<PAGE> 1
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 March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
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 [X] No [ ]
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.
3,257,992 shares of Common Stock were outstanding as of May 1, 1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,224,000 $ 188,000
Accounts receivable, net 1,330,000 796,000
Inventory 1,352,000 240,000
Deferred income taxes 20,000 40,000
Prepaid expenses and other 469,000 710,000
------------ ------------
Total Current Assets 5,395,000 1,974,000
------------ ------------
Property and equipment 5,651,000 2,903,000
Less: accumulated depreciation (1,057,000) (583,000)
------------ ------------
4,594,000 2,320,000
------------ ------------
Goodwill, net 2,798,000 752,000
Other 315,000 65,000
------------ ------------
3,113,000 817,000
------------ ------------
Total Assets $ 13,102,000 $ 5,111,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 587,000 $ 502,000
Bridge notes -- 436,000
Other short-term borrowings 851,000 256,000
Accounts payable 988,000 769,000
Accrued liabilities 1,547,000 527,000
------------ ------------
Total Current Liabilities 3,973,000 2,490,000
------------ ------------
Long-Term Liabilities
Long-term debt, net of current maturities 1,115,000 1,292,000
Deferred income taxes 352,000 100,000
------------ ------------
Total Long-Term Liabilities 1,467,000 1,392,000
------------ ------------
Total Liabilities 5,440,000 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, 3,257,992 and 1,600,250 shares
issued and outstanding 33,000 16,000
Additional paid-in capital 8,924,000 1,951,000
Retained earnings (deficit) (1,295,000) (738,000)
------------ ------------
Total Shareholders' Equity 7,662,000 1,229,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 13,102,000 $ 5,111,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
<PAGE> 3
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 4,928,000 $ 2,437,000 $ 14,150,000 $ 6,664,000
Cost of Revenue 3,542,000 2,299,000 10,785,000 5,295,000
------------ ------------ ------------ ------------
Gross Profit 1,386,000 138,000 3,365,000 1,369,000
------------ ------------ ------------ ------------
General and Administrative Expenses 1,136,000 103,000 3,411,000 1,422,000
Depreciation and Amortization 201,000 100,000 531,000 291,000
------------ ------------ ------------ ------------
1,337,000 203,000 3,942,000 1,713,000
------------ ------------ ------------ ------------
Income (Loss) From Operations 49,000 (65,000) (577,000) (344,000)
------------ ------------ ------------ ------------
Other Income (Expenses)
Other Income (Expense) 4,000 8,000 19,000 --
Interest Expense, net (37,000) (95,000) (227,000) (153,000)
------------ ------------ ------------ ------------
(33,000) (87,000) (208,000) (153,000)
------------ ------------ ------------ ------------
Income (Loss) Before Provision for Income Taxes 16,000 (152,000) (785,000) (497,000)
Provision (Benefit) for Income Taxes 14,000 (45,000) (228,000) (164,000)
------------ ------------ ------------ ------------
Net Income (Loss) $ 2,000 $ (107,000) $ (557,000) $ (333,000)
============ ============ ============ ============
Earnings (loss) per common share
Basic $ 0.00 $ (0.06) $ (0.18) $ (0.18)
============ ============ ============ ============
Diluted $ 0.00 $ (0.06) $ (0.18) $ (0.18)
============ ============ ============ ============
Weighted average shares outstanding
Basic 3,191,265 1,812,859 3,014,757 1,812,859
============ ============ ============ ============
Diluted 3,191,265 1,812,859 3,058,261 1,812,859
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE> 4
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended March 31,
-----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (557,000) $ (333,000)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 531,000 291,000
Accreted interest 64,000 --
Deferred income taxes (208,000) 10,000
(Increase) decrease in accounts receivable 171,000 (11,000)
(Increase) decrease in inventories (365,000) (106,000)
(Increase) decrease in prepaids and other current assets (149,000) (39,000)
Increase (decrease) in accounts payable (116,000) 37,000
Increase (decrease) in accrued liabilities 516,000 56,000
Other (250,000) (343,000)
------------ ------------
Total Adjustments 194,000 (105,000)
------------ ------------
Net Cash Provided (Used) by Operating Activities (363,000) (438,000)
------------ ------------
Cash Flows From Investing Activities:
Cash paid in acquisition of Casper Air Service,
net of cash acquired (1,145,000) --
Cash paid in acquisition of Aero Design et.al.,
net of cash acquired (723,000) --
Proceeds of sale of property and equipment 748,000 --
Payments for property and equipment additions (677,000) (335,000)
------------ ------------
Net Cash Used by Investing Activities (1,797,000) (335,000)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings 700,000 155,000
Repayments of short-term borrowings (812,000) --
Borrowings under/(repayment of) Bridge Notes (500,000) 290,000
Principal payments on long-term debt (765,000) (47,000)
Proceeds from exercise of warrants 1,000 --
Proceeds from issuance of common stock 5,572,000 --
------------ ------------
Net Cash Provided (Used) by Financing Activities 4,196,000 398,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,036,000 (375,000)
Cash and Cash Equivalents at Beginning of Period 188,000 457,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,224,000 $ 82,000
============ ============
Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
Cash paid for interest $ 202,000 $ 162,000
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 --
Issuance of common stock in connection with
the acquisition of Aero Design, Inc and
Battery Shop, LLC 547,000 --
Conversion of LEDC note to Common Stock 370,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE> 5
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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 Casper Air Service ("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 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 - ACQUISITION OF AERO DESIGN, INC. AND BATTERY SHOP, LLC
In March 1998, the Company acquired all of the outstanding common stock
of Aero Design, Inc. and all of the outstanding ownership interests of Battery
Shop, LLC, two sister companies involved in the manufacturing and overhaul of
replacement batteries for the aviation industry. The purchase price of
$1,300,000 included $753,000 in cash and 134,398 shares of Common Stock valued
at approximately $547,000. 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) of $1,381,000
has been recorded as goodwill and is being amortized using the straight-line
method over 20 years.
