U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended SEPTEMBER 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from ____________ to ____________
Commission file number : 0-10124
-------
AVIATION GROUP, INC.
(Exact name of Small Business Issuer as specified in its charter)
TEXAS 75-2631373
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
700 NORTH PEARL STREET
SUITE 2170
DALLAS, TEXAS 75201
(Address of Principal Executive Offices)
214/922-8100
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes 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.
3,573,929 shares of Common Stock were outstanding as of October 29, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
-------- ----------
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1999 1999
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 162,000 $ 84,000
Restricted cash and time deposits -- 538,000
Accounts receivable, net 1,940,000 2,200,000
Inventory 1,707,000 1,547,000
Prepaid expenses and other 525,000 170,000
------------- ------------
Total Current Assets 4,334,000 4,539,000
------------- ------------
Property and equipment 5,780,000 5,822,000
Less: accumulated depreciation (1,940,000) (1,772,000)
------------- ------------
3,840,000 4,050,000
------------- ------------
Goodwill, net 4,111,000 4,144,000
Other 240,000 319,000
------------- ------------
4,351,000 4,463,000
------------- ------------
Total Assets $ 12,525,000 $ 13,052,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 865,000 $ 463,000
Current portion of capital lease obligations 164,000
Other short-term borrowings 2,390,000 2,316,000
Accounts payable 2,527,000 2,334,000
Accrued liabilities 1,309,000 1,335,000
------------- ------------
Total Current Liabilities 7,091,000 6,612,000
------------- ------------
Long-Term Liabilities
Long-term debt, net of current maturities 912,000 880,000
Capitalized leases, net of current maturities -- 439,000
------------- ------------
Total Long-Term Liabilities 912,000 1,319,000
------------- ------------
Total Liabilities 8,003,000 7,931,000
------------- ------------
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, 3,573,929 shares issued and
outstanding 36,000 36,000
Additional paid-in capital 9,766,000 9,766,000
Retained earnings (deficit) (5,279,000) (4,681,000)
------------- ------------
Total Shareholders' Equity 4,522,000 5,121,000
------------- ------------
Total Liabilities and Shareholders' Equity $ 12,525,000 $ 13,052,000
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Revenue $ 4,330,000 $ 5,624,000
Cost of Revenue 2,800,000 3,453,000
----------- ------------
Gross Profit 1,530,000 2,171,000
----------- ------------
General and Administrative Expenses 1,696,000 1,872,000
Depreciation and Amortization 233,000 209,000
----------- ------------
1,929,000 2,081,000
Income (Loss) From Operations (399,000) 90,000
------------ ------------
Other Income (Expenses)
Interest Income 9,000 4,000
Interest Expense (209,000) (62,000)
----------- ------------
(200,000) (58,000)
----------- ------------
Income (Loss) Before Provision for Income Taxes (599,000) 32,000
Provision (Benefit) for Income Taxes -- 14,000
----------- ------------
Net Income (Loss) $ (599,000) $ 18,000
============ ============
Earnings (loss) per common and
common equivalent share $ (0.17) $ 0.01
========== ============
Weighted average common and
common equivalent shares outstanding- Basic and Diluted 3,573,929 3,362,169
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended September 30,
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (599,000) $ 18,000
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 233,000 209,000
Deferred income taxes -- (111,000)
(Increase) decrease in accounts receivable 260,000 (380,000)
(Increase) decrease in inventories (160,000) 11,000
(Increase) decrease in prepaids and other current assets 183,000 (58,000)
Increase(decrease)in accounts payable 193,000 (18,000)
Increase (decrease) in interest payable -- (24,000)
Increase (decrease) in accrued liabilities (26,000) (137,000)
Other 47,000 (23,000)
----------- -----------
Total Adjustments 730,000 (531,000)
----------- -----------
Net Cash Provided (Used) by Operating Activities 131,000 (513,000)
----------- -----------
Cash Flows From Investing Activities:
Sales (payments) for property and equipment additions, net 42,000 (124,000)
----------- -----------
Net Cash Used by Investing Activities 42,000 (124,000)
----------- -----------
Cash Flows From Financing Activities:
Advances of short-term borrowings, net 74,000 391,000
Principal (payments) on long-term debt (169,000) (179,000)
----------- -----------
Net Cash Provided (Used) by Financing Activities (95,000) 212,000
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 78,000 (425,000)
Cash and Cash Equivalents at Beginning of Period 84,000 509,000
----------- -----------
Cash and Cash Equivalents at End of Period $ 162,000 $ 84,000
=========== ===========
Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
Cash paid for interest $ 139,000 $ 62,000
Cash paid for income taxes -- --
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying balance sheets and
related interim statements of income and cash flows include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Examples include provisions for warranty claims and bad debts and
the length of assets' useful lives. Actual results may differ from these
estimates. Interim results are not necessarily indicative of results for a full
year. The information in this Form 10-QSB should be read in conjunction with
Management's Discussion and Analysis and financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended June 30, 1999.
