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 March 31, 1996
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 - 92,309,814 shares as of
March 31, 1996.
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 March 31, 1996
and June 30, 1995
Consolidated Statements of Income for the Three Months
Ended March 31, 1996 and 1995
Consolidated Statements of Income for the Nine Months
Ended March 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for
the Nine Months Ended March 31, 1996
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
AVIATION EDUCATION SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1996 1995
(Unaudited)
__________________ _________________
ASSETS
Currents Assets
Cash and Cash Equivalents $ 1,541,307 $ 1,951,004
Accounts Receivable 4,616,399 2,391,227
Inventory 8,615,735 6,490,173
Prepaid Expenses
and Other Current Assets 76,467 62,919
Deferred Tax 306,000 42,500
Benefit _____________ ____________
Total Current Assets 15,155,908 10,937,823
Property and Equipment,net 1,141,097 1,057,601
Cost in Excess of net 2,090,985 2,290,058
Assets Acquired, net of
Accumulated Amortization
of $1,053,716 and $854,643
Respectively, and Allowance
for Future Realization of
$240,000
Deferred Income Tax Benefit 208,473 377,906
Other Assets 26,572 39,281
____________ ___________
Total Assets 18,623,035 14,702,669
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-term $ 203,290 $ 597,226
Debt
Notes Payable-Bank 6,493,708 4,784,031
Accounts Payable 2,843,672 1,265,246
Accrued Expenses 1,677,303 1,852,211
____________ ____________
Total Current Liabilities $11,217,973 $8,498,714
Long Term Debt 1,996,011 665,456
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 (5,140,769) (6,011,321)
_____________ ____________
Subtotal 6,409,051 5,538,499
Less 15,968,200 treasury
shares at cost 1,000,000
____________ ____________
TOTAL STOCKHOLDERS EQUITY $5,409,051 $5,538,499
TOTAL LIABILITIES AND $18,623,035 $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
March 31 March 31
1996 1995
------------ ------------
REVENUES $4,977,198 $3,654,411
COST OF SALES
Industrial Support Group 2,132,003 1,400,163
Government Services Group 1,916,926 674,263
---------- ---------
Gross Profit 928,269 1,579,985
Selling, General & Administrative 665,636 1,460,279
Expenses ________ ________
Operating Income 262,633 119,706
OTHER (INCOME) EXPENSE
Interest Income (25,774) (32,412)
Interest Expense 143,016 134,907
__________ __________
Total Other 117,242 102,495
__________ __________
Net Income 145,391 17,211
before Income Taxes
Income Tax Prov. (Ben): Current 8,137 5,600
Deferred (60,067) 4,800
__________ __________
Total Income Tax Prov.(Ben) (51,930) 10,400
Net Income $197,321 $6,811
__________ __________
__________ __________
INCOME PER COMMON SHARE:
Primary 0.0019 0.00006
Fully Diluted 0.0017 0.00006
<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 nine months ended
March 31 March 31
1996 1995
------------ ------------
REVENUES $14,842,548 $9,687,626
COST OF SALES
Industrial Support Group 6,483,365 4,839,726
Government Services Group 5,329,951 1,864,997
---------- ---------
Gross Profit 3,029,232 2,982,903
Selling, General & Administrative 2,006,934 2,431,316
Expenses ________ ________
Operating Income 1,022,298 551,587
OTHER (INCOME) EXPENSE
Interest Income (90,878) (78,281)
Interest Expense 412,943 382,830
__________ __________
Total Other 322,065 304,549
__________ __________
Net Income 700,233 247,038
before Income Taxes
Income Tax Prov. (Ben): Current (76,252) 29,750
Deferred (94,067) 114,000
__________ __________
Total Income Tax Prov.(Ben) (170,319) 143,750
Net Income $870,552 $103,288
__________ __________
__________ __________
INCOME PER COMMON SHARE:
Primary 0.0082 0.001
Fully Diluted 0.0075 0.001
[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 NINE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
Common Stock
$.01 Par Treasury
Value Additional Accumulated Stock
_________ Paid-in (Deficit) _________________
Shares Amount Capital Shares Amount
___________ ___________ ____________ ____________ _______ ________
Balances 108,278,014 $1,082,780 $10,467,040 ($6,011,321)
June 30,
1995
Purchase of 20,368,200$1,264,000
treasury
stock
Sale of
treasury
stock 4,400,000 264,000
Net Income 870.552
for the
9 Months
Ended
March
31, 1996 _____________________________________________________________________
Balances 108,278.014 $1,082,780 $10,467,040 ($5,140,769)15,968,200$1,000,000
at March
31,1996
<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 nine months ended
March 31 March 31
1996 1995
________ ________
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $870,552 $103,288
Adjustments to
reconcile net income
to net cash used in
continuing operations:
Depreciation and 429,871 492,064
amortization
Deferred Income Tax (94,067) 114,000
Gain on sale of (4,028)
fixed assets
Changes in operating assets
and liabilities:
(Increase) decrease in (2,225,172) (478,105)
accounts receivable
(Increase) decrease in (2,130,089) (910,068)
other assets
(Decrease) increase in 1,578,426 1,138,762
accounts payable
(Decrease) increase in (174,928) (84,616)
accrued expense __________ _________
Net cash provided (used) in (1,749,435) 375,325
operations
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (60,259) (88,883)
Proceeds from sale of 4,028
fixed assets __________ _________
Net cash used in investing (56,231) (88,883)
activities
CASH FLOWS FROM FINANCING
ACTIVITES:
Net Proceeds From (Payments on)
short-term debt 1,515,741 (313,123)
Payments on long-term (119,772) (147,349)
debt
Proceeds from long-term 1,000,000 730,000
debt
Purchase of treasury
stock (1,264,000)
Sale of treasury
stock 264,000
__________ _________
Net cash provided by 1,395,969 269,528
financing activities
Increase (Decrease) in cash (409,697) 555,970
and cash equivalents
Cash and cash equivalents 1,951,004 1,236,617
at beginning of period ___________ ___________
Cash and cash equivalents $1,541,307 $1,792,587
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)
March 31, 1996
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 nine
months ended March 31, 1996 are not necessarily indicative of
the results to be expected for the full year.
