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 MARCH 31, 1997
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 April 30, 1997, there were 14,994,577 shares of Common
Stock , par value $.001 per share issued and outstanding.
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VANGUARD AIRLINES, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
ASSETS
Current assets:
Cash and cash
equivalents $ 951,186 $ 402,083
Restricted cash 1,098,010 1,822,998
Accounts receivable,
less allowance of
$229,719 at March 31,
1997 and December 31, 1996 2,740,132 3,454,418
Inventory 667,687 673,338
Prepaid expenses and
other current assets 4,115,554 3,356,374
Current portion of deferred
debt issuance costs 1,500,000 ----
Total current assets 11,072,569 9,709,211
Property and equipment, at cost:
Aircraft improvements and
leasehold costs 3,734,046 3,731,046
Reservation system and
communication equipment 1,590,915 1,516,440
Other property and equipment 2,589,526 2,404,121
7,914,487 7,651,607
Less accumulated depreciation
and amortization (3,119,851) (2,601,949)
4,794,636 5,049,658
Other assets:
Supplemental maintenance
deposits 3,022,770 2,233,988
Deferred debt issuance costs 1,170,833 ----
Leased aircraft deposits 1,506,000 1,506,000
Fuel and security deposits 1,299,669 1,093,185
Other 914,698 726,205
7,913,970 5,559,378
Total assets $ 23,781,175 $ 20,318,247
<PAGE>
VANGUARD AIRLINES, INC.
BALANCE SHEETS (CONTINUED)
MARCH 31, DECEMBER 31,
1997 1996
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Line of credit $ 2,275,000 $ 5,000,000
Notes payable to related
parties 10,000,000 2,500,000
Accounts payable 11,371,472 8,404,196
Accrued expenses 3,172,447 3,652,162
Accrued maintenance 4,427,971 4,684,550
Air traffic liability 7,493,198 6,609,609
Current portion of capital
lease obligations 111,279 155,575
Total current liabilities 38,851,367 31,006,092
Accrued maintenance, less
current portion 3,086,796 2,547,088
Capital lease obligations,
less current portion 2,508 3,084
Commitments
Stockholders'deficit:
Common Stock, $.001 par value:
Authorized shares - 50,000,000:
Issued and outstanding shares
- 9,984,952 in 1997 and
9,982,452 in 1996 9,985 9,982
Additional paid-in capital 31,284,269 28,283,996
Accumulated deficit (49,376,407) (41,446,057)
(18,082,153) (13,152,079)
Deferred stock compensation (77,343) (85,938)
Total stockholders'deficit (18,159,496) (13,238,017)
Total liabilities and
stockholders' deficit $ 23,781,175 $ 20,318,247
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
1997 1996
Operating revenues:
Passenger revenues $20,437,461 $13,199,674
Other 1,054,978 856,841
Total operating revenues 21,492,439 14,056,515
Operating expenses:
Flying operations 4,670,989 3,908,943
Aircraft fuel 5,658,928 3,051,542
Maintenance 4,669,682 3,172,042
Passenger service 1,879,944 1,366,527
Aircraft and traffic servicing 4,660,648 3,886,455
Promotion and sales 5,612,544 3,361,825
General and administrative 1,237,741 848,496
Depreciation and amortization 520,001 367,083
Total operating expense 28,910,477 19,962,913
Operating loss (7,418,038) (5,906,398)
Other income (expense):
Deferred debt issuance
cost amortization (329,167) ----
Interest income 23,100 26,224
Interest expense (206,245) (15,972)
Total other income (expense),
net (512,312) 10,252
Net loss $ (7,930,350) $ (5,896,146)
Net loss per share $ (0.79) $ (0.69)
Weighted average common and
common equivalent shares
outstanding 9,983,375 8,550,220
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
1997 1996
OPERATING ACTIVITIES:
Net loss $(7,930,350) $ (5,896,146)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 520,001 367,083
Loss on disposal of property
and equipment 56,300 ----
Deferred debt issuance cost
amortization 329,167 ----
Compensation related to
stock options 8,595 16,105
Provision for uncollectible
accounts 26,436 9,845
Changes in operating assets
and liabilities:
Restricted cash 724,988 ----
Accounts receivable 687,850 (866,756)
Inventory 5,651 (55,728)
Prepaid expenses and other
current assets (759,180) (331,943)
Deposits and other (1,183,759) (267,605)
Accounts payable 2,967,276 1,639,198
Accrued expenses and
accrued maintenance (196,586) (123,481)
Air traffic liability 883,589 4,085,778
Net cash used in operating
activities (3,860,022) (1,423,650)
INVESTING ACTIVITIES:
Purchase of property and
equipment (321,279) (1,010,138)
FINANCING ACTIVITIES:
Proceeds from exercise of options 276 8,258
Proceeds from issuance of
notes payable from related
parties 7,500,000 ----
Proceeds from line of
credit 2,275,000 ----
Principal payments on line
of credit (5,000,000) ----
Principal payments on
capital lease obligations (44,872) (34,599)
Net cash provided by
(used in) financing activities 4,730,404 (26,341)
Net increase (decrease) in cash
and cash equivalents 549,103 (2,460,129)
Cash and cash equivalents,
beginning of period 402,083 3,491,640
Cash and cash equivalents,
at end of period $ 951,186 $ 1,031,511
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
1997 1996
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period
for interest $ 57,786 $ 15,971
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Deferred debt issuance
costs recorded in
conjunction with
warrants issued $ 3,000,000 $ ----
Aircraft improvements financed
through the issuance of
notes payable $ ---- $1,000,000
Capital leases entered into
for property and equipment $ ---- $ 115,535
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, 1996, have been properly
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, 1996, included in the Company's
Form 10-K as filed with the Securities and Exchange Commission on
March 28, 1997.
The balance sheet as of March 31, 1997, the statements of
operations for the three months ended March 31, 1997 and 1996,
and the statements of cash flows for the three months ended March
31, 1997 and 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 three months ended March
31, 1997 are not necessarily indicative of the results to be
expected for the entire fiscal year ending December 31, 1997.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company continues to incur losses and generates negative cash
flows from operations. In addition, the Company has a
significant working capital deficit. As a result, the Company
has been dependent upon financings from its principal
stockholders. There can be no assurance as to the availability
of future financings. Theses factors raise substantial doubt
about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Management's plans include raising additional capital and
securing additional bank financing to fund ongoing operations and
the possible expansion of operations. Management's plans also
include actions designed to achieve long-term profitability,
including the reassessment of existing markets, possible
expansion into new markets, pricing strategies to maximize
operating income and cost controls. During 1996 and through May
15, 1997, the Company did not generate sufficient passenger
ticket sales to provide for its operational cash needs. As
discussed in Notes 6, 7 and 8, the Company has received cash
through a number of financial means. The Company anticipates
generating sufficient cash flow from operations in June and
through the third quarter of 1997. The Company's ability to
raise additional cash through equity or debt financings that may
be required for expansion during 1997 or operations in the fourth
quarter, or earlier, if sufficient cash flows are not generated
in June and the third quarter, will be greatly dependent on the
Company's ability to operate at profitable levels during June and
the third quarter of 1997, as to which there can be no assurance.
2. RECLASSIFICATIONS
Certain amounts disclosed in the three months ended March
31, 1996 financial statements have been reclassified to conform
to the 1997 presentation.
3. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required
to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The
calculations of net loss per share for the quarters ended March
31, 1997 and 1996 under Statement No. 128 will not be impacted
as the effect of outstanding stock options during these periods
was antidilutive.
<PAGE>
4. NET LOSS PER SHARE
For the periods ended March 31, 1997 and 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.
