<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
[ ] 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.
4,698,801 shares of Common Stock were outstanding as of May 17, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,758,000 $ 84,000
Restricted time deposit 3,259,000 538,000
Accounts receivable, net 2,701,000 2,200,000
Inventory 904,000 1,547,000
Prepaid expenses and other 631,000 170,000
Prepaid tour costs 1,990,000 --
Discontinued assets held for resale 471,000 --
----------- -----------
Total Current Assets 11,714,000 4,539,000
----------- -----------
Property and equipment, net 3,194,000 4,050,000
Product contracts & other intangibles, net 7,523,000 --
----------- -----------
10,717,000 4,050,000
----------- -----------
Goodwill, net 49,975,000 4,144,000
Other 440,000 319,000
----------- -----------
Total Assets $72,846,000 $13,052,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 1,246,000 463,000
Current portion of capital lease obligations 134,000 164,000
Revolving and other short-term borrowings 1,713,000 2,316,000
Accounts payable 4,055,000 2,334,000
Accrued liabilities 8,365,000 1,335,000
----------- -----------
Total Current Liabilities 15,513,000 6,612,000
----------- -----------
Long-Term Liabilities
Long-term debt, net of current maturities 3,202,000 880,000
Capitalized leases, net of current maturities -- 439,000
----------- -----------
Total Long-Term Liabilities 3,202,000 1,319,000
----------- -----------
Total Liabilities 18,715,000 7,931,000
----------- -----------
Shareholders' Equity
Series A 9% cumulative convertible Preferred Stock, $.01
par value $10,000 liquidation preference per share,
1,650 shares outstanding 2,000 --
Series B 12% cumulative Preferred Stock, $.01 per value
$10,000 liquidation preference per share, 2,100 shares
outstanding 2,000 --
Common Stock, $.01 per value, 10,000,000 shares
authorized, 4,678,801 and 3,573,929 shares
issued and outstanding 47,000 36,000
Additional paid-in capital 60,904,000 9,766,000
Retained earnings (deficit) (6,824,000) (4,681,000)
----------- -----------
Total Shareholders' Equity 54,131,000 5,121,000
----------- -----------
Total Liabilities and Shareholders' Equity $72,846,000 $13,052,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, December 31,
--------- ------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Revenue $3,830,000 $3,586,000 $ 9,359,000 $11,941,000
Cost of revenue 2,340,000 2,348,000 5,890,000 7,187,000
---------- ----------- ----------- -----------
Gross profit 1,490,000 1,238,000 3,469,000 4,754,000
---------- ----------- ----------- -----------
General and administrative expenses 1,872,000 1,727,000 4,997,000 4,783,000
Depreciation and amortization 166,000 196,000 505,000 541,000
---------- ----------- ----------- -----------
2,038,000 1,923,000 5,502,000 5,324,000
---------- ----------- ----------- -----------
Loss from operations (548,000) (685,000) (2,033,000) (570,000)
---------- ----------- ----------- -----------
Other income (expenses)
Other income (expense) 2,000 -- 3,000 2,000
Interest expense, net (112,000) (53,000) (493,000) (221,000)
---------- ----------- ----------- -----------
(110,000) (53,000) (490,000) (219,000)
---------- ----------- ----------- -----------
Loss from continuing operations
Before income taxes (658,000) (738,000) (2,523,000) (789,000)
Provision (benefit) for income taxes -- 199,000 -- 199,000
---------- ----------- ----------- -----------
Loss continuing operations (658,000) (937,000) (2,523,000) (988,000)
Income (loss) from discontinued operations (82,000) (314,000) (221,000) (314,000)
Gain (loss) on sale of subsidiaries, net (90,000) -- 600,000 --
---------- ----------- ----------- -----------
(172,000) (314,000) 379,000 (314,000)
---------- ----------- ----------- -----------
Net loss $ (830,000) $(1,251,000) $(2,144,000) $(1,302,000)
========== =========== =========== ===========
Earnings (loss) per common share
Income (loss) before discontinued operations $ (0.17) $ (0.27) $ (0.68) $ (0.29)
Income (loss) from discontinued operations (0.04) (0.09) 0.10 (0.09)
---------- ----------- ----------- -----------
Net income per share (basic and diluted) $ (0.21) $ (0.36) (0.58) $ (0.38)
========== =========== =========== ===========
Weighted average shares outstanding
Basic and diluted 3,948,801 3,524,062 3,698,886 3,409,469
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended March 31,
-----------------------------------
<S> <C> <C>
2000 1999
---- ----
Cash Flows From Operating Activities:
Net Income (Loss) $ (2,144,000) $ (1,302,000)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating Activities:
Depreciation and amortization 599,000 712,000
Deferred income taxes -- 199,000
Warrants issued for services -- 123,000
Decrease in restricted time deposits 538,000 --
(Increase) decrease in accounts receivable 377,000 (271,000)
Decrease in inventories 643,000 406,000
(Increase) in prepaids and other current assets (189,000) (5,000)
Increase (decrease) in accounts payable (277,000) 512,000
Increase (decrease) in accrued interest -- (15,000)
Increase (decrease) in accrued liabilities (242,000) 235,000
Other -- (59,000)
------------ ------------
Total Adjustments 1,449,000 1,837,000
------------ ------------
Net Cash Provided (Used) by Operating Activities (695,000) 535,000
------------ ------------
Cash Flows From Investing Activities:
Investment in Global Leisure (1,500,000) --
Proceeds of sale of discontinued business segments 1,700,000 --
Payments for property and equipment additions -- (755,000)
------------ ------------
Net Cash provided (used) by Investing Activities 200,000 (755,000)
Cash Flows From Financing Activities:
Repayments of short-term borrowings, net (756,000) 794,000
Principal payments on long-term debt (803,000) (443,000)
Proceeds from issuance of common stock 2,300,000 --
------------ ------------
Net Cash Provided by Financing Activities 741,000 351,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 246,000 131,000
Cash and Cash Equivalents at Beginning of Period 84,000 509,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 330,000 $ 640,000
============ ============
Supplemental Disclosure of Cash Paid for Interest and Income Taxes:
Cash paid for interest $ 533,000 $ 298,000
Cash paid for income taxes -- --
Supplemental Disclosure of Non-cash Investment in
Global Travel Leisure, Inc.