Aero Design, Inc. and Battery Shop, LLC are located outside Nashville,
Tennessee.
-4-
<PAGE> 6
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
The following unaudited pro forma consolidated results of operations
for the nine months ended March 31, 1998 assumes the Aero Design acquisition
occurred as of July 1, 1997:
<TABLE>
<S> <C>
Revenues $ 14,762,000
================
Net Loss (541,000)
================
Earnings per share -
Basic (0.17)
================
Diluted (0.17)
================
</TABLE>
NOTE E - EARNINGS (LOSS) PER COMMON SHARE
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. 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, except as noted below, 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. The Company has adopted SFAS 128.
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 periods presented with the dilutive effect measured using the
treasury stock method. As a result, the basic EPS calculation reflects an
increase in common shares for the assumed exercise of the warrants of 128,188
and 193,860 for the three months and nine months ended March 31, 1998,
respectively, and 212,609 for both the three months and nine months ended March
31, 1997. No adjustment was made for the assumed conversion of the Company's
convertible debt for any period presented since the effect would be
antidilutive.
NOTE F - SUBSEQUENT EVENT
In April 1998, the Board of Directors elected to grant an additional
19,000 incentive stock options to officers and employees of the Company and
345,000 nonqualified stock options and warrants to officers, directors and
consultants of the Company. The exercise price on all the options and warrants
granted was the market price at the date of grant. In addition to the new option
grant, 109,000 previously issued options were cancelled and an equal number of
new options were granted. These new options were granted at an exercise price
equal to the market price at the date of grant, except for options for 50,000
shares which were granted at an exercise price of 110% of market price.
NOTE G - NEW PRONOUNCEMENTS
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> 7
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 of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this MD&A regarding the Company's
financial position, business strategy, 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, overhaul and
maintenance services, 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 two locations, Acadiana Regional
Airport in New Iberia, Louisiana (Pride) and Portland International Airport in
Portland, Oregon (Pride Portland). 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, Kansas City Airport and Fort Lauderdale International Airport.
During the third quarter of fiscal 1998, the Company closed its stations at San
Francisco International Airport, Los Angeles International Airport, and Fort
Lauderdale International Airport.
-6-
<PAGE> 8
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
Services 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 set 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 March 31, 1998
increased $2,491,000 or 102% from the three month period ended March 31, 1997.
Net revenues for the nine month period ended March 31, 1998 increased $7,486,000
or 112% from the nine month period ended March 31, 1997. The following tables
represent a summary of revenues by division for the periods noted:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------------------------
1998 1997
------------------------- -------------------------
Revenues % of Total % of Total
Dollars Revenues Dollars Revenues
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Overhaul Services $2,734,000 55.5% $2,028,000 83.2%
Ground Services 342,000 6.9 285,000 11.7
FBO and Airport Management 1,852,000 37.6 124,000 5.1
---------- ---------- ---------- ----------
Total Revenues $4,928,000 100.0% $2,437,000 100.0%
========== ========== ========== ==========
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
For the Nine Months Ended March 31,
------------------------------------------------------------
1998 1997
--------------------------- ---------------------------
Revenues % of Total % of Total
Dollars Revenues Dollars Revenues
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Overhaul Services $ 7,800,000 55.1% $ 5,576,000 83.7%
Ground Services 1,056,000 7.5 726,000 10.9
FBO and Airport Management 5,294,000 37.4 362,000 5.4
----------- ----------- ----------- -----------
Total Revenues $14,150,000 100.0% $ 6,664,000 100.0%
=========== =========== =========== ===========
</TABLE>
Revenues for the Overhaul Services Division increased $706,000 or 35%
for the three months ended March 31, 1998 and $2,224,000 or 40% for the nine
months ended March 31, 1998 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 and ran through February 1998.
The second phase of this contract was awarded to another vendor. Billings during
the third quarter of 1998 on the Boeing contract totaled approximately $959,000.
This increase in revenues was offset in the third quarter by a reduction in
revenues related to the loss of the United 757 line as of December 1997. In
April 1998, the Company entered into a three year agreement with Federal Express
to provide exterior painting services at the Company's facilities in Portland,
Oregon and New Iberia, Louisiana.
Revenues for the Ground Services Division increased by $57,000 or 20%
for the three months ended March 31, 1998 and $330,000 or 45% for the nine month
period ended March 31, 1998 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. Additional revenues were generated on an
increased level of activity at Dallas Fort Worth, Oakland and Alliance Airports.
Revenues for the FBO and Airport Management Division increased by
$1,728,000 or 1,394% for the three months ended March 31, 1998 and $4,932,000 or
1,362% for the nine months ended March 31, 1998 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 $1,678,000 and
$4,798,000 to revenues for the three months and nine months ended March 31,
1998, respectively.
