<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): MARCH 2, 2000
AVIATION GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 0-10124 75-2631373
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
700 N. PEARL STREET, SUITE 2170
DALLAS, TEXAS 75201
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 922-8100.
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
This Current Report on Form 8-K/A (Amendment No. 1) amends the
Current Report on Form 8-K previously filed with the Commission on March 17,
2000 relating to the acquisition by Aviation Group, Inc., a Texas corporation
(the "Company"), of a controlling stock interest in Global Leisure Travel, Inc.,
a Washington corporation ("Global"), on March 2, 2000. The following documents
are included as part of this report:
(a) Financial Statements of the Businesses Acquired. The
following audited consolidated financial statements of Global and its
subsidiaries are hereby included as part of this report:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.....................................................F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998...........................................F-2
Consolidated Statements of Loss for the years ended December 31,
1999, 1998 and 1997....................................................................................F-3
Consolidated Statements of Stockholders' Deficit for the years ended December 31,
1999, 1998 and 1997....................................................................................F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997..........................................................................................F-5
Notes to Financial Statements..........................................................................F-6
</TABLE>
(b) Pro Forma Financial Information. The pro forma financial
statements of the Company are hereby included as part of this report:
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Financial Statements.....................................................PF-1
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1999....................................PF-2
Unaudited Pro Forma Combined Statement of Operations for the Six Months Ended
December 31, 1999....................................................................................PF-3
Unaudited Pro Forma Combined Statement of Operations for the Year Ended June 30,
1999 .................................................................................................PF-4
Notes to Unaudited Pro Forma Combined Financial Statements............................................PF-5
</TABLE>
(c) Exhibits.
None
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 15, 2000.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
--------------------------------------
Richard L. Morgan, Executive Vice
President and Chief Financial Officer
3
<PAGE> 4
GLOBAL LEISURE TRAVEL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
AND YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE> 5
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants........................... 1
Consolidated Balance Sheets.................................................. 2
Consolidated Statements of Loss.............................................. 3
Consolidated Statements of Stockholders' Deficit............................. 4
Consolidated Statements of Cash Flows........................................ 5
Notes to Consolidated Financial Statements................................... 6 - 15
</TABLE>
<PAGE> 6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Global Leisure Travel, Inc.
We have audited the accompanying consolidated balance sheets of Global Leisure
Travel, Inc. and Subsidiaries (the "Company") for the years ended December 31,
1999 and 1998 and the related consolidated statements of loss, stockholders'
deficit and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 audits to obtain
reasonable assurance about whether the 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 the 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 Global
Leisure Travel, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the Company has been
acquired by Aviation Group in accordance with the Acquisition and Merger
Agreement dated March 17, 2000.
/s/ BDO Seidman LLP
March 31, 2000
1
<PAGE> 7
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------ ------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 349,883 $ 212,854
Restricted cash 1,953,535 1,893,783
Accounts receivable, net of allowance for doubtful
accounts of $46,062 in 1999 and $45,000 in 1998 1,034,632 674,115
Accounts receivable from related party 71,800 35,593
Prepaid tour costs 1,905,142 2,358,510
Prepaid and other assets 311,633 868,566
------------ ------------
TOTAL CURRENT ASSETS 5,626,625 6,043,421
PROPERTY AND EQUIPMENT, net 638,618 2,967,664
INTANGIBLE ASSETS, net 3,217,533 4,723,464
INVESTMENTS -- 221,328
------------ ------------
TOTAL ASSETS $ 9,482,776 $ 13,955,877
