UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
Commission file Number 1-10310
AVIATION EDUCATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter.)
Delaware 11-2809189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
633 East Vine Street, Murfreesboro, Tennessee 37130-4381
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(615) 895-0747
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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.01 Par Value - 108,278,014 shares as of
September 30, 1995.
Indicate Transitional Small Business Disclosure Format
YES [ ] NO [X]
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
Aviation Education Systems, Inc. and Subsidiaries:
Consolidated Balance Sheets as of September 30, 1995
and June 30, 1995
Consolidated Statements of Income for the Three Months
Ended September 30, 1995 and 1994
Consolidated Statements of Stockholders' Equity for
the Three Months Ended September 30, 1995
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1995 1995
(Unaudited)
__________________ _________________
ASSETS
Currents Assets
Cash and Cash Equivalents $ 1,824,227 $ 1,951,004
Accounts Receivable 3,018,707 2,391,227
Inventory, Prepaid Expenses, 5,917,246 6,553,092
and Other Current Assets
Deferred Tax 306,000 42,500
Benefit _____________ ____________
Total Current Assets 11,066,180 10,937,823
Property and Equipment,net 1,234,083 1,057,601
Cost in Excess of net 2,223,700 2,290,058
Assets Acquired, net of
Accumulated Amortization
of $921,001 and $854,643
Respectively, and Allowance
for Future Realization of
$240,000
Deferred Income Tax Benefit 157,595 377,906
Other Assets 26,601 39,281
____________ ___________
Total Assets 14,708,159 14,702,669
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-term $ 291,503 $ 597,226
Debt
Notes Payable-Bank 4,749,090 4,784,031
Accounts Payable 1,640,184 1,265,246
Accrued Expenses 1,334,694 1,852,211
____________ ____________
Total Current Liabilities $8,015,471 $8,498,714
Long Term Debt 783,344 665,456
Stockholders Equity
Common Stock, $.01 par 1,082,780 1,082,780
Value, 400,000,000 Shares
Authorized, 108,278,014
Issued
Additional Paid-in 10,467,040 10,467,040
Capital
Accumulated Deficit (5,640,476) (6,011,321)
_____________ ____________
Total Stockholders Equity $ 5,909,344 $ 5,538,499
TOTAL LIABILITIES AND $14,708,159 $14,702,669
STOCKHOLDERS EQUITY (DEFICIENCY)
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
September 30 September 30
1995 1994
------------ ------------
REVENUES $5,280,117 $2,559,601
COST OF SALES
Industrial Support Group 2,740,878 1,143,478
Government Services Group 1,550,387 596,083
---------- ---------
Gross Profit 988,852 820,040
Selling, General & Administrative 683,430 783,756
Expenses ________ ________
Operating Income 305,422 36,284
OTHER INCOME (EXPENSE)
Interest Income 34,986 20,451
Interest Expense (143,632) (117,023)
__________ __________
Total Other (108,646) (96,572)
__________ __________
Net Income (Loss) 196,776 (60,288)
before Income Taxes
Income Tax Benefits: Current 130,880 0
Deferred 43,189 0
__________ __________
Total Income Tax Benefits 174,069 0
Net Income (Loss) $370,845 ($60,288)
__________ __________
__________ __________
INCOME (LOSS) PER COMMON SHARE:
Primary 0.0034 (0.0006)
Fully Diluted 0.0031 (0.0006)
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995.
