021 84,021
Manufacturing equipment................................................... 355,623 354,837
Tooling................................................................... 520,618 518,648
Leasehold improvements.................................................... 254,257 237,161
------------- -------------
1,552,571 1,491,396
Less: Accumulated depreciation ........................................... (803,623) (777,940)
------------- -------------
Net property and equipment............................................ 748,948 713,456
Other assets:
Notes receivable from related party, less current maturities 500,000 500,000
Notes receivable - less current maturities................................ 258,924 270,105
------------- -------------
Total other assets.................................................... 758,924 770,105
------------- -------------
$ 10,886,852 $ 10,939,531
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities:
Accounts payable.......................................................... $ 346,741 $ 270,254
Accrued expenses.......................................................... 483,848 312,945
Refundable deposits....................................................... 116,608 75,180
Current portion of long-term debt......................................... 2,000 102,000
------------- -------------
Total current liabilities.............................................. 949,197 760,379
------------- -------------
Long-term debt............................................................... -- --
Shareholders' investment (deficit):
Preferred stock, $100 par value, 20,000
shares authorized; no shares outstanding.................................. -- --
Common stock, $.50 par value, 10,000,000
shares authorized; 7,280,548 shares
issued and outstanding at March 31, 1998
and December 31, 1997..................................................... 3,640,274 3,640,274
Additional paid-in capital................................................... 37,178,230 37,178,230
Retained earnings (deficit).................................................. (30,880,849) (30,639,352)
------------- -------------
Total shareholders' investment......................................... 9,937,655 10,179,152
------------- -------------
$ 10,886,852 $ 10,939,531
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Commander Aircraft Company
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------- -------------
<S> <C> <C>
Net sales - aircraft......................................................... $ 2,638,683 $ 754,000
Net sales - service.......................................................... 284,546 320,409
------------- -------------
Total net sales..................................................... 2,923,229 1,074,409
Cost of sales - aircraft..................................................... 2,353,714 999,618
Cost of sales - service...................................................... 241,844 267,936
------------- -------------
Total cost of sales................................................. 2,595,558 1,267,554
Gross margin (deficit)....................................................... 327,671 (193,145)
Other operating expenses:
Product development and engineering costs............................... 78,152 82,318
Selling, general and administrative expenses............................ 639,011 548,239
------------- -------------
Total other operating expenses...................................... 717,163 630,557
------------- -------------
Operating income (loss)...................................................... (389,492) (823,702)
------------- -------------
Other income (expenses):
Other income............................................................ 152,865 90,500
Interest expense........................................................ (2,761) (56,750)
Other expense........................................................... (2,108) --
------------- -------------
Total other income (expenses):...................................... 147,996 33,750
------------- -------------
Net loss..................................................................... $ (241,496) $ (789,952)
============= =============
Net loss per share:
Weighted average common shares outstanding.............................. 7,280,548 6,851,659
------------- -------------
Loss per share.......................................................... $ (0.03) $ (0.12)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Commander Aircraft Company
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (241,496) $ (789,952)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......................................... 25,683 26,230
Loss on disposal of property and equipment............................ -- 5,958
Changes in operating assets and liabilities, excluding cash:
Accounts receivable................................................ 326,737 (374,991)
Notes receivable - related parties................................. (10,390) 250,658
Notes receivable................................................... 26,533 19,487
Inventories........................................................ 288,834 (76,040)
Prepaid expense and other assets................................... (18,365) (5,111)
Accounts payable................................................... 76,487 176,094
Accrued expenses................................................... 170,903 217,854
