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 December 31, 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
-------
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.
3,098,799 shares of Common Stock were outstanding as of February 1, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
1997 1997
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 2,090,000 $ 188,000
Accounts receivable, net 2,456,000 796,000
Inventory 863,000 240,000
Deferred income taxes 252,000 40,000
Prepaid expenses and other 444,000 710,000
------------- -------------
Total Current Assets 6,105,000 1,974,000
------------- -------------
Property and equipment 5,386,000 2,903,000
Less: accumulated depreciation (873,000) (583,000)
------------- -------------
4,513,000 2,320,000
------------- -------------
Goodwill, net 1,436,000 752,000
Other 237,000 65,000
------------- -------------
1,673,000 817,000
------------- -------------
Total Assets $ 12,291,000 $ 5,111,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 959,000 $ 502,000
Bridge notes -- 436,000
Other short-term borrowings 280,000 256,000
Accounts payable 883,000 769,000
Accrued rent 300,000 --
Accrued liabilities 948,000 527,000
------------- -------------
Total Current Liabilities 3,370,000 2,490,000
------------- -------------
Long-Term Liabilities
Long-term debt, net of current maturities 1,237,000 1,292,000
Deferred income taxes 571,000 100,000
------------- -------------
Total Long-Term Liabilities 1,808,000 1,392,000
------------- -------------
Total Liabilities 5,178,000 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, 3,098,799 and 1,600,250 shares
issued and outstanding 31,000 16,000
Additional paid-in capital 8,379,000 1,951,000
Retained earnings (deficit) (1,297,000) (738,000)
------------- -------------
Total Shareholders' Equity 7,113,000 1,229,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 12,291,000 $ 5,111,000
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 6,106,000 $ 2,917,000 $ 9,222,000 $ 4,227,000
Cost of Revenue 4,231,000 1,941,000 6,839,000 2,996,000
------------ ----------- ------------ ------------
Gross Profit 1,875,000 976,000 2,383,000 1,231,000
------------ ----------- ------------ ------------
General and Administrative Expenses 1,554,000 741,000 2,680,000 1,319,000
Depreciation and Amortization 191,000 56,000 330,000 191,000
------------ ----------- ------------ ------------
1,745,000 797,000 3,010,000 1,510,000
------------ ----------- ------------ ------------
Income (Loss) From Operations 130,000 179,000 (627,000) (279,000)
------------ ----------- ------------ ------------
Other Income (Expenses)
Other Income(Expense) (5,000) 8,000 15,000 8,000
Interest Expense, net (25,000) (35,000) (189,000) (74,000)
------------ ----------- ------------ ------------
(30,000) (27,000) (174,000) (66,000)
------------ ----------- ------------ ------------
Income (Loss) Before Provision for Income Taxes 100,000 152,000 (801,000) (345,000)
Provision (Benefit) for Income Taxes 37,000 49,000 (242,000) (119,000)
------------ ----------- ------------ ------------
Net Income (Loss) $ 63,000 $ 103,000 $ (559,000) $ (226,000)
============ =========== ============ ============
Earnings (loss) per common share
Basic $ 0.02 $ 0.06 $ (0.19) $ (0.12)
============ =========== ============ ============
Diluted $ 0.02 $ 0.06 $ (0.19) $ (0.12)
============ =========== ============ ============
Weighted average shares outstanding (Note D)
Basic 3,266,050 1,812,859 2,889,499 1,812,859
============ =========== ============ ============
Diluted 3,469,678 1,812,859 2,889,499 1,812,859
============ =========== ============ ============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31,
-------------------------------------
1997 1996
---- ----
Cash Flows From Operating Activities:
<S> <C> <C>
Net Income (Loss) $ (559,000) $(226,000)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 330,000 191,000
Deferred income taxes (221,000) (145,000)
(Increase) decrease in accounts receivable (1,035,000) 46,000
(Increase) decrease in inventories 39,000 (30,000)
(Increase) decrease in prepaids and other current assets (125,000) 13,000
Increase(decrease)in accounts payable (198,000) 287,000
Increase (decrease) in accrued rent 300,000 --
Increase (decrease) in accrued liabilities 189,000 37,000
Other (155,000) (149,000)
------------ ---------
Total Adjustments (876,000) 250,000
------------ ---------
Net Cash Provided (Used) by Operating Activities (1,435,000) 24,000
