UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM _______ TO _______.
Commission File Number 0-27034
VANGUARD AIRLINES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1149290
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
30 N.W. Rome Circle
Mezzanine Level
Kansas City International Airport
Kansas City, Missouri 64153
(816) 243-2100
(Address of principal executive offices, including zip code;
Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 ______
At June 30, 1996, there were 8,642,853 shares of Common
Stock , par value $.001 per share.
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VANGUARD AIRLINES, INC.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
Assets
Current assets:
Cash and cash equivalents $ ---- $ 3,491,640
Restricted cash 800,000 ----
Accounts receivable, less allowance
of $197,000 at June 30, 1996 and
December 31, 1995 2,645,146 1,271,245
Inventory 535,220 338,119
Prepaid expenses and other
current assets 4,579,982 4,432,150
Total current assets 8,560,348 9,533,154
Property and equipment, at cost:
Aircraft improvements and
leasehold costs 5,044,472 3,409,633
Reservation system and
communication equipment 1,265,411 884,939
Other property and equipment 2,716,964 1,420,610
9,026,847 5,715,182
Less accumulated depreciation
and amortization (1,873,660) (1,164,364)
7,153,187 4,550,818
Other assets:
Leased aircraft deposits 1,506,000 1,506,000
Fuel and security deposits 538,064 820,213
Other 426,416 15,513
2,470,480 2,341,726
Total assets $18,184,015 $16,425,698
<PAGE>
VANGUARD AIRLINES, INC.
BALANCE SHEETS (CONTINUED)
JUNE 30, DECEMBER 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable $ 470,293 $ ----
Book overdraft 767,732 ----
Accounts payable 6,504,407 3,400,288
Accrued expenses 3,214,199 2,303,377
Accrued maintenance 4,231,954 4,728,557
Air traffic liability 6,490,823 2,260,721
Current portion of capital
lease obligations 148,196 101,989
Total current liabilities 21,827,604 12,794,932
Notes payable, less current portion 488,040 ----
Capital lease obligations, less
current portion 97,182 86,133
Commitments
Stockholders' Equity (Deficit):
Common Stock, $.001 par value:
Authorized shares - 15,000,000:
Issued and outstanding shares -
8,642,853 in 1996 and 8,524,376
in 1995 8,643 8,524
Additional paid-in capital 19,302,051 19,301,937
Accumulated deficit (23,436,118) (15,637,987)
(4,125,424) 3,672,474
Deferred stock compensation (103,148) (127,841)
Treasury stock (239) ----
Total stockholders' equity (deficit) (4,228,811) 3,544,633
Total liabilities and stockholders'
equity (deficit) $18,184,015 $16,425,698
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
<CAPTION>
<S> <C> <C> <C> <C>
Operating revenues:
Passenger revenues $20,150,763 $ 8,135,001 $ 33,587,044 $ 13,920,283
Other 577,770 314,298 1,198,004 571,621
Total operating revenues 20,728,533 8,449,299 34,785,048 14,491,904
Operating expenses:
Flying operations 4,382,614 1,921,147 8,291,557 3,664,067
Aircraft fuel 4,139,440 1,632,601 7,190,982 2,997,033
Maintenance 3,372,247 1,360,394 6,544,289 2,491,938
Passenger service 1,696,533 756,406 3,063,060 1,498,305
Aircraft and traffic
servicing 3,723,933 2,227,318 7,610,388 4,145,340
Promotion and sales 3,998,101 1,858,883 7,359,926 4,119,257
General and
administrative 968,247 661,668 1,816,743 1,289,525
Depreciation and
amortization 342,213 213,863 709,296 399,590
Total operating expenses 22,623,328 10,632,280 42,586,241 20,605,055
Operating loss (1,894,795) (2,182,981) (7,801,193) (6,113,151)
Other income (expense):
Interest income 6,797 7,446 33,021 22,593
Interest expense (13,987) (33,674) (29,959) (39,896)
Total other income
(expense), net (7,190) (26,228) 3,062 (17,303)
Net loss $(1,901,985) $(2,209,209) $(7,798,131) $(6,130,454)
Net loss per share $ (0.22) $ (0.32) $ (0.91) $ (0.90)
Weighted average common and
common equivalent shares
outstanding 8,598,074 6,813,154 8,574,255 6,813,154
</TABLE>
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
<CAPTION>
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,901,985) $(2,209,209) $(7,798,131) $(6,130,454)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 342,213 213,863 709,296 399,590
Compensation related to
stock options 8,588 112,500 24,693 112,500
Provision for
uncollectible accounts 20,294 47,000 30,139 47,000
Changes in operating
assets and liabilities:
Restricted cash (800,000) ---- (800,000) ----
Accounts receivable (537,284) (305,261) (1,404,040) (796,455)
Inventory (141,373) 57,080 (197,101) (36,349)
Prepaid expenses and
other current assets 184,111 (262,381) (147,832) (464,226)
Deposits on leased
aircraft, fuel and
other 138,851 (166,910) (128,754) (179,125)
Accounts payable 1,464,921 881,960 3,104,119 2,196,565
Accrued expenses and
accrued maintenance 537,700 725,092 414,219 1,702,051
Air traffic liability 144,324 1,315,463 4,230,102 2,346,821
Net cash provided by
(used in) operating
activities (539,640) 409,197 (1,963,290) (802,082)
INVESTING ACTIVITIES:
Purchase of property and
equipment (1,167,496) (1,404,180) (2,177,634) (1,375,180)
FINANCING ACTIVITIES:
Proceeds from line of credit ---- 500,000 ---- 1,250,000
Proceeds from exercise
of options 12,132 ---- 20,432 ----
Purchase of treasury stock (197) ---- (239) ----
Deferred public offering
costs (20,199) ---- (20,199) ----
Principal payments on
notes payable (41,667) ---- (41,667) ----
Principal payments on
capital lease obligations (42,176) (22,567) (76,775) (40,270)
Net cash provided by
(used in) financing
activities (92,107) 477,433 (118,448) 1,209,730
Net decrease in cash and
cash equivalents (1,799,243) (517,550) (4,259,372) (967,532)
Cash and cash equivalents,
beginning of period 1,031,511 676,827 3,491,640 1,126,809
Cash and cash equivalents,
end of period $ (767,732) $ 159,277 $ (767,732) $ 159,277
</TABLE>
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
<CAPTION>
<S> <C> <C> <C> <C>
Supplemental disclosures of
cash flow information:
Cash paid during the period
for interest $ 13,987 $ 33,674 $ 29,958 $ 39,896
Supplemental schedule of
noncash investing and
financing activities:
Aircraft leasehold costs
associated with accrued
maintenance $ ---- $ ---- $ ---- $ 486,786
Deferred compensation costs
associated with
compensatory stock options $ ---- $ 250,000 $ ---- $ 250,000
Aircraft improvements
financed through the
issuance of notes
payable $ ---- $ ---- $1,000,000 $ ----
Capital leases entered
into for property
and equipment $18,496 $66,160 $ 134,031 $ 84,267
Deferred debt issuance
costs recorded
in conjunction with
warrants issued $ ---- $ 50,000 $ ---- $ 50,000
</TABLE>
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
CONDENSED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Vanguard Airlines, Inc. (the
"Company") presented herein, without audit except for balance
sheet information at December 31, 1995 and the statements of
operations and cash flows for the six months ended June 30, 1995
which are derived from the Company's audited financial
statements, have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form
10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31,
1995, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission on March 30, 1996.