Refundable deposits................................................ 41,428 32,020
------------- -------------
Net cash used in operating activities.......................... 686,354 (517,793)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short-term investments......................................... (1,004,208) --
Capital expenditures..................................................... (61,175) (392)
Proceeds from sale of property and equipment............................. -- 317,700
------------- -------------
Net cash used in investing activities.......................... (1,065,383) 317,308
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings from related parties -- 100,000
Proceeds from borrowings on bank line.................................... -- 67,950
Payments on borrowings on bank line................................... (100,000) --
------------- -------------
Net cash provided by financing activities (100,000) 167,950
------------- -------------
Net increase (decrease) in cash.............................................. (479,029) (32,535)
Cash and cash equivalents at beginning of period 1,022,024 197,303
------------- -------------
Cash and cash equivalents at end of period................................... $ 542,995 $ 164,768
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.............................................................. $ 3,682 $ 20,274
Income taxes.......................................................... -- --
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
1997:
Exchange of $2,000,000 in debentures by related party for 200,000 shares of
common stock. Repayment of accrued interest of $87,369 was waived.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of the Company,
all adjustments necessary to present fairly the financial position of Commander
Aircraft Company as of March 31, 1998 and December 31, 1997, and the results of
operations for the three month period ended March 31, 1998 and 1997, and the
cash flows for the three month period ended March 31, 1998 and 1997 have been
included and are of a normal, recurring nature. The results of operations for
such interim periods are not necessarily indicative of the results for the full
year. It is suggested that these condensed financial statements be read in
conjunction with the Company's 1997 Annual Report on Form 10-K.
2. The earnings per share of common stock were computed by using the weighted
average number of shares of common stock outstanding during the period.
3. Through January 8, 1997, an affiliate of the Company's majority shareholder,
provided $100,000 of unsecured debt in the form of a 10% demand note. On
February 1, 1997, the Company accepted the offer of its majority shareholder,
and affiliates of the shareholder, to exchange $2,000,000 of demand notes due
June 30, 1997 for 200,000 shares of newly issued common stock. The payment of
accrued interest of $70,382 due for the fourth quarter of 1996 for all demand
notes, and $16,986 accrued on the notes exchanged February 1, 1997 was waived at
the time of the exchange for common stock. The maturity dates of the remaining
balance of notes totaling $900,000 was extended to December 31, 1997, with
interest due and payable June 30, 1997 and December 31, 1997.
4. On October 15, 1997, the Board of Directors of the Company authorized the
issuance and sale of 360,000 shares of Common Stock to KuwAm Corporation and its
partners, the Company's majority shareholder, at a purchase price of $10.00 per
share. The investment allowed the Company to redeem $900,000 in 10% demand notes
and accrued interest. The Company's bank lines were also reduced to the minimum,
leaving the Company virtually debt free with approximately $2.1 million
available for expansion of the aviation services division.
5. Inventories consist primarily of finished goods and parts for manufacturing
and servicing aircraft. Inventory costs include all direct manufacturing costs
and applied overhead. These inventories, other than used aircraft, are stated at
the lower of cost or market, and cost is determined by the average-cost method.
Used aircraft are valued on a specific-identification basis at the lower of cost
or current estimated realizable wholesale price. Inventory components at the
balance sheet dates were as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
<S> <C> <C>
Raw materials................................... $ 2,589,630 $ 2,901,798
Work in process................................. 681,065 819,442
Demonstration aircraft.......................... 936,217 1,132,713
Used aircraft................................... 1,114,383 756,176
------------------ --------------------
Total inventories............................ $ 5,321,295 $ 5,610,129
</TABLE>
4
<PAGE>
6. The Company is subject to regulation by the FAA. The Company is subject to
inspections by the FAA and may be subjected to fines and other penalties
(including orders to cease production) for noncompliance with FAA regulations.
The Company has a Production Certificate from the FAA which delegates to the
Company the inspection of each aircraft. The sale of the Company's product
internationally is subject to regulation by comparable agencies in foreign
countries. Management believes there is no litigation outstanding which would
have a material adverse effect on the financial position or operations of the
Company.
