SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-24795
Aviation General, Incorporated
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1547645
-------------------------- ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
7200 NW 63rd Street, Hangar 8,
Wiley Post Airport, Bethany, Oklahoma 73008
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(405) 440-2255
--------------
(Registrant's telephone number, including area code)
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. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
There were 7,110,846 Shares of Common Stock Outstanding as of March 31, 2004
--------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - March 31, 2004
Consolidated Condensed Statements of Operations - For the
Three Months Ended March 31, 2004 and 2003
Consolidated Condensed Statements of Shareholders' Equity -
For the Three Months Ended March 31, 2004 and 2003
Consolidated Condensed Statements of Cash Flows - For
the Three Months Ended March 31, 2004 and 2003
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 5. Other
Item 6. Exhibits and Reports on Form 8K
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Aviation General, Incorporated & Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 31,
2004
------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43,229
Accounts receivable 8,269
Inventories 1,653,808
-----------
Total current assets 1,705,306
-----------
PROPERTY AND EQUIPMENT
Office equipment and furniture 365,373
Vehicles and aircraft 95,115
Manufacturing equipment 384,979
Tooling 676,747
Leasehold improvements 112,748
-----------
1,634,962
Less accumulated depreciation (1,277,540)
-----------
357,422
-----------
$ 2,062,728
===========
See accompanying Summary of Accounting Policies and Notes to Financial
Statements.
Aviation General, Incorporated & Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 31,
2004
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
LIABILITIES NOT SUBJECT TO COMPROMISE
Accounts payable $ 130,355
Accrued expenses 1,041,761
Notes payable 768,471
-----------
Total current liabilities not subject to compromise 1,940,587
-----------
LIABILITIES SUBJECT TO COMPROMISE
Accounts payable 1,986,559
Accrued expenses 721,478
Refundable deposits 155,145
-----------
Total liabilities subject to compromise 2,863,182
-----------
Total current liabilities 4,803,769
-----------
NONCURRENT LIABILITIES
Notes payable 1,300,795
-----------
1,300,795
-----------
REEDEEMABLE COMMON STOCK - $.50 par value;
150,000 shares issued and outstanding; stated
at redemption value 150,000
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares outstanding -
Common stock, $.50 par value, 20,000,000
shares authorized; 8,120,397 shares issued 4,060,198
at March 31, 2004
Additional paid-in capital 37,254,305
Less: Treasury stock at cost, 1,009,551 shares
at March 31, 2004 (1,709,638)
Accumulated (deficit) (43,796,701)
-----------
Total stockholders' equity (deficit) (4,191,836)
-----------
$ 2,062,728
===========
See accompanying Summary of Accounting Policies and Notes to Financial
Statements.
Aviation General, Incorporated & Subsidiaries
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
2004 2003
------------ ------------
NET SALES
Aircraft $ 406,800 $ 140,000
Service 211,437 172,361
------------ ------------
Total net sales 618,237 312,361
------------ ------------
COST OF SALES
Aircraft 326,785 128,534
Service 158,213 123,571
------------ ------------
Total cost of sales 484,998 252,105
------------ ------------
Gross profit 133,239 60,256
------------ ------------
OTHER OPERATING EXPENSES
Product development and engineering costs - 896
Selling, general and administrative expenses 370,937 376,226
------------ ------------
Total other operating expenses 370,937 377,122
------------ ------------
Operating income (loss) (237,698) (316,866)
------------ ------------
OTHER INCOME (EXPENSES)
Other income 16,664 54,910
Interest (expense) (38,955) (39,856)
------------ ------------
Total other income (expenses) (22,291) 15,054
------------ ------------
NET (LOSS) BEFORE TAXES (259,989) (301,812)
PROVISION FOR INCOME TAXES - -
------------ ------------
NET (LOSS) $ (259,989) $ (301,812)
============ ============
NET (LOSS) PER SHARE
Weighted average common shares
outstanding; basic 7,110,846 7,110,846
------------ ------------
Net (loss) per share; basic $ (0.04) $ (0.04)
============ ============
Weighted average common shares
outstanding; diluted 7,110,846 7,110,846
============ ============
Net (loss) per share; diluted $ (0.04) $ (0.04)
============ ============
See accompanying Summary of Accounting Policies and Notes to Financial
Statements.