5. LINES OF CREDIT
At December 31, 1996, the Company had borrowings of
$5,000,000 under a bank line of credit agreement (the Agreement)
with interest payable monthly at the prime rate published in The
Wall Street Journal. The Agreement matured on January 30, 1997
and was subsequently paid off. In January 1997, the Company
entered into a new bank line of credit agreement (the New
Agreement) that permits borrowings up to $2,275,000 with interest
payable monthly at the prime rate published in The Wall Street
Journal. The New Agreement matures on July 31, 1997. On January
31, 1997, the Company borrowed $2,275,000 under the terms of the
New Agreement, of which $1,625,000 was used to repay amounts
outstanding under the Agreement. The New Agreement is guaranteed
by certain stockholders of the Company (the Guarantors). In
connection with the execution of the New Agreement and related
guarantee, the Company agreed to issue the Guarantors warrants
to purchase an aggregate of up to 2,275,000 shares of common
stock at an exercise price of $1.00. Upon execution of the New
Agreement, the Company issued 910,000 warrants that vested
immediately. Accordingly, effective January 31, 1997, the
estimated fair value of the warrants issued of $1,100,000 was
recorded as deferred debt issuance costs in the accompanying
balance sheet and is being charged to expense over the term of
the guarantee. The remaining warrants vest quarterly and the
number is dependent on the amount of borrowings against the line,
as defined in the agreement. In April 1997, the Company issued
an additional 227,500 warrants under the agreement. Accordingly,
effective April 30, 1997, the estimated fair value of the
warrants issued of $197,000 was recorded as deferred debt
issuance costs and is being charged to expense over the remaining
term of the guarantee. Each warrant expires 10 years from the
date of issuance.
6. FINANCIAL INSTRUMENTS
In January 1997, the Company completed a $4,000,000 letter
of credit facility in favor of the Company's credit card
processor. The letter of credit facility expires in January 1998
and was established by the Company's majority stockholder. As
consideration for establishing the letter of credit, the Company
agreed to issue up to 4,000,000 warrants to the majority
stockholder to purchase shares of the Company's common stock at
an exercise price of $1.00. Upon execution of the letter of
credit, the Company issued 1,600,000 warrants that vested
immediately. Accordingly, in January 1997, the estimated fair
value of the warrants issued of $1,900,000 was recorded as
deferred debt issuance costs in the accompanying balance sheet
and is being charged to expense over the term of the guarantee.
The remaining 2,400,000 warrants vest quarterly according to the
amount of exposure under such letter of credit, as defined in the
agreement. In April 1997, the Company issued an additional
400,000 warrants under the agreement. Accordingly, in April
1997, the estimated fair value of the warrants issued of $367,000
was recorded as deferred debt issuance costs and is being charged
to expense over the remaining term of the guarantee. Each warrant
expires 10 years from the date of issuance. In addition, the
Company granted the majority stockholder a security interest in
all credit card receivables processed by the Company's credit
card processor.
In May 1997, the Company completed a $2,000,000 guarantee
facility in favor of the Company's credit card processor. The
guarantee facility expires in January 1999 and was established by
the Company's majority stockholder. As consideration for
establishing the guarantee, the Company agreed to issue up to
1,030,928 warrants to the majority stockholder to purchase shares
of the Company's common stock at an exercise price of $1.94.
Upon execution of the guarantee, the Company issued 412,371
warrants that vested immediately. Accordingly, in May 1997, the
estimated fair value of the warrants issued of $150,000 was
recorded as deferred debt issuance costs and is being charged to
expense over the term of the facility. The remaining 618,557
warrants vest quarterly according to the amount of exposure under
such guarantee, as defined in the agreement. Each warrant
expires 10 years from the date of issuance. In addition, the
Company granted the majority stockholder a security interest in
all credit card receivables processed by the Company's credit
card processor.
<PAGE>
7. NOTES PAYABLE TO RELATED PARTIES
At December 31, 1996, the Company had $2,500,000
outstanding under unsecured demand notes payable from the
majority stockholder of the Company with interest payable at a
rate of 8.0%. During the three months ended March 31, 1997, the
Company entered into additional unsecured demand notes payable
totaling $7,500,000 with the majority stockholder of the Company
with interest payable at a rate of 8.0%. Proceeds totaling
$3,375,000 were used to repay amounts outstanding under the
Agreement described in Note 5. The Company utilized proceeds
from the private sale of units of securities described in Note 8
to repay all notes payable to related parties outstanding as of
March 31, 1997.
In May 1997, the Company entered into an unsecured demand
note payable in the amount of $900,000 with the majority
stockholder of the Company with interest payable at a rate of
8.0%.
8. STOCKHOLDERS' EQUITY
In April 1997, the Company completed a private sale of units
of securities, each consisting of one share of common stock and
two redeemable common stock purchase warrants. In connection
with the sale, the Company issued 5,150,000 shares of common
stock for aggregate proceeds of approximately $10,235,000, net of
offering costs of approximately $65,000. Each redeemable warrant
entitles the holder to purchase, at any time over a five-year
period commencing after the sale closing, one share of common
stock at an exercise price of $2.50. The redeemable warrant
exercise price is subject to adjustment under certain
circumstances as defined in the warrant agreement. The Company
has the right to redeem the warrants at a redemption price of
$0.05 per warrant on 45 days' prior notice if the average closing
bid price of the Company's common stock equals or exceeds $2.50
for any 20 days within a period of 30 consecutive trading days,
as defined by the warrant agreement. Proceeds from the sale were
utilized for repayment of $10.0 million notes payable to related
parties described in Note 7.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS
REPORT OF FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES AND INFORMATION THAT IS BASED ON
MANAGEMENT'S BELIEFS AS WELL AS ASSUMPTIONS MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED IN THIS
DOCUMENT, THE WORDS "ESTIMATE," "ANTICIPATE," "PROJECT" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED. 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.
OVERVIEW
Certain amounts and percentages disclosed in management's
discussion and analysis of financial condition and results of
operations for the three months ended March 31, 1996 have been
changed to conform to the 1997 presentation.
RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared to the three
months ended March 31, 1996
<PAGE>
Operating Revenues
Total operating revenues increased approximately 52.9% from
approximately $14.1 million for the three months ended March 31,
1996 to approximately $21.5 million for the three months ended
March 31, 1997. This increase was primarily attributable to an
increase in the number of daily flights and the number of
passengers on those flights offset by the drop in passenger yield
per revenue passenger mile. During the first quarter 1996, the
Company averaged 42 flights per day which increased to 58 flights
per day during the first quarter 1997. The Company began flying
its new route structure on December 21, 1996 which included the
initiation of service from Kansas City to Atlanta, Ft. Meyers,
Las Vegas, Miami, Orlando and Tampa/St. Petersburg as well as
non-stop service between Chicago and Kansas City. This route
restructuring refocused the Company's strategy by creating a
Kansas City hub, where the Company now offers non-stop service to
more cities than any other airline. Total available seat miles
("ASMs") increased approximately 70.0%, from approximately 223.5
million during the three months ended March 31, 1996 to
approximately 379.0 million during the three months ended March
31, 1997. Revenue passenger miles ("RPMs") increased
approximately 75.9% from approximately 128.2 million during the
three months ended March 31, 1996 to approximately 225.5 million
during the three months ended March 31, 1997. The increase in
ASMs was primarily attributable to an increase in 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 57.4% for the three months ended March 31,
1996 to approximately 59.5% for the three months ended March 31,
1997. This increase was primarily the result of adjustments in
capacity to meet market demand, increases and changes in the
number of city pairs served, reduced fares, and an increase in
market awareness of the Company's service.