Cash $ 1,428,000 --
Other current assets 6,399,000 --
Long term assets 42,237,000 --
Current liabilities (9,862,000) --
Long term debt (2,686,000) --
Issuance of Series A preferred stock and warrants (16,500,000) --
Issuance of Series B preferred stock (21,000,000) --
Issuance of Series B warrants in acquisition of Global (11,348,000) --
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
In the opinion of management of Aviation Group, Inc. ("Aviation Group" or
the "Company"), the accompanying balance sheets and related interim statements
of operations 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
valuation of acquired assets, 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.
NOTE B - SALE OF DISCONTINUED BUSINESS SEGMENTS & MERGER ACTIVITY
The Company has since 1999 been in discussions with third parties regarding
the possible sale or merger of the entire enterprise, and is also in discussions
with certain third parties regarding the sale of certain remaining segments of
the Company's operations on an individual basis. Other parties expressed
interest in the Company's status as a public company and have expressed interest
in a business combination, spin-off, or other transaction.
On December 29, 1999, the Company sold its Tri-Star Airline Services ground
handling subsidiary operations. On February 8, 2000, the Company sold its
Casper Air Service general aviation fixed base operations. Both businesses were
sold to unrelated third parties and, when combined, generated a net gain on sale
to the Company of $600,000. See "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations".
In late February 2000 Aviation Group entered into letters of intent and
publicly announced a proposed three-way business combination with Global Leisure
Travel, Inc. and travelbyus.com ltd. Global Leisure Travel, Inc. is a Seattle,
Washington-based travel business specializing in the sale of Hawaiian and other
Pacific-region vacation tour and other travel products to consumers.
travelbyus.com ltd. is an Internet-based travel company. The business
combination contemplates the acquisition by Aviation Group of these two
companies with financing provided by travelbyus.com ltd. and private investment
capital raised by Doerge Capital Management, the Company's financial advisor for
this transaction. Additionally, Aviation Group engaged the investment firm of
CIBC World Markets Corp. to review the transaction with travelbyus.com ltd. and
express an opinion regarding the fairness of the terms to Aviation Group
shareholders. The Aviation Group, Inc. shareholders will retain approximately
6% of the combined entity.
NOTE C - ACQUISITION OF GLOBAL LEISURE TRAVEL, INC.
On March 17, 2000, the Company executed agreements to purchase Global
Leisure Travel, Inc. ("Global") and obtained control of Global's voting stock.
On May 10, 2000, the Company completed its acquisition of Global, and Global is
now a wholly-owned subsidiary of Aviation Group. As consideration for the
purchase, the Company issued:
$16,500,000 in liquidation preference, represented by 1,650 shares, of its
Series A 9% cumulative convertible preferred stock and Series A warrants to
purchase 750,000 shares of its common stock at an exercise price of $5.00
per share to the former owners of Global in exchange for the transfer or
cancellation of the stock and indebtedness owned by them and their
affiliates; and
Series B warrants to purchase 3,500,000 shares of its common stock at an
exercise price of $3.00 per share to the former warrantholders in Global in
exchange for cancellation of their warrants. The warrants were recorded at
as estimated value of $11,348,000 as calculated under the Black Scholes
pricing model.
-4-
<PAGE>
In connection with the acquisition, through March 31, 2000, the Company
also invested $20.4 million in Global. These funds were used primarily to pay
debts and other payables of Global. The financing for this investment by
Aviation Group in Global was provided by:
$5,000,000 invested by travelbyus.com ltd. through the purchase of 500
shares of Series B preferred stock from Aviation Group at $10,000 per
share;
$2,000,000 invested by private investors in the purchase of 750,000 shares
of Aviation Group common stock at $2.667 per share, and;
$16,000,000 invested by private investors in the purchase of 1,600 units of
Aviation Group's Series B 12% cumulative preferred stock and Series C
warrants, at a price of $10,000 per unit, each unit consisting of one share
and 750 warrants.
Global provides travel related services primarily through retail travel
agencies. Global is a seller of bulk travel services, maintaining several
wholesale and discount contracts with leading providers of travel in the
industry. Global maintains contracts with several major airlines, hotel
operators and touring companies, including United Airlines, Continental
Airlines, Delta Airlines, Hawaiian Airlines, Alaskan Airlines, Outrigger Hotels
Hawaii, and Hotel Corporation of the Pacific d/b/a Aston Hotels & Resorts. These
contracts allow Global to purchase airline tickets, hotel reservations and
travel packages at wholesale prices.
Global travel products are resold to the public through retail travel
agents and other sellers. Several tradenames under which Global operates are
"Sunmakers", "Kailani Hawaii Tours", and "Hawaii Leisure". Global has contracts
with travel agencies and suppliers of travel in Washington, Hawaii, Nevada and
California. These agencies have designated Global as a preferred supplier for
all destinations and products that Global offers in exchange for certain sales-
based commissions. In most of its contracts, Global competes for a block of
tickets with other wholesale travel suppliers.