The Company faces the inherent business risk of exposure to
product liability claims. In 1988, the Company agreed to indemnify a former
manufacturer of the Commander single engine aircraft against claims asserted
against the manufacturer with respect to aircraft built from 1972 to 1979. In
1994, Congress enacted the General Aviation Revitalization Act, which
established an eighteen-year statute of repose for general aviation aircraft
manufacturers. This legislation prohibits product liability suits against
manufacturers when the aircraft involved in an accident is more than eighteen
years old. This action effectively eliminated all potential liability for the
Company with respect to aircraft produced in the 1970s as of December 31, 1997.
The Company's product liability insurance policy with coverage of $10 million
per occurrence and $10 million annually in the aggregate with a deductible of
$200,000 per occurrence and annually in the aggregate expired March 1, 1995.
Subsequent to March 1, 1995, the Company is not insured for product liability
claims.
7. The Company has experienced recurring losses and net cash outflows from
operations since its inception. Since inception, the Company has financed its
cash needs with debt, private investor capital, proceeds from an initial public
offering, and proceeds from subsequent stock issuances. During 1997, the Company
implemented plans to improve its liquidity and capital and its operational
performance.
Management believes the reduction in net loss and the net cash
used in operating activities is attributable to the plans implemented in late
1996 and 1997 to provide new operating revenues for the Company. The Company
created the Aviation Services Division ("ASD") to sell pre-owned aircraft,
provide commissions from aircraft brokerage services, and market refurbishment
capabilities. During 1997, the Company expanded its efforts to purchase
pre-owned aircraft, accept aircraft on trade for new units, and, in most cases,
refurbish and resell the aircraft at a reasonable profit. Revenue from sales of
pre-owned aircraft increased by 38% in 1997 and revenues from refurbishment and
service increased over 12%. Management expects this trend to continue in 1998 as
the sales of new and pre-owned aircraft for the first quarter increased 350%
from the first quarter of 1997. The Company will pursue additional opportunities
to take advantage of its factory facilities to offer upgrades to existing
aircraft owners for new paint, interior, and equipment.
The Company introduced a new de-icing option for which it received
certification in May 1998 from the FAA, allowing aircraft so equipped to operate
in known icing conditions similar to larger, more expensive aircraft. Sales of
this optional equipment not only provide additional revenues and earnings, but
also increase the value of the aircraft relative to its competition. A number of
other improvements and new options are available on 1998 models.
In addition to the above actions to increase revenue, the Company
has made efforts to reduce costs and cash requirements by optimizing its
production schedule using just-in-time scheduling, thereby decreasing
inventories to their lowest levels since production commenced in 1991.
Management has reduced the costs incurred to advertise new aircraft by focusing
the advertising efforts at a specific customer profile. Further reducing selling
expenses, the Company completed a consolidation of sales
5
<PAGE>
territories which significantly lowered the fixed costs of sales and marketing
without reducing the number of direct contacts with qualified customers.
The Company's liquidity was improved with the sale of 360,000
shares of common stock to its majority shareholder and affiliates for
$3,600,000. The Company used approximately $1,500,000 of the $3,600,000 proceeds
to repay 10% demand notes and other debt. The balance of the proceeds is still
on hand to be used to continue expansion of the ASD and for other investment
opportunities. The Company also believes the note receivable from related party
which was reduced by approximately $1,100,000 in 1997 will also provide
significant cash sources during 1998. Because of the increase in liquidity and
other improvements to operations, management believes that the Company will not
require additional borrowings during 1998 to fund operations. Although the
majority shareholder, who has invested over $26 million in the Company, will
probably continue to fund cash needs of the Company if required, there can be no
assurance that this funding will continue.
The Company's ability to continue as a going concern is contingent
upon its ability to maintain adequate financing and attain profitable
operations. The financial statements do not include any adjustments relating to
the recoverability or classification of asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Although management believes that it has
made significant progress in 1997 and the first quarter of 1998 by widening its
product line to include the ASD, improving its products, decreasing sales and
marketing expenses, and reducing debt and related interest expense and it is
reasonable to expect the Company to improve revenues, reduce costs, and improve
operating results and cash flow in 1998, there can be no assurance that these
results can be achieved.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
General
The Company reported sales for the first quarter of 1998 of $2,923,229
and a net loss of $241,496, or $.03 per share, compared to sales for the quarter
ended March 31, 1997 of $1,074,409 and a net loss of $789,952, or $.12 per
share.