2. CAPITAL TRANSACTIONS:
Effective January 31, 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 purchased 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 offered 10,000,000 shares of such stock at a price
of $.06 per share to key members of management. On February 28, 1996,
pursuant to the Company's offer, certain corporate officers acquired
4,400,000 shares for $264,000. Management anticipates that key
members of management will purchase the remaining balance of
the shares offered.
The Company utilized the $264,000 to repurchase a portion of the shares
held by Lynch and funded the balance of the purchase of shares held by Lynch
by the issuance of $1,000,000 in convertible subordinated debentures
(convertible in the event of default at $.06 per share of
common stock) maturing in three years.
The Company is currently negotiating the sale of a portion
of the remaining balance (10,368,200 shares) of the repurchased
stock, to a defined group of individuals, at a price not less than
$.06 per share. The Company intends to repay the above mentioned
debentures from the proceeds of such sale.
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 9 months ended March 31, 1996 are
summarized as follows:
3 months 9 months
Current Federal & State Prov. (Ben) $ 8,137 $(76,252)
Deferred Income Taxes:
Current timing differences 67,433 441,433
Adjustment to beginning
valuation allowance (127,500) (535,500)
________ ________
(60,067) (94,067)
Total Income Tax Prov. (Ben) $(51,930) ($170,319)
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.
5. SUBSEQUENT EVENTS:
Subsequent to 1995 fiscal year end, the Company filed Forms S-8
registering 5,000,000 shares of stock for issuance under the Employee
Stock Option Plans disclosed in Note 13 of the June 30, 1995 financial
statements included in Form 10KSB.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Results of Operations
The Company realized net income before taxes for the three
months ended March 31, 1996 of $145,391, compared to a net income
before taxes of $17,211 for the three months ended March 31, 1995.
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 net income before taxes for the nine months
ended March 31, 1996 of $700,233 compared to a net income before
taxes of $247,038 for the nine months ended March 31, 1995. This
increase in income is attributable to the same circumstances stated
above for the three month period.
The Company recognized an adjustment to its allowance for
realization of deferred income tax benefits attributable to net
operating loss deductions of $535,500 (see Note 4 to the Condensed
Consolidated Financial Statements included in this filing).
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.
BARTON's Operations
BARTON ATC, Inc., a Delaware corporation, is engaged in the
manufacture and sale 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, electronics maintenance and airport lighting
systems.
BARTON currently operates five (5) 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 Victorville,
California, in April, 1996.
BARTON has expanded its equipment sales activities, and
continues to pursue other opportunities to improve the financial
position of the Company. BARTON completed factory acceptance testing
of, and delivered a Mobile Tower to Hughes Aircraft Company.
Site acceptance tests are in progress. BARTON also completed
contract negotiations for the provision and installation of control
tower communications equipment for Gwinnett County, Georgia.
A Mobile Control Tower is under lease to the county pending
completion of construction and installation of equipment.
The contract, under which BARTON provides air traffic control
and weather reporting services to the Johnstown-Cambria County
Airport, Pennsylvania, began its second five year
term on March 1, 1996. However, the underlying, sole source, contract
between the FAA and the Cambria County Airport Authority is under
discussion. 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 March 31, 1996, BARTON Intn'l was operating
twenty two control towers under the FAA's FCT Program. BARTON
Intn'l is scheduled to begin operation of an additional tower
in June, 1996. 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, 1994 and 1995 Outstanding
Achievement Recognition Awards; Saturn's 1993 and 1994 Quality
Recognition Awards, and the prestigious General Motors Supplier of the
Year Award for 1993, 1994 and 1995. 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.
* 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 $3,937,935 at March 31, 1996.
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 then 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
In February, 1996, the Company issued 8% convertible subordinated
debentures (convertible in the event of default at $.06 per share of
common stock) in the amount of $1,000,000 maturing in three years to
fund a portion of the repurchase of the stock of Mr. Robert W. Lynch, Jr.
The Company intends to repay these debentures with the funds received
from individuals purchasing the balance of this stock.
The Board of Directors of the Company approved Forms S-8 for filing
with the Securities and Exchange Commission registering
5,000,000 shares of stock for issuance under the Employee Stock
Option Plans disclosed in Note 13 of the June 30, 1995 financial
statements included in Form 10KSB.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 25, 1996, Mr. William J. Ballard was elected
to the Board of Directors to fill the vacancy left by
the retirement of Mr. Robert W. Lynch. Mr. Ballard, 54,
holds a B.S. degree from Middle Tennessee State University,
a Masters degree from the University of Chicago and Series 7,
24, and 63 licenses with the Securities and Exchange Commission.
Mr. Ballard has an extensive business background and currently
serves as the Chairman, CEO and President of Children's
Comprehensive Services, Inc. based in Murfreesboro, TN.
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: May 13, 1996 By_/s/ Cindy L. Rollins__________________
Cindy L. Rollins, Vice President, CFO