Passenger yield per RPM decreased approximately 12.0% from
approximately 10.3 cents for the three months ended March 31,
1996 to approximately 9.1 cents for the three months ended March
31, 1997. The Company had to discount fares to stimulate travel
in a number of the new markets that were introduced in
conjunction with the Company's major route restructuring in
December 1996. In addition, with the initiation of the Company's
new route structure average stage length increased to 601 miles
from 436 miles during the quarters ended March 31, 1997 and 1996,
respectively. The Company's favorable load factors increased by
2.1 percentage points, but at the cost of reduced passenger
yields. The Company offered promotional fares on its new city
pairs throughout the three months ended March 31, 1997, and these
new routes accounted for approximately 54% of the systemwide
ASMs during this period. During 1996 and 1997, the Company
attempted to increase fares in mature markets in order to improve
passenger yield. The Company cannot predict future fare levels,
which depend to a substantial extent on actions of competitors.
When the sale prices or other price changes have been made by
competitors in the Company's markets, the Company believes that
it must, in most cases, match these competitive fares in order to
maintain its market share. The Company believes that the
negative impact of entering new markets and the use of discounted
fares should decrease as the Company increases its overall
revenue base and customer awareness.
The Company also generates operating revenues as a result of
service charges from passengers who change flight reservations.
For a period of 90 days (180 days as of March 24, 1997) after the
flight date, the customer may use the value of the unused
reservation for transportation, less a $50 ($25 through October
1996) service charge. These operating revenues were
approximately $484,000 (approximately 3.4% of operating
revenue) and approximately $770,000 (approximately 3.6% of
operating revenues) in the three months ended March 31, 1996 and
the three months ended March 31, 1997, respectively. The Company
began carrying mail for the United States Postal Service during
the first quarter of 1995. Mail revenues were approximately
$290,000 and $130,000 in the three months ended March 31, 1996
and, 1997, respectively.
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,
including interest expense and amortization of deferred debt
issuance costs, net. The following table sets forth the
percentage of total operating revenues represented by these
expense categories as well as certain other selected financial
data.
<PAGE>
THREE MONTHS ENDED MARCH 31,
1997 1996
PERCENT CENTS PERCENT CENTS
OF PER OF PER
REVENUES ASM REVENUES ASM
Total operating
revenues 100.0% 5.67 cents 100.0% 6.29 cents
Operating expenses:
Flying operations 21.7% 1.23 cents 27.8% 1.75 cents
Aircraft fuel 26.3 1.49 21.7 1.37
Maintenance 21.7 1.23 22.6 1.42
Passenger service 8.8 .50 9.7 .61
Aircraft and traffic
servicing 21.7 1.23 27.7 1.74
Promotion and sales 26.1 1.48 23.9 1.50
General and
administration 5.8 .33 6.0 .38
Depreciation and
amortization 2.4 .14 2.6 .16
Total operating
expenses 134.5 7.63 142.0 8.93
Total other income
(expense), net (2.4) (.13) .1 .00
Net loss (36.9)% (2.09 cents) (41.9%) (2.64 cents)
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 19.5% from approximately $3.9
million (approximately 27.8% of operating revenues) for the three
months ended March 31, 1996 to approximately $4.7 million
(approximately 21.7% of operating revenues) for the three months
ended March 31, 1997. This increase was primarily attributable
to the increase in the number of departures and the increase in
the number of aircraft. The number of departures increased
approximately 37.2% from 3,777 for the three months ended March
31, 1996 to 5,182 for the three months ended March 31, 1997. 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 insurance costs. Flying
operations expenses decreased as a percentage of operating
revenue as a result of the increase in flying and revenue
generated from the Company's fleet, especially the 737-300 jet
aircraft, during the first quarter 1997 versus the same period in
1996.
Aircraft fuel expenses include the direct cost of fuel,
taxes and the costs of delivering fuel into the aircraft.
Aircraft fuel cost increased approximately 85.4% from
approximately $3.1 million (approximately 21.7% of operating
revenues) for the three months ended March 31, 1996 to
approximately $5.7 million (approximately 26.3% of operating
revenues) for the three months ended March 31, 1997. Higher fuel
expense is directly related to the increase in ASMs flown by the
Company in the first quarter of 1997 versus 1996. In addition,
fuel expense represents an increase in the fuel cost per ASM of
0.12 cents or 8.8% from 1.37 cents in the three months ended
March 31, 1996 to 1.49 cents in the three months ended March 31,
1997 primarily due to an increase in fuel price per gallon.
Specifically, the average price increased from $0.72 per gallon
(including taxes and into-plane costs) in the three months ended
March 31, 1996 to $0.82 per gallon in the three months ended
March 31, 1997, a 13.9% increase. The Company will continue to
seek 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 on these increased costs.
Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft. Maintenance expenses increased approximately 47.2%
from approximately $3.2 million (approximately 22.6% of operating
revenues) for the three months ended March 31, 1996 to
approximately $4.7 million (21.7% of operating revenues) for the
three months ended March 31, 1997. This increase was primarily
due to the increase in the fleet size and block hours and cycles
flown. For the three months ended March 31, 1996, the average
fleet size was approximately 7.7 aircraft compared to an average
fleet size for the three months ended March 31, 1997 of
approximately 8.0 aircraft. During 1996, the Company incurred
charges related to certain Boeing 737-200 jet aircraft that were
in excess of what traditionally had been accrued by the Company
for three scheduled maintenance checks. As a result, in the
fourth quarter of 1996, the Company increased the monthly
maintenance provisions for maintenance <PAGE> checks scheduled in 1997.
The Company deposits funds with its aircraft lessors to cover a
portion of the cost of its future major scheduled maintenance.
The costs of routine aircraft and engine maintenance are charged
to maintenance expense as incurred. Additionally, the Company
significantly increased the capacity of its in-house maintenance
department subsequent to March 31, 1996. The Company's
maintenance administration function expanded by eight employees
to insure compliance with all FAA and DOT regulations and
requirements. The Company also increased line maintenance
personnel by twelve employees including the introduction of
maintenance operations at Chicago-Midway and Minneapolis/Saint
Paul airports.
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
37.6% from approximately $1.4 million (approximately 9.7% of
operating revenues) for the three months ended March 31, 1996 to
approximately $1.9 million (approximately 8.8% of operating
revenues) for the three months ended March 31, 1997. This
increase was primarily due to the 70.0% increase in ASMs and the
75.9% increase in RPMs. Passenger service expenses per ASM
decreased approximately 18.0% from approximately 0.61 cents for
the three months ended March 31, 1996 to 0.50 cents for the three
months ended March 31, 1997. This decrease per ASM is primarily
due to the addition of destinations with greater flight lengths
in the period from March 31, 1996 to March 31, 1997. The average
stage length increased 37.7% from 436 miles in the three months
ended March 31, 1996 to 601 miles in the three months ended March
31, 1997.
Aircraft and traffic servicing expenses include all expenses
incurred at the airports for handling aircraft, passengers and
mail, landing fees, facilities rent, station labor and ground
handling expenses. Aircraft and traffic servicing expenses
increased approximately 19.9% from approximately $3.9 million
(approximately 27.7% of operating revenues) in the three months
ended March 31, 1996 to approximately $4.7 million (approximately
21.7% of operating revenues) in the three months ended March 31,
1997. 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 37.2% from 3,777
during the three months ended March 31, 1996 to 5,182 during the
three months ended March 31, 1997. 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 three
months ended March 31, 1996 and 1997. The decrease of 0.51
cents per ASM was primarily due to the 37.7% increase in average
stage length from 436 miles to 601 miles in the three months
ended March 31, 1996 and 1997, respectively.