Gross Profit. Gross profit for the three month period ended March 31,
1998 increased $1,247,000 or 904% from the three month period ended March 31,
1997. Gross profit for the nine month period ended March 31, 1998 increased
$1,996,000 or 146% from the nine month period ended March 31, 1997. The
following tables represent a summary of gross profit by division for the periods
noted:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------------------------
1998 1997
------------------------- -------------------------
% of % of
Division Division
Dollars Revenues Dollars Revenues
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Overhaul Services $ 835,000 30.5% $ 9,000 0.0%
Ground Services 122,000 35.7 142,000 49.8
FBO and Airport Management 429,000 23.2 (13,000) (10.5)
---------- -------------
Total Gross Profit $1,386,000 28.1% $ 138,000 5.7%
========== =============
</TABLE>
-8-
<PAGE> 10
<TABLE>
<CAPTION>
For the Nine Months Ended March 31,
--------------------------------------------------------
1998 1997
------------------------- -------------------------
% of % of
Division Division
Dollars Revenues Dollars Revenues
----------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Overhaul Services $ 1,979,000 25.4% $ 1,031,000 18.5%
Ground Services 260,000 24.6 347,000 47.8
FBO and Airport Management 1,126,000 21.3 (9,000) (2.5)
----------- -------------
Total Gross Profit $ 3,365,000 23.8% $ 1,369,000 20.5%
=========== =============
</TABLE>
Gross profit for the Overhaul Services Division increased $826,000 or
9,178% for the three months ended March 31, 1998 and increased $948,000 or 92%
for the nine months ended March 31, 1998 over the comparable period in the prior
year. The increase in gross profit for the third quarter is due primarily to
additional revenues and profits generated by the Boeing contract which were not
existent in the third quarter 1997, offset by the reduction in revenues
generated at Pride's New Iberia facility related to United 757 aircraft. The
increase in gross profit year to date is related primarily to the gross profit
obtained on the Boeing contract mentioned earlier.
Gross profit for the Ground Services Division decreased by $20,000 or
14% for the three months ended March 31, 1998 and $87,000 or 25% for the nine
months ended March 31, 1998 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
$442,000 for the three months ended March 31, 1998 and $1,135,000 for the nine
months ended March 31, 1998 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 $385,000 and $1,070,000 to gross profit for
the Company during the three months and nine months ended March 31, 1998,
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 March 31,
------------------------------------------------------------
1998 1997
----------------------------- ---------------------------
% of Total % of Total
Dollars Revenues Dollars Revenues
-------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
General and Administrative $ 1,136,000 23.1% $ 103,000 4.2
Depreciation and Amortization 201,000 4.1 100,000 4.1
Interest Expense and Other 33,000 0.7 87,000 3.6
Income (Loss) before Income Taxes 16,000 0.3 (152,000) (6.2)
Provision (Benefit) for Income Taxes 14,000 0.3 (45,000) (1.8)
-------------- --------------
Net Income (Loss) $ 2,000 0.0% $ (107,000) (4.4%)
============== =============
</TABLE>
-9-
<PAGE> 11
<TABLE>
<CAPTION>
For the Nine Months Ended March 31,
------------------------------------------------------------
1998 1997
----------------------------- ---------------------------
% of Total % of Total
Dollars Revenues Dollars Revenues
-------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
General and Administrative $ 3,411,000 24.1% $ 1,422,000 21.3%
Depreciation and Amortization 531,000 3.8 291,000 4.4
Interest Expense and Other 208,000 1.5 153,000 2.3
Income (Loss) before Income Taxes (785,000) (5.6) (497,000) (7.5)
Provision (Benefit) for Income Taxes (228,000) (1.6) (164,000) (2.5)
-------------- -------------
Net Income (Loss) $ (557,000) (3.9%) $ (333,000) (5.0%)
============== =============
</TABLE>
The Company's general and administrative expenses increased $1,033,000
or 1,003% for the three months ended March 31, 1998 and $1,989,000 or 140% for
the nine months ended March 31, 1998 over the comparable prior year periods.
These increases are due to several factors. Corporate overhead accounted for
$122,000 of the increase for the three months ended March 31, 1998 and $569,000
of the increase for the nine months ended March 31, 1998. 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 $325,000 in the quarter ended
March 31, 1998 and $812,000 for the nine months ended March 31, 1998.
The Company's depreciation and amortization expense increased by
$101,000 or 101% for the three months ended March 31, 1998 and $240,000 or 82%
for the nine months ended March 31, 1998 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 decreased $54,000 or 62% for the three
months ended March 31, 1998 and increased $55,000 or 36% for the nine months
ended March 31, 1998 over the comparable period in the prior year. The increase
of the nine month period is due principally to $64,000 of interest expense
accreted to the Bridge Notes during the first quarter of 1998 as a result of the
common stock payable to the Bridge Note holders upon completion of the initial
public offering. The decrease during the current quarter relates primarily
changes in the borrowing levels and associated interest rates between the third
quarter of fiscal 1998 when compared to fiscal 1997. Interest expense is
presented net of interest income of $17,000 and $60,000 for the three months and
nine months ended March 31, 1998, 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,
-10-
<PAGE> 12
to fund the cash portion of the Aero Design acquisition of $753,000,
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
$248,000 and $890,000 for the three months and nine months ended March 31, 1998
respectively. 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, as
evidenced by the March 1998 acquisition of Aero Design, Inc and Battery Shop,
LLC. The Company currently has other acquisition candidates identified. 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
lease for a proposed wide body aircraft painting hangar to be constructed in New
Iberia, Louisiana. Pride Aviation, Inc. intends to execute a lease requiring
monthly rent payments not exceeding $35,000 payable upon completion of the
hangar's construction.