As of May 15, 2000, Global employed 132 people, and leased 28,614 square
feet of office space in Seattle, Washington, its main headquarters, and one
floor of an office building in Bellingham, Washington.
For financial reporting purposes, the Company has treated the Global
acquisition as if it occurred on March 31, 2000 and has included the balance
sheet of Global in the Company's unaudited financial statements as of March 31,
2000. Global operating results will be consolidated with the Company's beginning
April 1, 2000. The following unaudited pro-forma consolidated results of
operations for the nine month periods ended March 31, 2000 and 1999,
respectively, assumes the Global acquisition occurred as of July 1, 1999 and
1998, respectively. The information does not purport to be indicative of what
would have occurred had the acquisition actually been made as of such date or of
results which may occur in the future.
Nine months ended March 31,
---------------------------
2000 1999
---- ----
Revenues $ 13,511,000 $ 18,950,000
Net loss (12,733,000) (9,318,000)
Net loss per share (basic and diluted) $ (3.44) $ (2.73)
NOTE D - PROPOSED MERGER WITH TRAVELBYUS.COM LTD.
Pursuant to its letter of intent agreement in February 2000 to merge with
travelbyus.com ltd., Aviation Group executed on May 3, 2000 an agreement to
combine their businesses through a statutory arrangement under Canadian law. The
completion of the arrangement is subject to receipt of requisite regulatory
approval, and when the arrangement is completed, travelbyus.com will become an
indirect subsidiary of Aviation Group. The transaction is a one-for-one
exchange, and former travelbyus.com shareholders will own directly or indirectly
about 94% of Aviation Group's outstanding common stock after completion of
the arrangement. As of May 15, 2000, Aviation Group and travelbyus.com had
approximately 4,699,000 and 75,105,000 common shares outstanding, respectively.
-5-
<PAGE>
travelbyus.com is an Internet-based travel company. travelbyus.com's Web
site, www.travelbyus.com, provides consumers with on-line travel options 24
hours per day. Through the travelbyus.com Web site, consumers have the ability
to browse travel options world-wide and to book travel reservations. In addition
to offering consumers travel options through the Internet, travelbyus.com also
offers the consumer travel options through 1-800 call centers and traditional
travel agencies. Since April 1999, travelbyus.com has focused on completing
strategic acquisitions to build the components of travelbyus.com's business
model, which include product offerings, distribution, marketing and technology.
travelbyus.com provides a broad range of travel products, targeted primarily at
the leisure customer, including airline tickets, cruise packages and ground
packages.
The companies expect to account for the arrangement under the purchase
method of accounting as if travelbyus.com had acquired Aviation Group and had
been recapitalized under the capital structure of Aviation Group.
NOTE E: BUSINESS SEGMENT INFORMATION
The following table summarizes financial information by the company's three
business segments and corporate for the three and nine-month periods ended March
31, 2000 and 1999, respectively. See Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for descriptions of
the segments.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Painting and maintenance $ 2,889,000 $ 2,628,000 $ 6,770,000 $ 8,937,000
Manufacturing 941,000 958,000 2,589,000 3,004,000
Corporate -- -- -- --
------------ ------------ ------------ ------------
Total $ 3,830,000 $ 3,586,000 $ 9,359,000 $ 11,941,000
============ ============ ============ ============
Operating income (loss):
Painting $ (90,000) $ (158,000) $ (618,000) $ 617,000
Manufacturing (40,000) (80,000) (90,000) 299,000
Corporate (418,000) (447,000) (1,325,000) (1,486,000)
------------ ------------ ------------ ------------
Total $ (548,000) $ (685,000) $ (2,033,000) $ (570,000)
============ ============ ============ ============
Total assets:
Painting and maintenance $ 4,201,000 $ 3,986,000
Manufacturing 4,736,000 4,617,000
Travel 62,912,000 --
Corporate 465,000 617,000
------------ ------------
Total $ 72,314,000 $ 9,220,000
============ ============
</TABLE>
There were no significant intersegment sales or transfers for either period.
Operating income by business segment excludes interest and other miscellaneous
income and interest expense. Corporate assets consist primarily of cash and
cash equivalent and prepaid expenses.
NOTE F: PRIOR PERIOD ADJUSTMENTS AND RESTATEMENTS
Certain errors, resulting in the misstatement of previously reported
assets, liabilities, income and expenses as of, and for the three and
nine month periods ended March 31, 1999 resulted in the following changes to
total assets, total liabilities, beginning accumulated deficit and net income:
<TABLE>
<CAPTION>
As of March 31, 1999 Three Months Nine Months
-------------------- Ended Ended
Total Total Accumulated March 31, 1999 March 31, 1999
Assets Liabilities Deficit Net Loss Net Loss
------ ----------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
As previously reported $ 14,657,000 $ 8,220,000 $ (3,050,000) $ (754,000) $ (674,000)
Adjustment for effect of
share price guarantee -- 136,000 (136,000) (30,000) (136,000)
Adjustment for value of
warrants issued for service -- -- (123,000) (73,000) (123,000)
Adjustment to correct tax
provision (369,000) -- (369,000) (394,000) (369,000)
------------ ----------- ------------ ------------ ------------
As restated $ 14,288,000 $ 8,356,000 $ (3,678,000) $(1,251,000) $ (1,302,000)
============ =========== ============ =========== ============
</TABLE>
Loss per share results previously reported for the three and nine month periods
ended March 31, 1999 have been restated as a result of the items identified
above as follows:
Three Months Nine Months
Ended Ended
March 31, March 31,
1999 1999
---- ----
Net loss per share as previously reported $ (0.21) $ (0.20)
Effect of errors (0.15) (0.18)
------- -------
Net loss per share as restated $ (0.36) $ (0.38)
======= =======
-6-
<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.
