Filing identity and reporting period
The supplied filing is for General Aircraft, Inc., not Xenetic Biosciences, Inc. It is a Form 10-Q for the three months ended November 30, 2012; the filing identifies August 31 as the fiscal year-end. Investors should verify that this is the intended filing before relying on the figures below.
General Aircraft describes itself as a development-stage company that owns one Robinson R44 helicopter used for rental to sightseeing and training operators in the Las Vegas area. The interim financial statements are unaudited.
Key financial metrics
| Metric | Three months ended Nov. 30, 2012 | Comparable 2011 period / balance-sheet comparison |
|---|---|---|
| Revenue | $32,964 | $13,749; up about 140% |
| Operating expenses | $44,246 | $28,566 |
| Operating loss | $(11,282) | $(14,817) |
| Interest expense | $3,197 | $3,352 |
| Net loss | $(14,479) | $(18,169) |
| Operating cash flow | $0 | $(1,825) |
| Cash | $32,005 | Unchanged from Aug. 31, 2012 |
| Accounts receivable | $132,072 | $99,108 at Aug. 31, 2012 |
| Current assets / current liabilities | $164,077 / $246,357 | Working capital deficit: $82,280 |
| Long-term debt | $212,813 | Unchanged from Aug. 31, 2012 |
| Total liabilities | $459,170 | $417,040 at Aug. 31, 2012 |
Net loss from inception through November 30, 2012 was $152,387. The company reported no cash paid for interest or taxes in the quarter. No gross profit or gross margin is separately presented.
Changes, outlook, and risks
- Revenue rose year over year, while net loss narrowed by $3,690. Professional fees declined, but aircraft maintenance and fees, fuel and oil, and management fees increased.
- On November 1, 2012, the company replaced its prior arrangement with related party Elite Aviation VGT, LLC with a helicopter lease. Elite rents the aircraft at $185 per Hobbs hour under a lease ending no later than December 31, 2014 or 2,200 Hobbs hours. The filing reports an average rental rate of $122 during the quarter and $32,964 of related revenue.
- The $212,813 aircraft loan is secured by company assets, bears 6% annual interest, requires semiannual interest-only payments, and has principal and accrued interest due at maturity on August 11, 2016.
- Management and the auditor identify substantial doubt about the company’s ability to continue as a going concern. Management says continued operations depend on additional financing and/or revenue growth and ultimately profitability; financing may not be available on acceptable terms or at all.
- Risks cited include a limited revenue base from owning one aircraft, lack of significant reserves, fluctuations in Las Vegas tourism and fuel prices, and unexpected mechanical repairs. The company says interim results may be seasonal and are not necessarily indicative of full-year results. No specific financial guidance is provided.
- Disclosure controls were concluded to be ineffective as of November 30, 2012, citing limited staff, inadequate segregation of duties, and irregular reconciliations and control procedures. A later passage in the filing describes controls as effective at a reasonable-assurance level, creating an apparent inconsistency.
- On January 16, 2013, the board dismissed Weaver Martin & Samyn, LLC and engaged L.L. Bradford. The filing reports no disagreements with the former auditor; its prior annual report had a going-concern qualification.
Important facts to verify
- Confirm the issuer: the filing names General Aircraft, Inc., whereas the request identifies Xenetic Biosciences, Inc.
- Confirm the intended reporting period: the filing covers the quarter ended November 30, 2012, not a period explicitly labeled “2012 Q1.”
- Assess collectability and timing of the $132,072 receivable, which is a substantial portion of current assets, and the company’s ability to meet current liabilities.
- Review the related-party lease terms, the reported $122 average rental rate versus the stated $185 lease rate, and the allocation of maintenance, fuel, and other operating costs.
- Reconcile the filing’s statements about ineffective versus effective disclosure controls, and verify the stated share-count date: the cover reports 13,500,000 shares outstanding “as of January 16, 2012,” a date preceding this filing.
- Review financing plans, the going-concern qualification, secured-debt terms, and the expected aircraft overhaul and related costs.