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> 13
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 March 31, 1998, the Company issued a total of
21,975 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 21,975
shares were issued, on a cashless basis, in exchange for the exercise
and surrender of a total of 24,750 warrants. The warrants were
exercisable at $1.00 per share.
(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 following table shows the amount of net offering proceeds to the
Company used for each of the purposes listed below through March 31,
1998.
<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>
Purchase and installation of
machinery and equipment -- $ 244,500
Acquisition of other
business(es) and related costs $ 80,000 2,324,000
Repayment of indebtedness 83,000 1,092,000
Working capital -- 823,200
Temporary money
market investments -- 541,900
---------- ----------
Total: $ 163,000 $5,025,600
========== ==========
</TABLE>
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
------- -----------
10.1 Aircraft Painting Services Agreement dated April 24, 1998
between Federal Express Corporation and Pride Aviation, Inc.
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/A Current Report dated February 4,1998
which amended the previously reported consummation of the acquisition of CAS as
of August 19, 1997.
<PAGE> 14
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: May 14, 1998.
AVIATION GROUP, INC.
By: /s/ Richard Morgan
---------------------------------------
Richard Morgan, Chief Financial Officer
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.1 Aircraft Painting Services Agreement dated April 24, 1998
between Federal Express Corporation and Pride Aviation, Inc.
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
Contract No. 98-0903
-------
AIRCRAFT PAINTING SERVICES AGREEMENT
THIS AIRCRAFT PAINTING SERVICES AGREEMENT ("Agreement"), is made and
entered into as of this 24th day of April, 1998, by and between FEDERAL EXPRESS
CORPORATION, a Delaware corporation ("FedEx"), and PRIDE AVIATION, INC., an
Oklahoma corporation ("Contractor").
RECITALS
1. FedEx desires that Contractor perform certain painting services with
respect to FedEx's aircraft, at those locations set forth in Exhibit A (the
"Location").
2. Contractor is willing and able to perform the services for FedEx pursuant
to the terms and subject to the conditions of this Agreement.
FOR AND IN CONSIDERATION of the mutual covenants set forth in this
Agreement, FedEx and Contractor (the "Parties") agree as follows:
ARTICLE 1
SERVICES
SECTION 1.01. SERVICES TO BE PROVIDED. (a) Contractor shall furnish
personnel to perform on FedEx's aircraft ("Aircraft") the scheduled painting
services ("Services") more completely described in Exhibit A, subject to the
terms and conditions set forth in this Agreement.
SECTION 1.02. ADDITIONAL SERVICES. In addition to the Services, FedEx may
request that Contractor perform other services on an Aircraft ("Additional
Services") and Contractor shall advise FedEx if it is willing to perform such
Additional Services and the rates applicable to them. Each request by FedEx for
Additional Services must be confirmed by FedEx in writing (which may include a
facsimile). Additional Services shall be performed in accordance with the terms
and subject to the conditions of this Agreement.
SECTION 1.03. CUSTODY AND CONTROL. FedEx agrees that, during the term of
this Agreement, at any time Contractor is performing transit or Services on an
Aircraft, an employee or agent of FedEx shall be in charge of and in custody and
control of the Aircraft, and Contractor will not be considered a bailee of or in
custody or control of the Aircraft.
SECTION 1.04. PERMITS AND LICENSES. Contractor shall obtain all permits and
licenses and at its expense pay all fees necessary for the lawful and proper
performance of the Services.
SECTION 1.05. DISCIPLINE AND SAFETY. Contractor shall enforce strict
discipline and good order among its employees, if any, and shall provide proper
safeguards for the safe performance of the Services. If any person shall appear
to be incompetent, disorderly or intemperate, in any
<PAGE> 2
2
way disrupts or interferes with performance of the Services, or is in any other
way disqualified for or unfaithful to his job, such person shall be removed
immediately by Contractor and shall not be employed for the Services without
Federal's prior written consent
SECTION 1.06. EXCUSABLE DELAY. Contractor shall not be liable to FedEx for
Contractor's failure to perform or any delay in the performance of the Services
or Additional Services (collectively referred to as the "Services") if such
failure to perform or delay in performance is occasioned by causes beyond
Contractor's control, including but not limited to acts of God or of public
enemies, fires, floods, lock-outs, strikes or labor disputes, riots,
insurrections or unusually severe weather.
ARTICLE 2
TERM
SECTION 2.01. EFFECTIVE DATE. This Agreement shall become effective as of
the date of this Agreement and shall commence as-of the date of this Agreement
and continue until April 30, 2001 (the "Term"), unless earlier terminated.
SECTION 2.02. TERMINATION. FedEx shall have the unlimited right to
terminate this Agreement prior to expiration of the Term by giving Contractor
thirty (30) days prior written notice. In such event, Contractor shall be
entitled only to portions of the Fee earned and Reimbursables actually incurred
as of the effective date of termination.
ARTICLE 3
RATES AND PAYMENT: RIGHT TO AUDIT
SECTION 3.01. RATES AND CHARGES. As consideration for Contractor's
performance of the Services, FedEx shall pay to Contractor sums based on the
rates and charges set forth in Exhibit A (the "Fee") and payable as provided in
Exhibit A. No portion of the Fee shall be payable unless properly documented in
accordance with this Article 3.