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Checks issued in excess of deposits $ 730,251 $ 3,242,196
Accounts payable 8,197,820 9,503,014
Customer deposits 5,585,142 10,385,021
Accrued tour costs 2,110,866 2,565,480
Accrued expenses and other liabilities 1,445,305 2,185,311
Current portion of long-term debt 9,981,219 1,221,304
Notes Payable to Related Parties 15,764,319 9,415,000
Net current liabilities of discontinued operations -- 938,431
------------ ------------
TOTAL CURRENT LIABILITIES 43,814,922 39,455,757
LONG-TERM DEBT, less current portion 265,188 285,000
------------ ------------
TOTAL LIABILITIES 44,080,110 39,740,757
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, no par value, 20,000,000 shares authorized,
4,000,000 shares issued and outstanding 1,000 1,000
Accumulated deficit (34,598,334) (25,785,880)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (34,597,334) (25,784,880)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,482,776 $ 13,955,877
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 8
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
NET COMMISSION REVENUE $ 9,438,301 $ 11,906,394 $ 10,854,284
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (16,964,862) (18,954,168) (16,384,573)
IMPAIRMENT OF RESERVATION SYSTEM (3,473,337) -- --
IMPAIRMENT OF GOODWILL (929,664) -- --
------------- ------------- -------------
LOSS FROM OPERATIONS (11,929,562) (7,047,774) (5,530,289)
OTHER INCOME (EXPENSE)
Interest income 91,675 73,451 --
Interest expense (5,262,680) (578,288) (7,716)
Other 46,691 5,566 --
------------- ------------- -------------
TOTAL OTHER EXPENSE (5,124,314) (499,271) (7,716)
------------- ------------- -------------
NET LOSS FROM CONTINUING OPERATIONS (17,053,876) (7,547,045) (5,538,005)
------------- ------------- -------------
DISCONTINUED OPERATIONS
Gain (loss) from discontinued operations (260,521) 980,083 510,415
Gain on dispositions 8,501,943 -- --
------------- ------------- -------------
INCOME FROM DISCONTINUED OPERATIONS 8,241,422 980,083 510,415
------------- ------------- -------------
NET LOSS $ (8,812,454) $ (6,566,962) $ (5,027,590)
------------- ------------- -------------
NET INCOME (LOSS) PER SHARE
From continuing operations $ (4.26) $ (1.89) $ (1.38)
From discontinued operations $ 2.06 $ 0.25 $ 0.12
------------- ------------- -------------
Net loss per share $ (2.20) $ (1.64) $ (1.26)
Weighted average shares outstanding, restated for stock
dividend 4,000,000 4,000,000 4,000,000
------------- ------------- -------------
SUPPLEMENTAL INFORMATION (UNAUDITED)
Gross Travel Bookings $ 91,963,165 $ 103,235,121 $ 56,086,792
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 9
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Total
----------------------------- Accumulated Stockholders'
Shares Amount Deficit Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 4,000,000 $ 1,000 $(14,191,328) $(14,190,328)
Net loss -- -- (5,027,590) (5,027,590)
------------ ------------ ------------ ------------
Balance at December 31, 1997 4,000,000 1,000 (19,218,918) (19,217,918)
Net loss -- -- (6,566,962) (6,566,962)
------------ ------------ ------------ ------------
Balance at December 31, 1998 4,000,000 1,000 (25,785,880) (25,784,880)
Net loss -- -- (8,812,454) (8,812,454)
------------ ------------ ------------ ------------
Balance at December 31, 1999 4,000,000 $ 1,000 $(34,598,334) $(34,597,334)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 10
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- ----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year $ (8,812,454) $ (6,566,962) $ (5,027,590)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,003,846 639,545 558,305
Impairment of goodwill 929,664 -- --
Impairment of fixed asset 3,473,337 -- --
Change in net assets and liabilities of discontinued
operations (938,411) 147,826 (572,353)
Change in assets and liabilities
Restricted cash (59,752) (1,475,309) (107,041)
Accounts receivable (396,724) 244,180 87,253
Prepaid and other assets 1,010,301 335,424 (634,756)
Customer deposits (4,799,879) 498,018 1,966,387
Accounts payable (3,817,139) 3,298,957 1,979,648
Accrued tour costs (454,614) (128,450) 584,111
Accrued expenses and other liabilities (745,006) (658,751) 885,510
------------ ------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (13,606,831) (3,665,522) (280,526)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for trade name purchase -- (130,000) --
Additions to land, building and equipment (1,468,188) (2,148,632) (460,106)
Other (103,702) 93,697 (6,410)
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (1,571,890) (2,184,935) (466,516)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on debt 19,582,784 607,500 1,600,000
Payments on debt (10,245,232) (1,187,064) (239,380)
Proceeds from borrowings from related parties 26,016,334 6,395,000 --
Payments on notes payable to related parties (19,665,687) -- (315,000)
Payments under capital lease obligation (372,449) (90,194) (43,802)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,315,750 5,725,242 1,001,818
