<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): AUGUST 19, 1997
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)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Item 2 as filed in the Registrant's Current Report on Form 8-K is
amended in its entirety to read as follows:
On August 19, 1997, Aviation Group, Inc., a Texas corporation (the
"Company"), acquired all of the outstanding stock of Casper Air
Service, a Wyoming corporation ("CAS"). In connection with the
acquisition, the Company paid $1,167,000 and issued a total of 153,565
shares of Common Stock to the selling CAS shareholders. The number of
shares issued by the Company was based on the Company's initial public
offering price for its Common Stock of $5.75 per share and a total
value of approximately $883,000 in stock delivered to CAS
shareholders. The Company obtained the funds used in this acquisition
from the net proceeds from the Company's initial public offering,
which was also closed on August 19, 1997.
CAS is a full-service, fixed-base operation located at Natrona County
International Airport in Casper, Wyoming and has been in business
continuously since 1946. CAS offers aircraft line services, aircraft
repair and maintenance, aircraft parts distribution, aircraft charter
flights and aircraft sales.
The aircraft line services offered by CAS include aircraft refueling,
de-icing, cleaning and heating, and weather information, refreshments,
lounge areas and ground transportation for pilots and passengers. The
FAA certified service department of CAS provides maintenance and
overhaul services for piston and turbo-charged aircraft engines,
propellers, accessories and avionics systems. The parts department of
CAS sells to customers located outside the United States and outside
the Rocky Mountain region as well as in connection with its service
operations. CAS is the fourth largest wholesaler of Cessna parts in
the United States. CAS has offered charter flights since its inception
in 1946. The Company has determined to discontinue the charter
operations of CAS in the near future.
At and for the fiscal year ended April 30, 1997, CAS has total assets
of $3,661,000, total liabilities of $2,832,000, net sales of
$6,745,000 and net income of $270,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Businesses Acquired. The audited
financial statements, together with the report of independent
auditors, for the two fiscal years ended April 30, 1997, are
included on pages F-1 through F-15 of this document.
(b) Pro forma Financial Information. Because the acquisition of Casper
Air Service was to be funded as a use of proceeds from the
Company's Initial Public Offering closed August 19, 1997,
unaudited pro forma information reflecting the assumed acquisition
was included in previously presented filings. The Company's
unaudited pro forma consolidated statement of operations for the
fiscal year ended June 30, 1996 and for the nine months ended
March 31, 1997 and the Company's unaudited pro forma balance sheet
as of March 31, 1997 are incorporated by reference herein from the
Form SB-2 Registration Statement of the Company (File No. 333-
22727).
<PAGE>
INDEX TO ACQUIRED BUSINESS FINANCIAL STATEMENTS
Casper Air Service
Independent Auditor's Report F-1
Financial Statements:
Consolidated Balance Sheets as of April 30, 1997 and 1996 F-2
Consolidated Statements of Operations for the Two Years
Ended April 30, 1997 F-3
Consolidated Statement of Stockholders' Equity for the Two Years
Ended April 30, 1997 F-4
Consolidated Statements of Cash Flows for the Two Years
Ended April 30, 1997 F-5
Notes to the Consolidated Financial Statements F-7
<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 4, 1998.
AVIATION GROUP, INC.
By: /s/ STUART A. WALKER
-----------------------------------
Stuart A. Walker,
Chief Financial Officer
<PAGE>
[MCGLADREY & PULLEN, LLP LOGO APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Casper Air Service
Casper, Wyoming
We have audited the accompanying consolidated balance sheets of Casper Air
Service and Subsidiary as of April 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Casper
Air Service and Subsidiary, as of April 30, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 9, in August, 1997, the Company was sold. The accompanying
financial statements do not reflect any adjustments as a result of this sale nor
the plans which the new owner may have for the operation for the Company.