SECTION 3.02. REIMBURSABLES. In addition to the Fee, FedEx shall reimburse
Contractor for reasonable and necessary expenses incurred by Contractor in the
performance of the Services ("Reimbursables") up to the Maximum Reimbursable
Amount specified in Exhibit A. Reimbursables for travel expenses will be paid
only in accordance with FedEx's policy for the payment of expenses to its own
employees, a copy of which will be provided to Contractor upon request. Any
expenses incurred by Contractor in excess of the Maximum Reimbursable Amount
shall not be deemed Reimbursables, and no Reimbursable claimed will be payable
unless properly documented in accordance with this Article 3.
SECTION 3.03. INVOICES AND PAYMENT. (a) Contractor shall invoice FedEx for
sums payable under this Agreement as provided in Exhibit A. Contractor shall
submit to FedEX an invoice (original and two copies) for Services completed and
Reimbursables incurred during the invoice period. Contractor's invoices must be
accompanied by copies of invoices from its subcontractors, suppliers,
materialmen and vendors (if any), together with complete documentation of any
Reimbursables claimed and any other documentation as may be requested by FedEx
for its proper review of Contractor's invoice.
<PAGE> 3
3
(b) An original and two copies of each invoice shall be submitted to
FedEx at the following address:
Federal Express Corporation
3131 Democrat Road
Bldg. B
Memphis, Tennessee 38698-5436
Attn: Senior Manager, Airframe Vendor Management
(c) FedEx shall promptly review Contractor's invoice and payment by
FedEx shall be made within thirty (30) days of FedEx's receipt and approval of
Contractor's invoice. FedEx shall state in writing its reason for withholding
any or all of the monies requested by Contractor.
SECTION 3.04. RIGHT TO AUDIT. Contractor shall keep full and accurate
records and documentation to substantiate the amounts claimed in any invoice,
which records shall be made available to FedEx at all times during the Term or
any renewal Term of this Agreement, and until two years after completion of the
Services or earlier termination of this Agreement, whichever occurs first.
ARTICLE 4
TAXES
SECTION 4.01. TAXES. (a) FedEx shall pay federal, state and local sales,
use or other applicable taxes (except those based upon Contractor's gross
receipts or net income) which may be imposed upon the Services performed under
this Agreement ("Taxes"). Any Taxes owing by FedEx shall be set forth by
Contractor as a separate invoice item.
(b) Contractor shall, upon FedEx's reasonable written request and at
FedEx's expense, assist FedEx in contesting the validity or application of any
Taxes. Contractor agrees that if it receives a refund of all or part of any
Taxes (including interest and penalties) previously paid by FedEx, it shall
promptly remit the refund to FedEx.
ARTICLE 5
STANDARDS OF PERFORMANCE
SECTION 5.01. STANDARDS OF PERFORMANCE. All Services shall be performed
in a good and workmanlike manner and Contractor shall observe all applicable
requirements of the Federal Aviation Administration and any other governmental
authority having jurisdiction over the Services. Contractor shall comply with
any written procedures of FedEx which are furnished to Contractor including, but
not limited to FedEx's General Maintenance Manual (the "GMM") or, if authorized
by FedEx, the Services shall be performed in accordance with Contractor's
standard aircraft maintenance procedures.
<PAGE> 4
4
ARTICLE 6
SCHEDULING AND WORKSCOPE
SECTION 6.01. SCHEDULING. (a) FedEx will provide Contractor a written
forecast schedule of planned maintenance visits. Such forecast will be updated
periodically.
(b) FedEx and Contractor, by mutual written agreement may amend the
forecast schedule from time to time during the Term of this Agreement.
SECTION 6.02. WORKSCOPE. (a) Federal will provide Contractor a written
Airframe Workscope Letter describing the scope of Services to be performed on
Federal's Aircraft and a listing of all of the FedEx supplied materials/kits no
later than thirty (30) calendar days prior to the Aircraft's specified Delivery
Date.
(b) FedEx and Contractor, by mutual written agreement, may amend the
Airframe Workscope Letter and list of materials/kits from time to time, prior to
an Aircraft's Delivery Date.
ARTICLE 7
WARRANTY
SECTION 7.01. CONTRACTOR'S WARRANTY. (a) Contractor warrants its work
against workmanship defects for a period of three (3) years. This includes paint
adhesion but does not include adhesion of the previous paint job nor does it
include abnormal erosion or chipping from impact damage. This warranty is
non-transferable.
(b) Contractor shall assign to FedEx all assignable warranties,
service life policies and patent indemnities of manufacturers or suppliers of
components other than Contractor. At FedEx's reasonable request, Contractor
shall give FedEx reasonable assistance in enforcing FedEx's rights arising under
such warranties, service life policies and patent indemnities. If required under
such warranties, service life policies or patent indemnities, Contractor shall
give notice of any such manufacturers or suppliers of their assignment by
Contractor to FedEx.
ARTICLE 8
INDEMNIFICATION
SECTION 8.01. CONTRACTOR'S INDEMNIFICATION. Contractor agrees to indemnify,
defend, and hold harmless FedEx, its officers, directors and employees from and
against any and all liabilities, damages, expenses, claims, suits or judgments,
including reasonable attorneys' fees and expenses, for the death of or bodily
injury to any person (other than an officer, director or employee of FedEx) and
for the loss of, damage to or destruction of any property (including the
Aircraft) in any manner to the extent attributable to the negligence or willful
misconduct of Contractor, its officers, directors or employees in the
performance of the Services.