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 67.0% from approximately
$3.4 million (approximately 23.9% of operating revenues) in the
three months ended March 31, 1996 to approximately $5.6 million
(approximately 26.1% of operating revenues) in the three months
ended March 31, 1997. This increase was primarily the result of
an increase in cities served, reflecting the Company's practice
to increase advertising when new cities are introduced in order
to create brand awareness while maintaining stable advertising
programs in existing cities. The Company incurred significant
increases in late 1996 and early 1997 promoting its major route
restructuring, which created the Kansas City hub. In addition,
the Company's reservation operations expanded in May 1996 with
the opening of a new reservation center in Lawrence, Kansas. The
average promotion and sales cost per passenger increased 30.7%
from $11.45 in the three months ended March 31, 1996 to $14.96 in
the three months ended March 31, 1997.
General and administrative expenses include the wages and
benefits for the Company's executive and various other
administrative personnel, the costs for office supplies, office
rent, legal, accounting and other miscellaneous expenses.
General and administrative expenses increased approximately 45.9%
from $848,000 (approximately 6.0% of operating revenues) in the
three months ended March 31, 1996 to $1.2 million (approximately
5.8% of operating revenues) in the three months ended March 31,
1997. The decrease in general and administrative expenses as a
percentage of operating revenues and on a per ASM basis was
primarily attributable to increased productivity and economies of
scale.
<PAGE>
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 41.7% from approximately $367,000
(approximately 2.6% of operating revenues) in the three months
ended March 31, 1996 to approximately $520,000 (approximately
2.4% of operating revenues) in the three months ended March 31,
1997. This increase was primarily the result of improvements to
new and existing aircraft and gate space at the Kansas City
Airport and costs associated with modifications of the Company's
reservation system as well as a full quarter of depreciation and
amortization charged in the three months ended March 31, 1997 on
property and equipment added in the three months ended March 31,
1996.
Other income (expense), net consists primarily of debt
issuance cost amortization, interest income and interest expense.
In connection with the guarantees of the letter of credit and the
bank line of credit agreements, each executed in January 1997 as
discussed in Notes 5 and 6, the Company issued certain
stockholders warrants to purchase shares of common stock at an
exercise price of $1.00 per share. Accordingly, the estimated
fair value of the warrants issued related to each agreement
totaling $3,000,000 was recorded as deferred debt issuance
costs and is being amortized to expense over the terms of the
related guarantees. Interest expense increased during the three
months ended March 31, 1997, as a result of borrowings against
the line of credit and the addition of notes payable to related
parties during the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and
met its capital expenditure requirements primarily with proceeds
from (i) the initial private sale of equity securities, which
raised an aggregate of approximately $6.0 million, (ii) the
initial public offering of its Common Stock, which raised
approximately $13.0 million in November 1995, (iii) the private
sale of units of securities, each unit consisting of one share of
common stock and one redeemable common stock purchase warrant,
which raised aggregate net proceeds of approximately $7.1 million
in August and September 1996. On April 30, 1997, the Company
completed a $10.3 million private placement of units of
securities, each unit consisting of one share of common stock and
two redeemable common stock purchase warrants. The Company
utilized the net proceeds from the private placement of units in
April 1997 to pay down all outstanding interim borrowings that
were outstanding at March 31, 1997 with certain principal
stockholders of the Company. In addition, the Company has
utilized and continues to utilize current liabilities as an
additional source of cash by delaying payments to certain of its
creditors. Most of the Company's suppliers currently provide
goods, services and operating equipment on open credit terms. If
such terms were modified to require immediate cash payments, the
Company's cash position and possibly its ability to continue to
operate would be materially and adversely affected.
In August 1996, the Company established a $5.0 million six-
month line of credit. The line of credit was guaranteed by
certain principal stockholders of the Company. The Company used
the proceeds of the line of credit primarily to reduce past due
accounts payable balances, provide for scheduled engine
maintenance repairs and increase its restricted cash account
balance held by its credit card processor. On January 30, 1997,
the Company repaid the remaining $3.375 million of the $5.0
million credit facility with interim borrowings as described
above from principal stockholders of the Company who guaranteed
the credit facility. On January 30, 1997, the Company replaced
$1.625 million of the $5.0 million credit facility with a $2.275
million six-month line of credit, guaranteed by certain of the
Company's stockholders. There can be no assurance that a
replacement $2.275 million line of credit will be available on
acceptable terms, if at all prior to its maturity. In the event
that the Company is unable to replace the line of credit prior to
July 30, 1997, the Company would be required to utilize available
cash balances that would materially adversely affect the
Company's then current cash position. There can be no assurance
that the Company will have adequate cash resources to pay down
the line of credit.
On January 17, 1997, one of the Company's principal
stockholders agreed to establish a two-year $4.0 million letter
of credit on behalf of the Company in favor of the Company's
credit card processor in order to reduce required restricted cash
balances with the Company's credit card processor. On May 7,
1997, one of the Company's principal stockholders agreed to
establish a $2.0 million guarantee on behalf of the Company in
favor of the Company's credit card processor in order to reduce
required restricted cash balances with the Company's credit card
processor. Proceeds received from the Company's credit card
processor as a result of the letter of credit and guarantee
facilities have been <PAGE> used for working capital needs of the
Company. The Company anticipates it will need to place
additional restricted cash deposits of approximately $500,000
during the next six months with the Company's credit card
processor to secure its increased exposure due to increased
advance ticket sales. There can be no assurance that the
Company's principal stockholders will increase the letter of
credit or guarantee or that the Company's use of cash from
operations to secure the credit card processor will not have a
material adverse affect on the Company's liquidity.
In May 1997, the Company entered into an unsecured demand
note payable in the amount of $900,000 with the majority
stockholder of the Company with interest payable at a rate of
8.0%. The proceeds received in connection with this demand note
are being used for working capital purposes.
During 1996 and through May 15, 1997, the Company has not
generated sufficient passenger ticket sales to provide for its
operational cash needs. As a result, in December 1996, the
Company completed a significant route restructuring including the
introduction of non-stop service to six new cities from Kansas
City. This route restructuring refocused the Company's strategy
by creating a Kansas City hub. The Company anticipates
generating sufficient cash flow from operations from June through
the third quarter of 1997. The Company's ability to raise
additional capital through equity or debt financings that may be
required for operations or expansion during 1997 will likely be
dependent upon the Company's ability to operate at profitable
levels during June of the second quarter and the third quarter of
1997. There can be no assurance that management's restructuring
efforts or its ability to provide for the necessary cash
requirements of the Company will be successful. There can be no
assurance that management can provide for the Company's capital
requirements that may be necessary during the remainder of 1997.
The Company currently does not allow reservations to be
booked directly through the airline industry's Computer
Reservation System (CRS), which are used extensively by travel
agents. The Company anticipates negotiating an agreement to have
its schedules and fares available for booking by travel agents
through all major CRS vendors in the late second quarter or in
the third quarter of 1997. In addition, the Company currently
does not participate in the Airlines Reporting Corporation (ARC),
the airline industry collection agent for travel agency sales.
In connection with the CRS conversion, the Company will
participate in ARC. The Company expects to incur approximately
$1.2 million to $1.5 million on computer hardware and software,
application fees, deposit requirements and employee training in
conjunction with the conversion to CRS and ARC participation.