/s/ MCGLADREY & PULLEN, LLP
Casper, Wyoming
November 14, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1997 AND 1996
ASSETS (Note 5) 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 179,000 $ 229,000
Restricted cash 100,000 100,000
Investment in available-for-sale securities (Note 2) 112,000 107,000
Trade receivables 512,000 468,000
Inventories (Note 3) 917,000 2,180,000
Deposits and other assets - 31,000
Deferred income taxes 97,000 -
Asset of discontinued division, net (Note 9) 279,000 -
------------------------
Total current assets 2,196,000 3,115,000
Property and Equipment, net (Note 4) 1,456,000 1,522,000
Notes Receivable Employees 9,000 13,000
------------------------
$ 3,661,000 $ 4,650,000
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable (Note 5) $ 351,000 $ 443,000
Floor plans payable (Note 5) 138,000 1,315,000
Current maturities of long-term debt (Note 5) 367,000 366,000
Liability applicable to assets of discontinued division (Note 9) 183,000 -
Trade accounts payable 592,000 570,000
Accrued liabilities 126,000 66,000
Fuel, services and other deposits 131,000 98,000
------------------------
Total current liabilities 1,888,000 2,858,000
------------------------
Long-Term Debt, less current maturities (Note 5) 944,000 1,234,000
------------------------
Commitments and Contingencies (Notes 7 and 8)
Stockholders' Equity
Common stock, no par value, 10,000,000 shares
authorized, 187,146 shares issued 19,000 19,000
Additional contributed capital 2,556,000 2,697,000
Accumulated deficit (397,000) (667,000)
Unrealized (loss) on investment securities (Note 2) (1,000) (2,000)
------------------------
2,177,000 2,047,000
Less: Treasury stock, 1997 33,103 shares,
1996 23,849 shares (710,000) (569,000)
Unearned ESOP shares (Note 7) (638,000) (920,000)
------------------------
829,000 558,000
------------------------
$ 3,661,000 $ 4,650,000
========================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1997 AND 1996
1997 1996
- ---------------------------------------------------------------------------
Net Sales $ 6,745,000 $ 5,930,000
Cost of Sales 5,643,000 5,045,000
-----------------------------
GROSS PROFIT 1,102,000 885,000
Operating Expenses 752,000 750,000
-----------------------------
Operating income 350,000 135,000
-----------------------------
Other Income (Expense)
Interest income 26,000 31,000
Interest expense (168,000) (154,000)
Gain from sale of assets 56,000 -
Other income (expense) 8,000 (25,000)
-----------------------------
(78,000) (148,000)
-----------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (NOTE 9) 272,000 (13,000)
Federal Income Taxes (Credits) (Note 6) (97,000) -
Income (Loss) from Discontinued Operations (99,000) (213,000)
-----------------------------
Net income (loss) $ 270,000 $ (226,000)
=============================
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1997 AND 1996
Additional
Common Contributed Accumulated
Stock Capital Deficit
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, April 30, 1995 $ 19,000 $ 2,814,000 $ (441,000)
Redemption of ESOP shares - treasury stock - (117,000) -
Change in unrealized (loss) on available-
for-sale investments - - -
Net (loss) - - (226,000)
------------------------------------------
Balance, April 30, 1996 19,000 2,697,000 (667,000)
Redemption of ESOP shares - treasury stock - (141,000) -
Change in unrealized (loss) on available-
for-sale investments - - -
Net income - - 270,000
------------------------------------------
Balance, April 30, 1997 $ 19,000 $ 2,556,000 $ (397,000)
==========================================
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Investment Treasury Unearned
Securities Stock ESOP Shares Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, April 30, 1995 $ - $ (425,000) $ (1,181,000) $ 786,000
Redemption of ESOP shares - treasury stock - (144,000) 261,000 -
Change in unrealized (loss) on available-
for-sale investments (2,000) - - (2,000)
Net (loss) - - - (226,000)
-----------------------------------------------------------
Balance, April 30, 1996 (2,000) (569,000) (920,000) 558,000
Redemption of ESOP shares - treasury stock - (141,000) 282,000 -
Change in unrealized (loss) on available-
for-sale investments 1,000 - - 1,000
Net income - - - 270,000
-----------------------------------------------------------
Balance, April 30, 1997 $ (1,000) $ (710,000) $ (638,000) $ 829,000
===========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 270,000 $ (226,000)
Adjustments to reconcile net income (loss) to net (used in)
cash provided by (used in) operating activities:
Depreciation 239,000 248,000
(Gain) on sale of assets (56,000) (4,000)
Loss on worthless debenture - 15,000
Increase (decrease) in cash as a result of operating
changes in operating assets and liabilities:
Deferred income taxes (97,000) -
Trade receivables (44,000) 173,000
Inventories 1,263,000 (1,243,000)
Deposits and other assets 31,000 (24,000)
Accounts payable 22,000 (111,000)
Accrued liabilities 60,000 33,000
Prepaid fuel, services and other deposits 33,000 (51,000)
-------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