----------- ---------
Cash Flows From Investing Activities:
Cash paid in acquisition of Casper Air Service,
net of cash acquired (1,145,000) --
Proceeds of sale of property and equipment 748,000 --
Payments for property and equipment additions (537,000) (248,000)
----------- ----------
Net Cash Used by Investing Activities (934,000) (248,000)
----------- ----------
Cash Flows From Financing Activities:
Repayments of short-term borrowings, net (333,000) --
Repayment of Bridge Notes (500,000) --
Principal payments on long-term debt (469,000) (20,000)
Proceeds from exercise of warrants 1,000 --
Proceeds from issuance of common stock 5,572,000 --
----------- --------
Net Cash Provided (Used) by Financing Activities 4,271,000 (20,000)
----------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 1,902,000 (244,000)
Cash and Cash Equivalents at Beginning of Period 188,000 457,000
----------- ---------
Cash and Cash Equivalents at End of Period $ 2,090,000 $ 213,000
=========== =========
Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
Cash paid for interest $ 156,000 $ 45,000
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 --
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
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<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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
of Financial Condition and Results of Operations and the 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 (the
"IPO") 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
$5,189,000, net of approximately $1,539,000 of associated underwriting discounts
and offering expenses. The proceeds were used to repay the 10% Bridge Notes of
$500,000, to 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 IPO in August 1997, 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 Basic 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 and six months ended December 31, 1997 and 1996, the Basic EPS
calculation reflects an increase in common shares for the assumed exercise of
the warrants. No adjustment was made for the assumed conversion of the Company's
convertible debt for any period presented since the effect would be
antidilutive.
-4-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
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.
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 release publicly 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.
Overhaul Services Division
- --------------------------
Net revenues from the Overhaul Services Division 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 three locations, Acadiana Regional Airport
in New Iberia, Louisiana (Pride), Portland International Airport in Portland,
Oregon (Pride Portland) and Redbird Airport in Dallas, Texas (TriStar Paint).
During the quarter ended December 31, 1997, all work previously performed at the
Company's Redbird facility was transferred to New Iberia.
Ground Services Division
- ------------------------
Net revenues from the Ground Services Division 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. In 1997, the Company executed new ground service contracts with customers
under which it established operations in the Los Angeles International Airport,
Oakland Airport, and Kansas City Airport and Fort Lauderdale International
Airport. The Company intends to close its stations at San Francisco
International Airport, Los Angeles International Airport, and Fort Lauderdale
International Airport during the third quarter of fiscal 1998.
-6-
<PAGE>
FBO & Airport Management Division
- ---------------------------------
The Company commenced its Fixed Base Operation ("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 operate
profitably 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 Casper Air Service ("CAS"), which operates a
full service FBO in Casper, Wyoming. Activities at CAS include fueling, parts
sales, maintenance and repair services for corporate and general aviation
aircraft.
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 Services 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, the Overhaul
and Service Division generates a significant percentage of the Company's
revenue. Management, therefore, is required to plan cash flow accordingly.
RESULTS OF OPERATIONS
The following tables sets forth a summary, for the periods indicated, of
the revenues and gross profits for each of the Company's major operating
divisions, as well as selected other financial statement data.
