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 December 31, 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
December 31, 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 December 31, 1995
and June 30, 1995
Consolidated Statements of Income for the Three Months
Ended December 31, 1995 and 1994
Consolidated Statements of Income for the Six Months
Ended December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity for
the Six Months Ended December 31, 1995
Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1995 1995
(Unaudited)
__________________ _________________
ASSETS
Currents Assets
Cash and Cash Equivalents $ 1,742,858 $ 1,951,004
Accounts Receivable 3,175,485 2,391,227
Inventory, Prepaid Expenses, 6,829,249 6,553,092
and Other Current Assets
Deferred Tax 306,000 42,500
Benefit _____________ ____________
Total Current Assets 12,053,592 10,937,823
Property and Equipment,net 1,162,206 1,057,601
Cost in Excess of net 2,157,343 2,290,058
Assets Acquired, net of
Accumulated Amortization
of $987,358 and $854,643
Respectively, and Allowance
for Future Realization of
$240,000
Deferred Income Tax Benefit 148,406 377,906
Other Assets 26,925 39,281
____________ ___________
Total Assets 15,548,472 14,702,669
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-term $ 291,503 $ 597,226
Debt
Notes Payable-Bank 4,735,495 4,784,031
Accounts Payable 2,189,560 1,265,246
Accrued Expenses 1,410,799 1,852,211
____________ ____________
Total Current Liabilities $8,627,357 $8,498,714
Long Term Debt 709,385 665,456
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 (5,338,090) (6,011,321)
_____________ ____________
Total Stockholders Equity $ 6,211,730 $ 5,538,499
TOTAL LIABILITIES AND $15,548,472 $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
December 31 December 31
1995 1994
------------ ------------
REVENUES $4,862,252 $3,469,881
COST OF SALES
Industrial Support Group 1,889,759 1,668,033
Government Services Group 1,862,637 594,649
---------- ---------
Gross Profit 1,109,856 1,207,199
Selling, General & Administrative 655,614 816,046
Expenses ________ ________
Operating Income 454,242 391,153
OTHER INCOME (EXPENSE)
Interest Income (30,118) (23,417)
Interest Expense 126,295 128,900
__________ __________
Total Other 96,177 105,483
__________ __________
Net Income 358,065 285,670
before Income Taxes
Income Tax Prov. (Ben): Current 46,490 0
Deferred 9,189 90,153
__________ __________
Total Income Tax Prov.(Ben) 55,679 90,153
Net Income $302,386 $195,517
__________ __________
__________ __________
INCOME (LOSS) PER COMMON SHARE:
Primary 0.0028 0.0018
Fully Diluted 0.0026 0.0018
[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 six months ended
December 31 December 31
1995 1994
------------ ------------
REVENUES $10,142,920 $6,029,482
COST OF SALES
Industrial Support Group 4,660,565 2,811,511
Government Services Group 3,413,026 1,190,732
---------- ---------
Gross Profit 2,069,329 2,027,239
Selling, General & Administrative 1,309,665 1,599,802
Expenses ________ ________
Operating Income 759,664 427,437
OTHER INCOME (EXPENSE)
Interest Income (65,104) (43,868)
Interest Expense 269,927 245,923
__________ __________
Total Other 204,823 202,055
__________ __________
Net Income 554,841 225,382
before Income Taxes
Income Tax Prov. (Ben): Current (84,390) 0
Deferred (34,000) 90,153
__________ __________
Total Income Tax Prov.(Ben) (118,390) 90,153
Net Income $673,231 $135,229
__________ __________
__________ __________
INCOME (LOSS) PER COMMON SHARE:
Primary 0.0062 0.0012
Fully Diluted 0.0057 0.0012
[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 SIX MONTHS ENDED DECEMBER 31, 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 673,231
for the
6 Months
Ended
December
31, 1995 ____________ ___________ ____________ ____________
Balances at 108,278.014 $1,082,780 $10,467,040 ($5,338,090)
December
31,1995
<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 six months ended
December 31 December 31
1995 1994
________ ________
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $673,231 $135,229
Adjustments to
reconcile net income
to net cash used in
continuing operations:
Depreciation and 290,762 335,461
amortization
Deferred Income Tax 90,153
Gain on sale of (4,028)
fixed assets
Changes in operating assets
and liabilities:
(Increase) decrease in (784,258) (291,736)
accounts receivable
(Increase) decrease in (267,491) (722,624)
other assets
(Increase) decrease in (34,000) 0
deferred tax benefit
(Decrease) increase in 0 0
accrued income taxes
(Decrease) increase in 924,314 797,760
accounts payable
(Decrease) increase in (441,412) (259,020)
accrued expense __________ _________
Net cash provided (used) in 357,118 85,223
operations
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (258,962) (71,001)
Proceeds from sale of 4,028
fixed assets __________ _________
Net cash used in investing (254,934) (71,001)
activities
CASH FLOWS FROM FINANCING
ACTIVITES:
Payments on short-term (354,259) (164,899)
debt
Payments on long-term (156,071) (93,650)
debt
Proceeds from long-term 200,000 730,000
debt __________ _________
Net cash provided by (310,330) 471,451
financing activities
Increase (Decrease) in cash (208,146) (485,673)
and cash equivalents
Cash and cash equivalents 1,951,004 1,236,617
at beginning of period ___________ ___________
Cash and cash equivalents $1,742,858 $1,722,290
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)
December 31, 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 six
months ended December 31, 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 provisions (benefits) for the
3 months and 6 months ended December 31, 1995 are
summarized as follows:
3 months 6 months
Current Federal & State Prov. (Ben) $ 46,490 $(84,390)
Deferred Income Taxes:
Current timing differences 136,689 374,000
Adjustment to beginning
valuation allowance (127,500) (408,000)
________ ________
9,189 (34,000)
Total Income Tax Prov. (Ben) $55,679 ($118,390)
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 before taxes for the three
months ended December 31, 1995 of $358,065, compared to a net income
before taxes of $285,670 for the three months ended December 31, 1994.