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 137,029 (125,215) 254,776
CASH AND CASH EQUIVALENTS, beginning of year 212,854 338,069 83,293
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 349,883 $ 212,854 $ 338,069
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 1,575,000 $ 538,000 $ 142,000
Assets acquired by capital lease $ -- $ 425,718 $ --
Pushdown of GLT debt $ -- $ 3,020,000 $ --
Exchange of asset for debt relief $ 221,328 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 11
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Global Leisure Travel, Inc. ("GLT" or "the Company") is
primarily engaged in wholesale and retail travel for both domestic and
international destinations. Packages created by the Company, including airline
seats, hotel accommodations, automobile rentals and other land components, are
contracted with the vendors and primarily marketed directly to retail travel
agents.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION - The consolidated
financial statements include the accounts of GLT and its wholly owned
subsidiaries: Sunmakers, Inc. ("Sunmakers"), KWTI Company ("KWTI"), Firstrav
International, Inc., Cruise Alaska Tours, Inc. ("CAT") and AOI, Inc. ("AOI").
Jetset Tours, Inc. and Maupintour were wholly owned subsidiaries until their
respective sales in late 1999. All significant intercompany balances and
transactions have been eliminated in consolidation.
Effective February 28, 1997, the Company was purchased by Global Leisure, Inc.
for $2.7 million in cash and notes. The accompanying financial statements have
been prepared on the historical cost basis, with the $18 million excess of
Global Leisure, Inc.'s purchase price over the net assets acquired remaining on
Global Leisure, Inc.'s books.
On December 22, 1998, Global Leisure Travel, Inc. entered into an agreement to
sell 95% of its common stock to Genesis Diversified Investments, Inc.
("Genesis"). The accompanying financial statements have been prepared on the
historical cost basis, with the $27 million excess of Genesis' purchase price
over the historical cost of net assets acquired on Genesis' books
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. Receivables from credit cards are treated as cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of three to five years.
6
<PAGE> 12
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS - In accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of",
management of the Company reviews the carrying value of its equipment and
intangible assets on a regular basis. Estimated undiscounted future cash flows
from operations is compared to current carrying value. Reductions or reserves
against assets, if necessary, are recorded to the extent the net book value of
the asset exceeds the estimate of future undiscounted cash flows.
INTANGIBLE ASSETS - The excess purchase price of subsidiaries over the fair
market value of net assets acquired is recorded as an intangible asset and is
being amortized using the straight-line method over 15 years.
REVENUE RECOGNITION - In November 1999 the Emerging Issues Task Force ("EITF")
of the Financing Accounting Standards Board issued a discussion paper EITF
99-19, Reporting Revenue Gross Versus Net, which has not yet been finalized and
in December 1999, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements, both
of which covered and included guidelines for determining the appropriateness of
gross versus net revenue reporting practices specifically in the e-commerce and
travel sectors. The guidelines contained therein focus on determining whether
the company in substance acts as principal, agent or broker in a transaction,
whether it takes title to the products, and whether it assumes the risks and
rewards of ownership. The Company has considered these very recent developments
in determining its revenue recognition and reporting policies and believes its
current policies are conservative and consistent with this guidance, however, it
is possible that these evolving standards may allow or require the Company to
amend its practices for the recognition and reporting of revenue.
Net revenues consist primarily of markups on travel packages. The Company
generally recognizes net revenue when earned on the date of travel net of all
cancellations and charges to reservations booked.
Customer deposits represent unearned revenues and are initially recorded as
customer deposit liabilities on the balance sheet when received. Customer
deposits are subsequently recognized as revenue, generally upon the month of
travel.
7
<PAGE> 13
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVESTMENTS - The Company accounts for its investments in which it has
significantinfluence, but not control (generally represented by ownership of
more than 20% but less than 50% of the entity's outstanding common stock) using
the equity method of accounting. See Note 5 for details on the sale of
investment during 1999.
