<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from ____________ to ____________
Commission file number: 0-10124
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AVIATION GROUP, INC.
(Exact name of Small Business Issuer as specified in its charter)
TEXAS 75-2631373
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
700 NORTH PEARL STREET
SUITE 2170
DALLAS, TEXAS 75201
(Address of Principal Executive Offices)
214/922-8100
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 No X
----- -----
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
3,029,446 shares of Common Stock were outstanding as of October 15, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
-------------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,934,000 $ 188,000
Accounts receivable, net 1,547,000 796,000
Inventory 915,000 240,000
Deferred income taxes 288,000 40,000
Prepaid expenses and other 371,000 710,000
----------- ----------
Total Current Assets 6,055,000 1,974,000
----------- ----------
Property and equipment 5,741,000 2,903,000
Less: accumulated depreciation (731,000) (583,000)
----------- ----------
5,010,000 2,320,000
----------- ----------
Goodwill, net 1,455,000 752,000
Other 124,000 65,000
----------- ----------
1,579,000 817,000
----------- ----------
Total Assets $12,644,000 $5,111,000
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 629,000 $ 502,000
Bridge notes -- 436,000
Other short-term borrowings 450,000 256,000
Accounts payable 1,232,000 769,000
Accrued interest 35,000 24,000
Income tax payable 20,000 20,000
Accrued liabilities 778,000 483,000
----------- ----------
Total Current Liabilities 3,144,000 2,490,000
----------- ----------
Long-Term Liabilities
Long-term debt, net of current maturities 1,705,000 1,211,000
Capitalized leases, net of current maturities 66,000 66,000
Loan from shareholder 15,000 15,000
Deferred income taxes 571,000 100,000
----------- ----------
Total Long-Term Liabilities 2,357,000 1,392,000
----------- ----------
Total Liabilities 5,501,000 3,882,000
----------- ----------
Commitments and Contingencies
Shareholders' Equity
Preferred Stock, $.01 par value, 5,000,000
shares authorized, none outstanding -- --
Common Stock, $.01 per value, 10,000,000 shares
authorized, 3,029,446 and 1,600,250 shares
issued and outstanding 30,000 16,000
Additional paid-in capital 8,473,000 1,951,000
Retained earnings (deficit) (1,360,000) (738,000)
----------- ----------
Total Shareholders' Equity 7,143,000 1,229,000
----------- ----------
Total Liabilities and Shareholders' Equity $12,644,000 $5,111,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Revenue $3,116,000 $1,310,000
Cost of Revenue 2,609,000 1,055,000
---------- ----------
Gross Profit 507,000 255,000
---------- ----------
General and Administrative Expenses 1,125,000 579,000
Depreciation and Amortization 139,000 135,000
---------- ----------
1,264,000 714,000
---------- ----------
Income (Loss) From Operations (757,000) (459,000)
---------- ----------
Other Income (Expenses)
Interest Income 20,000 --
Interest Expense (164,000) (38,000)
---------- ----------
(144,000) (38,000)
---------- ----------
Income (Loss) Before Provision for Income Taxes (901,000) (497,000)
Provision (Benefit) for Income Taxes (279,000) (168,000)
---------- ----------
Net Income (Loss) $ (622,000) $ (329,000)
========== ==========
Earnings (loss) per common and
common equivalent share $ (0.27) $ (0.18)
========== ==========
Weighted average common and
common equivalent shares outstanding (Note D) 2,278,286 1,812,859
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
------------------------------------------
1997 1996
--------------------- -------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (622,000) $(329,000)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 139,000 131,000
Deferred income taxes (257,000) (205,000)
(Increase) decrease in accounts receivable (126,000) 174,000
(Increase) decrease in inventories (13,000) (16,000)
(Increase) decrease in prepaids and other current assets (51,000) (42,000)
Increase(decrease)in accounts payable 187,000 215,000
Increase (decrease) in interest payable 11,000 (24,000)
Increase (decrease) in accrued liabilities 53,000 27,000
Other (40,000) (98,000)
----------- ---------
Total Adjustments (97,000) 162,000
----------- ---------
Net Cash Provided (Used) by Operating Activities (719,000) (167,000)
----------- ---------
Cash Flows From Investing Activities:
Cash paid in acquisition of Casper Air Service,
net of cash acquired (1,145,000) --
Payments for property and equipment additions (149,000) (152,000)
----------- ---------
Net Cash Used by Investing Activities (1,294,000) (152,000)
----------- ---------
Cash Flows From Financing Activities:
Repayments of short-term borrowings, net (163,000) (30,000)
Repayment of Bridge Notes (500,000) --
Principal payments on long-term debt (246,000) (10,000)
