United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2005
----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________ to ____________
Commission File Number 0-21995
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FIRST AVIATION SERVICES INC.
(Exact name of registrant as
specified in its charter)
Delaware 06-1419064
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15 Riverside Avenue, Westport, Connecticut, 06880-4214
------------------------------------------------------
(Address of principal executive offices)
(203) 291-3300
--------------
(Registrant's telephone number)
N/A
----------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
The number of shares outstanding of the registrant's common stock as of December
1, 2005 is 7,346,168
First Aviation Services Inc.
Index
Part I - Financial Information
------------------------------
Item 1. Financial Statements (Unaudited):
Consolidated Condensed Balance Sheets.................................3
Consolidated Condensed Statements of Operations.....................4-5
Consolidated Condensed Statements of Cash Flows.......................6
Notes to Consolidated Condensed Financial Statements...............7-12
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Liquidity and Capital Resources.........13-18
Item 3. Quantitative and Qualitative Disclosures about Market Risks..........18
Item 4. Controls and Procedures..............................................18
Part II - Other Information
---------------------------
Item 1. Legal Proceedings...................................................19
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds.................................................19
Item 3. Defaults Upon Senior Securities.....................................19
Item 4. Submission of Matters to a Vote of Security Holders.................19
Item 5. Other Information ..................................................19
Item 6. Exhibits............................................................19
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
First Aviation Services Inc.
Consolidated Condensed Balance Sheets
(in thousands, except share amounts)
October 31, January 31,
2005 2005
----------- -----------
(unaudited) *
Assets
Current assets:
Cash and cash equivalents $ 12,937 $ 22,584
Trade receivables, net of allowance for doubtful
accounts of $576 and $806, respectively 18,295 14,563
Inventory, net of allowance for slow moving and
obsolete inventory of $1,767 and $1,656, respectively 37,804 24,156
Prepaid expenses and other 1,008 900
----------- -----------
Total current assets 70,044 62,203
Plant and equipment, net 4,389 2,996
----------- -----------
Total Assets $ 74,433 $ 65,199
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 15,427 $ 10,495
Accrued compensation and related expenses 1,378 1,205
Other accrued liabilities 1,912 2,424
Notes Payable 2,218 -
Income taxes payable 1,033 900
----------- -----------
Total current liabilities 21,968 15,024
Revolving line of credit 14,500 14,500
Notes Payable, less current portion 1,935 -
Minority interest in subsidiary - 1,041
----------- -----------
Total liabilities 38,403 30,565
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares
authorized, 9,135,699 shares issued 91 91
Additional paid-in capital 38,813 38,318
Retained earnings 5,999 5,325
Accumulated other comprehensive income 457 374
----------- -----------
45,360 44,108
Less: Treasury stock, at cost, 1,789,631 and
1,814,191 shares, respectively (9,330) (9,474)
----------- -----------
Total stockholders' equity 36,030 34,634
----------- -----------
Total liabilities and stockholders' equity $ 74,433 $ 65,199
=========== ===========
See accompanying notes.
* Balances were derived from the audited balance sheet as of January 31, 2005.
3
First Aviation Services Inc.
Consolidated Condensed Statements of Operations (Unaudited)
(in thousands, except share amounts)
Three months ended
October 31,
2005 2004
----------- ----------
Net sales $ 33,611 $ 32,050
Cost of sales 27,969 26,698
----------- ----------
Gross profit 5,642 5,352
Selling, general and administrative expenses 4,971 4,945
Corporate expenses 557 602
----------- ----------
Income (loss) from operations 114 (195)
Net interest income (expense) and other 5 148
Minority interest in subsidiary - (10)
----------- ----------
Income (loss) before income taxes 119 (57)
Provision for income taxes (29) (73)
----------- ----------
Net income (loss) $ 90 $ (130)
=========== ==========
Basic net income (loss) per share, and net income (loss)
per share - assuming dilution:
Basic net income (loss) per share, and net income (loss)
per share - assuming dilution $ 0.01 $ (0.02)
=========== ===========
Weighted average shares outstanding - basic 7,341,451 7,304,914
=========== ===========
Weighted average shares outstanding - assuming dilution 7,343,852 7,304,914
=========== ===========
See accompanying notes.
4
First Aviation Services Inc.
Consolidated Condensed Statements of Operations (Unaudited)
(in thousands, except share amounts)
Nine months ended
October 31,
2005 2004
----------- -----------
Net sales $ 98,297 $ 93,337
Cost of sales 81,459 77,604
----------- -----------
Gross profit 16,838 15,733
Selling, general and administrative expenses 14,760 14,694
Corporate expenses 1,744 2,377
----------- -----------
Income (loss) from operations 334 (1,338)
Net interest income (expense) and other 4 102
Other income 417 -
Minority interest in subsidiary (10) (31)
----------- -----------
Income (loss) before income taxes 745 (1,267)
Provision for income taxes (71) (107)
----------- -----------
Net income (loss) $ 674 $ (1,374)
=========== ===========
Basic net income (loss) per share, and net income (loss)
per share - assuming dilution:
Basic net income (loss) per share, and net income (loss)
per share - assuming dilution $ 0.09 $ (0.19)
=========== ===========
Weighted average shares outstanding - basic 7,333,249 7,297,732
=========== ===========
Weighted average shares outstanding - assuming dilution 7,337,331 7,297,732
=========== ===========
See accompanying notes.