The balance sheet as of June 30, 1996, the statements of
operations for the three months ended June 30, 1996 and 1995 and
the six months ended June 30, 1996, and the statements of cash
flows for the three months ended June 30, 1996 and 1995 and the
six months ended June 30, 1996 are unaudited but, in the opinion
of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of
results for these interim periods.
The results of operations for the six months ended June 30,
1996, are not necessarily indicative of the results to be
expected for the entire fiscal year ending December 31, 1996.
2. NET LOSS PER SHARE
For the periods ended June 30, 1996, the computation of net
loss per share was based on the weighted average number of
outstanding common shares. Outstanding stock options and
warrants were not included in the calculation of net loss per
share as their effect was antidilutive.
For the periods ended June 30, 1995, net loss per share was
based on the weighted average number of common and preferred
shares outstanding and dilutive common stock equivalents during
the periods. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, common stock and preferred
stock issued for consideration below the initial offering price
of $6.00 per share (the "Offering Price") and stock options and
preferred stock warrants issued with exercise prices below the
Offering Price during the 12-month period preceding the initial
filing of the Registration Statement have been included in the
calculation of common shares, using the treasury stock method, as
if they were outstanding for the 1995 periods presented.
3. RESTRICTED CASH
The Company has recorded restricted cash of approximately
$800,000, which relates to restricted cash accounts securing the
risk of loss exposure estimated by the Company's credit card
processor. In July 1996, the Company advanced an additional
$1.2 million of which $1,000,000 was funded through its line of
credit facility (see Note 4) to further secure the credit care
processor for its updated estimated risk of loss exposure.
4. LINE OF CREDIT
On July 30, 1996, the Company entered into a new bank line
of credit agreement (the "Agreement") that permitted borrowings
up to $4,000,000 with interest payable monthly at the prime rate
as published in The Wall Street Journal. On August 12, 1996 the
amount available under the Agreement was increased to $5,000,000.
The Agreement matures on January 30, 1997. As of August 12, 1996
the Company had borrowed $3,400,000 against amounts available
under the Agreement. The Agreement is guaranteed by the certain
stockholders of the Company (the "Guarantors"). In connection
with the execution of the Agreement and related guarantee, the
Company issued the Guarantors warrants <PAGE> to purchase an aggregate
of up to 656,250 shares of common stock at a weighted average
exercise price of $6.65 per share. The warrants vest immediately
as of the date of grant and expire on July 30, 2006.
Accordingly, effective July 31, 1996, the estimated fair value of
the warrants issued under the Agreement will be recorded in other
assets as deferred debt issuance costs and will be charged to
expense over the term of the Agreement.
5. NOTES PAYABLE
In July 1996, the Company entered into promissory note
agreements totaling $900,000 with two stockholders, $600,000 of
which is payable upon demand and $300,000 which matures in
January 1997. Interest on the notes accrue at The Wall Street
Journal prime rate. On July 30, 1996, the Company issued the
stockholder holding notes totaling $300,000, due in January 1997,
warrants to purchase up to 39,375 shares of the Company's common
stock at an exercise price of $7.10 per share. The warrants vest
immediately as of the date of grant and expire on July 30, 2006.
Deferred debt issuance costs recorded by the Company were
immaterial.
In March 1996, the Company made cash down payments of
$260,000 and signed promissory notes totaling $1,000,000 to
finance the purchase of two aircraft engines. In July 1996, the
Company restructured these note agreements whereby the two
aircraft engines were sold back to the vendor and the vendor
subsequently leased the engines back to the Company. This
transaction was entered into in conjunction with other aircraft
engine sale and leaseback agreement, all of which are described
in Note 6.
6. LEASES
In July 1996, the Company entered into several agreements
for the sale and leaseback of four aircraft engines under
operating leases with terms ranging from one month to three
years. The Company has purchase and lease renewal options at
projected fair market values under such agreements. As of the
date of these transactions in July, the book values and related
long-term debt of the aircraft engines totaling approximately
$1,525,000 and $958,000 respectively, have been removed from the
balance sheet. In addition, the Company reduced accounts payable
due to the Lessor, a vendor of the Company, by $567,000. Gains
and losses recorded by the Company in conjunction with these
transactions were immaterial. Fixed rental payments of
approximately $13,000 per engine are due monthly. In addition,
the Company is required to make supplemental payments to the
lessor based on the number of cycles/flight hours, as defined by
the agreements.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS
REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION TITLED "FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
RESULTS OF OPERATIONS
Comparison of six months ended June 30, 1996 and 1995
Operating revenues
Total operating revenues increased approximately 140.0% from
approximately $14.5 million for the first six months of 1995 to
approximately $34.8 million for the first six months of 1996.