OPERATING ACTIVITIES 1,721,000 (1,190,000)
-------------------------------
Cash Flows from Investing Activities:
Proceeds from sale of investments 40,000 -
Proceeds from sale of equipment 204,000 28,000
Purchase of property and equipment (604,000) (239,000)
Receipt of cash restricted for letters of credit - 150,000
Investment in restricted certificate of deposit - (100,000)
Investment in marketable securities (40,000) (27,000)
Payments received on notes receivable 4,000 17,000
-------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
INVESTING ACTIVITIES (396,000) (171,000)
-------------------------------
Net increase (decrease) in outstanding checks
in excess of bank balance - (177,000)
Proceeds from (payments on) flooring
arrangements (1,177,000) 1,315,000
Net change short-term borrowing (92,000) 267,000
Proceeds from issuance of long-term debt and
liabilities applicable to discontinued operations 300,000 213,000
Principal reduction on long-term debt and
liabilities applicable to discontinued operations (406,000) (312,000)
-------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
FINANCING ACTIVITIES (1,375,000) 1,306,000
-------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH EQUIVALENTS (50,000) (55,000)
Cash and cash equivalents, beginning of year 229,000 284,000
-------------------------------
Cash and cash equivalents, end of year $ 179,000 $ 229,000
===============================
</TABLE>
F-5
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest expense $ 252,000 $ 219,000
Supplemental Disclosure of Noncash Financing Activities:
Shares purchased from ESOP in lieu of contribution $ 282,000 $ 261,000
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Casper Air Service operates a full-service, fixed base operation featuring
aircraft sales, charter flights, aircraft maintenance, propeller overhaul, an
accessory overhaul shop, parts distribution, line service and college-level
aviation education at the Natrona County International Airport in Casper,
Wyoming. The Company grants credit to customers through the normal course of
business.
A summary of significant accounting policies applied in the preparation of the
accompanying financial statements follows.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its subsidiary, Casper Flying Service.
All material intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash equivalents: For purposes of the statement of cash flows, the
Companies consider all unrestricted highly-liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Investment in available-for-sale securities: Casper Air Service has investments
in marketable equity securities. Marketable equity securities consist primarily
of common stocks that are traded or listed on national exchanges.
Financial Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities requires that management determine the
appropriate classification of securities at the date individual investment
securities are acquired, and that the appropriateness of such classification be
reassessed at each balance sheet date. Since the Company neither buys
investment securities in anticipation of short-term fluctuations in market
prices nor can commit to holding debt securities to their maturities, the
investment in marketable equity securities have been classified as available-
for-sale in accordance with Statement No. 115. Available-for-sale securities
are stated at fair value, and unrealized holding gains and losses, net of the
related deferred tax effect, are reported as a separate component of
stockholders' equity. Gains and losses are determined by the specific
identification method.
Inventories: Aircraft inventory held for resale is valued at the lower of cost
(specific-identification method) or market, the parts inventory is valued at
cost (weighted average method) which is not in excess of market.
Property and equipment: Depreciation is provided for in amounts sufficient to
relate the cost of the depreciable assets to operations over their estimated
service lives on the straight line basis. Depreciation is computed over the
following lives:
Years
-----
Buildings and improvements 7-40
Flight charter equipment 5-10
Other equipment 3-10
F-7
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Maintenance and repairs of property and equipment are charged to operations and
major improvements prolonging the life of the assets are capitalized.
Income taxes: Casper Air Service provides for deferred taxes on a liability
method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Prior to its acquisition during the year ended April 30, 1997, Casper Flying
Service, with the consent of its shareholder, elected to be taxed under sections
of federal income tax law, which provide that, in lieu of corporate income
taxes, the stockholder separately accounts for its items of income, deductions,
losses and credits. As a result of this election, no income taxes have been
recognized in the accompanying financial statements for Casper Flying Service
prior to acquisition. It is the intent of the Company to file a consolidated tax
return and income taxes are recognized after the acquisition date on a
consolidated basis.