5
First Aviation Services Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited)
(in thousands)
Nine months ended
October 31,
2005 2004
--------- ---------
Cash flows from operating activities
Net income (loss) $ 674 $ (1,374)
Adjustments to reconcile net income (loss) to net
cash from operating activities - non-cash charges:
Depreciation and amortization 860 676
Compensation paid through issuance of stock 99 117
(Increase) decrease in current assets:
Trade receivables (3,651) (3,451)
Inventory (9,441) 1,054
Prepaid and other (107) 425
Increase (decrease) in current liabilities:
Accounts payable 4,920 2,876
Accrued compensation and related expenses, and other accrued
liabilities (404) 69
Income taxes payable 132 (27)
--------- ---------
Net cash provided by (used in) operating activities (6,918) 365
Cash flows from investing activities
Purchases of plant and equipment (2,247) (579)
Proceeds from disposals of plant and equipment - 3
--------- ---------
Net cash used in investing activities (2,247) (576)
Cash flows from financing activities
Borrowings on revolving line of credit 41,500 41,650
Repayments on revolving line of credit (41,500) (41,650)
Repurchase of preferred stock of subsidiary (500) -
--------- ---------
Net cash provided by financing activities (500) -
--------- ---------
Net decrease in cash and cash equivalents (9,665) (211)
Effect of exchange rates on cash 18 103
Cash and cash equivalents at beginning of period 22,584 25,144
--------- ---------
Cash and cash equivalents at end of period $ 12,937 $ 25,036
========= =========
Supplemental cash flow disclosures:
Interest paid $ 72 $ 30
Income taxes paid $ 12 $ 65
See accompanying notes.
6
First Aviation Services Inc.
Notes to Consolidated Condensed Financial Statements (Unaudited)
(in thousands, except share amounts)
October 31, 2005
1. Basis of Presentation
First Aviation Services Inc. ("First Aviation"), together with its wholly owned
subsidiaries Aerospace Products International, Inc. ("API"), Aircraft Products
International, Ltd. ("API Ltd."), and API Asia Pacific Inc. ("API Asia Pacific")
(collectively, the "Company"), is one of the premier suppliers of services to
the aviation industry worldwide. The services the Company provides the aviation
industry include the sale of aircraft parts and components, the provision of
supply chain management services, overhaul and repair services for brakes and
starter/generators, and the assembly of custom hoses. The Company's principal
executive offices are located at 15 Riverside Avenue, Westport, Connecticut
06880. Customers of the Company include original equipment manufacturers,
aircraft manufacturers, passenger and cargo airlines, fleet operators, corporate
aircraft operators, flight training schools, fixed base operators, certified
repair facilities, governments and military services. The accompanying unaudited
consolidated condensed financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for complete financial statements. In the opinion of
management, all material adjustments, including the elimination of intercompany
balances and transactions, and normal recurring accruals considered necessary
for a fair presentation, have been included in the accompanying unaudited
consolidated condensed financial statements. Operating results for the three
months and six months ended October 31, 2005 are not necessarily indicative of
the results that may be expected for the full fiscal year ending January 31,
2006. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K for the year ended
January 31, 2005.
2. Weighted Average Shares Outstanding - Assuming Dilution
The following sets forth the denominator used in the computation of net income
(loss) per share - assuming dilution:
Three months ended Nine months ended
October 31, October 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Denominator:
Denominator for basic net income (loss)
per share - weighted average shares 7,341,451 7,304,914 7,333,249 7,297,732
Effect of dilutive employee stock options 2,401 - 4,082 -
------------ ------------ ------------ ------------
Denominator for net income (loss) per
share - assuming dilution, adjusted
weighted average shares and assumed
dilutions 7,343,852 7,304,914 7,337,331 7,297,732
============ ============ ============ ============
For the three and nine months ended October 31, 2004, the denominator used in
the calculation of loss per share from continuing operations - assuming
dilution, was the same as the denominator used for basic loss per share because
the effect of options would have been antidilutive. The number of potential
shares of common stock that were excluded from the computation of diluted
earnings per share because their effect was antidilutive for the three and nine
months ended October 31, 2004, were 7,097, and 9,532 shares, respectively.
7
3. Stock Options Issued to Employees
The Company's non-employee directors receive a portion of their annual
compensation in the Company's stock. The value of stock issued is equivalent to
the compensation expense, and the number of shares issued is based upon the fair
market value per share at the date issued. The Company's non-employee directors
receive compensation in cash for committee meetings and special board meetings,
excluding the four regularly scheduled board meetings and the annual
shareholders' meeting that is paid in stock as part of their annual
compensation. For the three months ended October 31, 2005 and 2004, the Company
issued 4,617 and 6,457 shares respectively, to directors for board fees. For the
nine months ended October 31, 2005 and 2004, the Company issued 21,828 and
25,452 shares respectively, to directors for board fees.
The Company generally grants stock options to its employees for a fixed number
of shares with an exercise price equal to the fair market value of the stock on
the date of grant. As permitted under Statement of Financial Accounting Standard
No. ("FAS") 123, "Accounting for Stock-Based Compensation", the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for stock
awards to employees. No compensation expense was recognized during the three and
nine months ending October 31, 2005 and 2004 because all grants were issued at
the fair market value of the Company's common stock at the date of grant.
The Company is required to disclose the fair value, as defined, of options
granted to employees and the related compensation expense. The fair value of the
stock options granted was estimated at the date of grant using a Black-Scholes
option-pricing model. The Black-Scholes option-pricing model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected stock
price volatility. In management's opinion, because the Company's employee stock
options are not publicly traded, and have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
The fair value of each option issued was estimated at the date of grant. The
following assumptions were used for options issued during the nine months ended
October 31, 2005 and 2004:
2005 2004
--------------- ---------------
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 4.3% 3.6%
Expected volatility 31.0% 32.3%
Expected life of option 5.0 years 5.0 years
Weighted-average fair value of
options granted $ 1.40 $ 1.55
8
Using the above noted assumptions and the weighted-average fair value of each
option granted, the net income (loss) and earnings (loss) per share that would
have been recorded if the estimated fair value of options granted had been
recorded as an expense was:
Three months ended Nine months ended
October 31, October 31,
2005 2004 2005 2004
------------ ------------- ------------ ------------
Net income (loss) as reported $ 90 $ (130) $ 674 $ (1,374)
Pro forma net compensation expense for issuance of
stock options 13 13 39 44
------------ ------------- ------------ ------------
Pro forma net income (loss) $ 77 $ (143) $ 635 $ (1,418)
============ ============= ============ ============
Basic net income (loss) per share, and net income
(loss) per share - assuming dilution as reported
$ 0.01 $ (0.02) $ 0.09 $ (0.19)
Pro forma basic net income (loss) per share, and
net income (loss) per share - assuming dilution
$ 0.01 $ (0.02) $ 0.09 $ (0.19)
============ ============= ============ ============
In December 2004, the FASB issued Statement No. 123 (Revised 2004), or Statement
123(R), Share-Based Payment, which is a revision of Statement No. 123,
Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and amends Statement No. 95,
Statement of Cash Flows. The approach in Statement 123(R) is similar to the
approach described in Statement 123; however, Statement 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the statement of operations based on their fair values. Pro
forma disclosure, as allowed under Statement No. 123, will no longer be an
alternative.