(UNAUDITED)
Common Stock
$.01 Par
Value Additional Accumulated
_________ Paid-in (Deficit)
Shares Amount Capital
___________ ___________ ____________ ____________
Balances 108,278,014 $1,082,780 $10,467,040 ($6,011,321)
June 30,
1995
Net Income 370,845
for the
3 Months
Ended
September
30, 1995 ____________ ___________ ____________ ____________
Balances at 108,278.014 $1,082,780 $10,467,040 ($5,640,476)
September
30,1995
<FN>
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
September 30 September 30
1995 1994
________ ________
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss) $370,845 ($60,288)
Adjustments to
reconcile net income
to net cash used in
continuing operations:
Depreciation and 147,060 165,441
amortization
Gain on sale of (4,028)
fixed assets
Changes in operating assets
and liabilities:
(Increase) decrease in (627,480) (108,519)
accounts receivable
(Increase) decrease in 644,837 (171,186)
other assets
(Increase) decrease in (43,189) 0
deferred tax benefit
(Decrease) increase in 0 0
accrued income taxes
(Decrease) increase in 374,938 (3,853)
accounts payable
(Decrease) increase in (517,516) (291,382)
accrued expense __________ _________
Net cash provided (used) in 345,467 (469,787)
operations
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (253,496) (57,880)
Proceeds from sale of 4,028
fixed assets __________ _________
Net cash used in investing (249,468) (57,880)
activities
CASH FLOWS FROM FINANCING
ACTIVITES:
Payments on short-term (340,664) (68,817)
debt
Payments on long-term (82,112) (43,616)
debt
Proceeds from long-term 200,000 530,000
debt __________ _________
Net cash provided by (222,776) 417,567
financing activities
Increase (Decrease) in cash (126,777) (110,100)
and cash equivalents
Cash and cash equivalents 1,951,004 1,236,617
at beginning of period ___________ ___________
Cash and cash equivalents $1,824,227 $1,126,517
at end of period
[FN]
The Accompanying Notes to Condensed Consolidated Financial
Statements are an Integral Part of these Statements.
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANACIAL STATEMENTS
(Unaudited)
September 30, 1995
1. BASIS OF PRESENTATION:
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the
interim period. This report should be read in conjunction with the
Company's annual financial report on Form 10-KSB for the fiscal
year ended June 30, 1995. The results of operations for the three
months ended September 30, 1995 are not necessarily indicative of
the results to be expected for the full year.
2. CAPITAL TRANSACTIONS:
There were no capital transactions during this reporting
period.
3. LOSS CONTINGENCIES:
The Company's subsidiary, BARTON ATC, Inc. ("BARTON")
has effectively settled certain issues raised by DoL with
respect to the valuation of fringe benefits paid certain employees
while engaged in the performance of work under government contracts.
At a hearing held before an Administrative Law Judge, on August
9 & 10, 1995, to determine if the BARTON subsidiary should be
debarred from government contracting, DoL withdew its case against
BARTON ATC, Inc. Due to this withdrawal, management believes
that the issue is closed.
On May 15, 1995, an employee of BARTON ATC, Inc. filed a
complaint alleging violation of Title VII of the Civil Rights
Act of 1964, by reason of gender based discrimination.
Management believes this charge to be entirely without merit
and has so responded to the Equal Employment Opportunity
Commission. Management therefore believes, but can give no
assurance, that these charges will have no adverse impact upon
the BARTON subsidiary.
4. INCOME TAXES:
The Company's income tax benefit for the quarter ended
September 30, 1995 is summarized as follows:
Current Federal & State Benefit $130,880
Deferred Income Taxes:
Current timing differences (237,311)
Adjustment to beginning
valuation allowance 280,500
________
43,189
Total Income Tax Benefit $174,069
An adjustment was made to the valuation allowance
(as of July 1, 1995) for realization of net operating loss
deductions based upon the Company's improved results of
operations (evidenced by 1995 actual performance). Management
anticipates these benefits will be realized during the subsequent
three years.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Results of Operations
The Company realized a net income for the three months ended
September 30, 1995 of $370,845, compared to a net loss of $60,288
for the three months ended September 30, 1994. The level of net
income was attributable to stable business activity in the
subsidiary, BARTON ATC, Inc.; the contribution of BARTON ATC
International, Inc. ("BARTON Intn'l"); continued strong perfomance
by Southeastern Technology, Inc. ("Southeastern"), and; the
achievements of Titan Services, Inc. ("Titan") under its bonus
programs, along with Titan's continued performance above projections.
Aviation Educations Systems, Inc., a Delaware corporation
(the "Company"), and its subsidiary corporations, provide a wide
range of services, equipment and manufactured products to a broad
and growing customer base.
The subsidiary corporations of the Company are: BARTON ATC,
Inc.; BARTON ATC International, Inc.; Southeastern Technology,
Inc., and; Titan Services, Inc. Each of these subsidiaries is
engaged in a unique business area. The diverse activities of
the subsidiaries contribute to the combined strength and
capability of the Company. The synergies existent among the
subsidiaries permit each to draw upon the specific capabilities
of the others, further contributing to the strength and potential
of the group of companies.