Proceeds from issuance of common stock 5,668,000 --
----------- ---------
Net Cash Provided (Used) by Financing Activities 4,759,000 (40,000)
----------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 2,746,000 (359,000)
Cash and Cash Equivalents at Beginning of Period 188,000 457,000
----------- ---------
Cash and Cash Equivalents at End of Period $ 2,934,000 $ 98,000
=========== =========
Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
Cash paid for interest $ 89,000 $ 62,000
Cash paid for income taxes -- --
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Issuance of common stock in connection with
the acquisition of Casper Air Service. $ 883,000 $ --
Conversion of LEDC note to Common Stock 370,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying balance sheets and
related interim statements of income and cash flows include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Examples include provisions for warranty claims and bad debts and
the length of assets' useful lives. Actual results may differ from these
estimates. Interim results are not necessarily indicative of results for a full
year. The information in this Form 10-QSB should be read in conjunction with
Management's Discussion and Analysis and financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended June 30, 1997.
NOTE B - INITIAL PUBLIC OFFERING
On August 19, 1997, the Company closed an initial public offering of its
Common Stock and Redeemable Common Stock Purchase Warrants. The Company sold
through its underwriter 1,150,000 shares of Common Stock and 1,150,000 Common
Stock Purchase Warrants, which resulted in net proceeds of $5,283,000, net of
approximately $1,444,000 of associated underwriting discounts and offering
expenses. The proceeds were used to repay the 10% Bridge Notes of $500,000, fund
the cash portion of the CAS acquisition of $1,167,000, and to repay
approximately $700,000 of bank and other indebtedness.
NOTE C - ACQUISITION OF CASPER AIR SERVICE
Concurrent with the initial public offering in August 1997 (the "IPO"),
the Company acquired all of the outstanding common stock of Casper Air Service,
a full-service Fixed Base Operation ("FBO") in Casper, Wyoming. The purchase
price of $2,519,000 included $1,167,000 in cash compensation, 153,565 shares of
Common Stock valued at approximately $883,000 and transaction costs. The
acquisition was accounted for using the purchase method and the purchase price
has been allocated to the net assets acquired based on their estimated fair
values. The excess of the purchase price over the fair value of the net assets
acquired (including tax attributes) has been recorded as goodwill and is being
amortized using the straight-line method over 20 years.
Casper Air Service ("CAS") is located at the Natrona County
International Airport in Casper, Wyoming and has been in business continuously
since 1946. CAS offers aircraft line services, aircraft repair and maintenance,
parts distribution and aircraft sales.
NOTE D - EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common and common equivalent share ("EPS") is
computed based on the weighted average number of common shares outstanding and
gives effect to certain adjustments described below. During the fiscal period
ended June 30, 1997, the Company issued common stock warrants with issuance and
exercise prices below that of the price of the Company's IPO common stock
offering. Pursuant to Securities and Exchange Commission requirements, the
dilutive effect of these securities has been included in the EPS calculation as
if they were outstanding as of the beginning of the period with the dilutive
effect measured using the treasury stock method. As a result, for the three
months ended September 30, 1996, the EPS calculation reflects an increase in
common equivalent shares for the assumed exercise of the warrants. No adjustment
was made for the assumed exercise of the warrants for the three months ended
September 30, 1997 since the effect would be antidilutive. Also, no adjustment
was made for the assumed conversion of the Company's convertible debt
-4-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
for either period presented since the effect would be antidilutive.
NOTE E - NEW PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share",
effective for financial statements issued for periods ending after December 15,
1997, which establishes standards for computing and presenting earnings per
share (EPS). The statement requires dual presentation of basic and diluted EPS
on the face of the income statement for entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation, to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes the effect of potentially dilutive securities while diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised, converted into, or resulted in
the issuance of common stock that then shared in the earnings of the entity.