The Company estimates that major scheduled maintenance of
its existing aircraft fleet through March 1998 will cost
approximately $6.5 million of which $3.8 million will be funded
from existing supplemental rent payments recoverable from
aircraft lessors. The Company expects to expend approximately
$2.8 million on various capital expenditures, the majority of
which relate to improvements to existing aircraft, consolidating
the Company's Kansas City operations in a new terminal and
leasing 737-200 jet aircraft to replace the 737-300 jet aircraft
scheduled to be returned in mid-May and July 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Vanguard's business operations and financial results are
subject to various uncertainties and future developments that
cannot be predicted. Certain of the principal risks and
uncertainties that may affect Vanguard's operations and financial
results are identified below.
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 on
April 25, 1994, the Company has incurred significant losses and
as of March 31, 1997 had an accumulated deficit of approximately
$49.4 million, a stockholders' deficit of approximately $18.2
million and a working capital deficit of approximately $27.8
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 scheduling and
pricing in the Company's current or future routes. A negative
change in any one or more of these factors could have a material
adverse effect on the 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.
The Company has been dependent upon <PAGE> equity and debt financings
primarily with its principal stockholders during 1996 and 1997.
See "Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Consumer Concern About Operating Safety at Start-Up Carriers
or Type of Aircraft. Aircraft accidents or other safety-related
issues involving any carrier, such as the recent accidents
involving ValuJet and Trans World Airlines, have had an adverse
effect on airline passengers' perceptions regarding the safety of
low-cost carriers, particularly with respect to the use of aging
aircraft such as the Company's 737-200 jet aircraft. As a
result, any such future event could have a material adverse
effect on the Company's business, financial condition and results
of operations, even if such events do not include the Company's
operations or personnel. Similarly, publicized accounts of
mechanical problems or accidents involving Boeing 737s or other
aircraft that are of the same age as the Company's aircraft could
have a material adverse effect on the Company's business,
financial condition and results of operations, even though the
Company itself may not experience any such problems with its jet
aircraft.
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 whether, 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 airline industry generally,
the Company would experience reduced demand during the fall and
winter with adverse effects on revenues, operating results and
cash flow. During 1995 and 1996, the Company did experience
reduced demand during the fall and winter with adverse effects on
revenues operating results and cash flows. 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
served by the Company, could have a material adverse effect of
the Company's business, financial condition or 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 such markets. 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 or even maintaining operations in that market. 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.
Rising Fuel Costs. 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, including taxes and the cost of
delivering fuel into the aircraft, accounted for approximately
19.5% of the Company's operating expenses. The Company's average
cost per gallon increased from $0.72 per gallon in the three
months ended March 31, 1996, to $0.82 per gallon (including
taxes and into-plane costs) in the three months ended March 31,
1997. Jet fuel costs are subject to wide fluctuations as a
result of sudden disruptions in supply. The Company cannot
predict the effect 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 the Company's
Boeing 737-300 jet aircraft). Accordingly, the significant
increase in the price of jet fuel has resulted 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 that fix the price of jet fuel over
any period of time. Therefore, the increase in the cost of jet
fuel has immediately passed through to the Company by suppliers
and the Company has experienced reduced margins at times when the
Company has been unable to increase fares to compensate for such
higher fuel costs. Even at times when the Company has been <PAGE> able
to raise selected fares, the Company has experienced reduced
margins on sales prior to such fare increases. In addition to
increases in fuel prices, a shortage of supply has also had a
material adverse effect on the Company's business, financial
condition and results of operations.
Limited Number of Aircraft; Aircraft Acquisitions. The
Company's fleet consists of eight aircraft and if one or more of
its aircraft were not in service, the Company would experience a
proportionally greater loss of capacity than would be the case
for an airline utilizing a larger fleet. Any interruption of
aircraft service as a result of scheduled or unscheduled
maintenance could materially and adversely affect the Company's
service, reputation and profitability. The leases relating to
the Company's Boeing 737-300 jet aircraft have terms expiring in
mid-May and July 1997. The Company has signed a letter of intent
for a hush-kitted Boeing 737-200 jet aircraft and expects to take
delivery of the aircraft in early June 1997. The market for
leased aircraft has become more competitive than it was at the
time of the Company's inception, and there can be no assurance
that the Company would be able to lease additional aircraft on
satisfactory terms or at the time needed. In addition, if the
Company is unable to lease a 737-200 jet aircraft with additional
fuel tank capacity to replace its 737-300 jet aircraft scheduled
to return in mid-July, it may have to curtail the frequency of
its flight schedule or schedule a fuel stop on its west-bound
flights to its San Francisco and Los Angeles destinations, which
flights currently account for a significant portion of the
Company's revenues. Further, if the Company is unable to lease
additional aircraft that are in compliance with the Stage-3 noise
compliance requirements, it will have to make significant capital
expenditures to make its aircraft fleet meet such requirements.
While the Company currently has plans to purchase or lease one to
three additional jet aircraft, two of which would replace the
737-300 jet aircraft, its ability to further expand its
operations could be limited by the availability of additional jet
aircraft on terms satisfactory to the Company.
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 Federal Aviation
Administration (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 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.
During 1996, after extensive FAA investigations, ValuJet
suspended operations and Kiwi Airlines substantially reduced its
operations before filing for bankruptcy protection, and Mesa
Airlines and Western Pacific Airlines were subject to extensive
investigations by the FAA. Because of the Company's start-up
status, along with other start-up carriers, the Company's
operations recently have been subject to increased review by the
FAA.
Additional rules and regulations have been proposed from
time to time in the last several years 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 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
(50% 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 event the Company is unable to lease hush kitted 737-200
jet aircraft to replace the 737-300 jet aircraft or finance a
hush kit on one of its existing 737-200 jet aircraft, it could
have a material adverse effect on the Company's business,
financial condition and results of operations. In the future,
the Company's <PAGE> aircraft fleet is required to meet the following
federal Stage-3 noise compliance deadlines: 75% of its fleet
must be Stage-3 compliant by December 31, 1998; and 100% of its
fleet must be Stage-3 compliant by December 31, 1999.
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.
Ticket Tax. Despite the recent reinstatement of the ten
percent ticket tax (the "ticket tax"), proposed FAA "funding
reform" continues to present uncertainty as to how or if any
changes would impact Vanguard in the future. Congress reinstated
the ticket tax in August 1996, the ticket tax lapsed as of
December 31, 1996; Congress reinstated the ticket tax as of
March 7, 1997 with the tax scheduled to lapse on September 30,
1997. The Company is unable to predict how the FAA funding issue
will be resolved, and what impact, if any resolution of this
uncertainty in the future will have on the Company's business,
financial condition and results of operations.
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
a. None.
b. None.
c. Furnish the information required by Item 701 of
Regulation S-K as to all equity securities of the
registrant sold by the registrant during the period
covered by the report that were not registered under
the Securities Act other than unregistered sales made
in reliance on Regulation S.
On April 30, 1997, the Company completed a 10.3 million
private sale of units of securities, each unit
consisting of one share of the Company's common stock,
$.001 par value, and two redeemable common stock
purchase warrants (the "Units"). In connection with
the sale of units of Securities, the Company issued
5,150,000 shares of common stock for aggregate proceeds
of approximately $10.235 million, net of offering costs
of approximately $65,000. Each redeemable common stock
purchase warrant entitles the registered holder to
purchase one share of common stock, at any time over a
five year period, at an exercise price of $2.50. The
units were sold to a limited number of "accredited
investors," as defined in the Securities Act of 1933,
pursuant to an exemption from registration provided by
Regulation D promulgated under the Securities Act.