The Company recognized an adjustment to its allowance for
realization of deferred income tax benefits attributable to net
operating loss deductions of $280,500 (see Note 4 to the Condensed
Consolidated Financial Statements included in this filing).
BARTON's Operations
BARTON ATC, Inc., a Delaware corporation, is engaged in the
manufacture of both fixed and mobile airport traffic control
towers and in the operation of private and government-owned air
traffic control towers and meteorological observatories located
throughout the United States. BARTON also provides weather
station consultation, maintenance, airport lighting systems, and
airshow planning.
BARTON currently operates three (3) Airport Traffic Control
Towers and four (4) Weather Observing and Forecasting Facilities
under contracts of varying length. As a result of the U. S.
Federal Aviation Administration's ("FAA") Federal Contract Tower
("FCT") Program, some towers operated by BARTON will, ultimately,
convert to operation by others under the FAA Program. Control
towers are catagorized at different levels, ranging from Level 1
to Level 5 depending upon the level of services and frequency
of use of the airfield. All of the towers operated by BARTON
are Level 1 towers.
BARTON has significantly expanded its equipment sales activities,
with emphasis on Mobile Airport Traffic Control Tower Systems and
continues to pursue other opportunities to improve the financial
position of the Company. During August, 1995, BARTON completed
factory acceptance testing of, and delivered a Mobile Tower to
Hughes Aircraft Company. Final, on site, acceptance test commenced
during October, 1995 and are scheduled for completion during
November, 1995.
The contract under which BARTON provides air traffic control
and weather reporting services to the Johnstown-Cambria County
Airport, Pennsylvania, scheduled to begin its second five year
term on March 1, 1996, has been brought under discussion because
of the underlying, sole source, contract between the FAA and the
Cambria County Airport Authority for the provision of weather data
may not renew in its present form. This uncertainty places the
contemplated March 1, 1996, renewal in question. Management can
not, at this time, predict the outcome of this situation with any
degree of certainty. This contract, however, has been extended for
an additional ninety (90) day period to permit further discussions
and negotiations among the parties concerned.
BARTON ATC International's Operations
BARTON ATC International, Inc., a Tennessee corporation, is
engaged in the provision of Air Traffic Control and Weather
Reporting Services at numerous airports, in primarily the Western
United States, under contract to the U.S. Federal Aviation
Administration. At September 30, 1995, BARTON Intn'l was operating
seventeen control towers under the FAA's FCT Program. As a
subsequent event, on October 1, 1995, BARTON Intn'l commenced
operation of an additional two FAA towers, resulting in nineteen
operating locations under the FCT Program. BARTON Intn'l believes,
although management can give no assurance, that it will receive
tasking to open an additional eight towers under the FCT program
during the remainder of fiscal year 1996.
Southeastern's Operations
Southeastern Technology, Inc., a Tennessee corporation,
is a job shop machining and engineering organization, serving
a variety of industries including aerospace, automotive, and
medical. Southeastern's certification, under Boeing's D1-9000
program, continues to result in increased orders for machined
parts for Boeing's new 777 and other Jet Aircraft. Southeastern
continues its expansion in the manufacturing and sale of medical
and surgical devices for major medical manufacturers, to their
specifications. Management believes, based upon recent growth
in this area, that the medical field will continue to become a
more significant source of machine work in the future.
Southeastern's earnings for the period were ahead of projections.
Titan's Operations
Titan Services, Inc., a Tennessee corporation, is a leading
edge company in the emerging "outsourcing" manufacturing
methodology that provides technical support, procurement and
inventory management services. Titan provides procurement services
for machined spare parts, original equipment manufacturer ("OEM")
spare parts and inventory management services. These types of
service are increasingly being utilized by major manufacturers
to enhance in-house capabilities and control costs.
Titan operates under an annual contract as a sole source
supplier of purchasing and inventory control functions for the
Saturn Corporation of Spring Hill, Tennessee. During the course
of its activities in support of Saturn manufacturing operations Titan
has recieved several major awards in recognition of its high level of
performance. These awards include Saturn's 1993 and 1994 Outstanding
Achievement Recognition Awards; Saturn's 1993 and 1994 Quality
Recognition Awards, and the prestigious General Motors Supplier of the
Year Award for both 1993 and 1994. In March, 1995, Titan began
Saturn support operations in a new consolidated warehouse facility,
located in Spring Hill, Tennessee. This new activity is the first
stage, of a contemplated three stage transition, which potentially,
over time, will place Titan as manager of this consolidated facility.