<PAGE> 5
5
SECTION 8.02. FEDEX'S INDEMNIFICATION. FedEx agrees to indemnify, defend,
and hold harmless Contractor, its officers, directors and employees from and
against any and all liabilities, damages, expenses, claims, suits or judgments,
including reasonable attorneys' fees and expenses, for the death of or bodily
injury to any person (other than an officer, director or employee of Contractor)
and for the loss of, damage to or destruction of any property (including the
Aircraft) in any manner to the extent attributable to the negligence or willful
misconduct of FedEx, its officers, directors or employees in the performance of
the Services.
ARTICLE 9
INSURANCE
SECTION 9.01. CONTRACTOR'S INSURANCE REQUIREMENTS. (a) Throughout the Term,
Contractor shall maintain the following insurance and, upon request, shall
furnish FedEx with certificates of insurance evidencing such insurance to be in
effect (and indicating on the certificate of insurance that insurance will not
be modified or canceled unless FedEx is given thirty (30) days' prior notice in
writing), with limits and with the endorsements specified below:
(i) Workers' Compensation Insurance with limits as required
by the laws of the state where the Services are performed
with "Broad Form" all States' endorsement and Employer's
Liability Insurance.
(ii) Hangarkeeper's legal liability insurance with limits not
less than the actual value of the Aircraft.
(iii) Comprehensive Bodily Injury and Property Damage Liability
Insurance with combined single limit of coverage not less
than $25,000,000.00 insuring bodily injury, property
damage and Contractor's contractual liability under the
Agreement.
(b) All insurance policies maintained by Contractor shall be primary
and FedEx's own insurance shall be non-contributing.
(c) All insurance maintained by Contractor shall provide that
insurance will not be subject to cancellation, termination or material change
except after thirty days' notice to, FedEx.
(d) All liability insurance policies maintained by Contractor pursuant
to this Agreement shall be endorsed to name FedEx, its officers, directors and
employees as additional insureds, and all property damage shall be endorsed with
a waiver of subrogation by the insurer as to FedEx, its officers, directors and
employees; but only to the extent that Contractor has agreed to indemnify,
defend or hold harmless FedEx under this Agreement.
ARTICLE 10
INDEPENDENT CONTRACTOR
SECTION 10.01. RELATIONSHIP OF PARTIES. Contractor shall be deemed to be,
for all purposes, an independent contractor and will not at any time directly or
indirectly act as agent,
<PAGE> 6
6
servant, or employee of FedEx. FedEx agrees that it is interested only in the
performance of the Services and the results achieved and shall not exercise any
control over the conduct Or supervision of the Services or the means of their
performance. Contractor shall have full responsibility for the payment of all
federal, state and local taxes and contributions, including penalties and
interest, imposed pursuant to unemployment insurance, social security, income
tax, workers' compensation or any other similar statute.
ARTICLE 11
COMPLIANCE WITH LAWS
SECTION 11.01. COMPLIANCE WITH LAWS. (a) To the extent applicable,
Contractor agrees to comply with the affirmative action requirements applicable
to contracts with U.S. government contractors as set forth in Title 41 of the
Code of Federal Regulations ("C.F.R."). The provisions of said regulations are
incorporated by reference into this Agreement. Contractor further agrees to
employ only persons who are legally authorized to work in the United States
(when employing within the United States) and to have an I-9 employment
authorization form, if required, for each person employed by it in the United
States.
(b) Contractor assumes the complete responsibility for and shall fully
comply with the provisions of 40 C.F.R. Parts 261 through 265, as amended from
time to time, for any unusable material removed from an Aircraft which unusable
material is intended for disposal.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. ASSIGNMENT. This Agreement shall not be assignable or
delegable by either party without the prior written consent of the other. This
Agreement shall be binding upon and inure to the benefit of the parties, their
respective successors, assigns, and legal representatives.
SECTION 12.02. SECTION HEADINGS AND CAPTIONS. All section headings and
captions used in this Agreement are purely for convenience and shall not affect
the interpretation of this Agreement.
SECTION 12.03. EXHIBITS. All exhibits described in this Agreement shall be
deemed to be incorporated in and made a part of this Agreement, except that if
there is any inconsistency between this Agreement and the provisions of any
Exhibit the provisions of this Agreement shall control. Terms used in an Exhibit
and also used in this Agreement shall have the same meaning in the Exhibit as in
this Agreement.
SECTION 12.04. APPLICABLE LAW. This Agreement shall be deemed entered into
and shall be governed by and interpreted in accordance with the laws of the
state of Tennessee, without regard to any conflict of law principles, and the
Parties submit to the jurisdiction of any appropriate court within Tennessee for
adjudication of disputes arising out of this Agreement.
<PAGE> 7
7
SECTION 12.05. AMENDMENTS. Except as otherwise provided, this Agreement
shall not be modified except by written agreement signed on behalf of Contractor
and FedEx by their respective authorized officers.
SECTION 12.06. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements correspondence, representations or understanding
between the parties. This Agreement may be modified only by written agreement
signed by duly authorized officers of the parties.
SECTION 12.07. LEGALITY OF PROVISIONS. If any provision of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired.
SECTION 12.08. NO WAIVER. The failure of either party at any time to
require performance by the other of any provision of this Agreement shall in no
way affect that party's right to enforce such provision, nor shall the waiver by
either party of any breach of any provision of this Agreement be taken or held
to be a waiver of any further breach of the same provision or any other
provision.