This increase was primarily attributable to an increase in the
number of daily flights and the number of passengers on those
flights. At June 30, 1995, the Company operated 34 daily weekday
flights with five aircraft and during the period then ended had
added <PAGE> service to Dallas/Ft. Worth, Wichita, Des Moines and
Minneapolis/St. Paul. At June 30, 1996, the Company operated 58
daily flights with eight aircraft, having added service to
Chicago-Midway, San Francisco and Los Angeles during the later
half of 1995 and early 1996. The Company's capacity or total
available seat miles ("ASMs") increased approximately 98.9%, from
approximately 259.3 million during the six-month period ended
June 30, 1995 to approximately 515.7 million during the six-month
period ended June 30, 1996. Revenue passenger miles ("RPMs")
increased approximately 158.1% from approximately 130.9 million
during the six-month period ended June 30, 1995 to approximately
337.8 million during the six-month period ended June 30, 1996.
The increase in ASMs was primarily attributable to an increase on
the number of jet aircraft in service, the number of daily
flights and the addition of destinations with greater flight
lengths. The increase in RPMs was primarily attributable to an
increase in the number of daily flights, an increase in the
number of passengers on those flights and the addition of
destinations with greater flight lengths. Load factor increased
from approximately 50.5% for the six-month period ended June 30,
1995 to approximately 65.5% for the six-month period ended June
30, 1996. This increase was primarily the result of adjustments
in capacity to meet market demand, an increase in the number of
city pairs served and increased market awareness of the Company's
service.
Passenger yield per RPM decreased approximately 6.5% from
approximately 10.6 cents for the first six months of 1995 to
approximately 9.9 cents for the first six months of 1996. The Company
believes this decrease was primarily attributable to the ValuJet
accident and the introduction of service from Kansas City to San
Francisco in December 1995 and to Los Angeles in March 1996. The
Company estimates that during the four week period after the
accident, call volume at its reservation center declined
substantially. As a result, the Company's revenue/yield
management fare system offered customers seats at reduced fares.
The Company's favorable load factors remained unchanged, but at
the cost of reduced passenger yields. The Company also offered
promotional fares on its new city pairs throughout the first six
months of 1996, and these new routes accounted for approximately
43.4% of the system-wide RPMs during that period. The Company is
increasing fares in these markets to improve passenger yields.
The Company also generates operating revenues as a result of
service charges from passengers who change or cancel flight
reservations. For a period of ninety days after the flight date,
the customer may use the value of the unused reservation for
transportation, less a $25 service charge. These operating
revenues were approximately $328,000 (approximately 2.4% of total
operating revenue) and approximately $497,000 (approximately 1.4%
of total operating revenues) in the first six months of 1995 and
the first six months of 1996, respectively. The decrease in
cancellation and change fee revenue as a percent of passenger
revenue was primarily attributable to price protection discounts
and refunds given to passengers as a result of schedule changes
initiated by the Company; the price protection discounts and
refunds have been netted against these revenues. The Company
began carrying mail for the United States Postal Service during
the first quarter of 1995. Mail revenue increased approximately
258.6% from approximately $132,000 in the first six months of
1995 to approximately $472,000 in the first six months of 1996.
Operating Expenses
Expenses are generally categorized as related to flying
operations, aircraft fuel, maintenance, passenger service,
aircraft and traffic servicing, promotion and sales, general and
administrative, depreciation and amortization and other expense,
net. The following table sets forth the percentage of total
operating revenue represented by these expense categories as well
as certain other selected financial data.
<TABLE>
Six Months Ended June 30
1996 1995
Percent of Cent Per Percent of Cent Per
Revenues ASM Revenues ASM
<CAPTION>
<S> <C> <C> <C> <C>
Total operating revenues 100.0% 6.75 100.0% 5.59
Operating expenses:
Flying operations 23.8% 1.61 25.3% 1.41
Aircraft fuel 20.7 1.39 20.7 1.16
Maintenance 18.8 1.27 17.2 .96
<PAGE>
Passenger service 8.8 .59 10.3 .58
Aircraft and traffic
servicing 21.9 1.48 28.6 1.60
Promotion and sales 21.2 1.43 28.4 1.59
General and administrative 5.2 .35 8.9 .50
Depreciation and
amortization 2.0 .14 2.8 .15
Total operating expenses 122.4 8.26 142.2 7.95
Total other income
(expense), net .0 .00 (.1) .00
Net loss (22.4%) (1.51) (42.3%) (2.36)
</TABLE>
Flying operations expenses include aircraft lease expense,
compensation of pilots, expenses related to flight dispatch and
flight operations administration, hull insurance and all other
expenses related directly to the operation of the aircraft other
than aircraft fuel and maintenance expenses. Flying operations
expenses increased approximately 126.3% from approximately $3.7
million (approximately 25.3% of operating revenues) for the first
six months of 1995 to approximately $8.3 million (approximately
23.8% of operating revenues) for the first six months of 1996.
The number of departures increased approximately 66.9% from 4,894
for the first six months of 1995 to 8,168 for the first six
months of 1996. In addition, the Company leased three additional
jet aircraft in late 1995 and early 1996, two of which were
newer, more advanced Boeing 737-300 jet aircraft which have a
larger capacity and substantially higher lease and aircraft
insurance costs. In connection with the acquisition of the three
planes, the Company hired 30 additional pilots and incurred
additional pilot training costs for existing and new pilots.
Aircraft fuel expenses include the direct cost of the fuel,
taxes and the costs of delivering fuel into the aircraft.
Aircraft fuel cost increased approximately 139.9% from
approximately $3.0 million (approximately 20.7% of operating
revenues) for the first six months of 1995 to approximately $7.2
million (approximately 20.7% of operating revenues) for the first
six months of 1996. These fuel expenses represent an increase in
the fuel cost per block hour from $450 in the first six months of
1995 to $601 in the first six months of 1996 primarily due to an
increase in price and average burn rate and to the imposition of
a federal tax. Specifically, the average price increased from
$0.53 per gallon in the first six months of 1995 to $0.63 per
gallon in the first six months of 1996, while fuel consumption
increased from 788 gallons per block hour in the first six months
of 1995 to 809 gallons per block hour in the first six months of
1996. In addition, effective October 1, 1995, the Company was
required to pay a fuel tax of 4.3 cents per gallon. Because of higher
tax structure in the first six months of 1996, fuel expense as a
percentage of operating revenues remained relatively constant.