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, (a) the Company's stock traded below the
value of its existing underlying companies, (b) acquisitions of new companies at
these lower share price levels would dilute existing shareholders, and (c)
continuation of its historical corporate overhead strategy would erode
shareholder value. Additionally, the Company's operating subsidiaries 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.
During the quarter ended December 31, 1999, the Company sold its Tri-Star
Airline Services ground handling subsidiary operations. On February 8, 2000,
the Company sold its Casper Air Service general aviation fixed base operations.
Both businesses were sold to unrelated third parties, and together generated a
net gain on sale to the Company of $600,000. In February 2000 Aviation Group
entered into letters of intent and publicly announced a proposed three-way
business combination with Global Leisure Travel, Inc. and travelbyus.com ltd.
Global Leisure Travel, Inc. is a Seattle, Washington-based travel business
specializing in the sale of Hawaiian and other Pacific-region vacation tour and
other travel products to consumers. travelbyus.com ltd. is an Internet-based
travel company. The business combination contemplates the acquisition by
Aviation Group of these two companies with financing provided by travelbyus.com
ltd. and private investment capital raised by Doerge Capital Management, the
Company's financial advisor for this transaction. Additionally, Aviation Group
engaged the investment firm of CIBC World Markets Corp. to review the
transaction and express an opinion regarding the fairness of the terms to
Aviation Group shareholders.
Results of Operations
---------------------
The following discussions and tables set forth a summary of the major
categories, presented by division, of revenues, costs of goods sold and
operating expenses. These historical results are not necessarily indicative of
results to be expected for any future period.
-7-
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(Unaudited 000's) (Unaudited 000's)
----------------- -----------------
<S> <C> <C> <C> <C>
Total Company 2000 1999 2000 1999
------------- ---- ---- ---- ----
Revenues $ 3,830 $ 3,586 $ 9,359 $ 11,941
Cost of revenue (2,340) (2,348) (5,890) (7,187)
Operating and other expenses (1,397) (1,183) (3,693) (3,313)
----------- ----------- ----------- -----------
93 55 (224) 1,441
----------- ----------- ----------- -----------
Corporate overhead (475) (544) (1,304) (1,470)
Depreciation and amortization (166) (196) (505) (541)
Loss from discontinued operations (82) (314) (221) (314)
Gain (loss) on sale of subsidiaries (90) - 600 -
Interest income 2 - 3 2
Interest expense (112) (53) (493) (221)
----------- ----------- ----------- -----------
Pre-tax loss $ (830) $ (1,052) $ (2,144) $ (1,103)
=========== =========== =========== ===========
</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 1999, the
Company executed a hangar-facility operating lease and incurred $137,000 of
start up costs during the quarter ended March 31, 1999 leading to the opening of
a new paint facility in Greenville, Mississippi. Start-up costs for this
facility for the three and nine months ended March 31, 2000 were $80,000 and
$131,000, respectively. This location commenced operations during the quarter
ended March 31, 2000.
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 experienced
significant revenue and income in the first and second fiscal quarters, and its
third and fourth quarters were relatively flat. During this current fiscal 2000
year, the Company experienced its slow season during the first and second
quarter, and all of its facilities are scheduled to return to historical
utilization levels during the fourth fiscal quarter.
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.
These 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.
-8-
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(Unaudited 000's) (Unaudited 000's)
----------------- -----------------
<S> <C> <C> <C> <C>
Overhaul & Service Division 2000 1999 2000 1999
--------------------------- ---- ---- ---- ----
Revenues $ 3,830 $ 3,586 $ 9,359 $ 11,941
Cost of revenue (2,340) (2,348) (5,890) (7,187)
Operating and other expenses (1,397) (1,183) (3,693) (3,313)
----------- ----------- ----------- -----------
Recurring division income (loss) 93 55 (224) 1,441
----------- ----------- ----------- -----------
Depreciation and goodwill amortization (159) (190) (483) (525)
Interest income 2 - 3 -
Interest expense (102) (10) (242) (113)
----------- ----------- ----------- -----------
Pre-tax income (loss) $ (166) $ (145) $ (946) $ 803
=========== =========== =========== ===========
</TABLE>
Ground Handling & Service Division
----------------------------------
The Company's ground handling and service division derived revenue
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. On December 31, 1999, the
Company sold this operation to a non-affiliated third party. The Company
received $1,500,000 cash for the operating assets, and retained cash,
receivables, and other working capital with a net realizable value of
approximately $200,000. Following is a summary of ground handling and service
operations for the three and nine months periods ended March 31, 2000 and 1999,
which are included on a net basis, along with the Casper Air Service fixed base
operations, in the Company's financial statements as Income from Discontinued
Operations.
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(Unaudited 000's) (Unaudited 000's)
----------------- -----------------
<S> <C> <C> <C> <C>
Ground Handling & Service Division 2000 1999 2000 1999
---------------------------------- ---- ---- ---- ----
Revenues $ - $ 367 $ 766 $ 1,124
Cost of revenue - (189) (522) (590)
Operating and other expenses ( 2) (137) (147) (389)
----------- ----------- ----------- -----------
Recurring division income (loss) (2) 41 97 145
----------- ----------- ----------- -----------
Depreciation and amortization - (27) (27) (84)
Interest income - - - -
Interest expense - (16) (16) (18)
----------- ----------- ----------- -----------
Operating income (loss) $ (2) $ (2) $ 54 $ 43
=========== =========== =========== ===========
Gain (loss) on sale summary
---------------------------
Purchase proceeds $ 1,500 --
Book value of assets sold, net of debt (334) --
----------- -----------
Gain on sale of division $ 1,166
===========
</TABLE>
FBO Operations Division
-----------------------
In August 1997, the Company acquired Casper Air Service, Inc., which
operated a fixed-base operation in Casper, Wyoming. This operation, located at
Natrona County International Airport in Casper, Wyoming, provided fuel and light
maintenance services to general aviation, corporate and light freight aircraft
customers. On February 8, 2000, the operating assets of this division were sold
to an unrelated private third party. The Company received $200,000 in cash for
the operating assets of this division, plus the buyer assumed $600,000 in
related accounts payable. The Company retained its ownership in Casper's
accounts receivable, inventories, and certain aircraft which will be sold during
fiscal 2000. Following is a summary of Casper's operations for the three and
nine months periods ended March 31, 2000 and 1999, which are included on a net
basis, along with the ground handling and service operations, in the Company's
financial statements as Income from Discontinued Operations.