In April 2005, the Securities and Exchange Commission ("SEC") announced the
adoption of a new rule that amends the compliance dates for Statement 123(R).
The SEC's new rule allows companies to implement Statement No. 123(R) at the
beginning of their next fiscal year, instead of the reporting period that begins
after June 15, 2005. The Company plans to adopt Statement 123(R) for the period
beginning February 1, 2006.
The impact of adoption of Statement 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted in the future,
among other factors. The Company is currently evaluating the impact that the
adoption of Statement 123(R) will have on its consolidated results of
operations, financial position and cash flows.
4. Accumulated Other Comprehensive Income (Loss)
The accumulated other comprehensive income (loss) resulted from the translation
of accounts into U.S. dollars where the functional currency is the Canadian
dollar. The increase to net income to arrive at comprehensive income during the
three and nine months ended October 31, 2005 was due to a decrease in the value
of the U.S. dollar relative to the Canadian dollar. Comprehensive income (loss)
for the periods shown was as follows:
9
Three months ended Nine months ended
October 31, October 31,
2005 2004 2005 2004
----------- ------------- ------------ -------------
Net income (loss) as reported $ 90 $ (130) $ 674 $ (1,374)
Net impact of foreign currency translation
adjustments - gain 63 122 83 155
----------- ------------- ------------ -------------
Net comprehensive income (loss) $ 153 $ (8) $ 757 $ (1,219)
=========== ============= ============ =============
5. Income Taxes
The Company recorded a provision (benefit) for income taxes related to foreign
income tax expense estimates for operations in Canada and the Philippines. No
provision is made for U.S. taxation because the Company has sufficient net
operating loss carryforwards that would be utilized to offset any provision for
pre-tax income. No deferred tax provision is recorded because it would be offset
by a change in the deferred tax valuation allowance. The Company does not record
a tax benefit for U.S. tax purposes due to the deferred tax valuation allowance
recorded, as it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
6. Related Parties
The Company and First Equity Development Inc. ("First Equity"), the wholly-owned
subsidiary of First Equity Group, Inc., and the majority stockholder of the
Company, have an agreement relating to the allocation of potential investment
and acquisition opportunities in the aerospace parts distribution and logistics
businesses. The agreement was approved by the independent members of the Board
of Directors on a month-to-month basis effective February 1, 2004. First Equity
Group, Inc. is beneficially owned by Mr. Aaron P. Hollander and Mr. Michael C.
Culver, respectively Chairman of the Board and Chief Executive Officer of the
Company. Pursuant to the agreement, neither First Equity nor any of its
majority-owned subsidiaries will consummate any acquisition of a majority
interest in any aerospace parts distribution and logistics business anywhere in
the world (a "Covered Acquisition"), without first notifying the Company and
providing the Company with the opportunity to effect the Covered Acquisition for
its own account. The Company's decision as to whether to effect the Covered
Acquisition will be made by the independent members of the Board of Directors of
the Company. The agreement can be terminated by either party upon 30 days
written notice to the other party. The agreement does not apply to any proposed
acquisition by First Equity of any business that generates less than 15% of its
aggregate net sales from aerospace parts distribution or logistics, or to any
advisory services performed by First Equity on behalf of third parties.
The Company and First Equity also had an advisory agreement, approved by the
independent members of the Board of Directors on a month-to-month basis
effective February 1, 2004. Pursuant to the terms of this agreement, First
Equity provided the Company with investment and financial advisory services
relating to potential acquisitions and other financial transactions. The
agreement could be terminated by either party upon 30 days' written notice to
the other party. The Company paid First Equity a $30 monthly retainer, and
reimbursed First Equity for its out-of-pocket expenses. In addition, upon the
successful completion of certain transactions, the Company would pay a fee to
First Equity (the "Success Fee"). The amount of any Success Fee would be
established by the independent members of the Board of Directors and would be
dependent upon a variety of factors, including, but not limited to, the services
provided and the size and the type of transaction. Up to one year's worth of
retainer fees paid could be applied as a credit against any Success Fee, subject
to certain limitations. The advisory agreement was terminated by First Equity on
January 31, 2005. During the three and nine months ended October 31, 2005, and
2004, the Company paid First Equity retainer fees of $0 and $90, and $0 and
$270, respectively, and no Success Fee.
10
The Company and First Equity had entered into an arrangement whereby First
Equity provided the Company with various additional services to assist the
Company. These services were not part of the advisory agreement, described
above, but derived from the work First Equity performed under the agreement.
Therefore, First Equity did not charge the Company additional fees in connection
with providing such services under the advisory agreement, because the services
were derived from the work First Equity performed under the advisory agreement
consistent with their role as financial advisor. The advisory agreement expired
on January 31, 2005. These services included (i) detailed financial modeling for
new business proposals, (ii) Board of Directors presentation analysis, (iii)
investor relations marketing and presentations, (iv) various analysis for API,
including benchmarking, financial analysis, and competitive market analyses, and
(v) other financial analyses for the Company, including stock buy-back,
valuations, and capital structure analyses. The Company's CEO and CFO had
unlimited access to these resources when requested. These services were also
terminated by First Equity with the expiration of the advisory agreement on
January 31, 2005, as described above.