In the future, any minor fuel cost increase would likely be
absorbed by the Company and would affect its operating results.
The Company intends to pass on significant fuel cost increases to
the Company's customers through fare increases as permitted by
the then current market conditions. However, there can be no
assurance that the Company will be successful in passing any
increased costs.
Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft. Maintenance expenses increased approximately 162.6%
from approximately $2.5 million (approximately 17.2% of operating
revenues) for the first six months of 1995 to approximately $6.5
million (18.8% of operating revenues) for the first six months of
1996. This increase was primarily due to the increase in the
fleet size and block hours flown. For the first six months of
1995, the average fleet size was approximately 4.7 aircraft
compared to an average fleet size for the first six months of
1996 of approximately 7.8 aircraft. In late 1995, the Company
leased two Boeing 737-300 jet aircraft, which generally are more
costly with respect to major scheduled maintenance. The costs of
routine aircraft and engine maintenance are charged to
maintenance expense as incurred. In addition, the Company
accrues the cost of future major scheduled maintenance on a
monthly basis. The Company deposits funds with its aircraft
lessors to cover a portion of the cost of its future major
scheduled maintenance.
Passenger service expenses include flight attendant wages
and benefits, in-flight service, flight attendant training,
uniforms and overnight expenses and passenger liability
insurance. Passenger service expenses increased approximately
104.4% from approximately $1.5 million (approximately 10.3% of
operating revenues) for the first six months of 1995 to
approximately $3.1 million (approximately 8.8% of operating
revenues) for the first six months of 1996. This increase was
primarily due to the approximately 66.9% increase in the number
of departures and the approximately 112.7% increase in number of
passengers carried. Passenger service expenses per flight
increased <PAGE> approximately 22.5% from approximately $306 for the
first six months of 1995 to $375 for the first six months of
1996. This increase per flight is primarily due to the
introduction of longer routes to San Francisco and Los Angeles in
late 1995 and early 1996 which incur higher passenger service
costs. The decrease in passenger service expenses as a
percentage of operating revenues was primarily attributable to
lower training costs for flight attendants and a higher load
factor in the 1996 period.
Aircraft and traffic servicing expenses include all expenses
incurred at the airports for handling aircraft, passengers and
mail, landing fees, facilities rental, station labor and ground
handling expenses. Aircraft and traffic servicing expenses
increased approximately 83.6% from approximately $4.1 million
(approximately 28.6% of operating revenues) in the first six
months of 1995 to approximately $7.6 million (approximately 21.9%
of operating revenues) in the first six months of 1996. This
increase was primarily due to an increase in the number of cities
served and an increase in the number of departures. Departures
increased approximately 66.9% from 4,894 during the first six
months of 1995 to 8,168 during the first six months of 1996, and
the average cost per departure increased approximately 10% from
approximately $847 to approximately $932 in the same periods.
The increase in cost per departure was primarily attributable to
the additional cost associated with providing service to airports
with higher operating costs. The decrease in aircraft and
traffic servicing as a percentage of operating revenues was
primarily attributable to station personnel cost, landing fees
and other traffic servicing costs not rising in proportion to the
increases in the number of passengers and RPMs between the six
month periods in 1995 and 1996.
Promotion and sales expenses include the costs of the
reservations function, including all wages and benefits for
reservationists, rent, electricity, communication charges, credit
card fees, travel agency commissions, advertising expenses and
wages and benefits for the marketing department. Promotion and
sales expenses increased approximately 78.7% from approximately
$4.1 million (approximately 28.4% of operating revenues) in the
first six months of 1995 to approximately $7.4 million
(approximately 21.2% of operating revenues) in the first six
months of 1996. This increase was primarily due to an increase
in cities served, reflecting the Company's plan to increase
advertising when commencing service to new cities in order to
create brand awareness, while maintaining stable advertising
programs in existing cities. In addition, the Company expanded
its reservation operations in May 1996 with the opening of a new
reservation center in Lawrence, Kansas. The average promotion
and sales cost per passenger decreased from $13.01 in the first
six months of 1995 to $10.93 in the first six months of 1996.
The decrease in average sales and promotion expenses per
passenger was primarily the result of an increased number of
passengers flown and improved brand awareness.
General and administrative expenses include the wages and
benefits for the Company's executive and various other
administrative personnel, the cost for office supplies, office
rent, legal, accounting and other miscellaneous expenses.
General and administrative expenses increased approximately 40.9%
from $1.3 million (approximately 8.9% of operating revenues) in
the first six months of 1995 to $1.8 million (approximately 5.2%
of operating revenues) in the first six months of 1996. The
decrease in general and administrative expenses as a percentage
of operating revenues was primarily attributable to increased
productivity and economies of scale.
Depreciation and amortization expenses include depreciation
and amortization of aircraft modifications, ground equipment and
leasehold improvements, but does not include any amortization of
start-up and route development costs as all of these costs are
expensed as incurred. Depreciation and amortization expense
increased approximately 77.5% from approximately $400,000
(approximately 2.8% of operating revenues) in the first six
months of 1995 to approximately $709,000 (approximately 2.0% of
operating revenues) in the first six months of 1996. This
increase was primarily a result of improvements to new and
existing aircraft and costs associated with modifications of the
Company's reservation system.
Other income (expense), net consists primarily of interest
income and interest expense. Interest income increased during
the first six months of 1996, as a result of greater average
interest bearing cash balances compared to 1995. at June 30,
1995, the outstanding balance on the Company's line of credit was
$1,250,000. During 1996, the Company did not incur any interest
charges related to outstanding debt agreements.
<PAGE>
Comparison of three months ended June 30, 1996 and 1995
Operating revenues
Total operating revenues increased approximately 145.3% from
approximately $8.5 million for the second quarter of 1995 to
approximately $20.7 million for the second quarter of 1996. This
increase in operating revenue is comparable to the increase
described for the six months ended June 30, 1996 and 1995 which
primarily resulted from increased daily flights and the number of
passengers on those flights. The Company's ASMs increased
approximately 118.5%, from approximately 133.7 million during the
three-month period ended June 30, 1995 to approximately 292.2
million during the three-month period ended June 30, 1996. RPMs
increased approximately 192.6% from approximately 71.6 million
during the three-month period ended June 30, 1995 to
approximately 209.6 million during the three-month period ended
June 30, 1996. The increase in ASMs and RPMs are comparable with
six month periods ended June 30, 1996 and 1995. Load factor
increased from approximately 53.57% for the three-month period
ended June 30, 1995 to approximately 71.73% for the three-month
period ended June 30, 1996 for reasons consistent with those
described above.