The level of net income was attributable to stable business activity
in the subsidiary, BARTON ATC, Inc.; the continued addition of
operations by BARTON ATC International, Inc. ("BARTON Intn'l");
continued increases in sales and net income by Southeastern
Technology, Inc. ("Southeastern"), and; the achievements of Titan
Services, Inc. ("Titan") under its current contracts.
The Company realized a net income before taxes for the six months
ended December 31, 1995 of $554,841 compared to a net income before
taxes of $225,382 for the six months ended December 31, 1994. This
increase in income is attributable to the same circumstances stated
above for the three month period.
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 Company recognized an adjustment to its allowance for
realization of deferred income tax benefits attributable to net
operating loss deductions of $408,000 (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 four (4) Airport Traffic Control
Towers and four (4) Weather Observing and Forecasting Facilities
under contracts of varying length. The most recent award was
the operation of an airport traffic control tower in McKinney, Texas
in January, 1996. 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 expanded its equipment sales activities, 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. Site acceptance tests have begun
but have not been completed to date. During December, 1995, BARTON
completed sales and installation of air traffic control
communications equipment in Naples, Florida and Cobb County, Georgia.
BARTON also completed contract negotiations for the provision and
installation of control tower communications equipment for
Gwinnett County, Georgia.
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
the underlying, sole source, contract between the FAA and the
Cambria County Airport Authority may not renew in its present form.
This underlying Government contract, which provides the majority of
funding for the operation, is currently in the rebid process.
Management believes, but can give no assurances, that the issues in
question will be resolved and that BARTON will continue its services
for the next five year term.
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 December 31, 1995, BARTON Intn'l was operating
twenty one control towers under the FAA's FCT Program. As a
subsequent event, on January 28, 1996, BARTON Intn'l commenced
operation of an additional FAA tower, resulting in twenty two
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 government 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.
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
an expansion to the single customer business base of Titan.
Expansion milestones include:
* The entry into a joint venture plan with Grainger
one of the leading US industrial supplier organizations. Titan has,
under this cooperative arrangement, emplaced services in
support of a major manufacturer in Murfreesboro, Tennessee.
Management believes, but can give no assurance, that this effort
could become a significant activity in the near future.
* General Motors North American Operations ("NAO"); During
August 1995, Titan commenced operations in support of NAO, in Romulus,
Michigan.
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 $3,426,235 at December 31, 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
Effective January 1, 1996, Robert W. Lynch, Jr., the
President and Chief Executive Officer of the Company,
retired from these capacities and as Chairman of the
Board. Pursuant to an agreement between Mr. Lynch and
the Company, the Company will purchase all of Mr. Lynch's
stock ownership in the Company, aggregating 20,368,200
shares for a purchase price of $1,264,000. The Company
intends to borrow the funds to purchase Mr. Lynch's shares
from certain shareholders of the Company. In connection
with Mr. Lynch's retirement, the Board of Directors of
the Company has elected Mr. Thomas N. Eisenman as interim
President and Chief Executive Officer of the Company.
Mr. Eisenman has been serving as the Chief Executive
Officer of Southeastern Technology, Inc. and Titan
Services, Inc., subsidiaries of the Company.
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: February 9, 1995 By_/s/ Cindy L. Rollins__________________
Cindy L. Rollins, Vice President, CFO