-4-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
- -------
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this MD&A
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements, including those
described below. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
- ---------------------
Management continues its efforts to reduce overhead costs, and expects
improvements in future periods, principally from reductions in Aviation Group
corporate overhead, insurance cost reductions, and reductions in accounting,
legal, and other indirect expenses. Reductions in non-essential division
operating expenses, along with elimination of marginal products and services
that do not provide future growth or near-term profits are also being pursued.
Overhead costs and corporate expense levels during the past two years
were instituted and incurred by management in anticipation of supporting the
acquisition of other aviation service companies in accordance with the Company's
growth strategy. While the Company continues to pursue growth via the
acquisition of such entities on a selected basis, such activity is subject to
the Company's ability to attract financing for such transactions. There can
presently be no assurance that such financing will be available in amounts and
at prices beneficial to existing shareholders and operations, and the absence of
such financing could have a materially negative effect on the Company's
operations. Therefore, management began during fiscal 1999 to reduce costs,
manage the Company with a greater focus on current operating and financial
performance, and consider strategic joint ventures and/or combinations with
other aviation service companies. These efforts continued during the quarter
ended September 30, 1999.
The following table sets forth a summary of changes in the major
categories, presented by division, of revenues, costs of goods sold and
operating expenses from each of the previous period's results. These historical
results are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
3 MONTHS 3 MONTHS
ENDED ENDED
SEPT. 30, SEPT. 30,
1999 1998
---- ----
<S> <C> <C>
TOTAL COMPANY
- -------------
Revenues $ 4,330,000 $ 5,624,000
Cost of revenue (2,800,000) (3,453,000)
Operating and other expenses (1,222,000) (1,373,000)
----------- -----------
Operating division income $ 308,000 798,000
----------- -----------
Corporate overhead (255,000) (292,000)
Depreciation and amortization (233,000) (209,000)
Non-recurring costs incurred (161,000) (140,000)
Acquisition activity costs incurred (58,000) (67,000)
Interest income 9,000 4,000
Interest expense (209,000) (62,000)
----------- -----------
Pre-tax income (loss) $ (599,000) $ 32,000
========== ===========
</TABLE>
OVERHAUL & SERVICE DIVISION
- ---------------------------
Revenues consist primarily of gross revenues from stripping and
painting and other aircraft coating services to major passenger and freight
airlines and corporate aircraft and aviation related companies. During fiscal
-5-
<PAGE>
1999 the Company executed a hangar-facility operating lease and incurred start
up costs leading to the opening of a new paint facility in Greenville,
Mississippi. Start-up costs for this facility totaled $51,000 and $41,000 for
the quarter ended September 30, 1999 and 1998, respectively.
The Company's Aero Design battery manufacturing subsidiary is
positioning for significant growth. During the fiscal 1999 year, Aero Design
applied for and won approval from the FAA for numerous additional manufacturing
licenses relating to its line of commercial and general aviation replacement
batteries. Non-capitalized related costs for this activity totaled $50,000 for
the quarter ended September 30, 1999. These new licenses will allow Aero Design
to focus its activities in fiscal 2000 on growth in sales and operating profits.
General Electrodynamics Corporation (acquired in August 1998) comprises the
remaining operating activities of this division.
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 or order. 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 now consists of five locations. In
addition to the AvEx paint locations at Acadiana Regional Airport in New Iberia,
Louisiana, Portland Airport in Portland, Oregon, and the new paint facility in
Greenville, Mississippi, recent acquisitions added the complementary operations
of Aero Design, Inc. in Mt. Juliet, Tennessee, and General Electrodynamics
Corporation of Arlington, Texas to this division.