The Company subleases from First Equity approximately 3,000 square feet of
office space in Westport, Connecticut. The leased space is utilized by the
Company as its corporate headquarters. First Equity also utilizes space in the
same premises. The sublease, which became effective on April 21, 1997, is for a
period of ten years, and is cancelable by either party with six months notice.
The Company has the option to renew the sublease for two additional five-year
periods. Lease payments under this sublease totaled approximately $22, for the
three months ended October 31, 2005, and 2004 and $67 and $62, for the nine
months ended October 31, 2005, and 2004. The Company and First Equity also share
certain common expenses that arise from sharing office space in Westport, CT.
The Company reimburses First Equity and vice versa, for expenses each entity
incurs related to the common usage of the office space. The amounts are included
in the Company's corporate expenses, and include expenses such as telephone,
computer consulting, office cleaning, office supplies and utilities. The
expenses are allocated based on base salaries of the Company's and First
Equity's personnel working in the shared space. Common expenses are approved by
the Company and First Equity, prior to expenditure, when not of a recurring
nature. The allocations are reviewed by the Company's CFO and the Controller of
First Equity each month. In addition, a member of the Company's audit committee
reviews the allocation of expenses quarterly. Some business development
expenses, such as joint marketing expense and business organizational dues, are
shared on an equal basis. Management believes this method of allocation is
reasonable. In addition, the amounts reimbursed by the Company are the actual
costs incurred for the expense. The Company reimbursed First Equity, $12 and
$13, for the three months ended October 31, 2005, and 2004, respectively, and
$32 and $39, for the nine months ended October 31, 2005, and 2004, respectively.
In order to simplify the administration of payroll, certain employees of the
Company who are authorized to perform services for both the Company and First
Equity are paid through the payroll of First Equity. Employees of the Company
who work exclusively for the Company are paid through the payroll of API, the
Company's principal subsidiary.
7. Interest income (expense) and other
The components relate to interest income on investments, interest expense on
external debt, realized and unrealized foreign exchange gain (loss) on Canadian
dollar transactions by the Canadian operations, and other charges.
Three months ended Nine months ended
October 31, October 31,
2005 2004 2005 2004
------- ------- ------- -------
Interest income $ 4 $ 18 $ 45 $ 40
Interest expense (53) (3) (116) (32)
Foreign exchange gain 54 133 75 94
------- ------- ------- -------
$ 5 $ 148 $ 4 $ 102
------- ------- ------- -------
11
8. Replacement of Revolving Line of Credit
On July 29, 2005, Aerospace Products International Inc., (the "Borrower") a
direct wholly-owned subsidiary of First Aviation Services, Inc. (the
"Guarantor") entered into a Commercial Revolving Loan and Security Agreement
(the " Agreement") and Guaranty Agreement (the "Guaranty") by and among the
Borrower, Guarantor and Hudson United Bank (the "Lender").
The facility created by the Agreement replaces the Borrower's previously
existing, $20 million revolving credit facility scheduled to expire July 31,
2006. The Agreement has a commitment expiration date of September 1, 2007. The
Guaranty replaces the previously existing guaranty agreement that existed on the
previous credit facility.
The Agreement provides a 25 month senior revolving credit facility (the
"Facility I") to the Borrower in the amount of $20 million, subject to terms and
conditions set forth in the Agreement. The facility may be increased by $5
million to $25 million should the Company make an acquisition of assets of
another company, subject to the Lender's approval. In October 2005, the lender
approved the increase in the facility to $25 million after the Company made a
large initial inventory purchase in September 2005 from a leading aircraft OEM.
The proceeds of any loans made under the Agreement will be used for working
capital purposes in the ordinary course of business of the Borrower.
The Agreement also provides for a one-time advance (the "Facility II") in an
amount up to $3 million, subject to borrowing availability. The Facility II
advance is repaid over 60 months at a fixed rate determined at the time of the
drawdown of the advance, with the portion of the advance to be repaid within one
year reported in current liabilities on the balance sheet.
Borrowings under Facility I bear interest equal to LIBOR plus 1.5% and are
limited to specified percentages of eligible trade receivables and inventories
of API. The Agreement contains a number of covenants, including restrictions on
mergers, consolidations and acquisitions, the incurrence of indebtedness,
transactions with affiliates, the creation of liens, and limitations on capital
expenditures. Pursuant to the terms and conditions of the Agreement, the payment
of dividends on API's common stock is prohibited, except with the lender's
consent, and API is required to maintain minimum levels of net worth and
specified interest expense coverage ratios. Substantially all of API's domestic
assets are pledged as collateral under the Agreement, and First Aviation
guarantees all borrowings under the Agreement.
9. Notes Payable
API entered into an initial parts purchase agreement on September 20, 2005 with
a leading aircraft original equipment manufacturer ("OEM") to purchase $8.3
million of inventory, including a long-term agreement to sell parts. As of
October 31, 2005, API had received approximately $7.1 million of this inventory.
The OEM vendor agreed to partially finance the purchase with two promissory
notes from API of $2.5 million and $1.8 million, with the Company entering into
a guarantee agreement to ensure payment by API. The promissory note for $2.5
million is for a term of 4 years, at 5.0% interest per annum. The promissory
note for $1.8 million is a non-interest bearing short-term note due within one
year. The vendor financing promissory notes are subordinated to the Company's
revolving line of credit. Subsequent purchases from this OEM will be on standard
vendor terms, and the Company has purchased an additional $4.8 million of
inventory from the OEM as of October 31, 2005.
10. Repurchase of Preferred Stock of Subsidiary
Pursuant to an agreement dated June 20, 2005, API repurchased 10,407 shares of
API Series A Cumulative Convertible Preferred Stock (Preferred Stock) for an
aggregate purchase price of $500, from Signature Combs, Inc. (f/k/a AMR Combs,
Inc.). The Preferred Stock was all the issued and outstanding preferred stock of
API, issued in conjunction with the Company's purchase of API in 1997 from AMR
Combs, Inc. The difference between the repurchase price of the Preferred Stock
and the book value of $541 was credited to Paid-in Capital in June 2005.