First quarter 1998 results from operations improved 279% from the
previous year and the net loss was the smallest in the Company's history. The
Company is expecting further improvement in revenues and operating margins, and
has initiated an increase in the production of new aircraft for the balance of
the year. The increase in revenues was due largely to an industry wide renewed
interest in general aviation products, and to increased awareness of the
Commander product line in the market.
The Company delivered five new, three pre-owned and two consigned
aircraft during the first quarter of 1998. The aircraft backlog at the beginning
of the second quarter of 1998 stood at over $3 million.
Cash and short term investments totaled nearly $2.8 million at March
31, 1998, while borrowings were reduced to near zero. The Company is continuing
to identify opportunities to expand its growing aviation services division,
which conducts aviation consulting, brokerage and refurbishment services for
general aviation aircraft.
Results from Operations
Revenues from the sale of aircraft for the first quarter of 1998
totaled $2,638,683 compared to $754,000 for the comparable period of 1997. The
increase in the first quarter of 1998 was the result of delivering a total of 10
new, used or consigned aircraft, compared to only 5 total aircraft delivered in
the comparable quarter of 1997.
Service revenues of $284,546 for the quarter ended March 31, 1998
decreased 11% from the comparable quarter in 1997. Revenues for the first
quarter of 1997 were exceptionally high due to the completion of several large
refurbishment jobs in the Service Center.
Due to an increase in sales, cost of aircraft sales for the three month
period ended March 31, 1998 increased to $2,353,714 compared to $999,618 for the
three month period ended March 31, 1997. With the higher sales volume the margin
on aircraft sales improved by over $500,000 for the first quarter of 1998 from
the first quarter of 1997.
Cost of sales for service and parts for the quarter ended March 31,
1998 decreased to $241,844 from $267,936 for the quarter ended March 31, 1997.
The decrease was due primarily to the reduction in revenues from service and
parts as explained above.
Product development and engineering costs decreased to $78,152 for the
first quarter of 1998, down 5% from $82,318 for the comparable period in 1997.
Most of the cost reduction was due to the completion of the de-icing project and
less spending for outside technical assistance.
7
<PAGE>
Sales and marketing expense increased for the three-month period ended
March 31, 1998, to $435,259 from $309,079 for the comparable period ended March
31, 1997. Advertising expenses increased to $136,953 from $85,216. Most of the
increase in sales and marketing costs resulted from the increase in aircraft
sales generating higher sales commissions and bonuses.
General and administrative expenses decreased approximately 15% to
$203,752 for the first quarter of 1998 from $239,160 for the comparable period
in 1997. The reduction was due to a decrease in legal fees in 1998 as virtually
no litigation costs were incurred. All other administrative costs for the first
quarter of 1998 increased slightly from the first quarter of 1997.
Other income increased to $152,865 for the quarter ended March 31, 1998
from $90,500 for the quarter ended March 31, 1997. The increase was due to a
refund of prior years' property taxes, totaling approximately $78,000. Interest
income from notes receivable - related parties was lower due to reductions made
in the outstanding balance over the past year. However, this decrease in
interest income in the first quarter of 1998 from notes receivable was offset by
the interest earned on short-term cash investments. Interest expense decreased
to $2,761 in the first quarter of 1998 from $56,750 for the comparable period in
1997. The decrease was a result of the Company maintaining very little
outstanding debt during the first quarter of 1998.