Passenger yield per RPM decreased approximately 15.8% from
approximately 11.4 cents for the second quarter of 1995 to
approximately 9.6 cents for the second quarter of 1996. The Company
believes this decrease was generally for the same reasons as
noted in the six month comparison.
The Company also generates operating revenues as a result of
service charges from passengers who change or cancel flight
reservations. For a period of ninety days after the flight date,
the customer may use the value of the unused reservation for
transportation, less a $25 service charge. These operating
revenues were approximately $140,000 (approximately 1.7% of total
operating revenue) and approximately $250,000 (approximately 1.2%
of total operating revenues) in the second quarter of 1995 and
the second quarter of 1996, respectively. The decrease in
cancellation and change fee revenue as a percent of passenger
revenue was generally for the same reasons as noted in the six
month comparison. Mail revenue increased approximately 112.0%
from approximately $86,000 in the second quarter of 1995 to
approximately $182,000 in the second quarter of 1996.
Operating Expenses
The following table sets forth the percentage of total
operating revenues represented by these categories as well as
certain other financial data.
<TABLE>
Three Months Ended June 30,
1996 1995
Percent of Cent Per Percent of Cent Per
Revenues ASM Revenues ASM
<CAPTION>
<S> <C> <C> <C> <C>
Total operating revenues 100.00% 7.09 100.00% 6.32
Operating expenses:
Flying operations 21.2% 1.50 22.7% 1.44
Aircraft fuel 20.0 1.42 19.3 1.22
Maintenance 16.3 1.15 16.1 1.02
Passenger service 8.2 .58 9.0 .57
Aircraft and traffic servicing 18.0 1.27 26.4 1.67
Promotion and sales 19.3 1.37 22.0 1.39
General and administrative 4.7 .33 7.8 .50
Depreciation and amortization 1.7 .12 2.5 .16
Total operating expenses 109.4 7.74 125.8 7.97
Total other income (expense),
net (.0) (.00) (.3) (.00)
Net loss (9.2%) (.65) ( 36.6%) (1.65)
</TABLE>
<PAGE>
Flying operations expenses increased approximately 128.2%
from approximately $1.9 million (approximately 22.7% of operating
revenues) for the second quarter of 1995 to approximately $4.4
million (approximately 21.2% of operating revenues) for the
second quarter of 1996. The number of departures increased
approximately 60.7% from 2,733 for the second quarter of 1995 to
4,391 for the second quarter of 1996. In addition, the
additional leased aircraft and related costs described above for
the six months ended June 30, 1996 contributed to the increase in
flying operations expense.
Aircraft fuel cost increased approximately 153.5% from
approximately $1.6 million (approximately 19.3% of operating
revenues) for the second quarter of 1995 to approximately $4.1
million (approximately 20.0% of operating revenues) for the
second quarter of 1996. These fuel expenses represent an
increase in the fuel cost per block hour from $465 in the second
quarter of 1995 to $623 in the second quarter of 1996 primarily
due to an increase in price and average burn rate and to the
imposition of a federal tax. Specifically, the average price
increased from $0.54 per gallon in the second quarter of 1995 to
$0.64 per gallon in the second quarter of 1996, while fuel
consumption increased consistent with the six month periods
described above.
Maintenance expenses increased approximately 147.9% from
approximately $1.4 million (approximately 16.1% of operating
revenues) for the second quarter of 1995 to approximately $3.4
million (16.3% of operating revenues) for the second quarter of
1996. This increase was primarily due to the increase in the
fleet size, block hours flown and the mix of aircraft making up
the Company's fleet.
Passenger service expenses increased approximately 124.5%
from approximately $756,000 (approximately 9.0% of operating
revenues) for the second quarter of 1995 to $1.7 million
(approximately 8.2% of operating revenues) for the second quarter
of 1996. This increase was primarily due to the approximately
60.7% increase in the number of departures and the approximately
106.2% increase in number of passengers carried. Passenger
service expenses per flight increased approximately 39.4% from
approximately $277 for the second quarter of 1995 to $386 for the
second quarter of 1996. This increase per flight costs and
decrease in passenger service expenses as a percentage of
operating revenues was generally for the same reasons as in the
six months comparison.
Aircraft and traffic servicing expenses increased
approximately 67.2% from approximately $2.2 million
(approximately 26.4% of operating revenues) in the second
quarter of 1995 to approximately $3.7 million (approximately
18.0% of operating revenues) in the second quarter of 1996. This
increase was primarily due to an increase in the number of cities
served and an increase in the number of departures. Departures
increased approximately 60.7% from 2,733 during the second
quarter of 1995 to 4,391 during the second quarter of 1996, and
the average cost per departure increased approximately 4% from
approximately $815 to approximately $848 in the same periods.
The increase in cost per departure and the decrease in aircraft
and traffic servicing as a percentage of operating revenues was
comparable with the reasons described above for the six months
ended June 30, 1996 and 1995.
Promotion and sales expenses increased approximately 115.1%
from approximately $1.9 million (approximately 22.0% of operating
revenues) in the second quarter of 1995 to approximately $4.0
million (approximately 19.3% of operating revenues) in the second
quarter of 1996. The average promotion and sales cost per
passenger decreased from $10.10 in the second quarter of 1995 to
$9.81 in the second quarter of 1996. The increase in promotion
and sales expenses and the decrease in average sales and
promotion expenses per passenger was generally for the same
reasons described above in the six months comparison.
General and administrative expenses increased approximately
46.2% from $662,000 (approximately 7.8% of operating revenues) in
the second quarter of 1995 to $968,000 (approximately 4.7% of
operating revenues) in the second quarter of 1996. The decrease
in general and administrative expenses as a percentage of
operating revenues was primarily attributable to increased
productivity and economies of scale.