11. Other Income
In July 2005, the Company received $567 in settlement of a distribution
agreement contract dispute between API and a vendor. The settlement consisted of
$417 in damages recorded in other income, and $150 recorded as a reduction in
inventory from the repurchase of inventory held by API.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Safe Harbor Statement Under the Private Securities Litigation Reform of Act
1995.
Certain statements discussed in Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", Item 3, "Quantitative and
Qualitative Disclosures about Market Risks", Item 1 of Part II, "Legal
Proceedings" and elsewhere in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not statements of
historical facts, but rather reflect the Company's current expectations
concerning future events and results. Such forward-looking statements, including
those concerning the Company's expectations, involve known and unknown risks,
uncertainties and other factors, some of which are beyond the Company's control,
that may cause the Company's actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, the
Company's ability to obtain parts and components from its principal suppliers on
a timely basis, depressed domestic and international market and economic
conditions, especially those currently facing the aviation industry as a whole,
the impact of changes in fuel and other freight-related costs, relationships
with its customers, the ability of the Company's customers to meet their
financial obligations to the Company, the ability to obtain and service supply
chain management contracts, changes in regulations or accounting standards, the
ability to consummate suitable acquisitions and expand, the loss of the use of
facilities and distribution hub in Memphis, significant failure of our computer
systems or networks, efforts to comply with section 404 of the Sarbanes-Oxley
Act of 2002, and other items that are beyond the Company's control and may cause
actual results to differ from management's expectations. In addition, specific
consideration should be given to the various factors described in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", in the Company's Annual Report on Form 10-K for the year ended
January 31, 2005, and Item 3, "Quantitative and Qualitative Disclosures about
Market Risks", in this report for the quarter and nine months ended October 31,
2005. The Company undertakes no obligation to update any forward-looking
statements or cautionary factors.
General
First Aviation Services Inc. ("First Aviation"), together with its wholly owned
subsidiaries, Aerospace Products International, Inc. ("API"), Aircraft Parts
International, Ltd. ("API Ltd."), and API Asia Pacific Inc. ("API Asia Pacific")
(collectively, the "Company"), is one of the premier suppliers of services to
the aviation industry worldwide. The services the Company provides the aviation
industry include the sale of aircraft parts and components, the provision of
supply chain management services, overhaul and repair services for brakes and
starter/generators, and the assembly of custom hoses.
The Company's principal executive offices are located at 15 Riverside Avenue in
Westport, Connecticut 06880. Certain filings that First Aviation makes with the
U.S. Securities and Exchange Commission are available on First Aviation's
corporate website at www.favs.com. These public filings also can be obtained by
calling our investor relations department, by e-mail at first@firstaviation.com,
or on the SEC website at www.sec.gov.
Critical Accounting Policies
There have been no significant changes in those accounting policies the Company
considers critical from those described under the caption "Critical Accounting
Policies", included in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", in the Company's Annual Report
on Form 10-K for the year ended January 31, 2005.
Results of Operations
Net Sales
The Company's net sales consist of sales of services to the aviation industry,
including parts and components supply services, supply chain management
services, and component overhaul and repair services. Net sales are recorded
when parts and components are shipped and title transfers to the customer, when
supply chain management services have been provided to the customer, or when
overhauled and repaired items are completed and shipped back to the customer.
Shipping and handling billed to customers are included in net sales. The terms
and nature of supply chain management services are stipulated in a long-term
13
contract between the Company and the customer. The Company provides its
facilities, personnel and systems to provide the services at less cost to the
customer. In providing services where the Company distributes inventory on
behalf of its customer, the Company may use its own inventory or hold its
customers' inventory without taking ownership of such inventory. In cases where
the Company does not take ownership of its customers' inventory, net sales
generally are recognized as a fee based on the sales value of the product
shipped through the Company's facilities, and not the sales value of the product
itself. Alternatively, the Company, when providing services to handle customer's
inventory without taking ownership, can take a fee based on the cost of
providing services, and not on the sales value of the product.
Net sales for the three months ended October 31, 2005 increased $1.6 million, or
4.9%, to $33.6 million from $32.0 million for the three months ended October 31,
2004. The increases were largely due to increases in the corporate aviation
sectors the company serves, a rebound in general aviation related sales, offset
by lower sales to original equipment manufacturers ("OEM"), the airlines and
airline maintenance providers.
Net sales for the nine months ended October 31, 2005 increased $5.0 million, or
5.3%, to $98.3 million from $93.3 million for the nine months ended October 31,
2004. The reasons for the increase in net sales for the nine months ended
October 31, 2005, compared to the comparable period of the prior year, was due
to the reasons described above, except general aviation sales, excluding
corporate aviation and retail, were down approximately 5% as of the quarter
ending October 31, 2005.
Sales increased in the three and nine months ended October 31, 2005 versus the
comparable prior year periods in three of the four foreign geographic regions
the Company services. Sales in Asia improved for the three and nine months ended
October 31, 2005 over the similar periods ended October 31, 2004 due to
increases in airline sales. Sales in Canada for the three and nine months ended
October 31, 2005 improved in the general aviation and retail customer sectors,
compared to the three and nine month periods ended October 31, 2004. Sales in
Europe for the three and nine months ended October 31, 2005, increased in the
independent airline and corporate maintenance repair and overhaul facilities
sectors, versus the comparable periods ended October 31, 2004. The Company's
sales in the Latin America region decreased for the three and nine month period
ended October 31, 2005 over the same periods ended October 31, 2004. The Company
continues to be cautious with respect to providing credit to customers in the
Latin American region, and this has had a negative impact on sales.
Freight revenue is a component of net sales and represents freight billed to
customers. Freight revenue for the three and nine months ended October 31, 2005
decreased 6.1%, to $479,000 from $510,000 for the prior year three month period
ended October 31, 2004, and decreased 10.9% or $177,000 to $1,440,000 for the
comparable nine month period. These decreases were primarily due to increases in
customer incentives resulting from promotional activities and industry
competition. This had an adverse effect on gross profit margin explained below
under the caption "Gross Profit".