For the periods ended September 30, 1997 and 1996, the basic and diluted EPS
amounts calculated assuming adoption of this statement would be the same as the
amounts presented on the consolidated statement of operations.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 130, Reporting Comprehensive Income ("FAS 130"), and
Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"), which are effective for fiscal
years beginning after December 15, 1997. Effective July 1, 1998, the Company
will adopt FAS 130 and FAS 131.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this MD&A
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are forward-
looking statements. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements, including those described
below. Investors are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
The Company, through its three operating divisions, offers a range of
services to the aviation industry. The Company ultimately plans to capture a
larger market share of the services being outsourced by the airline and
corporate aircraft industry, including but not limited to, airline and corporate
aircraft painting, corrosion cleaning, ground handling services, light catering,
fueling, airport security and passenger service. The Company plans to grow
through mergers, acquisitions and internal growth.
RESULTS OF OPERATIONS
The following table sets forth a summary, for the period indicated, of the
revenues and gross profits for each of the Company's major operating divisions,
as well as selected other financial statement data:
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
---------------------------------------------------------------------
1997 1996
---------------------------------- ---------------------------------
% of Total % of Total
Revenues Dollars Revenues Dollars Revenues
- -------- ------- --------- ------- ----------
<S> <C> <C> <C> <C>
Overhaul Services $1,308,000 42.0% $ 986,000 75.3%
Ground Services 359,000 11.5 199,000 15.2
FBO and Airport Management 1,449,000 46.5 125,000 9.5
---------- ----- ---------- -----
Total Revenues $3,116,000 100.0% $1,310,000 100.0%
========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
% of % of
Division Division
Gross Profit Dollars Revenues Dollars Revenues
- ------------ ------- --------- ------- ----------
<S> <C> <C> <C> <C>
Overhaul Services $ 198,000 15.1% $ 175,000 17.7%
Ground Services 73,000 20.3 76,000 38.2
FBO and Airport Management 236,000 16.3 4,000 3.2
---------- ----------
Total Gross Profit $ 507,000 16.3% $ 255,000 19.5%
========== ==========
</TABLE>
<TABLE>
<CAPTION>
% of Total % of Total
Other Data Dollars Revenues Dollars Revenues
- ---------- ------- --------- ------- ----------
<S> <C> <C> <C> <C>
General and Administrative $1,125,000 36.1% $ 579,000 44.2%
Depreciation and Amortization 139,000 4.5 135,000 10.3
Interest Expense and Other 144,000 4.6 38,000 2.9
Income (Loss) before Income Taxes (901,000) (28.9) (497,000) (37.9)
Provision(Benefit) for Income Taxes (279,000) (9.0) (168,000) (12.8)
---------- ---------
Net Income (Loss) $ (622,000) (20.0%) $(329,000) (25.1%)
========== =========
</TABLE>
-6-
<PAGE>
Overhaul & Service Division
- ---------------------------
Net revenues consist primarily of gross revenues from stripping and
painting and other aircraft coating services to major passenger and freight
airlines and corporate aircraft. The Company also contracts with various heavy
maintenance bases throughout the United States to provide corrosion prevention
programs and light maintenance for aircraft undergoing heavy maintenance work at
these bases. Costs of revenues consist largely of direct and indirect labor,
direct material and supplies, insurance and other indirect costs applicable to
the completion of each contract. Operating expenses consist of all general and
administrative and operating costs not included in costs of sales, including but
not limited to facilities rent, indirect labor and other overhaul costs.
This division of the Company has two locations, one at Acadiana Regional
Airport in New Iberia, Louisiana (Pride) and a second facility at Redbird
Airport in Dallas, Texas (TriStar Paint).
Ground Handling & Service Division
- ----------------------------------
Net revenues consist primarily of gross revenues from a variety of support
services including aircraft interior cleaning, exterior washes, lavatory and
water services and light catering. Costs of revenues consist largely of direct
and indirect labor, direct material and supplies, and other indirect costs.
Operating expenses consist of all general and administrative and operating costs
not included in costs of sales.
Airline Services has had operations at Dallas-Fort Worth International
Airport since 1990, Dallas Love Field airport since 1986, San Francisco
International Airport since 1995 and Gulfport Biloxi Regional Airport since
1994. Additionally, the Company has recently executed new ground service
contracts with customers under which it has established operations in the Los
Angeles International Airport, Oakland Airport, and Kansas City Airport.