SECTION 12.09. SURVIVAL OF TERMS. The provisions of this Agreement which by
their nature extend beyond the expiration or earlier termination of this
Agreement will survive and remain in effect until all obligations are satisfied.
Specifically, Contractor's obligations to indemnify FedEx shall survive this
Agreement.
SECTION 12.10. NOTICES. Notices given hereunder shall be in writing and
shall be deemed to have been given and delivered when received if
hand-delivered, sent by Federal Express service, or sent by United States
certified or registered mail, postage prepaid, addressed as follows:
If to FedEx: Federal Express Corporation
3131 Democrat Road
Bldg. B.
Memphis, Tennessee 38198-5436
Attn: Sr. Manager, Airframe Vendor Management
If to Contractor: Pride Aviation, Inc
Attn.: Paul Lubomirski President
1218 Hangar Drive
New Iberia, LA 70560
or to such other address as either party shall from time to time designate by
notice to the other party.
SECTION 12.11. CHANGE IN CONTROL. In addition to any other rights as FedEx
may have, FedEx shall have the right to immediately terminate this Agreement
upon any change in the majority ownership or voting control of the capital
stock, business or assets of Contractor. Contractor shall promptly notify FedEx
in writing of any such change in control.
<PAGE> 8
8
SECTION 12.12. FURTHER ASSURANCES. Each party agrees to take such actions,
provide such documents, and do such things as may reasonably be required by the
other party to assure the performance of the obligations under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
PRIDE AVIATION, INC. FEDERAL EXPRESS CORPORATION
By: /s/ PAUL LUBOMIRSKI By: /s/ TERRY NORD
----------------------------- ------------------------------
Terry Nord
Title: President Title: Vice President - Base Maint.
----------------------------- ------------------------------
("Contractor") ("FedEx")
APPROVED
AS TO LEGAL FORM
SSL 4/23/98
----------------
LEGAL DEPT.
<PAGE> 9
Exhibit A
to that certain
Aircraft Painting Services Agreement
between
Federal Express Corporation
("FedEx")
and
Pride Aviation, Inc.
("Contractor")
- --------------------------------------------------------------------------------
DESCRIPTION OF SERVICES AND RATE SCHEDULES
A. SERVICES.
The Aircraft applicable to this Agreement is the Douglas DC10,
McDonnell Douglas MD-11, Boeing 727, and Airbus Corporation Model A300 and A310
Aircraft.
B. LOCATIONS.
Contractor's facilities at Portland, Oregon and New Iberia, Louisiana.
C. SCOPE OF WORK.
o Prewash aircraft as required
o Depaint all aluminum surfaces on fuselage and vertical with
chemical stripper
o Sand all surfaces on wings and horizontals to be painted
o Scuff sand to remove imperfections and gloss on all composite
surfaces to be painted
o Alkaline wash and abrade to remove stripper and sanding residues
o Perform corrosion inspection and treat as required
o Proseal all seams as required
o Perform water break free test
A-1
<PAGE> 10
o Solvent clean with MEK/Toluene any areas failing water break test
o Power abrade all aluminum surfaces to be painted
o Surface condition (etch) to clean water break free test
o Desmut aluminum surfaces as required with Cee Bee A-601
o Alodine
o Epoxy prime
o Apply two (2) wet coats of white to recommended manufacturer's
spec as per FedEx blueprints
o Lay out purple on fuselage and vertical as per FedEx blueprints.
Apply two (2) coats of color to manufacturer's spec.
o Apply BAC707 gray to the lower wings and upper wing panels
o Apply Aeroflex to upper wing spar
o Apply masks for logo and name, spray appropriate colors to
manufacturer's specs as per FedEx blueprints
o Apply N#'s and fleet #'s
o Apply required placards as per the maintenance manual
LANDING GEAR
o Painting of main and nose landing gear doors is included in the
bid price, but wheel wells and landing gear are not included
MATERIALS
o All materials necessary to degloss and paint prep will be
furnished by Contractor
o All paint to be supplied by Contractor
o Paint mask for name, N#'s, and placards/decals to be furnished by
Contractor
FLIGHT CONTROLS
o Removal, balance, and reinstallation of the flight controls is
not included in the bid price and will be handled as over and
above ("O&A") items. Calculated balance on the aircraft as
allowed by the SRM and GMM is included in the bid price.
COMPOSITES
o If composites have extreme checking, crazing, chipping or
delamination, the additional prep required will be handled as an
O&A item
A-2
<PAGE> 11
SPECIAL TOOLS
o All tools and equipment as related to the specific work scope
will be furnished by Contractor
o All tools and equipment required to accomplish O&A items will
be subject to definition at time of discovery and/or inclusion
into the work scope
o FedEx will furnish special test equipment as required
o Contractor will furnish normal hand and ship tools and equipment
MANUALS
o FedEx will furnish specific aircraft type maintenance manuals as
may be required, ie: SRM, IPC, MM
o FedEx will furnish paperwork, ie: task work cards and other
customer documents, as may be required to accomplish the work
scope
RETURN TO SERVICE AND REQUIRED INSPECTION ITEMS (RII)
o In accordance with FedEx FAA approved procedures, FedEx will
accomplish return to service and RII signatures or authorize
qualified Contractor designated personnel to accomplish said task
AUTHORITY FOR WORK SCOPE
o Depaint and paint procedures will be I.A.W. FedEx Engineering
documents or as per manufacturers procedures where applicable
o The FedEx representative will be notified of any O&A work upon
discovery. No work will proceed on those items until written
approval is received from the FedEx representative
WEIGHING OF AIRCRAFT
o Weighing of the aircraft is not included in the Price. Weighing
will be accomplished with no additional time required from the
quoted turn times.