Cost of Sales
Cost of sales consists of costs of inventory sold, direct costs to overhaul and
repair parts and components, and direct costs of providing services. Freight
costs for parts and components sold are also included in cost of sales.
Cost of sales for the three months ended October 31, 2005 increased $1.3
million, or 4.8%, to $28.0 million from $26.7 million for the three months ended
October 31, 2004. Cost of sales for the nine months ended October 31, 2005
increased $3.9 million, or 5.0%, to $81.5 million from $77.6 million in the
prior year period ended October 31, 2004. Cost of sales for the three and nine
months ended October 31, 2005 increased compared to the prior year as a direct
result of the increase in net sales.
As a percentage of net sales, cost of sales decreased for the periods ended
October 31, 2005, to 83.2% from 83.3%, and 82.9% from 83.1%, for the three and
nine months, respectively, over the three and nine month periods ended October
31, 2004. The decrease in the percentage of cost of sales compared to net sales
for the three and nine months ended October 31, 2005 compared to the three and
nine months ended October 31, 2004, was primarily due to the reasons described
above.
14
Gross Profit
Gross profit for the three months ended October 31, 2005 of $5.6 million
exceeded the prior year quarter gross profit by $290,000 or 5.4%. With the
increase in gross profit in the current year quarter versus the prior year
quarter, gross profit as a percentage of net sales increased slightly to 16.8%
for the three months ended October 31, 2005, from 16.7% for the three months
ended October 31, 2004, due primarily to the increase in gross margin for the
general aviation related and airline sectors.
Gross profit for the nine months ended October 31, 2005 of $16.8 million was
increased by $1.1 million, or 7.0% compared to gross profit for the nine months
ended October 31, 2004. Gross profit as a percentage of net sales improved
correspondingly to 17.1% for the nine months ended October 31, 2005, from 16.9%
for the nine months ended October 31, 2004. Gross profit margin for the nine
months ended October 31, 2005 increased compared to the comparable period of the
prior year principally due to margins increases in the general aviation related
and airline sectors.
Gross profit is also impacted by net freight expense, which represents freight
expense recorded in cost of sales, less freight billed to customers in net
sales. Net freight expense decreased gross profit by 6.3% for the three and nine
month periods ended October 31, 2005, compared to decreases of 5.9% and 5.3% in
the comparable 2004 periods. These decreases were due primarily to increased
customer incentives and promotional activities offering customers reduced
freight on shipments and competition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended October
31, 2005 increased slightly by $26,000, or 0.4% to $5.0 million for the three
months ended October 31, 2004. The increase for the three months ended October
31, 2005, over the comparable prior year period is due primarily to an increase
in the bad debt expense of $107,000, mainly due to a customer receivable
write-off for a regional airline that filed for bankruptcy protection under
chapter 11 of the U.S. federal bankruptcy law, just prior to the October 17,
2005 effective date for changes in the U.S. federal bankruptcy law that
generally is less favorable to debtors. This regional airline was a feeder
carrier for a large international carrier that also filed for protection under
chapter 11 of the U.S. federal bankruptcy law in September 2005. Increases in
contract labor for IT systems maintenance, and higher depreciation charges, were
mostly offset by lower payroll expenses, advertising, legal, and insurance
charges. Selling general and administrative expense as a percentage of revenues
decreased to 14.8% for the three months ended October 31, 2005 versus 15.4% for
the three months ended October 31, 2004.
Selling, general and administrative expenses for the nine months ended October
31, 2005 of $14.8 million increased slightly by $66,000 compared to the expense
incurred for the nine months ended October 31 2004. Increases in contract labor
for IT systems maintenance, higher depreciation charges, communications, and bad
debt expense were almost completely offset by lower payroll expenses, travel,
postage, and other expenses. Selling general and administrative expense as a
percentage of revenues decreased to 15.0% for the nine months ended October 31,
2005 versus 15.7% for the nine months ended October 31, 2004.
Corporate Expenses
Corporate expenses decreased by $45,000 or 7.5% to $557,000 for the three months
ended October 31, 2005 from $602,000 incurred during the three months ended
October 31, 2004. The decrease in corporate expenses in the quarter ended
October 31, 2005 resulted primarily from reductions due to First Equity
Development's termination of an advisory agreement on January 31, 2005, lower
costs related to the board of directors and other expenses. The expense
reductions in the quarter ended October 31, 2005 described above, were partially
offset by increases in payroll and insurance costs.
Corporate expenses for the nine months ended October 31, 2005 decreased
$633,000, or 26.6%, to $1.7 million, from the $2.4 million incurred during the
nine months ended October 31, 2004. The decrease in corporate expenses in the
nine months ended October 31, 2005 resulted from substantially lower legal fees
related to corporate governance regulations and a dissident shareholder's proxy
contest incurred in the prior year period, as well as the reasons cited above
for the quarter.
15
Net Interest Income (Expense) and Other
During the three months ended October 31, 2005, net interest income (expense)
and other decreased $143,000 as a result of a $79,000 decrease on gains reported
from foreign currency transactions in the quarter, due primarily to the relative
strengthening of the Canadian dollar that is used as the functional currency of
the Canadian subsidiary. Interest expense for the three months ended October 31,
2005 was $53,000 or $50,000 higher than the amounts recorded in the three months
ended October 31, 2004 due to increased interest rates and average borrowing
levels, and interest income was $14,000 lower than the $18,000 reported in 2004
due to lower amounts in interest bearing investments.
During the nine months ended October 31, 2005, net interest income (expense) and
other decreased $98,000 in the nine months ended October 31, 2005, to $4,000 as
gains on foreign currency transactions of $75,000 and interest income of $45,000
was offset by interest expense on borrowings of $116,000 for the nine months
ended October 31, 2005, versus interest income of $40,000, foreign currency
transaction gains of $94,000, and interest expense of $32,000 in the comparable
nine months ended October 31, 2004.