During the quarter ended September 30, 1999, the paint division
performed services for two customers whose sales represented 39% of total
revenues of the total Company. For the quarter ended September 30, 1998, the
paint division performed services for two customers whose sales represented 33%
of total Company revenues. The Company's paint operations and related revenue
and income can vary significantly from quarter to quarter based upon seasonality
and scheduling factors of its major customers. During fiscal 1999, the Company's
paint operations operated near to capacity during the first and second fiscal
quarters, and had significant excess capacity in the third and fourth fiscal
quarters. During this current fiscal 2000 year, the Company will experience its
slow season during the first and second fiscal quarters, and its paint
facilities are scheduled to be booked at near capacity during the third and
fourth fiscal quarters.
THREE MONTHS ENDED
SEPTEMBER 30,
OVERHAUL SERVICES 1999 1998
- ----------------- ----- ----
Revenues $ 3,129,000 $ 3,661,000
Cost of revenue (1,917,000) (2,105,000)
Operating and other expenses (1,083,000) (924,000)
----------- -----------
Recurring division income 129,000 632,000
----------- -----------
Depreciation and goodwill amortization (163,000) (148,000)
Facility start-up and restructuring costs (1) (101,000) (41,000)
Interest income -- --
Interest expense (49,000) (29,000)
----------- -----------
Pre-tax income (loss) $ (184,000) $ 414,000
=========== ===========
GROUND HANDLING & SERVICE DIVISION
- ----------------------------------
Revenues are derived primarily by providing commercial airlines with a
variety of support services including aircraft interior cleaning, exterior
washes, lavatory and water services and ramp services and baggage handling.
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.
This division operates principally at Dallas-Fort Worth International Airport.
Certain marginal non-DFW operating locations were eliminated during the 1998
fiscal year. During the quarter ended September 30, 1998, the Company recognized
$16,000 in non-recurring losses associated with these shutdowns.
-6-
<PAGE>
THREE MONTHS ENDED
SEPTEMBER 30,
GROUND HANDLING & SERVICES 1999 1998
- -------------------------- ---- ----
Revenues $ 397,000 $ 439,000
Cost of revenue (242,000) (234,000)
Operating and other expenses (60,000) (124,000)
--------- ---------
Recurring division income 95,000 81,000
--------- ---------
Depreciation and amortization (27,000) (28,000)
Non-recurring facility shutdown costs -- (16,000)
Interest income -- 3,000
Interest expense (13,000) (2,000)
--------- ---------
Pre-tax income $ 55,000 $ 38,000
========= =========
FBO OPERATIONS
- --------------
In August 1997, the Company acquired Casper Air Service, Inc. ("CAS"),
which operates a fixed-base operation in Casper, Wyoming. This fixed base
operation, located at Natrona County International Airport in Casper, Wyoming,
provides fuel and light maintenance services to general aviation, corporate and
light freight aircraft customers. During the fiscal 1999 year, the Company
eliminated certain marginal lines of business and operations at CAS, including
the charter flight and parts distribution departments. These eliminated
departments accounted for most of the reduction in sales for the fiscal 1999
year versus the 1998 year. Operating losses and non-recurring charges associated
with these eliminated departments totaled $60,000 for the quarter ended
September 30, 1999, and $83,000 during the quarter ended September 30, 1998.
THREE MONTHS ENDED
SEPTEMBER 30,
FBO OPERATIONS 1999 1998
- -------------- ---- ----
Revenues $ 804,000 $ 1,524,000
Cost of revenue (641,000) (1,114,000)
Operating and other expenses (79,000) (325,000)
----------- -----------
Recurring division income (loss) 84,000 85,000
Depreciation and amortization (36,000) (28,000)
Loss from eliminated departments (60,000) (83,000)
Interest income 9,000 --
Interest expense (20,000) (11,000)
----------- -----------
Pre-tax income $ (23,000) $ (37,000)
=========== ===========
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. These charges include legal, accounting, travel and
other related overhead. During the quarters ended September 30, 1999 and 1998,
the Company incurred $58,000 and $67,000 in non-amortizable acquisition related
costs and direct costs associated with the Company's status as a public company.
Increases in interest expense relating to the issuance of Common Stock warrants
associated with the Company's $600,000 short term notes accounted for the rise
in overhead in fiscal 1999. Management continues its efforts to reduce overhead
costs, and expects additional improvements in future periods, principally from
reductions in Aviation Group management overhead, insurance cost reductions, and
reductions in accounting, legal, and other indirect expenses.