Depreciation and amortization expense increased
approximately 59.8% from approximately $214,000 (approximately
2.5% of operating revenues) in the second quarter of 1995 to
approximately $342,000 approximately <PAGE> 1.7% of operating revenues)
in the second quarter of 1996. This increase was primarily a
result of improvements to new and existing aircraft and costs
associated with modifications of the Company's reservation
system.
Interest income increased during the second quarter of 1996,
as a result of greater average interest bearing cash balances
compared to 1995. At June 30, 1995, the outstanding balance on
the Company's line of credit was $1,250,000. During 1996, the
Company did not incur any interest charges related to outstanding
debt agreements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and
met its capital expenditure requirements primarily from proceeds
from the private sale of equity securities, which raised an
aggregate of approximately $6.0 million, and from the initial
public offering of its Common Stock, which raised approximately
$13.0 million in November 1995. The Company has utilized current
liabilities as an additional source of cash by delaying payments
to certain of its creditors. As of June 30, 1996, the Company
had a negative cash balance which was recorded as a current
liability. The negative cash balance represents a book overdraft
position on its main operating account. As of June 30, 1996, the
Company has recorded restricted cash of approximately $800,000
that relates to a restricted cash account securing the potential
risk of loss exposure estimated by the Company's credit card
processor. In July 1996, the Company advanced an additional
$1.2 million of which $1.0 million was funded through its line of
credit facility to further secure the credit card processor for
its updated estimated risk of loss exposure.
In July 1996, the Company established a $4.0 million line of
credit, of which amount $3.4 million is outstanding as of August
13, 1996. On August 12, 1996, the Company amended its line of
credit to increase it to $5.0 million. The line of credit
expires January 30, 1997 and is guaranteed by certain of the
Company's stockholders. Borrowings accrue interest at the prime
rate as published in The Wall Street Journal. The Company has
used the proceeds of the line of credit primarily to reduce past
due accounts payable balances and increase its restricted cash
account balance held by its credit card processor.
The Company estimates that major scheduled maintenance of
its existing aircraft fleet through June 1997 will cost
approximately $1.5 million. The Company expects to expend
approximately $1.8 million on various capital expenditures, the
majority of which relate to improvements to existing aircraft.
In addition, the Company expects to expend approximately $300,000
in connection with leasehold improvements to an airport hanger
the Company expects to lease in the last quarter of 1996. While
the Company does not intend to lease additional aircraft for the
foreseeable future, the Company's capital expenditures during
this period would increase if it leases additional aircraft to
expand its service in existing or new markets.
The Company believes that cash flow generated from
operations together with the net proceeds of a future offering
and amounts available under the Company's bank line of credit
will be sufficient to meet its liquidity and capital needs
through 1997. In the event the Company's plans change or its
assumptions change or prove to be inaccurate, or a future
offering is not consummated or proceeds from a future offering
prove to be insufficient to fund current operations, the Company
may need to seek additional public or private equity or debt
financing. There can be no assurance that additional financing
will be available on acceptable terms, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Limited Operating History; History of Losses; Future Operating
Results Uncertain; Working Capital Deficit. The Company has a
limited history of operations, beginning flight operations on
December 4, 1994. Since the Company's inception in April 4,
1994, the Company has incurred significant losses and as of June
30, 1996 had an accumulated deficit of $23.4 million and a
stockholders' deficit of $4.2 million. The Company's limited
operating history makes the prediction of future operating
results difficult. The Company's future operating results will
depend on many factors, including general economic conditions,
the cost of jet fuel, the occurrence of events involving other
low-cost carriers, potential changes in government regulation of
airlines or aircraft and actions taken by other airlines
particularly with respect to pricing. A negative change in any
one or more of these factors could have a material adverse effect
on the <PAGE> Company's business, financial condition and results of
operations. There can be no assurance that the Company will
achieve profitability at any time in the future.
Seasonality and Cyclicality. The Company's operations are
dependent upon passenger travel demand. Airlines typically
experience reduced demand at various times during the fall and
winter and increased demand for service during the spring and
summer. Within these periods, an airline may experience
variations in passenger demand based on its particular routes and
passenger demographics. Due to the Company's limited operating
history, the Company is unable to predict, and to what extent,
seasonal variations in its operations will differ from those of
the airline industry generally. If the Company's demand patterns
are similar to those of the airlines industry generally, the
Company would experience reduced demand during the fall and
winter with adverse effects on revenues, operating results and
cash flow. In addition, passenger travel in the airline
industry, particularly leisure travel, is highly sensitive to
adverse changes in general economic conditions. A worsening of
current economic conditions, or an extended period of recession
nationally or in the regions services by the Company, could have
a material adverse effect of the Company's business, financial
condition and results of operations.
Adverse Industry Conditions. The airline industry is
characterized generally by high fixed costs relative to revenues,
and low profit margins. As a result, profit levels are highly
sensitive to changes in fuel costs (which comprise a substantial
portion of operating expenses), fare levels and passenger demand.
Fare levels and passenger demand in the airline industry have
been, at times, adversely affected by, among other things, the
general state of the economy, the economic conditions in markets
in which an airline operates and actions taken by other carriers
with respect to fare levels. The enactment of the Airline
Deregulation Act of 1978 (the "Deregulation Act") substantially
eliminated government authority to regulate domestic routes and
fares. Since the enactment of the Deregulation Act, the airline
industry has been subject to intense competition, both from
traditional carriers and new low-cost carriers, which generally
has reduced fare levels and earnings. These factors, combined
with the general economic conditions, resulted in unprecedented
losses in the airline industry in the late 1980s and early 1990s,
and, as a consequence, many restructurings, bankruptcies and
liquidations in the industry. In recent years, Continental
Airlines, America West Airlines, and Trans World Airlines, among
others, have filed for bankruptcy and Eastern Airlines, Pan
American World Airways, Mark Air and Braniff Airlines, among
others, have either ceased operations or were liquidated. There
can be no assurance that these industry conditions, including
intense price competition, will not adversely affect the
Company's business, financial condition and results of
operations.