-9-
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C>
FBO Operations Division 2000 1999 2000 1999
----------------------- ---- ---- ---- ----
Revenues $ 199 $ 1,591 $ 1,689 $ 4,548
Cost of revenue (226) (1,505) (1,551) (3,576)
Operating and other expenses (52) (352) (318) (1,184)
----------- ----------- ----------- -----------
Recurring division loss (79) (266) (180) (212)
----------- ----------- ----------- -----------
Depreciation and amortization - (13) (66) (87)
Interest income 1 - 1 1
Interest expense (2) (33) (30) (59)
----------- ----------- ----------- -----------
Operating loss $ (80) $ (312) $ (275) $ (357)
=========== =========== =========== ===========
Gain (loss) on sale summary
---------------------------
Purchase proceeds $ -- $ 200
Book value of assets sold, net of debt (90) 215
Write-off of unrealized goodwill, net -- (981)
----------- -----------
Loss on sale of division $ (90) $ (566)
=========== ===========
</TABLE>
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 March 31, 2000 and 1999, the
Company incurred $40,000 and $100,000 in non-amortizable acquisition related
costs and direct costs associated with the Company's status as a public company.
For the nine months ended March 31, 2000 and 1999, such amounts were $139,000
and $140,000. 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 2000. These notes were repaid in January
2000. Management continues its efforts to reduce overhead costs.
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
(Unaudited 000's) (Unaudited 000's)
----------------- -----------------
<S> <C> <C> <C> <C>
Corporate Overhead 2000 1999 2000 1999
------------------ ---- ---- ---- ----
Operating and other expenses $ (435) $ (444) $ (1,165) $ (1,330)
Depreciation and amortization (7) (6) (21) (16)
Acquisition activity costs (40) (100) (139) (140)
Interest income -- -- -- 2
Interest expense (10) (43) (251) (108)
----------- ----------- ----------- -----------
Operating loss $ (492) $ (593) $ (1,576) $ (1,592)
=========== =========== =========== ===========
</TABLE>
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. Scheduling of the Company's paint customer fleet deliveries can
significantly affect quarter to quarter results as well. During fiscal 1999,
the Company experienced significant revenue and income in the first and second
fiscal quarters, and its third and fourth quarters were relatively flat During
this current fiscal 2000 year, the Company experienced its slow season during
the first and second quarter, and its facilities are scheduled to return to
historical utilization levels during the fourth fiscal quarter. Significant
changes in such scheduled operations could have a material adverse effect on
Company operations. At March 31, 2000, the paint division had a backlog of
approximately $20,000,000 from numerous customers. With the sale of its ground
handling and fixed base operations, a significant percentage of the Company's
current revenue is generated by its aircraft paint operations. Management,
therefore, is required to plan cash flow accordingly.
-10-
<PAGE>
Year 2000 Compliance Issues
---------------------------
The Company's systems have experienced no significant Year 2000 shutdowns,
issues or costs. The Company considers its present systems to be Year 2000
compliant and operational. The Company continues to monitor its hardware and
software systems for potential Year 2000 operating risks and costs, however, and
will continue such oversight for the remainder of the fiscal 2000 year.
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
------------------------------------------------------------------------------
1999
----
The Company's revenue for the three months ended March 31, 2000 increased
$244,000 to $3,890,000 compared to the quarter ended March 31, 1999. The
increase was primarily due to seasonal variations in paint revenues and
commencement of paint operations at the Company's Greenville, Mississippi
location.
The cost of revenue for the three months ended March 31, 2000 was virtually
unchanged compared to the quarter ended March 31, 1999. Cost of revenue as a
percentage of revenue decreased by 4%, from 65% in 1999, to 61% in 2000.
Marginal improvements in paint operations accounted for most of the cost
percentage improvement.
The Company's general and administrative expenses for the three months
ended March 31, 2000 were up slightly relative to the amounts reported for the
quarter ended March 31, 1999. Reductions in corporate overhead continue to be
pursued by management. The Company's interest expense increased by $59,000,
to $112,000 for the quarter ended March 31, 2000 versus the same period in 1999.
This increase is due to increased balances and rates in working capital lines of
credit outstanding during the quarter ended March 31, 2000.
During the quarter ended March 31, 2000, the Company recognized a loss from
discontinued operations of $82,000, versus losses from these divisions of
$314,000 for the same period ended March 31, 1999. This reduction relates to
the Company's lower fixed base operating levels which were sold during the
quarter ended March 31, 2000.
Nine Months Ended March 31, 2000 Compared to the Nine Months Ended March 31,
----------------------------------------------------------------------------
1999
----
The Company's net revenue decreased by $2,582,000, or 28%, for the nine
months ended March 31, 2000 compared to the nine months ended March 31, 1999.