ADVERTISING COSTS - Advertising costs, consisting primarily of brochures,
printing and postage expenditures, are amortized over the period the tour
departs. Recognition of advertising costs is in conformance with the provisions
of The American Institute of Certified Public Accountants Statement of Position
93-7, "Reporting of Advertising Costs". Advertising costs of approximately
$900,000 in 1999, $3.0 million in 1998, and $2.2 million in 1997 are included in
the accompanying Consolidated Statements of Loss. Prepaid expenses includes
prepaid advertising costs of $0 and $400,000 at December 31, 1999 and 1998,
which will be reflected as an expense during the period benefited.
INCOME TAXES - The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". SFAS 109 requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities. Deferred taxes are determined using enacted tax rates
expected to be in effect in the years in which the temporary differences are
expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Carrying amounts reported in the balance
sheet for cash and cash equivalents, restricted cash, accounts receivable,
prepaid tour costs, prepaid and other current assets, accounts payable and
accrued expenses approximate fair value because of their immediate or short-term
nature. The fair value of long-term debt approximates its carrying value because
the stated rates of the debt either reflect recent market conditions or are
variable in nature.
ACCOUNTING ESTIMATES - The presentation 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, 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.
8
<PAGE> 14
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE - Basic earnings per share
is computed by dividing net income by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing net loss, as adjusted, by the weighted average number of shares of
common stock, common stock equivalents and other potentially dilutive securities
outstanding during each period. All per share information has been restated to
reflect the stock dividend declared on December 22, 1998.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior years'
financial statements to confirm the current year's presentation.
NEW ACCOUNTING STANDARDS - In July 1999, the Financial Accounting Standards
Board (the "FASB") issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of Effective Date of FASB No. 133". The
Statement defers for one year the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The rule now will apply to
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133,
issued in June 1998, establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. Management has considered the impact of this
statement, and believes it does not have a material impact upon the Company's
results of operations or financial position.
In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1
requires the Company to capitalize internal computer software costs once the
capitalization criteria are met. SOP 98-1 is effective January 1, 1999, and is
applied to all projects in progress upon initial application. Based on the
adoption of SOP 98-1, the Company capitalized approximately $1.7 million and
$2.0 million related to the Company's internal reservation systems during the
years ended December 31, 1999 and 1998. Capitalized software is amortized on a
straight-line basis over a five-year period. See Note 4 for details on
reservation system impairment losses recognized in 1999.
9
<PAGE> 15
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SUPPLEMENTAL INFORMATION ON GROSS TRAVEL BOOKINGS (UNAUDITED) - Gross travel
bookings represent the total purchase price of all travel products and services
booked by the Company. This information does not affect the Company's reported
operating results. Disclosure of gross travel bookings is not required by
generally accepted accounting principles in the United States. Gross travel
bookings are not included in revenues or operating results, and should not be
considered in isolation or as a substitute for other information prepared in
accordance with generally accepted accounting principles. Management believes
that gross travel bookings provide more consistent comparison between historical
periods than do online revenues and commissions. In addition, management
believes that gross travel bookings are meaningful because such information and,
in particular, year-to-year changes in such information, are a useful measure of
market and product acceptance.
NOTE 2: FINANCIAL CONDITION, LIQUIDITY AND SUBSEQUENT EVENTS
The Company continues to have significant operating losses, working capital
deficiencies and has not been able to generate adequate cash to meet its
obligations.
In March 2000, the Company entered into an agreement to be acquired by Aviation
Group, Inc. ("Aviation"). The acquisition of the Company is to involve (1) the
issuance by Aviation of approximately $16,500,000 of Series A preferred stock;
(2) the issuance of warrants to purchase 4,250,000 shares of Aviation's common
stock; and (3) the repayment of approximately $16,500,000 of the Company's
outstanding debt. The funds required to repay the Company's outstanding debt are
to be provided by the sale of preferred stock to Travelbyus.com ("TBU") and a
proposed private placement of securities.