FBO Operations & Airport Management
- -----------------------------------
The Company commenced its FBO operations in July 1996, upon the
commencement of business at its initial FBO site located at Redbird Airport in
Dallas, Texas. This division generates revenues from the sale of aviation fuel
and other services provided to general aviation customers located at the Redbird
Airport facility. Costs associated with this activity include primarily fuel,
facility rent, and direct labor. The Company initiated these operations at its
existing Dallas location with the intent to profitably operate the business, but
also to allow it to assemble its financial and managerial resources to begin its
acquisition activities in this division. In August 1997, the Company acquired
CAS, which operates an FBO in Casper, Wyoming.
Aviation Group - Corporate Overhead
- -----------------------------------
Operating expenses consist of all general and administrative and operating
costs to provide management to the Company's divisions, to support expected
growth, and to seek acquisition targets, not directly attributable to the
divisions' operations.
SEASONALITY AND VARIABILITY OF RESULTS
The Company's Overhaul and Service Division experiences significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. The annual operating cycle generally reflects escalating strip and
paint revenues in the Company's third and fourth fiscal quarters and slower
sales in the Company's first and second fiscal quarters. The Company's painting
revenues are adversely affected during the airlines' peak traffic seasons of the
summer months and the November and December holidays. Currently, a significant
percentage of the Company's revenue is generated by the Overhaul and Service
Division. Management, therefore, is required to plan cash flow accordingly.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
The Company's net revenue increased by $1,806,000, or 138%, for the three
months ended September 30, 1997 compared to the three months ended September 30,
1996. The Company's gross profit increased by $252,000, or 99%, for the three
months ended September 30, 1997 compared to the three months ended September 30,
1996.
-7-
<PAGE>
Revenues associated with the Overhaul Services Division increased by
$322,000, or 33%, due primarily to increased activity at the Company's Pride
Aviation painting facility in New Iberia, Louisiana. Gross profit from the
Company's Overhaul Services Division increased $23,000 or 13% due to the
increase in revenues at Pride Aviation. Gross profits as a percent of overhaul
services revenue fell from 17.7% to 15.1% due primarily to changes in the United
Airlines paint specifications, changes in labor rates and allocations at Pride
Aviation, as well as costs related to the acquisition of a contract to paint
aircraft for the Boeing Company.
Revenues from the Company's Ground Services division increased $160,000 or
80% due primarily to the expansion during fiscal 1997 into new stations at
Kansas City, Los Angeles International Airport and Oakland International
Airport. Gross profit from the Ground Services division decreased $3,000 or 4%
as compared to the same period in the prior year. This decline is due to the
investment in personnel and resources needed to initiate new services at the new
airport locations listed above, as well as costs related to the establishment of
services at Fort Lauderdale International Airport, which entered service in
September 1997. Gross profit as a percent of revenue fell from 38.2% to 20.3%
due to the previously mentioned factors.
Revenues from the Company's FBO and Airport Management division increased
$1,324,000 or 1,059% due to the acquisition of Casper Air Service in August
1997. Gross profit related to the FBO division increased $232,000, or 5,800%,
due also to the acquisition of Casper Air Service. Gross profit as a percent of
revenues increased to 16.3% from 3.2%. Gross profit contributed by Casper Air
Service totaled $217,000 from the date of acquisition through September 30,
1997.
The Company's General and Administrative expenses increased $546,000 or 94%
over the three months ended September 30, 1996 due to several factors. Corporate
overhead accounted for $207,000 of the increase. These increases relate
primarily to additions in management infrastructure, higher legal and accounting
costs of operating a publicly-traded company and additional costs of managing
the Company's growth. The addition of Casper Air Service in August 1997
increased general and administrative expenses by $130,000 in the quarter ended
September 30, 1997.
The Company's interest expense increased $106,000, or 279% due principally
to $64,000 of interest expense accreted to the Bridge Notes as a result of the
common stock payable to the Bridge Note holders upon completion of the initial
public offering. The remaining increase relates to the assumption of certain
debt in the acquisition of Casper Air Service as well as higher rates of
borrowings in the first quarter of fiscal 1998 when compared to fiscal 1997.