Revenues. Net revenues for the three month period ended December 31, 1997
increased $3,189,000 or 109% from the three month period ended December 31,
1996. Net revenues for the six month period ended December 31, 1997 increased
$4,995,000 or 118% from the six month period ended December 31, 1996. The
following tables represent a summary of revenues by division for the periods
noted:
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
---------------------------------------
1997 1996
---- ----
% of Total % of Total
Revenues Dollars Revenues Dollars Revenues
- -------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Overhaul Services $ 3,758,000 61.6% $ 2,562,000 87.8%
Ground Services 355,000 5.8 242,000 8.3
FBO and Airport Management 1,993,000 32.6 113,000 3.9
-------------- ------- ------------- ------
Total Revenues $ 6,106,000 100.0% $ 2,917,000 100.0%
============== ======= ============= ======
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
---------------------------------------
1997 1996
---- ----
% of Total % of Total
Revenues Dollars Revenues Dollars Revenues
- -------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Overhaul Services $ 5,066,000 54.9% $ 3,547,000 83.9%
Ground Services 714,000 7.8 442,000 10.5
FBO and Airport Management 3,442,000 37.3 238,000 5.6
-------------- ------- ------------- ------
Total Revenues $ 9,222,000 100.0% $ 4,227,000 100.0%
============== ======= ============= ======
</TABLE>
Revenues for the Overhaul Services Division increased $1,196,000 for the
three months ended December 31, 1997 and $1,519,000 for the six months ended
December 31, 1997 over the comparable period in the prior years. This increase
is due primarily to the contract with Boeing Aircraft to paint seven Boeing 777
aircraft, which began in November 1997. Billings during the second quarter of
1997 on the Boeing contract totaled approximately $1,279,000.
Revenues for the Ground Services Division increased by $113,000 or 47% for
the three months ended December 31, 1997 and $272,000 or 62% for the six month
period ended December 31, 1997 over the comparable period in the prior year.
This increase is related primarily to increased activity at new stations opened
during fiscal 1997, which include Kansas City, Los Angeles International Airport
and Oakland International Airport. Additionally, a station was established at
Fort Lauderdale International Airport during the first quarter of fiscal 1998.
Revenues for the FBO and Airport Management Division increased by
$1,880,000 or 1,664% for the three months ended December 31, 1997 and $3,204,000
or 1,346% for the six months ended December 31, 1997 over the comparable period
in the prior year. This increase is due principally to the acquisition of Casper
Air Service in August 1997. Casper Air Service contributed $1,846,000 and
$3,120,000 to revenues for the three months and six months ended December 31,
1997, respectively.
Gross Profit. Gross profit for the three month period ended December 31,
1997 increased $899,000 or 92% from the three month period ended December 31,
1996. Gross profit for the six month period ended December 31, 1997 increased
$1,152,000 or 94% from the six month period ended December 31, 1996. The
following tables represent a summary of gross profit by division for the periods
noted:
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
---------------------------------------
1997 1996
---- ----
% of % of
Division Division
Dollars Revenues Dollars Revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Overhaul Services $ 1,350,000 35.9% $ 849,000 33.1%
Ground Services 65,000 18.3 128,000 52.9
FBO and Airport Management 460,000 23.1 (1,000) (0.1)
-------------- -------------
Total Gross Profit $ 1,875,000 30.7% $ 976,000 33.5%
============== =============
<CAPTION>
For the Six Months Ended December 31,
-------------------------------------
1997 1996
---- ----
% of % of
Division Division
Dollars Revenues Dollars Revenues
------- -------- ------- --------
<S> <C> <C> <C> <C>
Overhaul Services $ 1,548,000 30.6% $ 1,022,000 28.8%
Ground Services 138,000 19.3 205,000 46.4
FBO and Airport Management 697,000 20.2 4,000 1.7
-------------- -------------
Total Gross Profit $ 2,383,000 25.8% $ 1,231,000 29.1%
</TABLE>
-8-
<PAGE>
Gross profit for the Overhaul Services Division increased $501,000 or 59%
for the three months ended December 31, 1997 and $526,000 or 51% for the six
months ended December 31, 1997 over the comparable period in the prior year.
This increase is related primarily to the gross profit obtained on the Boeing
contract mentioned earlier.