10
<PAGE> 16
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3: DISCONTINUED OPERATIONS
In October 1999, the Company completed the sale of assets and assumption of
certain liabilities of Maupintour to Ardsley, LLC, which after the forgiveness
of intercompany debt, resulted in a payment to Ardsley, LLC of approximately
$419,000. In November 1999, the Company completed the sale of Jetset stock to
Arnell Corp. for approximately $6.3 million cash.
The results of operations of Jetset and Maupintour have been classified as
discontinued operations in the accompanying financial statements as the
respective operations were geographically separate and operated independently of
the Company's operations in Seattle, Washington. Additionally, after the sales,
the Company no longer handled bulk wholesale airfare transactions (Jetset) or
packaged tours which were directly purchased by the tour operator (Maupintour).
The gain or loss incurred on the sales of Jetset and Maupintour is presented
separately as a component of discontinued operations.
Travel sales and commissions and net income from discontinued operations were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
TRAVEL SALES AND COMMISSIONS:
Maupintour $ 28,813,310 $ 41,794,311 $ 40,569,374
Jetset 71,824,144 65,117,650 33,388,930
NET INCOME (LOSS):
Maupintour (593,480) 1,070,516 575,792
Jetset 332,959 (90,433) (65,377)
------------ ------------ ------------
$ (260,521) $ 980,083 $ 510,415
============ ============ ============
</TABLE>
11
<PAGE> 17
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Capital leases $ 157,043 $ 511,964
Buildings and leasehold improvements -- 292,649
Furniture and equipment 778,819 649,928
Reservation system 300,000 2,058,791
---------- ----------
1,235,862 3,513,332
Less accumulated depreciation 597,244 545,668
---------- ----------
Property and equipment, net $ 638,618 $2,967,664
========== ==========
</TABLE>
Depreciation expense was approximately $121,477, $234,000 and $211,000 for the
years ended December 31, 1999, 1998 and 1997. Depreciation expense on capital
leases was approximately $102,400, $147,000 and $107,000 for the years ended
December 31, 1999, 1998 and 1997.
The Company recorded a charge of $3,473,337 during 1999 for the write-down of
the reservation system. Based on the Company's history of operating losses and
projection of future cash flows, management determined that it was necessary to
write down the carrying value of this asset to its estimated fair market value.
NOTE 5: INTANGIBLE ASSETS
Intangible assets in the amount of $929,664 were written off through a charge to
operations in 1999, and reflected in the Consolidated Statement of Loss as
"impairment of goodwill". The amount written off relates to goodwill recorded
upon various subsidiary and trade name purchases, and represents the amount
necessary to reduce the carrying values of the purchased goodwill to the
Company's best estimate of the future undiscounted cash flows from the acquired
assets.
Accumulated amortization at December 31, 1999 and 1998 was approximately $1.3
million and $2.0 million.
12
<PAGE> 18
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 6: INVESTMENTS
GLT had a 45 percent interest in 4192 Meridian Associates (the "Venture"). The
Venture was formed in May 1994 to acquire and operate a commercial office
building in Bellingham, Washington. The Company leased office space from the
Venture under a non-cancelable operating lease having a three-year term. Rent
expense paid to the Venture was approximately $28,000 for each of the years
ended December 31, 1999, 1998 and 1997. During 1999, the investment was sold to
two former owners of the Company as settlement of a note payable to them. Book
value of the investment at the date of sale was approximately $218,000.
NOTE 7: RELATED PARTY TRANSACTIONS
Related party debt consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Due to majority shareholder $ 9,549,319 $ 2,000,000
Due to minority shareholder and related
individuals 6,215,000 7,415,000
----------- -----------
$15,764,319 $ 9,415,000
=========== ===========
</TABLE>
The loans carry an interest rate of prime plus 2% (10.5% at December 31, 1999)
and are payable on demand. Interest paid to the related parties was
approximately $400,000, $414,000 and $32,000 for the years ended December 31,
1999, 1998 and 1997.