FINANCIAL CONDITION AND LIQUIDITY
The Company financed its operations and capital expenditures from a
combination of cash generated from operations, bank loans, leases and invested
capital.
In February 1997, the Company completed a private offering of $500,000 of
its 10% Bridge Notes. The proceeds of this offering were used to fund the costs
of the Company's initial public offering("IPO") and for general working capital
and operating purposes. Upon the successful completion of the IPO in August
1997, the terms of these notes required the Company to issue to the holders that
number of shares of Common Stock that equals $250,000 divided by the initial
public offering price. Accordingly, $250,000 of the proceeds has been allocated
to equity and credited to paid in capital and the notes payable were recorded at
a discounted amount of $250,000. The discount was amortized to interest expense
over the period from the completion of the Bridge Note offering until August 19,
1997, which was the consummation date of the IPO. These notes and the associated
interest were repaid following the funding of the IPO.
The Company realized approximately $5.3 million in net proceeds from the
IPO in August 1997. The proceeds have been used to repay the 10% Bridge Notes
of $500,000, fund the cash portion of the CAS acquisition of $1,167,000, and to
repay approximately $700,000 of bank and other indebtedness. Additionally,
these proceeds have been and will be used in the future to fund expenditures
including, but not limited to, capital expenditures for existing operations,
facilities improvements, acquisition of other aviation services companies and
general working capital for operations and other corporate purposes. The
Company's capital structure has improved significantly as a result of completing
the IPO.
-8-
<PAGE>
As part of its growth strategy, the Company intends to pursue acquisitions
of related aviation businesses. Management believes financing for such
acquisitions will be provided from operations, bank financing and through
additional security offerings.
The Company, through its subsidiary Pride Aviation, Inc., has entered into
a letter of intent with the Iberia Parish Airport Authority to enter into a long
term lease for the proposed wide body aircraft painting hangar to be constructed
in New Iberia, Louisiana. Prior to funding the construction of the hangar, Pride
Aviation, Inc. will execute a lease wherein the monthly payments will not exceed
$35,000. Pride Aviation will also issue a standby letter of credit for
$1,000,000, which will be reduced annually based upon the amortization of the
debt underlying the facility.
In September 1997, the Company was awarded a contract to provide painting
services to the Boeing Company. Phase 1 of the contract provides for seven
Boeing 777's to be painted in the Company's Portland painting facility from
November 1997 to January 1998. Phases 2 and 3 for 32 additional wide-body
aircraft may be exercised at Boeing's discretion after the completion of Phase
1.
The Company believes that funds available under its existing credit
facilities, together with cash generated from operations and proceeds from the
IPO will be adequate for its anticipated cash needs. Management expects that
the proceeds from the IPO will allow it to experience accelerated growth both
internally and through well-planned acquisitions of aviation services companies.
-9-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceeding other
than ordinary routine litigation considered to be incidental to its business.
ITEM 2. CHANGES IN SECURITIES.
(a) Not Applicable
(b) Not Applicable
(c) For the quarter ended September 30, 1997, the Company issued the
following unregistered securities:
1) In February 1997, the Company completed a private offering of
$500,000 in aggregate principal amount of its 10% Bridge Notes.
The total offering price was $500,000. The placement agents, RAS
Securities Corp. and First London Securities Corporation, received
total sales commissions of $50,000. Because the Company
successfully completed the IPO by September 30, 1997, the terms of
the Bridge Notes required the Company to repay in full the Bridge
Notes within five days after the funding of the IPO and to issue,
as additional compensation to the holders of the Bridge Notes,
that number of shares of Common Stock which equals $250,000
divided by the initial public offering price per share for the
Common Stock. Accordingly, the Company issued 43,478 shares of
Common Stock to the holders of the Bridge Notes in connection with
the full payment of the Bridge Notes in August 1997. The Bridge
Notes were sold by the Company in reliance upon the exemption from
registration provided by Rules 505 and 506 of Regulation D
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). The shares of Common Stock were issued to the
holders of the Bridge Notes in reliance on the exemption from
registration provided by Section 3(a)(9) of the Securities Act.