Gross profit for the Ground Services Division decreased by $63,000 or 49%
for the three months ended December 31, 1997 and $67,000 or 33% for the six
months ended December 31, 1997 over the comparable period in the prior year.
This decrease is related primarily to the expansion during fiscal 1997 into new
stations at Kansas City, Los Angeles International Airport, Oakland
International Airport and Fort Lauderdale International Airport during fiscal
1997 and in the first quarter of 1998 and the "start up" losses generated by
these new locations. These losses resulted from the investment in personnel and
resources needed to initiate and expand new services at the new airport
locations listed above.
Gross profit for the FBO and Airport Management Division increased by
$461,000 for the three months ended December 31, 1997 and $693,000 for the six
months ended December 31, 1997 over the comparable period in the prior year.
This increase is related primarily to acquisition of Casper Air Service in
August 1997. Casper Air Service contributed $467,000 and $684,000 to gross
profit for the Company during the three months and six months ended December 31,
1997, respectively.
Other Expenses. The following tables represent a summary of other expenses,
and their percentage of gross revenues for the periods noted:
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
---------------------------------------
1997 1996
---- ----
% of Total % of Total
Dollars Revenues Dollars Revenues
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
General and Administrative $ 1,554,000 25.5% $ 741,000 25.4
Depreciation and Amortization 191,000 3.1 56,000 1.9
Interest Expense and Other 30,000 0.5 27,000 0.9
Income (Loss) before Income Taxes 100,000 1.6 152,000 5.2
Provision(Benefit) for Income Taxes 37,000 0.6 49,000 1.7
-------------- -------------
Net Income (Loss) $ 63,000 1.0% $ 103,000 3.5%
============== =============
<CAPTION>
For the Six Months Ended December 31,
-------------------------------------
1997 1996
---- ----
% of Total % of Total
Dollars Revenues Dollars Revenues
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
General and Administrative $ 2,680,000 29.1% $ 1,319,000 31.2%
Depreciation and Amortization 330,000 3.6 191,000 4.5
Interest Expense and Other 174,000 1.9 66,000 1.5
Income (Loss) before Income Taxes (801,000) (8.7) (345,000) (8.2)
Provision (Benefit) for Income Taxes (242,000) (2.6) (119,000) (2.8)
-------------- -------------
Net Income (Loss) $ (559,000) (6.1%) $ (226,000) (5.3%)
=============== =============
</TABLE>
The Company's general and administrative expenses increased $813,000 or
110% for the three months ended December 31, 1997 and $1,361,000 or 103% for the
six months ended December 31, 1997 over the comparable prior year periods. These
increases are due to several factors. Corporate overhead accounted for $240,000
of the increase for the three months ended December 31, 1997 and $447,000 of the
increase for the six months ended December 31, 1997. 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 $356,000 in the quarter ended
December 31, 1997 and $486,000 for the six months ended December 31, 1997.
-9-
<PAGE>
The Company's depreciation and amortization expense increased by $135,000
or 241% for the three months ended December 31, 1997 and $139,000 or 72% for the
six months ended December 31, 1997 from the comparable period in the prior year.
This increase is related primarily to the acquisition of Casper Air Service and
the associated depreciation of fixed assets and amortization of goodwill
acquired.
The Company's interest expense increased $3,000 or 11% for the three months
ended December 31, 1997 and $108,000 or 164% for the six months ended December
31, 1997 over the comparable period in the prior year. The increase of the six
month period is due principally to $64,000 of interest expense accreted to the
Bridge Notes during the first quarter of 1997 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 borrowing levels in the
first quarter of fiscal 1998 when compared to fiscal 1997. Interest expense is
presented net of interest income of $24,000 and $43,000 for the three months and
six months ended December 31, 1997, respectively.
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 $5.2 million in net proceeds from the
IPO in August 1997. The proceeds have been used to repay the 10% Bridge Notes of
$500,000, to 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.