Aviation General, Incorporated & Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other Total
Common Stock Paid-in Treasury Stock Accumulated Comprehensive Stockholders'
Shares Amount Capital Shares Amount Deficit Income (Loss) Equity
--------- ---------- ----------- --------- ------------ ------------ -------------- -------------
Balance at
January 1, 2003 8,120,397 $4,060,198 $37,254,305 1,009,551 $ (1,709,638) $(42,228,440) $ - $(2,623,575)
Comprehensive income
Net earnings (301,812) (301,812)
Other comprehensive
income
Change in
unrealized
investment
gain, net -
--------- ---------- ----------- --------- ------------ ------------ ------------- -----------
Comprehensive
income (301,812)
--------- ---------- ----------- --------- ------------ ------------ ------------- -----------
Balance at
March 31, 2003 8,120,397 $4,060,198 $37,254,305 1,009,551 $(1,709,638) $(42,530,252) $ - $2,925,387)
========= ========== =========== ========= =========== ============ ============ ==========
Balance at
January 1, 2004 8,120,397 $4,060,198 $37,254,305 1,009,551 $ (1,709,638) $(43,536,712) $ - $(3,931,847)
Comprehensive income
Net earnings (259,989) (259,989)
Other comprehensive
income
Change in
unrealized
investment
gain, net -
--------- ---------- ----------- --------- ------------ ------------ ------------- -----------
Comprehensive
income (259,959)
--------- ---------- ----------- --------- ------------ ------------ ------------- -----------
Balance at
March 31, 2004 8,120,397 $4,060,198 $37,254,305 1,009,551 $(1,709,638) $(43,796,701) $ - $(4,191,836)
========= ========== =========== ========= =========== ============ ============ ==========
See accompanying Summary of Accounting Policies and Notes to Financial
Statements.
Aviation General, Incorporated & Subsidiaries
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2004 2003
------------ ------------
Increase (decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings (loss) $ (259,989) $ (301,812)
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 24,066 27,230
Loss (gain) on retirement of
property and equipment - (138)
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable 6,571 (2,972)
Inventories 367,907 286,663
Prepaid expenses and other assets 700 -
Increase (decrease) in
Accounts payable 2,130 1,908
Accrued expenses 7,294 34,825
Refundable deposits (65,039) 20,000
------------ -----------
Net cash provided by (used in)
operating activities 83,640 65,704
------------ -----------
Cash flows from investing activities
Proceeds on sales of property and equipment - 200
------------ -----------
Net cash provided by (used in)
investing activities - 200
------------ -----------
Cash flows from financing activities
Proceeds from borrowings 189,000 50,000
(Payments on) borrowings (235,006) (109,310)
------------ -----------
Net cash provided by (used in)
financing activities (46,006) (59,310)
------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 37,634 6,594
Cash and cash equivalents at beginning of period 5,595 (2,145)
------------ -----------
Cash and cash equivalents at end of period 43,229 4,449
============ ===========
Cash paid during the period for:
-------------------------------------
Interest 29,284 39,856
See accompanying Summary of Accounting Policies and Notes to Financial
Statements.
Aviation General, Incorporated & Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
1. These consolidated condensed financial statements have been prepared by
Aviation General, Incorporated. (the Company) without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods, on a basis
consistent with the annual audited financial statements. All such
adjustments are of a normal recurring nature. Certain information,
accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the financial statements and information presented not
misleading. These financial statements should be read in conjunction with
the financial statements and the summary of significant accounting policies
and notes thereto included in the Company's most recent annual report on
Form 10-KSB.