Employee stock ownership plan: Casper Air Service accounts for compensation
expenses for ESOP contributions by a method which determines the expense to be
at least 80% of the amount that would be expensed under the shares allocated
method. Casper Air Service has elected not to implement the provision of
Statement of Position 93-6, Employers Accounting for Employee Stock Ownership
Plans, for stock sold to the ESOP prior to December 31, 1992. However, any
future stock purchases by the ESOP will be subject to the expense recognition
requirements of SOP 93-6.
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments: Financial Accounting Standards Board
("FASB") Statement No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement No. 107 excludes certain financial
instruments and all nonfinancial assets and liabilities from its disclosure
requirements. The following methods and assumptions were used to estimate the
fair value of financial instruments:
Cash, cash equivalents and restricted cash: The carrying amount
approximates fair value because of the short maturity of those instruments.
Investment in available-for-sale securities: Investments are carried at
fair value.
F-8
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Notes payable and floor plans payable: The carrying amount approximates
fair value because the debt terms are negotiated annually.
Long-term debt: The fair values of the Companies' long-term debt are
estimated using discounted cash flow analyses, based on the Companies'
current incremental borrowing rates for similar types of borrowing
arrangements. The fair value approximates carrying value.
NOTE 2. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are carried at market value. The related cost and
unrealized loss on these securities at April 30, 1997 were $113,000 and $1,000,
respectively and at April 30, 1996 were $109,000 and $2,000, respectively.
Marketable securities were sold during the year ended April 30, 1997 for $40,000
with a realized gain of $4,000. The unrealized loss on investment securities
decreased by $1,000 during the year ended April 30, 1997.
NOTE 3. INVENTORIES
The composition of the inventories as of April 30, 1997 and 1996 is as follows:
1997 1996
------------------------
Aircraft held for sale $ 111,000 $ 1,392,000
Parts 782,000 783,000
Other 24,000 5,000
------------------------
$ 917,000 $ 2,180,000
========================
Casper Air Service carries small quantities of a large number of parts for older
model planes still in service. A substantial portion of these parts are sold to
charter services and aircraft maintenance operations throughout the United
States and overseas. Management removes parts from inventory which are dated or
determined to be obsolete by the Federal Aviation Administration and believe
that the remaining parts are salable. However, in accordance with industry
practice, these inventories are included in current assets even though a
substantial portion will not be sold within one year in the normal course of
business.
F-9
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following as of April 30, 1997 and
1996:
1997 1996
---------------------------
Buildings and improvements $ 1,654,000 $ 1,641,000
Flight charter equipment 1,851,000 2,050,000
Other equipment 907,000 883,000
---------------------------
4,412,000 4,574,000
Accumulated depreciation (2,956,000) (3,052,000)
---------------------------
$ 1,456,000 $ 1,522,000
===========================
NOTE 5. NOTES PAYABLE, FLOORING ARRANGEMENTS, LONG-TERM DEBT
AND ASSETS PLEDGED THEREON
The Companies' notes payable, financing arrangements and long-term debt and
assets pledged thereon as of April 30, 1997 are as follows:
<TABLE>
<CAPTION>
NOTES PAYABLE:
<S> <C>
$400,000 line of credit with a bank, interest at 1.5% over New York prime rate (10%
as of April 30, 1997), interest payable monthly, collateralized by receivables and
and inventories, due October 1997, subsequently renewed through December 1997 $ 261,000
$150,060 line of credit with a bank, interest at 1.5% over bank's prime rate (10%
as of April 30, 1997), interest payable quarterly, collateralized by an airplane,
due May 1997 90,000
---------
$ 351,000
=========
FLOORING ARRANGEMENTS:
Flooring arrangement with Cessna, interest at 10.5%, due upon sale of aircraft $ 138,000
=========
</TABLE>
F-10
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LON-TERM DEBT:
<S> <C>
Note payable to Small Business Administration, payable in monthly payments of
$9,876, including interest at 10% due February 2003, collateralized by building
improvements, equipment and majority shareholder $ 525,000
Notes payable to aircraft finance corporations, payable in monthly payments aggregating
$11,584, plus interest at 2% over a banks prime rates (10.5% as of April 30, 1997),
due through May 2002, collateralized by flight charter aircraft 456,000