On May 7, 1997, one of the Company's stockholders
agreed to establish an eighteen month $2.0 million
guarantee in favor of the Company's credit card
processor on behalf of the Company. As consideration
for the establishment of this guarantee, the Company
issued up to 1,030,928 warrants to purchase shares of
Common Stock at an exercise price of $1.94. Upon
execution of the guarantee, 412,371 warrants were
issued that immediately vested. The remaining 618,557
warrants vest according to the amount of exposure under
such guarantee. Each warrant expires ten years from
the date of issuance.
<PAGE>
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 10.31-- Consulting Agreement between
Vanguard Airlines, Inc. and The Pointe Group, L.L.C.
Exhibit 11- Statement of Computation of Earnings
per Share for the Three-month Periods Ended March 31, 1996
and 1997
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
<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/John P. Tague May 14, 1997
John P. Tague, President and
and Chief Executive Officer
/s/ William A Garrett May 14, 1997
William A. Garrett, Vice President-Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is
made and entered into effective as of the 1st day of November,
1996 (the "Effective Date") by and between (1) Vanguard Airlines,
Inc., a Delaware corporation (the "Company"), and (2) The Pointe
Group, L.L.C., a Maryland limited liability company ("TPG").
R E C I T A L S:
A. The Company is engaged in the business of owning and
operating an air carrier certificated by the U.S. government to
engage in the provision of air transportation services in the
common carriage of persons, property, and mail (the "Company
Business"). The Company is based in Kansas City, Missouri and
provides jet service primarily in the Midwestern, Rocky Mountain
and Western regions of the United States.
B. The Company is authorized to issue (1) 15,000,000
shares of common stock having a par value of $0.001 per share
(the "Common Stock") and (2) 1,000,000 shares of preferred stock
having a par value of $0.001 per share (the "Preferred Stock"),
of which, (1) 9,955,773 shares of Common Stock are issued and
outstanding, (2) no shares of Preferred Stock are issued and
outstanding, and (3) 3,225,000 shares of Common Stock are
reserved for issuance upon the exercise of any outstanding stock
options and/or warrants.
C. TPG has various members and employees that have
experience in operating companies engaged in the Company
Business.
D. The Company is in need of certain consulting services
from TPG in connection with the conduct of all aspects of the
Company Business. In order to induce TPG to provide such
consulting services for and on behalf of the Company for the
Initial Term of this Agreement (as hereinafter defined), the
parties desire to enter into this Agreement.
E. The Company hereby agrees to engage TPG and TPG hereby
agrees to accept such consulting engagement with the Company in
accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants as contained herein, the parties hereto, intending to
be legally bound, agree as follows:
1. Incorporation of Recitals.
The Recitals set forth above shall be incorporated
herein and made a part hereof by this reference.
2. Engagement.
The Company hereby engages TPG to perform independent
contractor, consulting, and management services, including by way
of illustration but not limitation, to (a) supervise, operate,
and manage the overall operations of the Company Business,
including by way of illustration but not limitation, decisions
regarding (i) airline schedules and routes, (ii) regulation of
the Company Business by governmental authorities, (iii) aircraft
and other equipment and real estate acquisitions and/or leases,
(iv) formulation, implementation, and administration of
strategies, policies, and practices, (v) formulation,
implementation, and administration of budgets, business and
financial plans, (vi) hiring, firing, and supervising employees
and consultants, (vii) setting compensation and benefit programs
for employees and consultants, and (viii) such other duties,
responsibilities, and authority usually and customarily granted
to the chief executive officer of a company, and/or (b) provide
such additional services as reasonably requested by the Company
(collectively the "Services"). TPG agrees that it will at all
times faithfully, industriously, and to the best of its ability,
experience, and talents perform the Services. TPG shall, with
<PAGE>
the concurrence and approval of the Board of Directors of the
Company and/or the Executive Committee of the Board of Directors
of the Company, have the power to determine (a) the specific
duties that shall be performed by it in rendering the Services
and (b) the means and manner by which those duties shall be
performed. The specific employees of TPG that shall render the
Services shall be John P. Tague and Donna Phillips (the "TPG
Team"). In connection with TPG's supervising, operating, and
managing the overall operations of the Company Business, John P.
Tague shall have the officer title of President and Chief
Executive Officer of the Company, and shall become a member of
the Board of Directors of the Company.
3. Term.
The term of this Agreement shall commence on the
Effective Date set forth above and shall continue for a period of
two (2) years (the "Initial Term"), unless (a) terminated prior
thereto pursuant to Section 8 hereof or (b) otherwise extended by
the written agreement of the parties hereto.
4. Consideration.
In addition to the TPG Acquired Stock (as hereinafter
defined) and the expense reimbursement and other consideration
hereinafter provided, for all Services rendered by TPG pursuant
to this Agreement, the Company shall pay TPG the sum of $225,000
per year (the "TPG Fee"). The TPG Fee shall be paid in advance
in equal monthly installments of $18,750.
5. Non-Exclusive Service.
In connection with the Services to be rendered by TPG
hereunder, it is expected that the TPG Team will be required to
devote such time, attention, and energies as shall be mutually
deemed necessary to the rendering of such Services.
Notwithstanding the foregoing, the TPG Team shall be entitled to
devote such time, attention, and energies as shall be required
for (a) the TPG Team to supervise, operate and manage the overall
operations of Air South Airlines, Inc., a Delaware corporation
based in Columbia, South Carolina that operates flights from and
between various cities in the southern region of the United
States to various major cities in the northeastern and midwestern
region of the United States, (b) the TPG Team to complete their
one existing and ongoing project of TPG dealing primarily with
the disposition of various aircraft for a specific client, (c)
the TPG Team to reassign its other projects with TPG to other
contractors as necessary, (d) John P. Tague to act as a director
and/or officer (but not involved in day to day management) of
Semicon, Inc., a family owned business, and (e) the TPG Team, or
any member thereof, to render such other services to such other
company or client as shall be requested by TPG and reasonably
approved by the Company.
6. Working Facilities.
The Company shall be obligated to provide to and
maintain for the TPG Team appropriate offices, supplies,
equipment, and such other facilities and services, including but
not limited to such technical, secretarial, and other support
personnel, necessary to perform the Services.
7. TPG Acquired Stock.
The Company hereby agrees to sell to TPG 6% of the
outstanding Common Stock of the Company (the "TPG Acquired
Stock"). The terms of the sale of the TPG Acquired Stock by the
Company to TPG shall be as follows:
(a) the determination of the number of shares of
Common Stock of the Company which constitute the TPG Acquired
Stock shall be done on a fully diluted basis, in accordance with
the "treasury stock" calculation method, such that it shall be
determined as if all authorized and outstanding stock options
and/or warrants of the Company have been fully exercised,
including but not limited to all shares of the Company issued
and outstanding as of December 30, 1996;
<PAGE>
(b) the closing for the purchase by TPG from the
Company of the TPG Acquired Stock shall take place on December
30, 1996, or such other date as shall be mutually agreed to by
the parties hereto (the "TPG Acquired Stock Closing Date");
(c) the closing for the purchase by TPG from the
Company of the TPG Acquired Stock shall take place at the offices
of the Company or such other location as shall be mutually agreed
to by the parties hereto;
(d) the purchase price for the TPG Acquired Stock
shall be $.02 per share (the "TPG Acquired Stock Purchase
Price");
(e) the TPG Acquired Stock Purchase Price shall be
payable by TPG to the Company on the TPG Acquired Stock Closing
Date in the form of cash or check in an amount equal to the par
value of the TPG Acquired Stock together with TPG's noninterest
bearing, promissory note, which shall be due and payable six (6)
months from the TPG Acquired Stock Closing Date;
(f) the Company shall have the option to repurchase
all of the "unvested" TPG Acquired Stock (the "Repurchase
Option") in the event this Agreement is terminated before the
end of the Initial Term for any of the reasons set forth in
Sections 8(a), 8(d), or 8(e); and
(g) the Repurchase Option may be exercised only with
respect to "unvested" TPG Acquired Stock and the TPG Acquired
Stock shall vest as follows:
(i) in equal quarterly increments during the
Initial Term commencing with the Effective Date of this
Agreement, with such vesting to be effective upon the last day of
each calendar quarter, (ii) one-half of any "unvested" TPG
Acquired Stock shall vest upon the death or permanent disability
of John P. Tague, (iii) upon the merger of the Company into or
with another person, unless (A) the Company is the surviving
entity and (B) this Agreement remains in full force and effect,
or (iv) the sale of all or substantially all of the assets or
stock of the Company to another person.