2. Inventories consist primarily of finished goods, work in process, and parts
for manufacturing and servicing of aircraft. Inventory costs include all
direct manufacturing costs and applied overhead. These inventories, other
than pre-owned aircraft, are stated at the lower of cost or market, and
cost is determined by the average-cost method. Pre-owned aircraft are
valued on a specific-identification basis at the lower of cost or current
estimated realizable wholesale price. Inventory components were as follows
at March 31, 2004:
Raw materials $ 1,021,807
Work in process 508,579
New and pre-owned aircraft 122,173
Other 1,250
------------
$ 1,653,808
============
3. On December 27, 2002 the Company's wholly owned subsidiary, Commander
Aircraft Company (the "Debtor") filed petitions for relief under Chapter 11
of the federal bankruptcy laws in the United States Bankruptcy Court for
the District of Delaware. Under Chapter 11, certain claims against the
Debtor in existence prior to the filing of the petitions for relief under
the federal bankruptcy laws are stayed while the Debtor continues business
operations as Debtor-in-possession. These claims are reflected in the March
31, 2004 balance sheet as "liabilities subject to compromise." Claims
secured against the Debtor's assets ("secured claims") also are stayed,
although the holders of such claims have the right to move the court for
relief from the stay. Secured claims are secured primarily by liens on the
Debtor's property, plant and equipment. Refer to the Company's most recent
annual report on Form 10-KSB.
The Debtor received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including employee wages and
product warranties totaling $75,000.
The Company has obtained the approval of the Bankruptcy court for
Debtor-in-Possession, (DIP), financing of $250,000. The DIP financing bears
interest at the rate of 10% (simple interest), which is payable at the
effective date of the Chapter 11 Plan of Reorganization. The Company has
taken draws on the DIP Financing as follows:
2003 Total $ 427,000
January 8, 2004 $ 25,000
January 16, 2004 $ 25,000
February 13, 2004 $ 35,000
March 15, 2004 $ 50,000
March 22, 2004 $ 54,000
Total DIP Financing Draws through March 31, 2004: $ 616,000
4. During the years ended December 31, 2001, 2002 and 2003, the Company
incurred net (losses) of $(5,519,592), $(4,285,111) and $(1,308,272)
respectively. During the three months ended March 31, 2004, the Company
lost an additional $(259,989). As of March 31, 2004, the Company had a
negative working capital of $(3,098,463) and a deficit net worth of
$(4,191,836). On December 27, 2002 the Company's wholly owned subsidiary,
Commander Aircraft Company, filed petitions for relief under Chapter 11 of
the federal bankruptcy code. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon
the Company's ability to successfully reorganize Commander Aircraft
Company, to attain a satisfactory level of profitability, and to obtain
suitable and adequate financing. There can be no assurance that these
objectives can be achieved. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty nor do
they take into effect any adjustments that might occur as a result of a
successful plan to reorganize Commander Aircraft Company.
As stated in this and previous filings and announcements, on December 27,
2002, Commander Aircraft Company filed a Chapter 11 reorganization petition
in the United States bankruptcy court for the District of Delaware.
Commander Aircraft Company filed a final reorganization plan on July 5,
2003, following the execution of a letter agreement on that same date with
Tiger Aircraft, LLC, or affiliate, ("Tiger") to fund the plan. A final
stock purchase agreement was entered into with Tiger on November 1, 2003,
pursuant to which an amended plan was filed on December 10, 2003. The U. S.
bankruptcy court confirmed this plan on December 10, 2003, with the
effective date scheduled for on or before March 31, 2004, unless extended
by the consent of CAC, AGI, Tiger, the official committee of unsecured
creditors, the U.S. Department of Labor, and Nyltiak Investments, LLC. This
date has been extended to June 30, 2004.
5. The Company's lease for office space, hangar space, and its manufacturing
and service facility was a revocable permit to lease the facility. The
permit required monthly rentals in the same amounts as the original lease.
The permit further required the Company to pay outstanding delinquent
amounts plus penalties as defined in the permit. On April 23, 2003, the
Company transferred its lease to a third party. The Company negotiated a
3.5 year sub-lease with this third party for 50,011 square feet of
manufacturing, service and office space, guaranteed renewable at six month
intervals. The Company also agreed to pay $94,359 in past due rent to this
third party.
The future annual minimum lease payments under the April 23, 2003 operating
lease are as follows:
Year ending December 31
2004 $113,400
2005 113,400
2006 66,150
--------
Total future minimum lease payments $292,950
========
6. The Company is subject to regulation by the FAA. The Company is subject to
inspections by the FAA and may be subjected to fines and other penalties
(including orders to cease production) for noncompliance with FAA
regulations. The Company has a Production Certificate from the FAA which
delegates to the Company the inspection of each aircraft. The sale of the
Company's product internationally is subject to regulation by comparable
agencies in foreign countries.