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, in conjunction with the growth by acquisition strategy
outlined above, incurred corporate general and administrative expenses totaling
$333,000 for the three months ended December 31, 1997. These general and
administrative expenses relate primarily to the management infrastructure
required to seek out and evaluate potential acquisition candidates and manage
the anticipated growth of the business. The Company has several acquisition
candidates identified at present. While this level of expense is high relative
to the current revenues of the Company, management believes that it has created
an infrastructure capable of managing the Company's growth in the future without
a proportionate growth in administrative expenses.
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 requiring monthly rent payments not
exceeding $35,000 upon completion of the hangar's construction.
-10-
<PAGE>
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 aircraft to be painted in the Company's Portland painting facility
from November 1997 through February 1998.
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.
-11-
<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.
(c) For the quarter ended December 31, 1997, the Company issued a total of
69,353 shares of Common Stock pursuant to the exercise of outstanding
warrants in unregistered transactions. These shares were issued in reliance
upon the exemption from registration under the Securities Act of 1933, as
amended, provided by Section 4(2) thereof. The Company received $1.00 per
share in cash of 1,000 of the shares. The remaining 68,353 shares were
issued, on a cashless basis, in exchange for the exercise and surrender of
a total of 76,515 warrants.
(d) The Company completed its initial public offering on August 19, 1997. The
offering commenced on August 13, 1997, which was the effective date of the
Form SB-2 Registration Statement (File No. 333-22727) for the offering (the
"Registration Statement"). The managing underwriter for the offering was
Duke & Co., Inc. Pursuant to the Registration Statement, the Company
registered (i) the offering and sale of various securities by the Company
and (ii) the offering and sale, on a delayed basis under Rule 415, of
1,360,463 shares of Common Stock by selling securityholders. The following
table summarizes the number of securities registered, aggregate offering
price of the amounts registered, the amounts sold through December 31, 1997
and the aggregate offering price of the amounts sold through December 31,
1997 for the account of the Company:
<TABLE>
<CAPTION>
Aggregate Offering Aggregate Offering
Amount Price of Amount Price of Amount
Title of Security Registered Registered Amount Sold Sold
----------------- ---------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C>
Common Stock 1,150,000 $ 6,612,500 1,150,000 $6,612,500
Redeemable Common 1,150,000 115,000 1,150,000 115,000
Stock Purchase
Warrants
Representative's 100,000 100 100,000 100
Warrants
Underlying Warrants 100,000 16,500 - -
Common Stock issuable 1,350,000 10,022,250 - -
upon exercise of
Warrants
------------- -----------
Total: $16,766,350 $6,727,600
</TABLE>
Of the 1,360,463 shares of Common Stock registered for the account of
selling securityholders, 74,165 shares of Common Stock have been sold
through December 31, 1997 at prevailing market prices. The Company has
no information regarding the actual offering proceeds received by each
selling securityholder.
-12-
<PAGE>
The following table summarizes the amount of expenses incurred by the
Company, from the effective date of the Registration Statement to December 31,
1997, in connection with the issuance and distribution of the securities
registered.
<TABLE>
<CAPTION>
Direct or indirect payments to directors,
officers, general partners of the Company
or their associates; to persons owning
10% or more of any class of equity
securities of the Company; Direct or indirect
and to affiliates of the Company payments to others
----------------------------------------- ------------------
<S> <C> <C>
Underwriting Discounts and
Commissions
- $672,750
Finders' Fees - -
Expenses Paid to or for
Underwriters - 201,825
Other Expenses $75,000 589,425
------- ------------
Total Expenses $75,000 $1,464,000
</TABLE>
The net offering proceeds to the Company from its initial public offering after
the total expenses described above was $5,188,600.
<TABLE>
<CAPTION>
The following table shows the amount of net offering proceeds to the
Company used for each of the purposes listed below through December 31, 1997.