Other Income
During the nine months ended October, 31, 2005, the Company recorded income of
$417,000 as the result of a cash settlement from a distribution agreement
contract dispute between API and a vendor.
Provision for Income Taxes
The Company recorded a provision for income taxes related to foreign income tax
expense estimates for operations in Canada and the Philippines. No provision is
made for U.S. taxation because the Company has sufficient net operating loss
carryforwards that would be utilized to offset any provision for pre-tax income.
No deferred tax provision is recorded because it would be offset by a change in
the deferred tax valuation allowance. The Company does not record a tax benefit
for U.S. tax purposes on any operating losses incurred due to the deferred tax
valuation allowance recorded as it is more likely than not that some portion or
all of the deferred tax asset will not be realized.
Net Income (Loss) and Net Income (Loss) per Share
The Company had net income of $90,000, or $0.01 per share for the three months
ended October 31, 2005, compared to a net loss of ($130,000), or ($0.02) per
share for the three months ended October 31, 2004 and net income of $674,000, or
$0.09 per share for the nine months ended October 31, 2005, compared to a net
loss of ($1.4) million, or ($0.19) per share for the comparable prior year
period ended October 31, 2004. The income in the current year periods versus the
losses in the prior year periods was due to the reasons described in the
preceding sections.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity requirements arise principally from its working capital
needs. In addition, the Company has liquidity requirements to fund capital
expenditures to support its current operations, and facilitate growth and
expansion. The Company funds its liquidity requirements with a combination of
cash on hand, cash flows from operations and from borrowings. The Company
manages its cash and debt to minimize its interest expense.
Cash and cash equivalents at any time may consist of a combination of demand
deposits, money market or short-term, high-grade bond funds, and short-term
certificates of deposit.
For the nine months ended October 31, 2005 the Company used $6.9 million in cash
for operating activities, compared to $0.4 million cash provided by operating
activities for the nine months ended October 31, 2004. The use of cash in the
nine months ended October 31, 2005 versus the cash provided in the prior year
nine month period was due to increases in inventory due to a large purchase of
inventory parts from a leading aircraft OEM, and additional inventory
opportunity buys resulting from price/volume discounts, and an increase in trade
receivables offset by an increase in accounts payable. On September 20, 2005,
API made an initial inventory purchase of $8.3 million, of which approximately
$7.1 was received as of October 31, 2005. The OEM vendor agreed to partially
finance the purchase with two promissory notes from API of $2.5 million and $1.8
million, with the Company entering into a guarantee agreement to ensure payment
by API. The promissory note for $2.5 million is for a term of 4 years, at 5.0%
interest per annum. The promissory note for $1.8 million is a non-interest
16
bearing short term note due within one year. The vendor financing promissory
notes are subordinated to the Company's revolving line of credit. In addition,
subsequent to the initial purchase and pursuant to a separate transaction with
the same OEM, API made an additional purchase of $4.8 million of inventory to
broaden the product line offering, pursuant to usual vendor terms with payment
due before year-end. Substantially all of the $4.8 million in inventory was
received by October 31, 2005. The Company continues to focus on managing its
overall working capital. Cash used in investing activities was $2.2 million and
$0.6 million during the nine months ended October 31, 2005 and 2004,
respectively, due primarily to purchases related to systems upgrades, and a new
ERP implementation of SAP software. The Company expects that its aggregate
capital expenditure requirements for the year ending January 31, 2006 will range
from approximately $2.5 million to $3.0 million. Management expects to fund
these requirements from cash on hand, cash flows from operations, and from
borrowings. Net cash used in financing activities during the nine months ended
October 31, 2005 was $0.5 million, compared to zero for the nine months ended
October 31, 2004, as the Company borrowed $41.5 million and repaid $41.5
million, and repurchased preferred stock of API for $500,000.
Effective July 29, 2005 API has a new $20 million revolving line of credit
facility which under certain conditions may be increased to $25 million, through
a Commercial Revolving Loan and Security Agreement ("Agreement"). This Agreement
which expires on September 1, 2007 replaces the Company's prior facility which
was scheduled to expire July 1, 2006. Borrowings under this facility bear
interest equal to LIBOR plus 1.5% and are limited to specified percentages of
eligible trade receivables and inventories of API. The Agreement contains a
number of covenants, including restrictions on mergers, consolidations and
acquisitions, the incurrence of indebtedness, transactions with affiliates, the
creation of liens, and limitations on capital expenditures. Pursuant to the
terms and conditions of the Agreement, the payment of dividends on API's common
stock is prohibited, except with the lender's consent, and API is required to
maintain minimum levels of net worth and specified interest expense coverage
ratios. Substantially all of API's domestic assets are pledged as collateral
under the Facility, and First Aviation guarantees all borrowings under the
Agreement. In October 2005, the lender agreed to increase the line to $25
million due to a large inventory purchase made by the Company in September 2005.
At October 31, 2005, borrowings under the facility totaled $14.5 million, at an
interest rate of approximately 5.4%. This amount represented a draw on the
facility just prior to October 31, 2005, and shortly after the quarter end, the
Company repaid $8.0 million of the borrowings that were outstanding at
quarter-end. The Company regularly draws down on the facility just prior to
quarter end, holds this cash, and then repays some or all of the amount drawn
shortly after the quarter end. The purpose of these draw downs is to indicate
that the Company has access to cash for potential acquisitions or other
investment opportunities that may arise. Approximately $7.6 million was
available under the facility at October 31, 2005. The new facility extended the
maturity to September 1, 2007, therefore, borrowings under the facility are
classified as long term. Management believes that the carrying amount of the
Company's borrowings approximates fair market value because the interest rate is
variable and resets frequently.
At this time, the Company anticipates that all future earnings will be retained
for use in the Company's business. Any payment of cash dividends in the future
on the Company's common stock will be dependent upon the Company's financial
condition, its results of operations, current and anticipated cash requirements,
plans for expansion, the ability of its subsidiaries to pay dividends or
otherwise make cash payments or advances to it, and restrictions, if any, under
any future debt obligations, as well as any other factors that the Board of
Directors deems relevant.