Liquidity and Capital Resources
Cash balances decreased to $542,995 at March 31, 1998 from $1,022,024
at December 31, 1997 due to increasing the short-term investment in certificates
of deposit by over $1 million to $2,229,053 at March 31, 1998. The certificates
of deposit mature in April 1998 and are expected to be renewed in 30 day
increments. Management plans to eventually invest these funds in the expansion
of the Aviation Services Division. Accounts receivable balances decreased
$326,737 during the first quarter of 1998 due to the payment in January for an
aircraft sold and delivered in the prior quarter. Total notes receivable
decreased slightly to $1,805,901 at March 31, 1998 from $1,822,345 from December
31, 1997 due to regular monthly payments received from debtors and payment in
full of one note. The balance due from related parties increased slightly from
$1,496,971 at December 31, 1997 to $1,507,361 at March 31, 1998.
Inventories decreased to $5,321,295 at March 31, 1998 from $5,610,129
at December 31, 1997. Raw materials, parts, and work in process decreased
approximately $450,000 while completed aircraft inventories increased about
$162,000. Prepaid expenses and other current assets increased to $222,180 at
March 31, 1998 compared to $203,815 at December 31, 1996, reflecting prepayments
for parts and material.
Total fixed assets increased by $61,175 during the first quarter 1998.
The increase was primarily due to the upgrade of the Company's computer hardware
and software systems, which will be year 2000 compliant by June 30, 1998. In
addition to the $61,175 increase in fixed assets for the first quarter of 1998,
the Company does not plan to spend significant funds for new property, plant and
equipment. Most expenditures will be for repair or replacement on a "as needed"
basis, and, at this time, is not expected to exceed $50,000 for the balance of
the fiscal year.
Accounts payable increased to $346,741 at March 31, 1998 from $270,254
at December 31, 1997. The increase was due primarily to purchases of new parts
and equipment, which are scheduled for payment in April 1998. Accrued expenses
increased to $483,848 at March 31, 1998 from $312,945
8
<PAGE>
at December 31, 1997. The increase in accrued expenses is attributable to
amounts owed for the acquisition of pre-owned aircraft and increases in accrued
warranty, payroll taxes and miscellaneous expenses.
Refundable deposits increased $41,128 to $116,608 at March 31, 1998
reflecting the increase in backlog for new and pre-owned aircraft. Bank lines,
providing the Company with borrowing capacity to $600,000, were reduced to the
minimum $2,000 at March 31, 1998 from $102,000 at December 31, 1997,
representing the Company's only borrowings.
The Company does not carry insurance for product liability and could be
subject to substantial financial risk in the event of an unfavorable judgement
arising from litigation involving its products. Although the Company is not
aware of any pending claims, there is no guarantee that claims will not be
asserted in the future. The lease between Commander Aircraft Company and the
Oklahoma City Airport Trust expires in October 1998. Although management fully
expects the lease to be extended for another five years at favorable terms,
there is no assurance that the lease will be negotiated.
The Company has had losses and net cash outflows since its inception,
and its independent public accountants have indicated that there is doubt about
its ability to continue as a going concern. In 1997, management implemented
plans to improve the company's operational performance and liquidity and capital
resources. The principal elements of these plans are (i) to expand its Aviation
Services Division, which purchases, refurbishes, and sells pre-owned aircraft;
(ii) offer additional options on its new aircraft; (iii) reduce inventory costs
through just-in-time production scheduling; and (iv) reduce marketing expenses
through more focused advertising and implementation of a more efficient
marketing organization. In addition, in October 1997, the Company's majority
shareholder and affiliates purchased 360,000 newly issued shares of common stock
for $3,600,000. The Company used approximately $1,500,000 of the proceeds to
repay debt, leaving it virtually debt free by the end of 1997. At March 31,
1998, the balance was available for working capital requirements, for the
expansion of the Aviation Services Division and other investment opportunities.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
9
<PAGE>
Signature
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.
COMMANDER AIRCRAFT COMPANY
/s/ Stephen R. Buren
Stephen R. Buren
Vice President Finance
Chief Financial Officer and
Authorized Signatory
Date: June 8, 1998
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