The Company faces the inherent business risk of exposure to product
liability claims. In 1988, the Company agreed to indemnify a former
manufacturer of the Commander single engine aircraft against claims
asserted against the manufacturer with respect to aircraft built from 1972
to 1979. In 1994, Congress enacted the General Aviation Revitalization Act,
which established an 18-year statute of repose for general aviation
aircraft manufacturers. This legislation prohibits product liability suits
against manufacturers when the aircraft involved in an accident is more
than 18 years old. This action effectively eliminated all potential
liability for the Company with respect to aircraft produced in the 1970s.
The Company's product liability insurance policy with coverage of $10
million per occurrence and $10 million annually in the aggregate with a
deductible of $200,000 per occurrence and annually in the aggregate expired
March 1, 1995. Subsequent to March 1, 1995, the Company is not insured for
product liability claims.
The Company is routinely involved in various legal matters arising in the
normal course of business. Management believes that losses, if any, arising
from such actions will not have a material adverse effect on the financial
position or operations of the Company.
7. On September 24, 2002 the Company's common stock was delisted from the
Nasdaq SmallCap Market and began trading on the Over-the-Counter Bulletin
Board, or OTCBB, under the symbol AVGE.OB due to the Company's
noncompliance with the applicable minimum asset and equity requirements and
the minimum bid price requirement
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
This Form 10-QSB includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act. All statements, other than statements of historical fact, included in this
Form 10-QSB that addresses activities, events or developments that the Company
expects, projects, believes, or anticipates will or may occur in the future,
including matters having to do with expected and future aircraft sales and
service revenues, the Company's ability to fund its operations and repay debt,
business strategies, expansion and growth of operations and other such matters,
are forward-looking statements. These statements are based on certain
assumptions and analyses made by our management in light of its experience and
its perception of historical trends, current conditions, expected future
developments, and other factors it believes are appropriate in the
circumstances. These statements are subject to a number of assumptions, risks
and uncertainties, including general economic and business conditions, the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, the Company's performance on its current contracts and its success
in obtaining new contracts, the Company's ability to attract and retain
qualified employees, and other factors, many of which are beyond the Company's
control. You are cautioned that these forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those projected in such statements.
BUSINESS OVERVIEW
Aviation General, Incorporated (the "Company" or "AGI") is a publicly traded
holding company (Pink Sheets: AVGE.PK) incorporated under the laws of the State
of Delaware. The Company has two wholly owned subsidiaries: Commander Aircraft
Company ("CAC") and Strategic Jet Services, Inc. ("SJS"). Commander Aircraft
Company (www.commanderair.com) manufactures, markets, and provides support
services for its line of single engine, high performance Commander aircraft, and
consulting, brokerage, and refurbishment services for all types of
piston-powered aircraft. Strategic Jet Services, Inc. provides consulting,
brokerage, sales, and refurbishment services for jet aircraft.
During the 4th quarter of 2002, SJS discontinued its operations, and CAC
suspended indefinitely production of new aircraft. Other cost-cutting and
overhead reductions were implemented due to the weakness in the Company's
business. Management believes this weakness is primarily the result of
depressed economic conditions and anxiety over terrorism and war in Iraq, which
have had a pronounced, adverse effect on big-ticket, discretionary capital
expenditures by businesses and individuals.
As stated in this and previous filings and announcements, on December 27, 2002,
Commander Aircraft Company filed a Chapter 11 reorganization petition in the
United States bankruptcy court for the District of Delaware. Commander Aircraft
Company filed a final reorganization plan on July 5, 2003, following the
execution of a letter agreement on that same date with Tiger Aircraft, LLC, or
affiliate, ("Tiger") to fund the plan. A final stock purchase agreement was
entered into with Tiger on November 1, 2003, pursuant to which an amended plan
was filed on December 10, 2003. The U. S. bankruptcy court confirmed this plan
on December 10, 2003, with the effective date scheduled for on or before March
31, 2004, unless extended by the consent of CAC, AGI, Tiger, the official
committee of unsecured creditors, the U.S. Department of Labor, and Nyltiak
Investments, LLC. This date has been extended to June 30, 2004.