The foregoing terms regarding the TPG Acquired Stock shall, if
the parties hereto mutually so agree, be set forth in a separate
agreement (the "Stock Purchase Agreement"), to be entered into
within 30 days of the Effective Date of this Agreement. The
Stock Purchase Agreement shall contain all usual and customary
provisions, including the foregoing terms.
8. Termination of Engagement.
This Agreement shall be terminated and the independent
contractor consulting relationship between the Company and TPG
shall cease upon the occurrence of any of the following events:
(a) by TPG for any reason, upon 30 days prior written
notice;
(b) by the Company for any reason, upon 30 days prior
written notice;
(c) by any party upon the expiration of the Initial
Term or any subsequent term established in accordance with
Section 3;
(d) by the Company upon the death or permanent
disability of John P. Tague or his resignation as the President
and Chief Executive Officer of the Company;
(e) by the Company for "Cause," which for purposes of
this Section 8 shall mean any of the following: (i) TPG's breach
of or failure to comply with or observe any of the material
<PAGE>
terms, conditions or agreements contained in this Agreement,
which breach or failure to comply has not been cured within 30
days following written notice by the Company to TPG setting forth
in detail the specific nature of such breach or failure to
comply, or if such breach or failure to comply cannot be cured
within such 30 day period, TPG has not, (A) within such 30 day
period, commenced actions to cure such breach or failure to
comply and diligently pursued such actions and (B) actually cured
such breach or failure to comply within 90 days following such
initial written notice by the Company to TPG, (ii) TPG or any
member of the TPG Team shall be adjudged by a court of competent
jurisdiction as guilty of (A) any willful or grossly negligent
act which causes material harm to the Company, (B) any criminal
act which causes material harm to the Company, (C) any act
involving moral turpitude which causes material harm to the
Company, or (D) any fraud upon the Company, or (iii) any member
of the TPG Team shall be guilty of habitual absenteeism, chronic
alcoholism or other form of chronic addiction;
9. Termination Obligations of the Company.
(a) In the event of termination of this Agreement by
the Company under Section 8(c) because of the expiration of the
Initial Term or any subsequent term of this Agreement, the
Company shall have the following obligations to TPG:
(i) any unpaid portion of the TPG Fee earned
through the date of termination shall be paid by the Company to
TPG;
(ii) any unreimbursed expenses owed by the Company
to TPG for expenses incurred through the date of termination
shall be paid by the Company to TPG;
(iii) the Repurchase Option with respect to the
TPG Acquired Stock shall lapse, such that all of the shares of
the TPG Acquired Stock shall be fully vested;
(iv) the TPG Team shall each be offered full-time
employment with the Company upon mutually satisfactory terms
usual and customary in the airline industry for companies of
comparable operations as the Company; provided, however, that the
Company and John P. Tague shall enter into a written employment
agreement (the "Tague Employment Agreement") which shall, for
purposes of illustration but not limitation, contain the
following provisions:
(1) he shall have the officer title of Chairman,
President, and member of the Board of Directors of the Company;
(2) he shall have duties at least as expansive as
the Services set forth in Section 2 of this Agreement;
(3) he shall have an annual base salary and
annual bonus as mutually agreed upon and usual and customary in
the airline industry for companies of comparable operations
as the Company;
(4) a term and severance arrangement as mutually
agreed upon and usual and customary in the airline industry
companies of comparable operations as the Company; and
(b) In the event of termination of this Agreement by
the Company under Sections 8(a), 8(d), or 8(e), the Company shall
have the following obligations to TPG:
(i) any unpaid portion of the TPG Fee earned
through the date of termination shall be paid by the Company to
TPG;
(ii) any unreimbursed expenses owed by the Company
to TPG for expenses incurred through the date of termination
shall be paid by the Company to TPG; and
<PAGE>
(iii) the Company shall be entitled to exercise
the Repurchase Option with respect to those shares of the TPG
Acquired Stock that have not vested as of the date of
termination.
(c) In the event of termination of this Agreement by
the Company under Section 8(b), the Company shall have the
following obligations to TPG:
(i) any unpaid portion of the TPG Fee earned
through the date of termination shall be paid by the Company to
TPG;
(ii) any unreimbursed expenses owed by the Company
to TPG for expenses incurred through the date of termination
shall be paid by the Company to TPG; and
(iii) the Company shall be entitled to exercise
the Repurchase Option with respect to one-half of those shares of
the TPG Acquired Stock that have not vested as of the date of
termination and the remaining one-half of those
shares shall fully vest and the Company's purchase option shall
lapse.
10. Registration Rights.
TPG shall, with respect to the TPG Acquired Stock be
granted unlimited piggy-back registrations, with any cut-backs of
shares to be registered pursuant to the applicable registration
statement to be done on a pro-rata basis among all of the Sellers
of Company Common Stock pursuant to the applicable registration
statement. A specific Registration Rights Agreement containing
all usual and customary provisions shall be entered into among
TPG and the Company.
11. Expense Reimbursement.
The Company shall reimburse TPG and/or the TPG Team or
directly pay all of the reasonable expenses incurred by TPG
and/or the TPG Team in connection with the performance of TPG's
Services in accordance with this Agreement, including by way of
illustration but not limitation, as follows:
(a) an amount equal to $_____ for legal and related
fees in connection with the preparation and review of this
Agreement;
(b) all ordinary and necessary travel, lodging,
entertainment, and related expenses;
(c) the cost of renting an apartment in Kansas City,
Missouri and leasing or renting a car in Kansas City, Missouri
for Donna Phillips; and
(d) the cost of renting an apartment in Kansas City,
Missouri and rental car in Kansas City, Missouri for John P.
Tague.
13. Representations and Warranties.
(a) The Company covenants, represents and warrants as
of the Effective Date to TPG as follows:
(i) The Company has the sole and entire right,
power and authority (a) to enter into this Agreement, (b) to
fulfill the obligations imposed herein upon the Company, and (c)
to consummate the transactions contemplated herein;
(ii) This Agreement constitutes the legal, valid
and binding obligation of the Company, enforceable against the
Company in accordance with its terms; and
(iii) There are no agreements, contracts,
understandings commitments which would prevent the Company from
entering into this Agreement, making any representations or
warranties herein and/or consummating any of the transactions
contemplated herein.
<PAGE>
(b) TPG covenants, represents and warrants as of the
Effective Date to the Company as follows:
(i) TPG has the full and entire right, power and
authority (a) to enter into this Agreement, (b) to fulfill the
obligations imposed herein upon TPG, and (c) to consummate the
transactions contemplated herein;
(ii) This Agreement constitutes the legal, valid
and binding obligation of TPG, enforceable against TPG in
accordance with its terms; and
(iii) There are no agreements, contracts,
understandings or commitments which would prevent TPG from
entering into this Agreement, making any representations or
warranties herein and/or consummating any of the transactions
contemplated herein.