Competition and Competitive Reaction. Under the Deregulation
Act, domestic certificated airlines are free to enter and exit
domestic markets and to set fares without regulatory approval,
and all city-pair domestic airline markets are generally open to
any domestic certificated airline. As a consequence, the airline
industry is intensely competitive. Airlines compete primarily
with respect to fares, scheduling (frequency and flight times),
destinations, frequent flyer programs and type (jet or propeller
) and size of aircraft. The Company competes with numerous other
airlines on its routes and expects to compete with other airlines
on any future routes. Many of these airlines are larger and have
greater name recognition and greater financial resources than the
Company. In response to the Company's commencement of service to
a particular market, competing airlines have, at times, added
flights and capacity in the market and lowered their fares,
making it more difficult for the Company to achieve or maintain
profitable operations. In the future, other airlines may set
their prices at or below the Company's fares or introduce new
non-stop service between cities served by the Company in attempts
to prevent the Company from achieving or maintaining profitable
operations. The Company may also face competition from existing
airlines that may begin serving markets the Company serves, from
new low-cost airlines that may be formed to compete in the low-fare market
(including any airlines that may be formed by
traditional airlines) and from ground transportation
alternatives. Any airline operating under bankruptcy protection
could have a competitive advantage over the Company and there can
be no assurance that this advantage will not adversely affect the
Company's business, financial condition and results of
operations.
Fuel. The cost of jet fuel is one of the largest operating
expenses for an airline and particularly for the Company due to
the relative fuel inefficiency of its aircraft. Jet fuel costs
are subject to wide fluctuations as a result of sudden
disruptions in supply. The Company cannot predict the effect of
events on the future availability and cost of jet fuel. The
Boeing 737-200 jet aircraft are relatively fuel inefficient
compared to newer aircraft (such as its Boeing 737-300 <PAGE> jet
aircraft). Accordingly, a significant increase in the price of
jet fuel would result in a disproportionately higher increase in
the Company's fuel expenses as compared with many of its
competitors who have, on average, newer and thus more fuel
efficient aircraft. The Company has not entered into any
agreements which fix the price of jet fuel over any period of
time because such agreements generally are not available.
Therefore, an increase in the cost of jet fuel will be
immediately passed through to the Company by suppliers and the
Company will experience reduced margins if it is unable to
increase fares to compensate for such higher fuel costs. Even if
it is able to raise fares, the Company will experience reduced
margins on sales prior to such fare increases. In addition to
increases in fuel prices, a shortage of supply would also have a
material adverse effect on the Company's business, financial
condition and results of operations. Effective October 1, 1993,
Congress enacted a law imposing a 4.3 cents per gallon fuel tax, and
at the same time exempted commercial airlines from this tax until
September 30, 1995. Since October 1, 1995, all commercial
airlines, including the Company, have been required to pay a tax
of 4.3 cents per gallon of fuel purchased. Congress currently is
considering proposed legislation to reinstate the airline fuel
tax exemption through December 31, 1996, but there can be no
assurances that the fuel tax exemption will be reinstated.
Impact of Continued Nasdaq Listing on Marketability of Common
Stock. The Company's Common Stock currently is quoted on the
Nasdaq SmallCap Market. The National Association of Securities
Dealers, Inc. ("NASD") has rules that establish criteria for the
continued listing of the Common Stock on the Nasdaq SmallCap
Market. Under these rules, the Company must maintain at least
$1,000,000 in capital and surplus for continued inclusion on the
Nasdaq SmallCap Market. The Company currently does not meet the
capital and surplus requirements and, accordingly has been
informed that its Common Stock will no longer be eligible for
quotation on the Nasdaq SmallCap Market. While the Company
intends to take steps to avoid the removal of the Common Stock
from the Nasdaq SmallCap Market, including the filing of an
appeal to such decision, there can be no assurance that such
steps, including the appeal, will be successful. If the
Company's Common Stock does not continue to be listed on the
Nasdaq SmallCap Market, trading in the Common Stock will be
conducted on the OTC Bulletin Board or in the over-the-counter
market in what is commonly referred to as the "pink sheets."
In addition, if the Common Stock is delisted from trading on
the Nasdaq SmallCap Market and the trading price of the security
is less than $5.00 per share, trading in such securities would
also be subject to the requirements of Rule 15g-9 promulgated
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under such rule, broker/dealers who recommend
such low-priced securities to persons other than established
customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an
individualized written suitability determination for the
purchaser and receive the purchaser's written consent prior to
the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990 also requires additional disclosure in
connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the
Securities and Exchange Commission, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price
of less than $5.00 per share, subject to certain exceptions),
including the delivery, prior to any penny stock transaction, of
a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely
limit the market liquidity of the Common Stock. There can be no
assurance that the Common Stock will not be delisted or treated
as penny stock.
Government Regulation. The Company is subject to 49 U.S.C.,
Subtitle VII (formerly the Federal Aviation Act of 1958, as
amended) (the "Aviation Act"), under which the United States
Department of Transportation (the "DOT") and the FAA exercise
regulatory authority over airlines. This regulatory authority
includes, but is not limited to: (i) the initial determination
and continuing review of the fitness of air carriers (including
financial, managerial, compliance-disposition and citizenship
fitness); (ii) the certification and regulation of aircraft and
other flight equipment; (iii) the certification and approval of
personnel who engage in flight, maintenance and operations
activities; and (iv) the establishment and enforcement of safety
standards and requirements with respect to the operation and
maintenance of aircraft, all as set forth in the Aviation Act and
the Federal Aviation Regulations.
The FAA has promulgated a number of maintenance regulations
and directives relating to, among other things, retirement of
aging aircraft, increased inspections and maintenance procedures
to be conducted on aging aircraft, collision avoidance systems,
aircraft corrosion, airborne windshear avoidance systems and
noise abatement. As a result <PAGE> of recent incidents involving
airlines, the FAA has increased its review of commercial airlines
generally and particularly with respect to small and start-up
airlines, such as the Company. In recent months, after extensive
FAA investigations, ValuJet suspended operations and Kiwi
Airlines substantially reduced operations, and Mesa Airlines and
Western Pacific Airlines have been subject to extensive
investigations by the FAA. The Company's operations recently
have been subject to increased review by the FAA. There can be
no assurance that safety issues will not arise or that the
Company will not be required to pay fines in an amount or take
other actions that could have a material adverse effect on the
Company's business, financial condition and results of
operations. Additional rules and regulations have been proposed
from time to time and might be enacted that could significantly
increase the cost of airline operations by imposing substantial
additional requirements or restrictions on airline operations.