The decrease was primarily due to seasonal variations in paint revenues of
$2,157,000. The cost of revenue for the nine months ended March 31, 2000
decreased by $1,297,000 to $5,890,000 compared to the nine months ended March
31, 1999. Cost of revenue as a percentage of revenue increased by 5%, from 60%
in 1999, to 65% in 2000. Marginal cost of revenues is higher at reduced paint
activity levels, and this accounted for most of the cost percentage increase.
Gross margins should improve as expected as paint revenues increase during the
remainder of the fiscal 2000 year.
Operating costs and overhead associated with the Company's new paint
facility in Greenville, Mississippi contributed to increase in Company's general
and administrative expenses for the nine months ended March 31, 2000. Reductions
in corporate overhead continue to be pursued by management. The Company's
interest expense increased by $272,000, to $493,000 for the nine months ended
March 31, 2000, compared to the same nine month period in 1999. This increase is
due to increased balances and rates in working capital borrowing lines and the
non-cash interest expense of $140,000 associated with common stock warrants
issued to lenders relating to the Company's $600,000 short term note issuance in
June 1999. These notes were repaid in December 1999.
During the nine months ended March 31, 2000, the Company recognized a loss
from discontinued operations of $221,000, versus a loss from these divisions of
$314,000 for the same period ended March 31, 1999. This reduction was
associated with the Company's lower operating levels of its fixed base
operations in anticipation of its eventual sale. The Company sold its ground
handling operations and certain fixed base departments during the nine months
ended March 31, 2000, and on February 8, 2000 sold its fixed base operations,
recognizing a net gain on sale of $600,000.
Financial Condition and Liquidity
---------------------------------
The Company has incurred significant losses, due principally to corporate
overhead associated with the Company's acquisition strategy. Management
continues its efforts to control overhead costs. Aviation Group is also pursuing
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.
During the nine months ended March 31, 2000, the Company sold its Tri-Star
Airline Services ground handling subsidiary operations. On February 8, 2000,
the Company sold its Casper Air Service general aviation fixed base
-11-
<PAGE>
operations. Both businesses were sold to unrelated third parties, and together
generated a gain on sale to the Company of $600,000. Identified cost-saving
activities, combined with the Company's sale of its ground handling and fixed
base assets should generate significant cash resources during the next six
months.
In connection with the Company's acquisition of Global Leisure Travel,
Inc., through March 31, 2000 the Company raised a total of $20.4 million in
capital. These funds were used primarily to finance Global, with the Company
retaining approximately $500,000 in funds for operating and transaction cost
funding purposes. These funds will supplement the Company's existing revolving
credit facilities to fund its business. While these funds combined with current
operating levels should allow the Company to meet its working capital
requirements during fiscal 2000, significant interruptions in currently
scheduled Company operations would adversely affect the Company's financial
condition and require additional capital from asset sales, borrowings, or equity
financings in order to allow the Company to meet its obligations. No assurance
can be made that such sales or financings will be available or available on
terms deemed advantageous to the Company if such events occur.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in certain pending legal proceedings and other
ordinary routine litigation considered to be incidental to its business. Such
litigation is not currently believed to have a material financial or operating
impact on the Company's business.
Item 2. Change in Securities.
(a) Not Applicable.
(b) Since December 31, 1999, the Company has created three new series of
its preferred stock and issued shares of two of these series of
shares. The following summary describes the rights and preferences of
these series of preferred stock, as compared to the Company's common
stock and to each other series of preferred stock.
Series A Convertible Preferred Stock.
The Company has designated 2,000 shares of Series A convertible
preferred stock, par value $0.01 per share. As of May 20, 2000, 1,650
shares of Series A convertible preferred stock were issued and
outstanding.
Ranking. The Series A convertible preferred stock ranks junior to
Series B preferred stock and Series C convertible preferred stock but
senior to the common stock and any other series of preferred stock as
to dividends and liquidation preference.
Dividends. If declared by the board of directors of the Company,
dividends on each share of the Series A convertible preferred stock
will be paid each month at an annual rate of 9% of the liquidation
preference per share. Dividends must be paid prior to payment of any
dividends on the common stock or any series of preferred stock other
than Series B preferred stock and Series C convertible preferred
stock. Any unpaid dividends accrue and are cumulative.
Liquidation Preference. Upon liquidation, dissolution or winding up of
the Company, and after the payment of the liquidation preferences of
the Series B preferred stock and the Series C convertible preferred
stock but before payment of any amount to any other class or series of
capital stock of the Company, each share of Series A convertible
preferred stock will be entitled to be paid out of assets available
for distribution $10,000 plus all accrued unpaid dividends, calculated
through the date of liquidation.
Voting Rights. The holders of Series A convertible preferred stock
will be entitled to vote as shareholders of the Company on any matters
after the earlier of September 30, 2000 or the completion of the
arrangement. Each share will be entitled to one vote and will vote
together as a single class with the holders of common stock. The
holders of the Series A convertible preferred stock will have the
right to vote as a separate class if required by the Texas Business
Corporation Act or on matters that adversely affect that series.
Redemption. The Company has the right to redeem all or part of the
outstanding Series A convertible preferred stock at any time on or
before September 30, 2000. The redemption price per share will be
$10,000 plus all accrued unpaid dividends, calculated through the date
of redemption. After receiving notice of a redemption, holders of
Series A convertible preferred stock will have the right to convert
their shares of Series A convertible preferred stock into shares of
common stock.
Conversion. Holders of Series A convertible preferred stock have the
right to convert their stock into shares of common stock at any time
after October 31, 2000, or earlier if the Company has exercised its
right to redeem the stock. In addition, the Company has the right to
require conversion of the Series A convertible preferred stock into
shares of common stock at any time. This right of the Company
terminates when the Company completes a new common stock, preferred
stock or debt financing after consummation of the arrangement that
provides new gross cash proceeds to the Company of at least $25.0
million.