2) Effective April 18, 1997, the Company entered into an agreement to
acquire all of the outstanding stock of Casper Air Service, a
Wyoming corporation ("CAS"). The Company consummated this
transaction concurrently with the closing of its IPO, at which
time the Company issued to two of CAS's shareholders 153,565
shares of Common Stock. The sale by the Company of its shares of
Common Stock to the two shareholders of CAS was made in reliance
on the exemption from registration under the Securities Act
provided by Section 4(2) thereof. The recipients receiving Common
Stock received adequate written disclosures regarding the Company
and were represented by legal counsel as part of an arms length,
negotiated acquisition. The recipients were an individual and a
trust, for whom the same individual served as trustee. The
individual is sophisticated and knowledgeable in investment and
business matters in general.
3) On August 13, 1997, the Louisiana Economic Development Corporation
("LEDC") exercised its right to convert its outstanding note plus
accrued interest in the amount of $369,689 to Common Stock. The
Company subsequently issued 82,153 shares to the LEDC. The Common
Stock was issued to LEDC in reliance of exemption from
registration provided by Section 4(2) of the Securities Act.
4) During the quarter ended September 30, 1997, the Company issued
options to purchase up to 107,000 shares of Common Stock under the
Company's 1997 Stock Option Plan. These options were issued at
various times to 3 directors and 3 executive officers of the
Company in consideration for services rendered to the Company. The
Company relied on the exemption from registration under the
Securities Act provided by Section 4(2) thereof in issuing these
options. The issue date, expiration date, number of shares of
Common Stock purchasable and other terms of exercise of these
options are set forth below:
<TABLE>
<CAPTION>
No. of Shares of
Common Stock Exercise Price Vesting
Issue Date Expiration Date Purchasable Per Share Schedule
---------- --------------- ---------------- -------------- --------
<S> <C> <C> <C> <C>
8/25/97 8/24/04 50,000 $9.00 20% per year
8/25/97 8/24/04 30,000 9.00 immediate
8/28/97 8/27/04 10,000 9.00 20% per year
9/29/97 9/28/04 15,000 8.25 20% per year
9/29/97 9/28/99 2,000 8.25 immediate
</TABLE>
-10-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following documents are included as exhibits to this Form 10-QSB and
are filed herewith unless otherwise indicated.
Exhibit Description
------- -----------
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company has filed a Form 8-K Current Report dated September 3, 1997 in
which it reported (i) the resignation of Arsement, Redd & Morella, LLC as its
principal independent accountants, and the appointment of Price Waterhouse LLP
as the Company's new principal independent accountants, and (ii) the
consummation of the acquisition of CAS as of August 19, 1997.
-11-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 14, 1997.
AVIATION GROUP, INC.
By: /s/ Lee Sanders
-------------------------------------
Lee Sanders, Chairman of the Board
and Chief Executive Officer
-12-
<PAGE>
EXHIBIT 11.1
AVIATION GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average shares outstanding:
Common shares outstanding at
beginning of period 1,600,250 1,600,250
Initial public offering 530,769 --
Acquisition of Casper Air Service 81,001 --
Shares issued on Bridge Notes 22,933 --
Conversion of LEDC Note 43,333
Common equivalent shares arising from:
Assumed exercise of options -- 2,174
Assumed exercise of warrants -- 210,435
---------- -----------
Weighted average shares outstanding 2,278,286 1,812,859
========== ===========
Net income (loss) $ (622,000) $ (329,000)
========== ===========
Computation of net income (loss) per common share:
Net income (loss) divided by weighted
average shares outstanding $ (0.27) $ (0.18)
========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,934,000
<SECURITIES> 0
<RECEIVABLES> 1,547,000
<ALLOWANCES> 0
<INVENTORY> 915,000
<CURRENT-ASSETS> 6,055,000
<PP&E> 5,741,000
<DEPRECIATION> 731,000
<TOTAL-ASSETS> 12,644,000
<CURRENT-LIABILITIES> 3,144,000
<BONDS> 2,357,000
0
0
<COMMON> 30,000
<OTHER-SE> 7,113,000
<TOTAL-LIABILITY-AND-EQUITY> 12,644,000
<SALES> 0
<TOTAL-REVENUES> 3,116,000
<CGS> 0
<TOTAL-COSTS> 2,609,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,000
<INCOME-PRETAX> (901,000)
<INCOME-TAX> (279,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (622,000)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> 0
</TABLE>