For example, the National Transportation Safety Board has
proposed new regulations to require carriers to upgrade the
flight data recorders on their Boeing 737-200 jet aircraft. The
estimated cost of such equipment upgrade would be approximately
$90,000 for each of the Company's six 737-200 jet aircraft.
There can be no assurances that any of these rules or regulations
would not have material adverse effect on the Company's business,
financial condition and results of operations.
The DOT and FAA also enforce federal law with respect to
aircraft noise compliance requirements. The Company's current
fleet exceeds the current Stage-3 noise compliance requirements
(25% of its fleet Stage-3 compliance), with two of its Boeing
737-200 jet aircraft being equipped with hush kits and its two
Boeing 737-300 jet aircraft satisfying the Stage-3 requirements.
In the future, the Company's aircraft fleet is required to meet
the following federal Stage-3 noise compliance deadlines: 50% of
its fleet must be Stage-3 compliant by January 1, 1997; 75% of
its fleet must be Stage-3 compliant by January 1, 1999; and 100%
of its fleet must be Stage-3 compliant by January 1, 2000.
The Company has obtained the necessary authority to perform
airline operations, including a Certificate of Public Convenience
and Necessity issued by the DOT pursuant to 49 U.S.C. Section 41102
and an air carrier operating certificate issued by the FAA under
Part 121 of the Federal Aviation Regulations. The continuation
of such authority is subject to continued compliance with
applicable rules, regulations and laws pertaining to or affecting
the airline industry, including any rules and regulations that
may be adopted by the DOT and FAA in the future. No assurance
can be given that the Company will be able to continue to comply
with all present or future rules, regulations and laws or that
such rules, regulations and laws would not materially and
adversely affect the Company's business, financial condition and
results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
Long-Lived Assets. In March 1995, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial
Accounting Standards (the "SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangible assets held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If the future cash flows expected to result
from use of the asset (undiscounted and without interest charges)
are less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of that loss is based on the
fair value of that asset. Generally, intangible assets to be
disposed of be reported at the lower of the asset carrying amount
or fair value, less cost to sell.
The Company adopted the provisions of SFAS No. 121 on January 1,
1996. The adoption of SFAS No. 121 did not have a material
effect on the Company's financial condition or results of
operations.
Stock-Based Compensation. In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
establishes a new, fair value-based method of accounting for
stock-based compensation, but does not require an entity to adopt
the new method for purposes of preparing its basic financial
statements. For entities not adopting the new method, SFAS No.
123 requires footnote disclosure of pro forma net income and
earnings per share information as if the fair value-based method
had been adopted. The disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning
after December 15, <PAGE> 1995. The Company will comply with the
disclosure requirements of SFAS No.1 23 in its 1996 year-end
financial statements.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material litigation or
legal proceedings at this time and is not aware of any material
litigation or legal proceedings threatened against it.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11- Statement of Computation of Earnings per Share
for the Six-month Periods Ended June 30,
1995 and 1996
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
On August 5, 1996, the Company filed a report on Form 8-K
under Item 5 - Other Events regarding (i) a press release issued
by the Company on August 5, 1996, announcing the appointment of
William A. Garrett as Vice President - Finance and Chief
Financial Officer and Brian S. Gillman as Vice President and
General Counsel of the Company. The Company also announced its
termination of the employment relationship with Fred L. deLeeuw,
Vice President - Finance and Chief Financial Officer. In
addition, the Company announced second quarter earnings and its
revision to its previously reported financial results for the
first quarter of 1996, and (ii) a press release issued by the
Company on August 5, 1996, announcing its intention to seek
additional time for meeting Nasdaq's continued listing
requirements.
On August 5, 1996, the Company filed a report on Form 8-K
under Item 5 - Other Events regarding a press release issued by
the Company announcing its intention to make a public offering of
convertible preferred stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature and Title Date
/s/Robert J. McAdoo August 13, 1996
Robert J. McAdoo, President and
and Chief Executive Officer
/s/ William A Garrett August 13, 1996
William A. Garrett,
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 11
LOSS PER COMMON SHARE COMPUTATION
VANGUARD AIRLINES, INC.
Computation of Loss per Share
Six Months ended
June 30,
1996 1995
Net loss $(7,798,131) $(6,130,454)
Weighted average number of
common shares outstanding during
the period8, 574,255 433,333
Add - common equivalent shares
representing shares issuable upon
the conversion of Series A
Preferred Stock (2) --- 2,000,000
Add - common equivalent shares
representing shares issuable upon
the conversation of Series B
Preferred Stock (2) --- 3,641,043
Add - common equivalent shares
(determined using the "treasury
stock method") representing the
shares issuable upon the exercise
of stock options and warrants
outstanding (1) --- 738,778
Weighted average number of common
and common equivalent shares
outstanding 8,574,255 6,813,154
Net loss per share $(.91) $(.90)
(1) In 1995, the computation of loss per share was determined
under the provisions of Securities and Exchange Commission
Staff Accounting Bulletin No. 83. In 1996, outstanding
stock options and warrants were not considered in the net
loss per share calculation, as their effects are
antidilutive.
(2) Series A and Series B Preferred Stock converted on November
3, 1995 in connection with the closing of the Company's
initial public offering of Common Stock.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 800,000
<SECURITIES> 0
<RECEIVABLES> 2,842,146
<ALLOWANCES> (197,000)
<INVENTORY> 535,220
<CURRENT-ASSETS> 8,560,348
<PP&E> 9,026,847
<DEPRECIATION> (1,873,660)
<TOTAL-ASSETS> 18,184,015
<CURRENT-LIABILITIES> 21,827,604
<BONDS> 0
0
0
<COMMON> 8,643
<OTHER-SE> (4,237,454)
<TOTAL-LIABILITY-AND-EQUITY> 18,184,015
<SALES> 33,587,044
<TOTAL-REVENUES> 34,785,048
<CGS> 0
<TOTAL-COSTS> 42,586,241
<OTHER-EXPENSES> (33,021)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,959
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