-7-
<PAGE>
THREE MONTHS ENDED
SEPTEMBER 30,
AVIATION GROUP- CORPORATE 1999 1998
- ------------------------- ---- ----
Operating and other expenses $ (255,000) $ (292,000)
Depreciation and amortization (7,000) (5,000)
Acquisition activity costs (58,000) (67,000)
Interest income -- 1,000
Interest expense (127,000) (20,000)
---------- ----------
Total Corporate Expenses $ (447,000) $ (383,000)
========== ==========
SEASONALITY AND VARIABILITY OF RESULTS
- --------------------------------------
The Company's Overhaul and Service Division experiences significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. The annual operating cycle generally reflects escalating strip and
paint revenues during non-summer and non-holiday periods, although scheduling of
the Company's paint customer fleet deliveries can significantly affect quarter
to quarter results as well. During fiscal 1999, the Company's paint operations
operated near to capacity during the first and second fiscal quarters, and had
significant excess capacity in the third and fourth fiscal quarters. During this
current fiscal 2000 year, the Company will experience its slow season during the
first and second fiscal quarters, and its paint facilities are scheduled to be
booked at near capacity during the third and fourth fiscal quarters. At
September 30, 1999, the paint division had contracts for the painting of
aircraft totalling approximately $20,000,000 extending through the year 2002,
beginning primarily in January 2000. Currently, a significant percentage of the
Company's revenue is generated by the Overhaul and Service Division.
Management, therefore, is required to plan cash flow accordingly.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
- ------------------
The Company's total net revenue decreased by $1,294,000 for the three
months ended September 30, 1999 compared to the three months ended September 30,
1998, as management pursued its plan to eliminate non-essential division
operations and pursue a sale of all or part of the enterprise.
Revenues associated with the Overhaul Services Division decreased by
$532,000. This decrease is due primarily to seasonally slow summer paint
activity in fiscal 2000, and scheduling factors of its major customers. During
fiscal 1999, the Company's paint operations operated near to capacity during the
first and second fiscal quarters, and had significant excess capacity in the
third and fourth fiscal quarters. During this current fiscal 2000 year, the
Company will experience its slow season during the first and second fiscal
quarters, and its facilities are scheduled to be booked at near capacity during
the third and fourth fiscal quarters. Revenues and operating profits are
expected to correspond to this scheduling environment as the Company completes
its fiscal 2000 year.
Revenues and gross profits from the Company's Ground Services Division
were all generated from the Company's Dallas-Ft. Worth International Airport
location, and were relatively stable during the period. Operating improvements
reflect growth at DFW and elimination of less efficient ground service locations
during the fourth quarter last year.
Revenues from the Company's FBO Operations division decreased $720,000
due primarily to the elimination of the unprofitable parts distribution
department and sale of certain other marginally performing departments.
Reductions in operating and other costs at this division allowed the Company to
maintain division operating profits above historical levels.
The Company's corporate general and administrative expenses decreased
$176,000 from higher levels over the three months ended September 30, 1998,
primarily as the result of management's efforts to reduce overhead levels in
anticipation of a potential sale of all or part of the enterprise. Total
interest expense increased $147,000 during the quarter, primarily from non-cash
interest expense associated with the Company's issuance of common stock warrants
associated with the Company's $600,000 short term notes.
-8-
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
A key element of the Company's strategy historically involved growth
through acquisitions of other companies, assets or product or service lines that
would complement or expand the Company's existing businesses. Since 1996, the
Company has purchased five separate companies. Management believed that
acquisitions would enable it to leverage its fixed costs of operations and
further expand the products and services that it could offer to its customers.
The Company intended to use its common stock as the major source of its capital
to execute its acquisition strategy.
While management was successful in identifying candidates that met its
acquisition criteria, the trading price of the Company's shares and the level of
trading volume experienced in the public marketplace has created a significantly
negative environment for acquiring aviation businesses for the Company using its
stock as consideration. Company management has endeavored since 1998 to remedy
this condition, while continuing to incur high corporate overhead costs
necessary to properly operate and maintain a larger aviation service enterprise.
In the present view of management, the Company's stock is trading below
the value of its existing underlying companies and acquisitions at present share
price levels would be dilutive to existing shareholders, while the continuation
of its corporate overhead strategy would erode shareholder value. Additionally,
the Company's operating subsidiaries, while generating profits and positive
cashflow from operations, continue to be hindered by the corporate overhead
associated with the Company's original strategy of acquiring additional aviation
companies with a combination of cash and Company common stock. Accordingly, in
August 1999, the Board of Directors approved a management plan to engage
investment advisors and pursue the additional strategy of selling all or part of
the Company's businesses.