13
<PAGE> 19
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 8: LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Notes payable to a company, due throughout
2000, 16% interest $ 9,863,623 $ --
Signing bonus, monthly payments of $8,333,
non-interest bearing 285,000 387,500
Capitalized lease obligations 97,784 470,233
Note payable to a company, due June 27, 1999,
non-interest bearing, principal payments of
$71,428, collateralized by the Company's 45%
interest in 4192 Meridian Associates -- 428,571
Note payable to an individual, due on demand,
6% interest -- 110,000
Note payable to an individual, due on
demand, 6% interest -- 110,000
----------- -----------
Total long-term debt 10,246,407 1,506,304
Less current portion 9,981,219 1,221,304
----------- -----------
Long-term debt, less current portion $ 265,188 $ 285,000
=========== ===========
</TABLE>
Maturities of debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
-----------
<S> <C>
2000 $ 9,981,219
2001 117,596
2002 117,596
2003 29,996
-----------
$10,246,407
===========
</TABLE>
14
<PAGE> 20
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES
As of the year ended December 31, 1999, the Company has net loss carryforwards
of approximately $26 million. The loss carryforwards are available, through
their expiration date of 2020, to offset future taxable income. The utilization
of these loss carryforwards is subject to limitation due to the changes in
control of the Company.
Included in loss carryforwards is $410,000 attributable to CAT that can only be
offset against future earnings of CAT.
At December 31, 1999 and 1998, the Company had a net deferred long-term tax
asset of $5.7 million and $8.8 million arising primarily from net operating loss
carryforwards offset by the use of accelerated methods of depreciation of fixed
assets. The Company has recognized a valuation allowance on all of its net
deferred tax assets due to the uncertainty of realizing the benefits thereof.
The provision for income taxes differs from expected amounts, computed using the
federal statutory rate of 34%, as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Expected benefit $ 2,996,235 $ 1,960,660 $ 1,709,381
Non-deductible expenses (657,924) (247,722) (271,132)
Change in valuation allowance (2,338,311) (1,712,938) (1,438,249)
----------- ----------- -----------
Provision for income taxes $ -- $ -- $ --
----------- ----------- -----------
</TABLE>
NOTE 10: LEASE COMMITMENTS
The Company leases certain facilities under agreements which expire at various
dates. Annual minimum rental commitments under operating leases that have
initial or remaining non-cancelable lease terms are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
----------
<S> <C>
2000 $ 945,684
2001 894,578
2002 636,109
2003 36,656
----------
$2,513,027
----------
</TABLE>
Rent expense under operating leases was approximately $618,000, $413,000 and
$370,000 for the years ended December 31, 1999, 1998 and 1997.
15
<PAGE> 21
GLOBAL LEISURE TRAVEL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 11: LETTERS OF CREDIT
The Company had outstanding irrevocable letters of credit in the amount of
approximately $1.9 million as of the years ended December 31, 1999 and 1998.
These letters of credit were issued in the ordinary course of the Company's
business and are collateralized by restricted cash of approximately $1.7
million.
NOTE 12: EMPLOYEE BENEFIT PLANS
The Company has a 401(k) employee benefit plan for those employees who meet the
eligibility requirements set forth in the plan. Eligible employees may
contribute up to 15% of their compensation. The Company may make matching
contributions at the discretion of its board of directors. An employee becomes
fully vested with respect to employer contributions after 6 years of service.
The Company contributed approximately $68,000, $65,000 and $56,000 to the plan
for the years ended December 31, 1999, 1998 and 1997.
NOTE 13: COMMITMENTS AND CONTINGENCIES
As part of the 1995 purchase of Maupintour, the Company was contingently liable
for additional payments to the former owners from 1997 to 2000. The additional
payments are a percentage of domestic and international sales exceeding a
specified minimum. The Company settled the remaining obligation, in conjunction
with the sale of Maupintour, for $275,000. The Company accrued $155,000 in 1998
which was also paid during 1999.
16
<PAGE> 22
Aviation Group, Inc.
Unaudited Pro Forma Combined Financial Statements
The following unaudited pro forma combined financial statements have
been prepared to reflect the transactions described below as if they had all
occurred as of December 31, 1999, with respect to the pro forma balance sheet,
and as of the beginning of the respective periods with respect to the pro forma
statements of operations. The transactions are as follows:
1. The issuance by the Company of $16,500,000 liquidation value of Series
A convertible preferred stock and warrants in May 2000 to certain debt
holders and the common stockholders and warrant holders of Global in
exchange for retirement of the debt and cancellation of the outstanding
common stock.