-13-
<PAGE>
The conversion price is the greater of $6 or the arithmetic mean of
the closing bid prices of the common stock as reported by Bloomberg,
L.P. for the 21 trading days preceding the date of conversion. The
number of shares of common stock into which each share of Series A
preferred stock is converted equals (A) $10,000 plus all accrued
unpaid dividends calculated through the date of conversion, divided by
(B) the conversion price.
No fractional shares will be issued upon conversion of the Series A
convertible preferred stock. the Company will pay a cash amount to
any holder of Series A convertible preferred stock who otherwise would
be entitled to a fractional share.
Series B Preferred Stock
The Company has designated 3,000 shares of Series B preferred stock,
par value $0.01 per share. As of May 20, 2000, 2,153 shares of Series
B preferred stock were issued and outstanding.
Ranking. The Series B preferred stock ranks on parity with the Series
C convertible preferred stock and senior to common stock and any other
series of preferred stock as to dividends and liquidation preference.
Dividends. Dividends on the Series B preferred stock, if declared by
the board of directors of the Company, will be paid quarterly at an
annual rate of 12% of liquidation preference per share. Dividends will
be paid prior to payment of any dividends on the common stock or any
series of preferred stock other than the Series C convertible
preferred stock. Any unpaid dividends accrue and are cumulative.
Liquidation Preference. Upon liquidation, dissolution or winding up of
the Company, and before payment of any amount to any other class or
series of capital stock of the Company, each share of Series B
preferred stock and Series C convertible preferred stock will be
entitled to be paid out of assets available for distribution $10,000,
plus all accrued unpaid dividends calculated through the date of
liquidation.
Voting Rights. No holder of Series B preferred stock will be entitled
to vote as a shareholder of the Company except to the extent required
by the Texas Business Corporation Act or on matters that adversely
affect that series.
Redemption. The Company has the right to redeem all or part of the
outstanding Series B preferred stock at any time after February 28,
2001. Additionally, the Company is required to redeem shares of the
outstanding Series B preferred stock from and to the extent of the net
cash proceeds from the sale of any assets of the Company other than in
the ordinary course of business or any public debt or equity
securities after completion of the arrangement. The Series B preferred
stock will be redeemed at a price per share equal to $10,000, plus all
accrued unpaid dividends, calculated through the date of redemption.
Conversion. Holders of Series B preferred stock do not have the right
to convert their stock to shares of common stock.
Series C Convertible Preferred Stock
The Company has designated 3,000 shares of Series C convertible
preferred stock, par value $0.01 per share. No shares of Series C
convertible preferred stock are outstanding.
Ranking. The Series C preferred stock ranks on parity with Series B
preferred stock and senior to common stock and any other series of
preferred stock as to dividends and liquidation preference.
Dividends. If declared by the board of directors of the Company,
dividends on each share of the Series C convertible preferred stock
will be paid each month at an annual rate of 9% of the liquidation
preference per share. Dividends will be paid prior to payment of any
dividends on the common stock or any series of preferred stock other
than the Series B preferred stock. Any unpaid dividends will accrue
and are cumulative.
Liquidation Preference. Upon liquidation, dissolution or winding up of
the Company, and before payment of any amount to any other class or
series of capital stock of the Company, each share of
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<PAGE>
Series B preferred stock and Series C convertible preferred stock will
be entitled to be paid out of assets available for distribution
$10,000, plus all accrued unpaid dividends calculated through the date
of liquidation.
Voting Rights. The holders of Series C convertible preferred stock
will be entitled to vote as shareholders of the Company after the
earlier of September 30, 2000, or the completion of the arrangement.
Each share of Series A convertible preferred stock will be entitled to
one vote per share and will vote together as a single class with the
holders of common stock. The holders of Series C convertible preferred
stock will have the right to vote as a separate class if required by
the Texas Business Corporation Act or on matters that adversely affect
that series.
Redemption. The Company has the right to redeem all or part of the
outstanding Series C convertible preferred stock at any time on or
before September 30, 2000. The redemption price per share will be
$10,000, plus all accrued but unpaid dividends calculated through the
date of redemption. After receiving notice of redemption, holders of
Series C convertible preferred stock will have the right to convert
their shares of Series C convertible preferred stock into shares of
common stock.
Conversion. Holders of Series C convertible preferred stock have the
right to convert their stock into shares of common stock, at any time
after October 31, 2000, or earlier if the Company has elected to
exercise its right to redeem the stock. In addition, the Company has
the right to require conversion of the Series C convertible preferred
stock into shares of common stock at any time after February 28, 2001.
The conversion price is the greater of $6 or the arithmetic mean of
the closing bid prices of the common stock as reported by Bloomberg,
L.P. for the 21 trading days preceding the date of conversion. The
number of shares of common stock into which each share of Series C
convertible preferred stock is converted equals (A) $10,000 plus all
accrued unpaid dividends calculated through the date of conversion,
divided by (B) the conversion price.
No fractional shares will be issued upon conversion of the Series C
convertible preferred stock. The Company will pay a cash amount to
any holder of Series C convertible preferred stock who otherwise would
be entitled to a fractional share.
(c ) On January 6, 2000, the Company issued 11,849 shares of its common
stock in connection with its payment of certain interest and principal
guarantees associated with the Company's $4.50 Convertible Notes due
March 31, 2001. The Company relied on the exemption from registration
provided by Section 4 (2) of the Securities Act of 1933, as amended.
In January 2000, the Company issued 58,500 shares of Common Stock upon
the "cashless" exercise of 180,000 warrants held by the Company's
executive officer, Richard L. Morgan, at an exercise price of $2.50
per share, with 121,500 of these warrants being cancelled. The
Company relied on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended.