Notes payable to bank, payable in monthly payments aggregating $2,726, including
interest rates ranging from 7.85% to 10%, due through December 2000, collateralized
by flight charter aircraft and certificate of deposit 170,000
Note payable to an individual, payable in monthly payments of $5,840, including
interest at 8%, due March 1998, collateralized by an aircraft and personal guarantee
of the majority shareholder 62,000
Notes payable due in monthly payments aggregating $1,996 and an annual payment
of $6,802, including interest ranging from 10% to 21.45%, due through January 2000,
collateralized by equipment 48,000
Note payable to a former stockholder and relative of the majority stockholder, payable
in monthly payments of $3,000, including effective interest at 31%, due April 2001,
collateralized by the assets of Casper Air Service (see Note 9) 50,000
-----------
1,311,000
Less current maturities 367,000
-----------
$ 944,000
===========
</TABLE>
Aggregate future maturities of long-term debt as of April 30, 1997 are as
follows:
Year Ended April 30,
--------------------
1998 $ 367,000
1999 228,000
2000 250,000
2001 237,000
2002 123,000
Thereafter 106,000
-----------
$ 1,311,000
===========
F-11
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. INCOME TAXES
Current deferred tax assets consist of the following components as of April 30,
1997 and 1996:
1997 1996
-----------------------
Deferred tax assets:
Operating loss carryforwards $ 142,000 $ 183,000
Investment tax credits carryforward 81,000 81,000
Other components 41,000 32,000
-----------------------
264,000 296,000
Less valuation allowance 167,000 296,000
-----------------------
$ 97,000 $ -
=======================
As of April 30, 1997, Casper Air Service has recorded a valuation allowance of
$167,000 on the deferred tax assets to reduce the total to an amount that is
estimated to be ultimately realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income. Net deferred tax assets of $97,000 are expected to be
realizable from fiscal year 1998 operations prior to the sale of the Company.
The income tax benefit (expense) differs from the amounts obtained by applying
the U.S. federal income tax rate to pre tax income (loss) due to the following:
1997 1996
-----------------------
Computed "expected" tax benefit (expense) $ (61,000) $ 77,000
Increase (decrease) resulting from:
Subsidiary election to be taxed at the
stockholder level - (13,000)
Other 29,000 (5,000)
Increase in valuation allowance - (59,000)
Reduction of valuation allowance 129,000 -
-----------------------
$ 97,000 $ -
=======================
At April 30, 1997, Casper Air Service has available net operating loss (NOL)
carryforwards of $569,000. The NOL carryforward is available to offset future
taxable income. Casper Air Service also has investment tax credits of $81,000
available to offset future federal income tax. The Internal Revenue Code,
Section 382, limits the utilization of NOL carryforwards when certain ownership
changes occur, measured over a three-year period. The ownership change
discussed in Note 9 is expected to limit the use of the NOL carryforward. The
NOL carryforward and investment tax credits expire as follows:
F-12
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net Operating Investment
Year of Expiration Loss Tax Credit
- ------------------ ----------------------------
1998 $ - $ 6,000
1999 - 46,000
2000 - 29,000
2009 444,000 -
2110 7,000 -
2111 118,000 -
----------------------------
$ 569,000 $ 81,000
============================
NOTE 7. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan and Trust:
Casper Air Service sponsors an Employee Stock Ownership Plan and Trust ("ESOP")
which covers substantially all employees who are not included in a collective
bargaining agreement. The ESOP is designed to enable employees who meet minimum
age and length of service requirements to acquire stock ownership in the
Company. The ESOP is noncontributory and vesting occurs at a rate of 20% per
year of accumulated service, commencing with the third year of service.
The ESOP borrowed $2,500,000 from the Company to purchase 81,887 shares of
common stock in 1989. The loan obligation of the ESOP is considered unearned
employee benefit expense and, as such, is recorded as a reduction of the
Company's stockholders' equity. The ESOP shares which have not been allocated
are pledged as collateral for this debt. As the debt is repaid, shares are
released from collateral based on the proportion of debt service paid in the
year and allocated to active employees. Because no shares were allocated for
1997, 1996 or 1995, the expense was limited to the interest expense of $76,000,
$98,000 and $118,000 for the years ended April 30, 1997, 1996 and 1995,
respectively, which was offset against the interest income from the note
receivable.