2. The sale of Series B preferred stock and warrants in March 2000 by the
Company and the purchase of Series B preferred stock of Global and the
retirement of Global debt and payables with the proceeds.
The pro forma financial statements combine the historical financial
statements of the companies and include adjustments to reflect the effects of
the transactions described above. The acquisition of Global by the Company is
accounted for as a purchase. The unaudited pro forma combined financial
statements should be read in conjunction with the notes thereto and with the
historical financial statements of Global, included in this document, and of the
company, in its most recent Forms 10-KSB and 10-QSB.
The unaudited pro forma combined financial statements are not
indicative of the financial position or results of operations of the Company
which would actually have occurred if the transactions described above had
occurred at the dates presented or which may be obtained in the future.
PF-1
<PAGE> 23
AVIATION GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1999 (IN THOUSANDS OF DOLLARS)
DRAFT-BASED ON PRELIMINARY NUMBERS
FOR DISCUSSION PURPOSES ONLY, continued
<TABLE>
<CAPTION>
Aviation Pro Forma Pro Forma
Group Global Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 369 $ 350 $ 2,000(5) $ 2,719
Accounts receivable 1,298 1,106 -- 2,404
Inventory 1,361 -- -- 1,361
Net assets held for resale 267 -- -- 267
Other current assets 530 4,170 -- 4,700
-------- -------- -------- --------
Total current assets 3,825 5,626 2,000 11,451
Property and equipment, net 2,744 639 -- 3,383
Trademark, license and contract rights 1,400 -- -- 1,400
Goodwill and other intangibles 1,802 3,218 49,945(1) 54,965
Other assets 239 -- -- 239
-------- -------- -------- --------
Total assets $ 10,010 $ 9,483 $ 51,945 $ 71,438
======== ======== ======== ========
Notes payable and current 2,253 25,750 (16,500)(1) 2,370
maturities of long-term debt (9,133)(2)
Customer deposits -- 5,585 -- 5,585
Accounts payable and accrued 3,235 12,480 (11,867)(2) 7,848
expenses 4,000(1)
-------- -------- -------- --------
Total current liabilities 5,488 43,815 (33,500) 15,803
Long-term debt 715 265 -- 980
-------- -------- -------- --------
Total liabilities 6,203 44,080 (33,500) 16,783
Preferred stock -- -- 14,978(1) 35,978
21,000(2)
Common stock 36 4,000 (4,000)(1) 2,036
2,000(5)
Other stockholders' equity 9,766 -- 11,348(1) 22,636
1,522(1)
Accumulated earnings (deficit) (5,995) (38,597) 38,597(1) (5,995)
-------- -------- -------- --------
Total stockholders' equity
(deficit) 3,807 (34,597) 85,445 54,655
-------- -------- -------- --------
Total liabilities and
stockholders' equity $ 10,010 $ 9,483 $ 51,945 $ 71,438
======== ======== ======== ========
</TABLE>
SEE NOTES TO PRO FORMA ADJUSTMENTS.
PF-2
<PAGE> 24
AVIATION GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (IN THOUSANDS OF DOLLARS)
DRAFT-BASED ON PRELIMINARY NUMBERS
FOR DISCUSSION PURPOSES ONLY
<TABLE>
<CAPTION>
Aviation Pro Forma Pro Forma
Group Global Adjustments Combined
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues, net $ 5,529 $ 4,312 $ -- $ 9,841
Operating expenses 3,550 -- -- 3,550
General and administrative 3,125 8,135 -- 11,260
expenses
Depreciation and amortization 339 4,403 1,665(3) 6,407
-------- -------- -------- --------
Income (loss) from operations (1,485) (8,226) (1,665) (11,376)
Other income (expense):
Interest and other income 1 -- -- 1
Interest expense (381) (2,171) 1,000(4) (1,552)
Other expense -- (918) -- (918)
-------- -------- -------- --------
Total other income (expense) (380) (3,089) 1,000 (2,469)
-------- -------- -------- --------
Income (loss) from continuing
operations $ (1,865) $(11,315) $ (665) $(13,845)
======== ======== ======== ========
Income (loss) from continuing
operations per share - basic
and diluted $ (0.52) -- -- $ (3.87)
======== ======== ======== ========
Weighted average shares
outstanding 3,574 -- -- 3,574
======== ======== ======== ========
</TABLE>
SEE NOTES TO PRO FORMA ADJUSTMENTS.