On February 23, 2000, the Company's Board of Directors approved the
grant to each of Lee Sanders and Richard L. Morgan, executive officers
of the Company, of warrants to purchase 250,000 shares of Common
Stock, exercisable at $1.50 per share. The warrants are not
exercisable until the shareholders of the Company approve their
issuance. The warrants expire in February 2005. The Company relied
on the exemption provided by Section 4(2) of the Securities Act of
1933, as amended.
On February 23, 2000, the Company's Board of Directors approved the
grant to each of Hank Clements, Charles E. Weed and Gordon Whitener,
directors of the Company, of warrants to purchase 50,000 shares,
exercisable at $1.50 per share. The warrants are not exercisable
until the shareholders of the Company approve their issuance and until
the completion of the proposed arrangement with travelbyus.com ltd.
The warrants expire in February 2005. The Company relied on the
exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended.
-15-
<PAGE>
On March 10, 2000, the Company received $2,000,000 for the sale of
750,000 shares of its Common Stock at the price of $2.667 per share to
private accredited investors. The Company relied on the exemption
provided by Regulation D in selling the Common Stock.
During the quarter ended March 31, 2000, the Company agreed to issue
2,100 shares of Series B Preferred Stock to travelbyus.com ltd. and
other private accredited investors at a price of $10,000 per share.
The terms of the Series B Preferred Stock are described above. 1,650
shares of the Series B Preferred Stock have been sold to private
investors other than travelbyus.com ltd. with attached Series C
Warrants to purchase an aggregate of 1,236,750 shares of Common Stock,
exercisable at $3.00 per share, expiring on the earlier of March 31,
2005 or the second anniversary of the date the Common Stock issuable
on the exercise of the warrants are registered for resale under the
Securities Act of 1933, as amended. The company relied on the
exemption provided by Regulation D is selling the Series B Preferred
Stock and Series C Warrants.
During the quarter ended March 31, 2000, the Company agreed to issue
Series B Warrants to purchase 3,500,000 shares of Common Stock,
exercisable at $3.00 per share and expiring on the earlier of March
31, 2005 or the second anniversary of the date the Common Stock
issuable on the exercise of the warrants are registered for resale
under the Securities Act of 1933, as amended. The warrants have been
issued to existing warrantholders of Global Leisure Travel, Inc. The
Company relied on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, in issuing the Series B Warrants.
During the quarter ended March 31, 2000, the Company agreed to issue
1,650 shares of its Series A Convertible Preferred Stock, representing
$16,500,000 in liquidation value, and Series A Warrants to purchase
750,000 shares of Common Stock, exercisable at $5.00 per share, to
certain affiliate parties of Global Travel Leisure, Inc., in exchange
for the cancellation of the stock in Global Leisure Travel, Inc. and
the assignment of a like principal amount of Global Leisure Travel,
Inc. debt held by such affiliates. The terms of the Series A
Convertible Preferred Stock are described above. The Company relied
on the exemption from registration provided by Section 4 (2) of the
Securities Act of 1933, as amended.
None of the Series A, B or C Warrants are exercisable until their
issuances are approved by the Company's shareholders.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following documents are included as exhibits to this Form 10-QSB and
are filed herewith unless otherwise indicated.
Exhibit Description
------- -----------
10.1 Preferred Stock Purchase Agreement dated March 1, 2000 among Global
Leisure Travel, Inc., Aviation Group, Inc. and the shareholders of
Global Leisure Travel, Inc., as amended.
10.2 Preferred Stock Purchase Agreement dated March 1, 2000 between
Aviation Group, Inc. and travelbyus.com ltd., as amended.
10.3 Agreement and Plan of Merger dated March 17, 2000 among Aviation
Group, Inc., Global Leisure Travel, Inc., and the shareholders of
Global Leisure Travel, Inc. and certain debtholders of Global
Leisure Travel, Inc., as amended.
10.4 Form of two Warrant Agreements dated February 23, 2000 between
Aviation Group, Inc. and Richard Morgan or Lee Sanders, each for
the purchase of 250,000 shares of common stock.
10.5 Form of three Warrant Agreements dated February 23, 2000 between
Aviation Group, Inc. and Hank Clements, Charles E. Weed or Gordon
Whitener, each for the purchase of 50,000 shares of common stock.
10.6 Employment Agreement dated effective February 23, 2000 between
Aviation Group, Inc. and Richard L. Morgan
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<PAGE>
Richard Morgan.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 17, 2000 relating to the acquisition by Aviation Group,
Inc., of a controlling stock interest in Global Leisure Travel, Inc. on March 2,
2000.
Current Report on Form 8-K/A (Amendment No. 1), filed May 15, 2000,
amending the March 17, 2000 Form 8-K to include the financial statements and
pro-forma financial information relating to the acquisition by Aviation Group,
Inc. of Global Leisure Travel, Inc.
Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 3, 2000 relating to the announcement by Aviation Group, Inc.
and travelbyus.com ltd. that they entered into a formal agreement to combine
their businesses through a statutory arrangement under Canadian law. In
addition the Company announced that it completed the acquisition of Global
Leisure Travel, Inc., a Washington corporation through a merger between a
subsidiary of Aviation Group, Inc. and Global Leisure Travel, Inc. effective on
May 10, 2000. Aviation Group, Inc. had previously reported on a Form 8-K
Current Report dated March 2, 2000, as amended, its acquisition of a controlling
interest in Global.
-17-
<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: May 29, 2000.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
------------------------------------
Richard L. Morgan, Chief Financial
Officer and Executive Vice
President
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