The agreement with Tiger resulted from months of negotiations, contact with
other potential investors, and legal proceedings pursuant to the bankruptcy
process. Since the bankruptcy filing, Tiger has provided CAC with Debtor in
Possession financing, which has allowed CAC to continue its operations and
provide service and support to the fleet of Commander aircraft owners,
refurbishment services, parts, and pre-owned aircraft brokerage. CAC expects to
resume the production of new aircraft following the consummation of the
transaction with Tiger.
Pursuant to the confirmed bankruptcy plan and agreement with Tiger, Tiger will
invest approximately $2.8 million in Aviation General, Incorporated in return
for an 80% ownership interest in AGI. Approximately $2 million will be used to
settle with creditors in accordance with CAC's bankruptcy plan, and the
remainder will be used for working capital. Pursuant to the agreement with
Tiger, AGI must secure the approval of the agreement from its shareholders as
well as their authorization to amend the Company's Certificate of Incorporation
to increase the Company's authorized common shares from 20,000,000 shares to
100,000,000 shares. The Company currently has 20,000,000 common shares
authorized and approximately 7,000,000 common shares (excluding Treasury stock
which will be retired) issued and outstanding. The agreement with Tiger will
necessitate the issuance of approximately 28,000,000 new shares of common stock
to Tiger, resulting in a total of approximately 35,000,000 shares to be issued
and outstanding.
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICIES
We must make estimates of the collectability of accounts receivable. We analyze
historical write-offs, changes in our internal credit policies and customer
concentrations when evaluating the adequacy of our allowance for doubtful
accounts. Differences may result in the amount and timing of expenses for any
period if we make different judgments or use difference estimates.
Inventories are valued at the lower of cost or market. We must periodically
evaluate the carrying value of our inventories to determine whether market
conditions have impaired the carrying value of our inventories.
Property and equipment are evaluated for impairment whenever indicators of
impairment exist. Accounting standards require that if an impairment indicator
is present, the Company must assess whether the carrying amount of the asset is
unrecoverable by estimating the sum of the future cash flows expected to result
form the asset, undiscounted and without interest charges. If the carrying
amount is less than the recoverable amount, an impairment charge must be
recognized, based on the fair value of the asset. Management assumed the
Company was a going concern for purposes of evaluating the possible impairment
of its property and equipment. Should the Company not be able to continue as a
going concern, there may be significant impairment in the value of the Company's
property and equipment.
We must estimate the future liability related to warranty work on new aircraft
sold.
As part of the process of preparing our consolidated financial statements, we
are required to estimate our income taxes. This process involves estimating our
current tax exposure together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities. We must then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income, and, to the extent we believe that recovery is not likely, we
must establish a valuation allowance. To the extent that we establish a
valuation allowance or increase this allowance in a period, we must include a
tax provision or reduce our tax benefit in the statements of operations. We use
our judgment to determine our provision or benefit for income taxes, deferred
tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. We believe, based on a number of factors including
historical operating losses, that we will not realize the future benefits of a
significant portion of our net deferred tax assets and we have accordingly
provided a full valuation allowance against our deferred tax assets. However,
various factors may cause those assumptions to change in the near term.
We cannot predict what future laws and regulations might be passed that could
have a material effect on our results of operations. We assess the impact of
significant changes in laws and regulations on a regular basis and update the
assumptions and estimates used to prepare our financial statements when we deem
it necessary.
We have determined the significant principles by considering accounting policies
that involve the most complex or subjective decisions or assessments. Our most
significant accounting policies are those related to revenue recognition and
accounting for stock-based compensation.
RESULTS FROM OPERATIONS - COMPARISON OF THREE MONTHS ENDED MARCH 31, 2004 AND
2003
Revenues from the sale of aircraft for the first quarter of 2004 increased by
$266,800 or 191% from $140,000 to $406,800 during the quarters ended March 31,
2003 and 2004 respectively. In the first quarter of 2004, one pre-owned aircraft
was sold compared with one pre-owned aircraft sold in the same period for 2003.
Service and parts revenues increased by $39,076 or 23% from $172,361 to $211,437
during the quarters ended March 31, 2003 and 2004 respectively.
Cost of aircraft sales increased by $198,251 or 154% from $128,534 to $326,785
during the quarters ended March 31, 2003 and 2004 respectively. This increase
was due primarily to the value of the one aircraft during the first three months
of 2004 compared to the value of the one aircraft sold during the comparable
period in 2003. Gross profit margins from the sale of aircraft increased from 8%
in 2003 to 20% in 2004 due to improved market conditions in 2004.