PF-3
<PAGE> 25
AVIATION GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999 (IN THOUSANDS OF DOLLARS)
DRAFT-BASED ON PRELIMINARY NUMBERS
FOR DISCUSSION PURPOSES ONLY
<TABLE>
<CAPTION>
Aviation Pro Forma Pro Forma
Group Global Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues, net $ 15,097 $ 11,100 $ -- $ 26,197
Operating expenses 10,129 -- -- 10,129
General and administrative
expenses 5,482 17,834 -- 23,316
Depreciation, amortization and
impairment 674 1,248 3,330(3) 5,252
-------- -------- -------- --------
Income (loss) from operations (1,188) (7,982) (3,330) (12,500)
Other income (expense):
Interest and other income 52 -- -- 52
Interest expense (461) (840) 1,207 (94)
Other expense -- (1,631) -- (1,631)
-------- -------- -------- --------
Total other income (expense) (409) (2,471) 1,207 (1,673)
-------- -------- -------- --------
Income (loss) from continuing (1,597) (10,453) (2,123) (14,173)
operations before income taxes
Income tax (expense) benefit (199) -- -- (199)
-------- -------- -------- --------
Income (loss) from continuing
operations $ (1,796) $(10,453) $ (2,123) $(14,372)
======== ======== ======== ========
Income (loss) from continuing
operations per share - basic
and diluted $ (0.53) -- -- $ (4.20)
======== ======== ======== ========
Weighted average shares
outstanding 3,419 -- -- 3,419
======== ======== ======== ========
</TABLE>
SEE NOTES TO PRO FORMA ADJUSTMENTS.
PF-4
<PAGE> 26
AVIATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Adjustment to record the acquisition of Global by the Company by the
issuance of approximately $16,500,000 liquidation value of Series A
convertible preferred stock to certain debt holders and the common
stockholders of Global in exchange for retirement of approximately
$16,500,000 of Global debt and cancellation of the Global common stock. The
Series A convertible preferred stock is recorded based on the amount of
debt retired, reduced by the value of warrants (Exchange Warrants) to
purchase 750,000 shares of the Company's common stock issued to the debt
holders. In addition, the value of warrants (Debt Warrants) issued to
purchase 3,500,000 shares of the Company's common stock to the existing
Global warrant holders is included in the purchase price. The values of the
Exchange and Debt Warrants, as estimated using the Black Scholes option
pricing model, are $1,522,000 and $11,348,000, respectively. In addition, a
liability of $4,000,000 is recorded as an estimate of certain costs that
are expected to be incurred in restructuring contracts and leases and
shutting down the Seattle operations of Global. The Global equity accounts
are eliminated and goodwill of $49,945,000 is recorded for the excess of
the purchase price over the fair values of the identifiable net assets.
2. Adjustment to record the sale of approximately $21,000,000 of the Company's
Series B preferred stock net of transaction costs of approximately
$500,000, and the use of the proceeds to retire a like amount of Global
debt and payables.
3. Adjustment to record the effect of the amortization of the goodwill
recorded upon the purchase of Global over a 15 year time period as if the
acquisition had occurred at the beginning of the respective periods. The
amortization is $3,300,000 and $1,665,000 for the year ended June 30, 1999
and the six months ended December 31, 1999, respectively.
4. Adjustment to record the reduction in interest expense for the retirement
of approximately $25,600,000 in Global debt as if the retirement had
occurred at the beginning of the respective periods. The interest rate on
the retired debt was 10.5% at December 31, 1999. The amounts of the
interest reduction are $1,207,000 and $1,000,000 for the year ended June
30, 1999 and the six months ended December 31, 1999, respectively.
5. Adjustment to reflect the sale of 750,000 shares of common stock for
proceeds of $2,000,000 in March 2000 by the Company.
PF-5