If a terminated participant desires to sell his or her shares of the Company's
stock, or for certain employees who elect to diversify their account balances,
the Company may be required to purchase the shares from the participant at
their fair market value. However, as long as the existing ESOP debt is unpaid,
employees that terminate for reasons other than death or disability may not
receive share distributions from the plan and the Company has no obligation to
repurchase shares allocated to the terminating participant. The debt of the
ESOP is scheduled to be retired in 1999.
F-13
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
During the year ended April 30, 1995, the fair market value of the stock
purchased by the Company from ESOP participants totaled $11,000. Those shares
are included in treasury stock in the accompanying balance sheet. No stock was
purchased from participants during the years ended April 30, 1996 and 1997. The
Company also guaranteed a minimum return on investment to ten participants who
rolled 401(k) balances into the ESOP. The guarantee exceeds the estimated fair
market value of the shares by approximately $43,000. This amount has been
recognized as a liability in the accompanying financial statements. At April
30, 1996, 33,519 shares of the Company's stock, with an aggregate fair market
value of approximately $563,000 have been allocated to ESOP participants based
on independent appraisal as of April 30, 1996. At April 30, 1997, 33,519 shares
of the Company's stock, with an aggregate fair market value of approximately
$511,000 have been allocated to ESOP participants based on the subsequent sales
price of the Company's stock (Note 9).
ESOP shares as of April 30, 1997 and 1996 are as follows:
1997 1996
---------------
Allocated shares 33,000 33,000
Unallocated shares 21,000 30,000
---------------
54,000 63,000
===============
Employee Benefit Risk Management Program:
Casper Air Service provides employee health care benefits through a risk
management program. The Company is insured under a stop-loss policy for
individual claims exceeding $5,000 per year. Expenses incurred for claims during
the years ended April 30, 1997 and 1996 were $40,000 and $24,000, respectively.
Premiums paid for stop-loss insurance during the years ended April 30, 1997 and
1996 were $30,000 and $37,000, respectively.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Operating Lease Arrangements:
The Companies conduct a portion of their operations in facilities and on real
estate under various operating leases. These operating leases currently require
minimum annual rentals, plus additional rentals based on five cents per gallon
flowage fee for every gallon of fuel pumped. The leases expire at various dates
through August 2006. In addition to these leases, there is an operating
agreement with Natrona County International Airport which is paid on a month to
month basis.
F-14
<PAGE>
CASPER AIR SERVICE AND
SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following is a schedule, by years, of minimum annual rentals under the
operating leases and agreement:
Year Ended April 30,
--------------------
1998 $ 35,000
1999 35,000
2000 35,000
2001 35,000
2002 6,000
Thereafter 18,000
---------
Total minimum annual rentals required $ 164,000
=========
The leases provide for the payment of certain taxes and other expenses by the
Companies. Rent expense for operating leases for the years ending April 30,
1997, 1996 and 1995, were $38,000, $48,000 and $67,000, respectively.
NOTE 9. SUBSEQUENT EVENTS AND DISCONTINUED OPERATIONS
In August 1997, Aviation Group Inc. acquired all of the outstanding stock of the
Company. As part of the purchase agreement, the majority stockholder assumed a
related party note payable recorded at approximately $50,000 at April 30, 1997.
The Company's ESOP will also be terminated pursuant to this agreement.
In June 1997, Casper Flying Service had a nonfatal air crash of a plane with a
carrying value of $278,000. In July 1997, it received insurance proceeds of
$324,000, of which approximately $133,000 was used to pay off the note payable
to an aircraft financing company.
Subsequent to April 30, 1997, the operations of the Company's charter flight
service division were ceased. The assets of the division, primarily aircraft,
with a carrying value of $279,000 were sold on October 1, 1997 to an unrelated
party for cash of $500,000. The Company determined that the operations of the
charter flight division represented a separate major class of customers and
should be accounted for as a disposal of a segment of a business. Accordingly,
the Company's previously reported consolidated financial statements have been
adjusted to reclassify the charter flight service operations as discontinued
operations. The net sales from this division which are now reported with "income
(loss) from discontinued operations" were $1,032,000 and $985,000 for the years
ended April 30, 1997 and 1996, respectively.
No gain or loss on the disposal of the business segment has been reflected in
the April 30, 1997 financial statements since the Company expects to generate
operating income from charter operations through the date of disposal.
F-15