Direct or indirect payments to
directors, officers, general
partners of the Company or
their associates; to persons
owning 10% or more of any
class of equity securities
of the Company; Direct or indirect
and to affiliates of the Company payments to others
-------------------------------- ----------------
<S> <C> <C>
Purchase and installation of
machinery and equipment - $ 244,500
Acquisition of other
business(es) and related costs $ 65,000 1,571,000
Repayment of indebtedness 83,000 1,092,000
Working capital - 823,200
Temporary money
market investments - 1,309,900
-------- -----------
Total: $148,000 $ 5,040,600
</TABLE>
-13-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the stockholders of the Company was held on November
13, 1997 pursuant to a proxy statement dated October 21, 1997. The various
matters voted upon as well as the results of such voting are as follows:
(a) Election of two Directors to serve for a term of three years:
Charles E. Weed Robert A Schneider
--------------- ------------------
Votes in favor 2,395,707 2,395,707
Abstentions 11,900 11,900
Broker non-votes 700 700
----------- -----------
Total 2,408,307 2,408,307
=========== ===========
(b) Ratify and approve the selection of Price Waterhouse LLP as independent
auditors of the Company:
Votes in favor 2,401,107
Votes against --
Abstentions 6,500
Broker non-votes 700
-----------
Total 2,408,307
===========
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
-14-
<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: February 12, 1997.
AVIATION GROUP, INC.
By: /s/ Lee Sanders
--------------------------------------------
Lee Sanders, Chairman of the Board and Chief
Executive Officer
<TABLE>
<CAPTION>
Exhibit 11.1
AVIATION GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(UNAUDITED)
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding:
Common shares outstanding at
beginning of period 3,029,446 1,600,250 1,600,250 1,600,250
Initial public offering -- -- 842,077 --
Acquisition of Casper Air Service -- -- 117,481 --
Shares issued on Bridge Notes -- -- 33,262 --
Conversion of LEDC Note -- -- 62,849 --
Exercise of Stock Warrants 16,448 -- 8,179 --
Impact of nominal issuances recorded
in accordance with SAB 98 220,156 212,609 225,401 212,609
---------- ---------- ---------- ----------
Average Shares Outstanding (Basic) 3,266,050 1,812,859 2,889,499 1,812,859
Dilutive effect of:
Assumed exercise of options 11,246 -- -- --
Assumed exercise of warrants 192,382 -- -- --
---------- ---------- ---------- ----------
Average Shares Outstanding
(Diluted) 3,469,678 1,812,859 2,889,499 1,812,859
========== ========== ========== ==========
Net income (loss) - Basic and Diluted $ 63,000 $ 103,000 $ (559,000) $ (226,000)
========== ========== ========== ==========
Computation of net income (loss) per common share:
Net income (loss) divided by weighted
average shares outstanding
Basic $ 0.02 $ 0.06 $ (0.19) $ (0.12)
========== ========== ========== ==========
Diluted $ 0.02 $ 0.06 $ (0.19) $ (0.12)
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Aviation
Group, Inc.'s balance sheets and income statements for the six months ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000355906
<NAME> Aviation Group Inc.
<MULTIPLIER> 1
<CURRENCY> 1.00
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 2,090,000
<SECURITIES> 0
<RECEIVABLES> 2,456,000
<ALLOWANCES> 0
<INVENTORY> 863,000
<CURRENT-ASSETS> 6,105,000
<PP&E> 5,386,000
<DEPRECIATION> 873,000
<TOTAL-ASSETS> 12,291,000
<CURRENT-LIABILITIES> 3,370,000
<BONDS> 1,237,000
0
0
<COMMON> 31,000
<OTHER-SE> 7,082,000
<TOTAL-LIABILITY-AND-EQUITY> 12,291,000
<SALES> 0
<TOTAL-REVENUES> 9,222,000
<CGS> 0
<TOTAL-COSTS> 6,839,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,000
<INCOME-PRETAX> (801,000)
<INCOME-TAX> (242,000)
<INCOME-CONTINUING> (559,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (559,000)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