OUTSIDE VENDOR SERVICES AND MATERIAL PURCHASES
o Third-Party vendor services and material purchases will be billed
at cost plus 10% with no line item to exceed (US) $250.00
HANGAR AVAILABILITY
o Work already scheduled at the time of commitment will determine
hangar availability.
A-3
<PAGE> 12
TURN TIME
o 7 days for strip and paint of the B-727
o 8 days for strip and paint of the DC-10
o 8 days for strip and paint of the MD-11
o 9 days for strip and paint of the A-300
o 8 days for strip and paint of the A-310
o An additional two days will be required on the first aircraft,
and an additional day on the second aircraft in order to
familiarize Contractor's operations with the FedEx requirements
PRICING
Strip and paint fuselage and vertical to FedEx specifications. Sand and
paint wings, horizontals, and engine cowls (as applicable) to FedEx
specifications. All paint, paint masks and consumables supplied by
Contractor:
o Volume pricing is offered for any one of the following conditions:
1. Yearly totals of 10 or more of that fleet type
2. Five or more consecutive aircraft, regardless of fleet type
o no more than 4 days between wide body aircraft
o 727 aircraft nose to tail
D. BASIC LABOR RATES
All O & A items will be worked at the shop rate of (US) $36.00 per
hour straight time and (US) $42.00 per hour for customer authorized overtime.
1. Term of effective rates - FedEx FY'98 thru FY'99 (FedEx's Fiscal
year is June 1 thru May 31)
A-4
<PAGE> 13
2. The labor rates and firm fixed prices represented in this Exhibit
A to the Agreement may be adjusted effective June 1 of each year
and will remain in effect for the remainder of FedEx's fiscal
year. Such adjustments to the firm fixed prices and the labor
rates shall be negotiated and established no later than January
31 of each year unless otherwise agreed to by the parties.
E. FREIGHT
Invoiced at actual cost.
F. STORAGE OF FEDERAL FURNISHED MATERIAL AND SUPPLIES
No charge when the quantity of stored material is consistent with the
requirements of work to be performed by Contractor. Taxes, insurance and other
such direct costs, if applicable, will be passed through to FedEx with no
markup.
G. COMMUNICATIONS FOR ON-SITE
One telephone line for local calls and Contractor facility service
will be provided at no additional charge. Additional telephone lines, all long
distance telephone and telefax charges, and exclusive telefax equipment will be
provided at cost as an O & A charge.
H. FEDEX'S REPRESENTATIVE OFFICE SPACE AND FURNISHINGS
Contractor will provide at no additional charge standard and
reasonable office accommodations for two (2) FedEx representatives on site at
Contractor's facilities, essential to the conduct of FedEx's responsibilities
under this Agreement.
A-5
<PAGE> 1
Exhibit 11.1
AVIATION GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
--------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<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 -- -- 943,590 --
Acquisition of Casper Air Service -- -- 129,377 --
Shares issued on Bridge Notes -- -- 39,157 --
Conversion of LEDC Note -- -- 69,213 --
Exercise of Stock Warrants 21,550 -- 35,372 --
Acquisition of Aero Design, Inc. 12,081 -- 3,938 --
Impact of nominal issuances recorded
in accordance with SAB 98 128,188 212,609 193,860 212,609
----------- ----------- ----------- -----------
Average Shares Outstanding (Basic) 3,191,265 1,812,859 3,014,757 1,812,859
Dilutive effect of:
Assumed exercise of options -- -- 7,252 --
Assumed exercise of warrants -- -- 36,252 --
----------- ----------- ----------- -----------
Average Shares Outstanding
(Diluted) 3,191,265 1,812,859 3,058,261 1,812,859
=========== =========== =========== ===========
Net income (loss) - Basic and Diluted $ 2,000 $ (107,000) $ (557,000) $ (333,000)
=========== =========== =========== ===========
Computation of net income (loss) per common share:
Net income (loss) divided by weighted
average shares outstanding
Basic $ 0.00 $ (0.06) $ (0.18) $ (0.18)
=========== =========== =========== ===========
Diluted $ 0.00 $ (0.06) $ (0.18) $ (0.18)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,224,000
<SECURITIES> 0
<RECEIVABLES> 1,330,000
<ALLOWANCES> 0
<INVENTORY> 1,352,000
<CURRENT-ASSETS> 5,395,000
<PP&E> 5,651,000
<DEPRECIATION> 1,057,000
<TOTAL-ASSETS> 13,102,000
<CURRENT-LIABILITIES> 3,973,000
<BONDS> 1,115,000
0
0
<COMMON> 33,000
<OTHER-SE> 7,629,000
<TOTAL-LIABILITY-AND-EQUITY> 13,102,000
<SALES> 0
<TOTAL-REVENUES> 14,150,000
<CGS> 0
<TOTAL-COSTS> 10,785,000
<OTHER-EXPENSES> 3,923,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,000
<INCOME-PRETAX> (785,000)
<INCOME-TAX> (228,000)
<INCOME-CONTINUING> (557,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (557,000)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