Titan operates in a relatively new area of activity. In
recognition of growing industry movement toward "outsourcing" as a
preferred operating method, Titan emplaced, early in fiscal year 1995,
an aggressive marketing program. This program has resulted in new
business in support of additional customers, marking the start of
a long sought expansion to the single customer business base of Titan.
Expansion milestones include:
* The entry into a joint venture plan with Grainger Integrated
Supplier Operations ("GISO"), a newly established division of Grainger,
one of the leading US industrial supplier organizations. Titan has,
under this cooperative arrangement with GISO, emplaced services in
support of General Electric in the GE Murfreesboro, Tennessee
manufacturing facility. Management believes, but can give no assurance,
that this effort in support of GE will become a significant activity
in the near future.
* General Motors North American Operations ("NAO"); During
August 1995, Titan commenced operations in support of NAO, under
a preliminary, cost plus management fee, purchase order, at the GM
manufacturing facility located in Romulus, Michigan. Negotiations
are now in progress which management believes, although can give no
assurance, will result in the issuance of a purchase order by GM for
continued Titan operations in the Romulus facility under a scope of work,
fully definitized by the purchase order.
Liquidity and Capital Resources
At June 30, 1995, the Company's current assets exceeded its
current liabilities by approximately $2,439,109. Working capital
increased to $3,050,709 at September 30, 1995.
On July 11, 1994, the company issued $430,000 in convertible
subordinated debentures (convertible, in the event of default, at
the lesser of five ($0.05) cents or the most recent market price
per share of common stock) to three major stockholders, including
the Chief Executive Officer and President of the Company. The
debentures are to be repaid, from cash flow, in five equal annual
installments of $107,696 including interest at 8%. The proceeds
of the debentures were used to fund current operations and various
expansion projects.
On September 14, 1994, the Company issued $100,000 in
convertible (in the event of default) subordinated debentures to
a major stockholder. The proceeds of these debentures were used
to fund the BARTON Mobile Air Traffic Control Tower project and
were repaid on September 1, 1995, from funds generated from the sale
of the Mobile Tower.
On October 5, 1994, the Company issued $200,000 in convertible
(in the event of default) subordinated debentures to a major
stockholder. These debentures were repaid on September 1, 1995,
and replaced with a more conventional working capital line of credit.
This new debt structure is sufficient to support the Company's
existing operations.
Loss Contingencies
The Company's BARTON subsidiary has effectively settled
certain issues raised by DoL with respect to the valuation of fringe
benefits paid certain employees while engaged in the performance of
work under government contracts. At a hearing held before an
Administrative Law Judge, on August 9 & 10, 1995, to determine if
the BARTON subsidiary should be debarred from government contracting,
DoL withdrew its case against BARTON ATC, Inc. Due to this
withdrawal, management believes that the issue is closed.
On May 15, 1995, an employee of BARTON ATC, Inc. filed a
complaint alleging violation of Title VII of the Civil Rights Act
of 1964, by reason of gender based discrimination. Management
believes this charge to be entirely without merit and has so
responded to the Equal Employment Opportunity Commission. Management
therefore believes, but can give no assurance, that these charges
will have no adverse impact upon the BARTON subsidiary.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company's BARTON subsidiary effectively settled certain
issues raised by DoL with respect to the valuation of fringe
benefits paid certain employees while engaged in the performance
of work under government contracts. At a hearing held before an
Administrative Law Judge, on August 9 & 10, 1995, to determine
if the BARTON subsidiary should be debarred from government
contracting, DoL withdrew its case against BARTON ATC, Inc.
Due to this withdrawal, management believes that the issue
is closed.
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. Exhibits and reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AVIATION EDUCATION SYSTEMS, INC.
Date: November 14, 1995 By_/s/ Robert W. Lynch, Jr.______________
Robert W. Lynch, Jr. President
Date: November 14, 1995 By_/s/ Cindy L. Rollins__________________
Cindy L. Rollins, Secretary-Treasurer