The Company is presently in discussions with certain third parties
regarding sale or merger of the Company, and is also in discussions with certain
third parties regarding the sale of certain segments of the Company's operations
on an individual basis. Other parties interested in the Company's status as a
public company have expressed interest in a business combination, spin-off, or
other transaction. While this process is underway, management continues to cut
overhead costs and focus its energies on the maximization of its existing
business units. While management anticipates the sale of significant portions of
its business during the fiscal year, there can be no assurance that such
activities will generate a sale of the Company or any of its businesses, or that
if such transaction occurs, the resulting consideration will significantly
enhance shareholder value.
The Company has incurred significant losses, due principally to
corporate overhead associated with the Company's acquisition strategy, and has a
working capital deficit of $2,757,000 at September 30, 1999, which includes
$1,700,000 of revolving credit lines. Beginning in fiscal year 1999, management
implemented certain cost-saving measures and disposed of certain operating
departments within its Divisions, which it anticipates will allow it to achieve
positive cash flow in fiscal year 2000. Management has previously arranged for
the conversion of certain current maturities of its 10% convertible note
obligations to common stock. Management also is negotiating for the sale of
certain fixed assets it believes will generate approximately $500,000 of cash
for the Company and allow it to finance its near-term working capital
requirements during fiscal 2000. These transactions combined with Company
expense reduction activities and the potential sale of some or all of the
Company's operating divisions can enable it to meet its obligations during
fiscal 2000. Any significant failure to achieve anticipated cost savings or a
sale of fixed assets or any significant business interruptions or loss of
significant customers could adversely affect the Company's cash flow plans.
Year 2000 Compliance Issues
- ---------------------------
The Company is presently working with its major customers and vendors
to define and implement Year-2000 safeguards and systems management procedures.
The nature and severity of such issues is difficult to detect and measure,
however, and significant business interruptions from Year-2000 system breakdowns
within the aviation industry may occur whose impact on the Company may be
material in scope and amount. Following is a summary of the principle strategic
areas of Year-2000 exposure and the status of Company efforts to monitor,
measure, and implement protective measures:
The Company utilizes off-the-shelf accounting and payroll software,
operated on standard personal computer file servers and hardware. The Company's
principle accounting packages have been upgraded according to vendor software
upgrades and are believed to be Year-2000 compliant. The Company's CAS
subsidiary has historically used a mainframe-based system that the Company
strengthened during fiscal 1999 with a PC-based system, and management expects
all CAS systems to be Year-2000 compliant by calendar year 1999 year end. The
cost of these upgrades is expected to be less than $25,000.
The Company utilizes automated transfer telecommunications and PC-based
software to transfer monies between divisions and their respective banks and
lenders. The Company has endeavored to confirm that such institutions have
installed sufficient Year-2000 compliant systems and procedures to insure
routine operations, and believes that business disruption risk from this area is
presently minimal.
-9-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material pending legal proceeding
other than ordinary routine litigation considered to be incidental to its
business and other than legal proceedings previously reported. There have been
no material developments in previously reported legal proceedings.
Item 2. Changes in Securities
(a) Not Applicable
(b) Not Applicable
(c) Any unregistered securities sold by the Company during the fiscal quarter
ended September 30, 1999 were previously reported in Item 5 of the
Company's Form 10-KSB Annual Report for the fiscal year ended June 30,
1999.
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
------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 14, 1999.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
-----------------------------------------------
Richard L. Morgan, Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule - Aviation Group, Inc.
</LEGEND>
<CIK> 0000355906
<NAME> Aviation Group, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 162,000
<SECURITIES> 0
<RECEIVABLES> 1,940,000
<ALLOWANCES> 0
<INVENTORY> 1,707,000
<CURRENT-ASSETS> 525,000
<PP&E> 5,780,000
<DEPRECIATION> (1,940,000)
<TOTAL-ASSETS> 12,525,000
<CURRENT-LIABILITIES> 6,226,000
<BONDS> 1,777,000
0
0
<COMMON> 36,000
<OTHER-SE> 4,486,000
<TOTAL-LIABILITY-AND-EQUITY> 12,525,000
<SALES> 4,330,000
<TOTAL-REVENUES> 4,330,000
<CGS> 2,800,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,920,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,000
<INCOME-PRETAX> (599,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (599,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (599,000)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