Cost of sales for service and parts increased by $34,642 or 28% from $123,571 to
$158,213 during the quarters ended March 31, 2003 and 2004 respectively. This
increase was due primarily to a 23% increase in associated parts and service
income.
Product development and engineering costs decreased by $896 or 100% to $0 for
the first quarter of 2004, from $896 for the comparable period in 2003. This
decrease was due to the discontinuance of production-related engineering
activities.
Sales, general and administrative expense decreased by $5,289 or 1% for the
three-month period ended March 31, 2004, to $370,937 from $376,226 for the
comparable period ended March 31, 2003.
Interest expense decreased by $901 or 2% to $38,955 for the first quarter of
2004 from $39,856 for the comparable period in 2003. This decrease was due to a
reduction of bank lines of credit, offset in part by increased
debtor-in-possession financing.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations increased by $17,936 or 27% from $65,704 during the
three month period ending March 31, 2003 to $83,640 during the comparable period
in 2004.
Cash flow from operations were positive for the three months ended March 31,
2004 due primarily to a $367,907 reduction in inventories partially offset by a
$65,039 decrease in refundable deposits which more than offset the loss for the
quarter of ($259,989).
Cash balances increased to $43,229 at March 31, 2004 from a balance of $5,595 at
December 31, 2003.
The Company has entered into debtor in possession financing arrangements that
management anticipates will provide the Company with sufficient working capital
to continue until the plan or reorganization is funded.
We anticipate that the confirmed plan of reorganization will provide the Company
with sufficient working capital to commence production activities.
CONTRACTUAL OBLIGATIONS
The following table is a summary of the Company's contractual obligations as of
March 31, 2004.
Payment Due by Period
Total Less than One 1-3 Years Thereafter
Year
---------- ------------- ---------- ----------
Long-Term Debt $1,300,795 $ - $1,300,795 $ -
Current Note Payable $ 768,471 $ 768,471 $ - $ -
Operating Leases $ 292,950 $ 113,400 $ 179,550 $ -
---------- --------- ---------- ---------
Total $2,362,216 $ 881,871 $1,480,345 $ -
========== ========= ========== =========
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the
filing date of this report, we carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our principal executive officer and our principal financial officer, who
concluded that our disclosure controls and procedures are effective. There have
been no significant changes in our internal controls or in other factors, which
could significantly affect internal controls subsequent to the date we carried
out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our principal executive
officer and our principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
PART II. OTHER INFORMATION
ITEM 5. OTHER
On September 24, 2002 the Company's common stock was delisted from the Nasdaq
SmallCap Market and began trading on the Over-the-Counter Bulletin Board, or
OTCBB (symbol AVGE.OB) and has been recently trading on the Pink Sheets (symbol
AVGE.PK) due to the Company's noncompliance with the applicable minimum asset
and equity requirements and the minimum bid price requirement.
The Company believes that the exchange on which the Company's shares are traded
does not affect the market value or intrinsic value of the Company's business
nor the trading liquidity of its shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Securities Purchase Agreement
10.2 Secured Convertible Note
10.3 Investor Rights Agreement
10.4 Security Agreement
10.5 Guarantee*
*Incorporated by reference to the registrant's report on Form 10-QSB for the
period ended September 30, 2002
(b) Reports on Form 8-K
3-11-04 8-K filed appointing Murrell, Hall, McIntosh & Co., PLLP as its new
principal accountant
3-31-04 8-K filed announcing confirmation of the Company's Chapter 11
reorganization plan
The following exhibits are filed as a part of this quarterly report on form
10-QSB
31.2 Certification of Wirt D. Walker III
31.2 Certification of Glenn A. Jackson
32 Certification of Wirt D. Walker III and Glenn A. Jackson
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
AVIATION GENERAL, INCORPORATED
------------------------------
(Registrant)
By: /s/ Wirt D. Walker III
----------------------
Wirt D. Walker III
Chairman of the Board of Directors
(Chief Executive Officer and
Authorized Signatory)
By: /s/ Glenn A. Jackson
--------------------
Glenn A. Jackson
(Chief Financial Officer)