In conjunction with the Company's acquisition of API in 1997, AMR Combs, Inc.
("AMR Combs") purchased 10,407 shares of API Series A Convertible Preferred
Stock, $0.001 par value, with annual dividends of $4.00 per share, payable
quarterly (the "Convertible Preferred Stock"). On March 5, 1999, AMR Combs was
acquired by Signature Flight Support, an affiliate of BBA Group Plc. On June 20,
2005, all of the outstanding shares of Preferred Stock were repurchased by the
Company for $500,000. The difference between the carrying value and the purchase
price was recorded as additional paid-in capital.
Based upon current and anticipated levels of operations, the Company believes
that cash flow from operations, combined with cash on hand, and the availability
under the Facility, will be sufficient to meet its current and anticipated
operating cash requirements for the foreseeable future, including scheduled
interest and principal payments, capital expenditures, minority interest
requirements, working capital needs, and cash required for acquisitions that the
Company may pursue.
17
Contractual Obligations
- -----------------------
API entered into an initial parts purchase agreement on September 20, 2005 with
a leading aircraft OEM to purchase $8.3 million of inventory. As part of the
purchase financing, API entered into two promissory notes of $2.5 million and
$1.8 million, with the Company entering into a guarantee agreement to ensure
payment by API. The promissory note for $2.5 million is for a term of 4 years,
at 5.0% interest per annum. The promissory note for $1.8 million is a
non-interest bearing short-term note due within one year. The vendor financing
promissory notes are subordinated to the Company's revolving line of credit.
As of October 31, 2005, there have been no material changes outside the ordinary
course of the Company's business in the Company's specified contractual
obligations disclosed in the Company's Annual Report on Form 10-K for the year
ended January 31, 2005.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
- -------------------------------------------------------------------
The Company's Canadian operations utilize the Canadian dollar as their
functional currency, while the Company's Asian operation utilizes the U.S.
dollar as its functional currency. The Company has transactions denominated in
Canadian dollars and Philippine pesos. The Company is exposed to market risk
from foreign exchange rates. Foreign currency transaction exposure principally
arises from the transfer of foreign currency to and/or from U.S. dollars from
one subsidiary to another within the Company, and from foreign currency
denominated trade receivables. Currency transaction and translation exposures
are not hedged. Foreign currency transaction gains and losses are included in
earnings, and gains or losses will increase in significance with the growth of
the Canadian operations. Unrealized currency translation gains and losses
resulting from the translation of foreign subsidiaries balance sheets to U.S.
dollars are not recorded as income or expense, but are recognized in the Balance
Sheet as other comprehensive income or loss as a component of Stockholder's
Equity. The Company does have risk principally relating to the translation of
accounts in which the Canadian dollar is the functional currency. Sensitivity
analysis of foreign currency exchange rate risk assumes an instantaneous 10%
change in the foreign currency exchange rates from their level at October 31,
2005, with all other variables held constant. A 10% strengthening of the
Canadian dollar versus the U.S. dollar would result in a decrease of
approximately $143,111 in the net liability position of financial instruments at
October 31, 2005. A 10% weakening of the Canadian dollar versus the U.S. dollar
would result in an increase of approximately $174,918 in the net liability
position of financial instruments at October 31, 2005. During the three months
ended October 31, 2005, the Company experienced a foreign currency translation
gain of $63,000, due to an increase in the value of the Canadian dollar relative
to the U.S. dollar. During the nine months ended October 31, 2005 the Company
experienced a foreign currency translation gain of $83,000, due to an increase
in the value of the Canadian dollar relative to the U.S. dollar.
Borrowings of the Company are denominated in U.S. dollars. Management believes
that the carrying amount of the Company's borrowings approximates fair value
because the interest rates are variable and reset frequently.
Item 4. Controls and Procedures
- -------------------------------
The Company's management evaluated, with the participation of the Company's
principal executive and principal financial officers, the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of October 31, 2005. Based on their evaluation, the Company's
principal executive and principal financial officers concluded that the
Company's disclosure controls and procedures were effective as of October 31,
2005.
There has been no change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Company's fiscal quarter ended October 31, 2005, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
18
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- -------------------------
The Company's business exposes it to possible claims for personal injury, death
or property damage that may result from a failure of certain parts serviced by
the Company or spare parts and components sold by it, or in connection with the
provision of its supply chain management services. The Company takes what it
believes to be adequate precautions to ensure the quality of the work it
performs and the traceability of the aircraft parts and components that it
sells. The original equipment manufacturers that manufacture the parts,
components and supplies that the Company sells carry liability insurance on the
products they manufacture. In addition, the Company maintains what it believes
is adequate liability insurance to protect it from any claims.
In the normal conduct of its business, the Company also is involved in various
claims and lawsuits, none of which, in the opinion of the Company's management,
will have a material, adverse impact on the Company's consolidated financial
position. The Company maintains what it believes is adequate liability and other
insurance to protect it from such claims. However, depending on the amount and
timing, unfavorable resolution of any of these matters could have a material
effect on the Company's consolidated financial position, results of operations
or cash flows in a particular period.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
- -------------------------------------------------------------------
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
- ----------------
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a).
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a).
32.1 Certification of Chief Executive Officer required by Rule
13a-14(b) and 18 U.S.C. Section 1350 (furnished herewith).
32.2 Certification of Chief Financial Officer required by Rule
13a-14(b) and 18 U.S.C. Section 1350 (furnished herewith).
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
First Aviation Services Inc.
----------------------------
(Registrant)
Date: December 15, 2005 /S/ Michael C. Culver
-------------------------------------------
Michael C. Culver,
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: December 15, 2005 /S/ Robert G. Costantini
-------------------------------------------
Robert G. Costantini,
Chief Financial Officer (Principal Financial
and Accounting Officer)
20