(c) The representations, warranties, covenants,
indemnities, obligations and agreements set forth in or made
pursuant to this Agreement shall remain operative and shall
survive the commencement and termination of this Agreement.
14. Indemnification.
(a) Neither the Company nor TPG as independent
contractor shall be liable for any of the debts, liabilities or
obligations of the other. Accordingly, the Company will
indemnify TPG and TPG will indemnify the Company, and each will
hold the other harmless from and against any and all loss, cost,
damage, injury or expense (including court costs and reasonable
attorneys' fees) whatsoever and howsoever arising which TPG or
the Company (as the case may be) or any of their respective
agents, successors or assigns incurs as a proximate result of (i)
TPG or the Company (as the case may be) being held liable for any
debt, liability or obligation of the Company or TPG (as the case
may be) or (ii) any breach of this Agreement by the Company or
TPG (as the case may be).
(b) In the TPG Team's rendering of the Services
hereunder and in their capacity as officers, directors,
employees, independent contractors, and/or agents of the Company,
the Company shall, as and to the extent permitted by the General
Corporation Law of Delaware, indemnify the TPG Team, TPG, and the
members, officers, employees, representatives, agents,
successors, and assigns of TPG (collectively the "TPG Group") and
hold the TPG Group harmless from and against any and all loss,
cost, damage, injury or expense (including court costs and
reasonable attorneys' fees) whatsoever and howsoever arising
which the TPG Group or any person within the TPG Group incurs
relating to their actions under this Agreement and the status of
the TPG Team as officers, directors, employees, independent
contractors, and/or agents of the Company. In addition, The
Company shall include the TPG Group and the persons within the
TPG Group as beneficiaries and covered persons in the Company's
insurance policy to protect the TPG Group and the persons within
the TPG Group relating to their status as officers, directors,
employees, independent contractors, and/or agents of the Company.
(c) TPG will assume full responsibility for and will
indemnify the Company and hold the Company harmless from and
against any and all loss, cost, damage, injury or expense
(including court costs and reasonable attorneys' fees) whatsoever
and howsoever arising which the Company incurs relating to TPG's
status as an independent contractor in connection with the
non-withholding by the Company of federal, state, and local
income taxes.
15. Notices.
All notices under this Agreement shall be in writing
and shall be delivered by personal service, or by certified or
registered mail, postage prepaid, return receipt requested, to
the parties at the addresses herein set forth:
<PAGE>
To the Company:
in care of:
Brian S. Gillman
Vice President and General Counsel
Vanguard Airlines, Inc.
30 NW Rome Circle, Mezzanine Level
Kansas City International Airport
Kansas City, MO 64153
Telephone Number 816-243-2129
Facsimile Number 816-243-2118
To TPG:
in care of:
Mr. John P. Tague
President and Chief Executive Officer
Vanguard Airlines, Inc.
30 NW Rome Circle, Mezzanine Level
Kansas City International Airport
Kansas City, MO 64153
Telephone Number 816-243-2100
Facsimile Number 816-243-2118
with a copy to :
David B. Armstrong, Esquire
Ginsburg, Feldman and Bress Chartered
1250 Connecticut Avenue, N.W.
Washington, D.C. 20036
Telephone Number 202-637-9068
Telecopy Number 202-637-9195
16. Independent Contractor Status.
Unless otherwise agreed by the parties, TPG is retained
and engaged by the Company only for the purposes and to the
extent set forth in this Agreement, and its relationship to the
Company shall, during the period or periods of its engagement
hereunder, be that of an independent contractor. Accordingly,
the Company shall have no obligation to withhold any federal,
state or local income or other taxes or other similar charges
from the TPG Fee or other consideration payable by the Company to
TPG. TPG shall be fully responsible for all such taxes or
charges with respect to the members of the TPG Team.
Furthermore, TPG shall be free to exercise its judgment as to the
manner in which it and its employees will perform the Services
expected of it with the concurrence and approval of the Board of
Directors of the Company and/or the Executive Committee of the
Board of Directors of the Company.
17. Alteration, Amendment, or Waiver.
No change or modification of this Agreement shall be
valid unless the same is in writing and signed by the parties
hereto. No waiver of any provision of this Agreement shall be
valid unless in writing and signed by the person against whom it
is sought to be enforced. The failure of any party at any time
to insist upon strict performance of any condition, promise,
agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist
upon strict performance of the same condition, promise,
agreement, or understanding at a future time. The invalidity or
unenforceability of any particular provision of this Agreement
shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
<PAGE>
18. Integration.
This Agreement together with the Indemnification
Agreement and other separate agreements referred to herein set
forth (and are intended to be an integration of) all of the
promises, agreements, conditions, understandings, warranties, and
representations, oral or written, express or implied, among them
with respect to the terms of the consulting engagement and there
are no promises, agreements, conditions, understandings,
warranties or representations, oral or written, express or
implied, among them with respect to the terms of the consulting
engagement other than as set forth in this Agreement together
with the Indemnification Agreement and other separate agreements
referred to herein.
19. Conflicts of Law.
This Agreement shall be subject to and governed by the
laws of the State of Delaware irrespective of the fact that one
or more of the parties now is or may become a resident of a
different state.
20. Counterparts.
This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together
shall constitute one and the same instrument.
21. Further Assurances.
The parties hereto agree to execute and deliver to the
other such other documents or instruments as may be reasonable
and necessary in furtherance of the performance of the terms,
covenants, and conditions of this Agreement.
22. Benefits and Burden.
This Agreement shall inure to the benefit of, and shall
be binding upon, the parties hereto and their respective
successors, heirs, and personal representatives. This Agreement
shall not be assignable.
IN WITNESS WHEREOF, the Company and TPG have each caused
this Agreement to be signed by its respective duly authorized
officers and each of the parties hereto has executed this
Agreement on the date and year first above written.
WITNESS/ATTEST:
The Company:
Vanguard Airlines, Inc.
By: /s/ Brian S. Gillman
Name: Brian S. Gillman
Title: Vice President
TPG:
The Pointe Group, L.L.C.
By: /s/ John P. Tague
Name: John P. Tague
Title: Chief Executive Officer
LOSS PER COMMON SHARE COMPUTATION
VANGUARD AIRLINES, INC.
Three Months ended March 31,
1997 1996
Net Loss $ (7,930,350) $ (5,896,146)
Weighted average number
of common and common
equivalent shares
outstanding /1/ 9,983,375 8,550,220
Net loss per share $(.79) $(.69)
/1/ In 1997 and 1996, outstanding stock options and warrants
were not considered in the net loss per share calculation, as
their effects are antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 451,186
<SECURITIES> 0
<RECEIVABLES> 2,969,851
<ALLOWANCES> 229,719
<INVENTORY> 667,687
<CURRENT-ASSETS> 11,072,569
<PP&E> 7,914,487
<DEPRECIATION> (3,119,851)
<TOTAL-ASSETS> 25,781,175
<CURRENT-LIABILITIES> 38,851,367
<BONDS> 0
0
0
<COMMON> 9,985
<OTHER-SE> (18,169,481)
<TOTAL-LIABILITY-AND-EQUITY> 23,781,175
<SALES> 21,492,439
<TOTAL-REVENUES> 21,492,439
<CGS> 28,910,477
<TOTAL-COSTS> 28,910,477
<OTHER-EXPENSES> 306,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,245
<INCOME-PRETAX> (7,930,350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,930,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,930,350)
<EPS-PRIMARY> (0.79)
<EPS-DILUTED> (0.79)
</TABLE>
