As filed with the Securities and Exchange Commission on June 3, 1999.
Registration No.333-70437
--------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------------------------
CARDINAL AIRLINES, INC.
(Name of registrant as specified in its charter)
Delaware 4512 59-3492127
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
1380 Sarno Road
Suite B
Melbourne, Florida 32935
(407) 757-7388
(Address including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Lawrence A. Watson
1380 Sarno Road
Suite B
Melbourne, Florida 32935
(407) 757-7388
(Name, address, including zip code, and telephone number of agent for service)
-----
Copy to:
Bruce Brashear
Brashear & Associates, P.L.
926 N.W. 13th Street
Gainesville, Florida 32601
(352) 336-0800
--------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=====================================================================
Title of Each Amount to be Proposed Max Proposed Max Amount of
Class of Registered Offering Aggregate Registration
Securities to Price Per Offering Fee
be Registered Unit (1) Price (1)
Units,
consisting
of 2,000,000 Units $7.50 $15,000,000 $4,305
(a) One Share
Voting
Common
Stock,
par value
$0.01 per
share
("Common
Stock") 2,000,000 Shares
(b) One Warrant
to purchase
one share of
Common Stock
at $11.00 per
share 2,000,000 Warrants
Voting Common Stock
purchasable pursuant
to Warrants 2,000,000 Shares $11.00 $22,000,000 $6,314
=====================================================================
(1)Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
-----------------------------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cardinal Airlines, Inc.
------
CROSS REFERENCE SHEET
Between Items in Part I of Form S-1 and the Prospectus
-------------
Form S-1 Item Nos. and Caption Prospectus Caption
1. Forepart of Registration
Statement and Outside
Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Inside Front and Outside Back
Back Cover Pages of Prospectus Cover Pages
3. Summary Information, Risk Factors Prospectus Summary; Risk
and Ratio of Earnings to Factors
Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Dilution
7. Selling Security-Holders Principal and Selling Shareholders
8. Plan of Distribution Outside Front Cover Page; Plan of
Distribution
9. Description of Securities Description of Securities
Eligible For Future Sale
10. Interest of Named Experts and
Counsel Not Applicable
Promoters and Control Persons Management
11. Information with Respect to Prospectus Summary; Summary Financial
the Registrant Data; Business; Financial Statements;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Management
Security Ownership of Certain;
Beneficial Owners and Management;
Principal and Selling Shareholders;
Certain Transactions
12. Disclosure of Commission Position Description of Securities
on Indemnification for Securities
Act Liabilities
<PAGE>
The information contained in this prospectus is not complete and may be
amended. These securities may not be sold until the related registration
statement filed with the securities and exchange commission or any applicable
state securities commission becomes effective. This prospectus is not an offer
to sell nor is it seeking an offer to buy these securities in any state where
the offer or sale is not permitted.
Prospectus Subject to Completion Dated June __, 1999
Cardinal Airlines, Inc.
1380 Sarno Road, Suite B,
Melbourne, Florida 32935
2,000,000 Units
$10.00 per unit
============================================
Cardinal is starting an airline in Cardinal Airlines, Inc. is selling
Melbourne, Florida. the units through its officers and
directors on a "best efforts," "no
minimum" basis. Cardinal may sell
some units through qualified
The Offering selling agents.
Per Unit Total This is an initial public offering
of shares of common stock and
Public Price $10.00 $ 20,000,000 warrants. Each share is sold as a
unit with a warrant to purchase a
Possible second share for $11.00.
Commissions $ 1.00 $ 2,000,000
Cardinal is selling 1,900,000
Proceeds to units. Current shareholders are
Cardinal $ 9.00 $ 17,100,000 selling 100,000 units. Cardinal
will not receive any proceeds from
Proceeds to the sale of units by current
Selling holders.
Shareholders $ 9.00 $ 900,000
There is currently no public market
for the shares or the warrants. The
offering price may not reflect the
market price for the shares and
warrants after the offering.
============================================
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page 3 for a
summary of items to consider before investing in Cardinal.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if the
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Special Note Regarding Forward-Looking Statements . . . . . . . . . . . . . .13
Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Principal and Selling Shareholders . . . . . . . . . . . . . . . . . . . . . 31
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . .34
Securities Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . .36
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Unit Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the "Risk Factors"
section and the financial statements and the notes to those statements.
The Company
Cardinal Airlines, Inc. is a new development stage company planning to
provide scheduled airline service to primary markets in the Eastern United
States from Melbourne, Florida. Cardinal's strategy is to provide excellent
service by seating all passengers in large "first class" seats and offering
superb meals. Cardinal plans to offer full fare, one price per destination,
tickets that will approximate the advanced restricted coach fares of major
airlines. Cardinal plans to commence flight operations with two MD-80 series
aircraft providing service between Melbourne Florida and the
Baltimore/Washington D.C. markets. Cardinal plans to eventually add additional
MD-80 series aircraft and expand service to other prominent markets. Cardinal
has not had any flights and has operated at a loss. It has assets of $59,438.
Cardinal has not yet received its FAA certifications and has not purchased any
aircraft.
Cardinal's executive officers and key employees have substantial experience
in the airline industry. Management has chosen the Eastern United States as
Cardinal's initial geographic market due to the concentration of high yield
destinations from the Melbourne/Orlando area.
Cardinal's principal offices are located at Melbourne International Airport
and at 1380 Sarno Road, Suite B, Melbourne, Florida 32935, (407) 757-7388.
The Offering
Securities Offered by Cardinal 1,900,000 units, each unit
consisting of one share of
common stock and one warrant
to purchase one share of
common stock for a price of
$11.00 a share until five
years from the effective date
of this offering.
Securities Offered by the Selling Shareholders 100,000 units, each unit
consisting of one share of
common stock and one warrant
to purchase one share of
common stock for a price of
$11.00 a share until five
years from the effective date
of this offering.
Total Common Stock Offered 2,000,000 shares
Minimum Purchase 100 units ($1,000)
Common Stock Outstanding After the Offering 3,931,200 shares
Use of Proceeds Costs of the offering will be
paid first. After which, funds
will be used for working
capital and general corporate
purposes including obtaining
a FAA 121 air carrier
operating certificate,
acquiring aircraft and
equipment, and developing
maintenance and technical
programs.
No Minimum The money received from the
first units sold may be used
by Cardinal. The first
proceeds will be used to pay
the cost of the offering. If
Cardinal does not sell enough
units to commence operations
(approximately 600,000 units),
Cardinal will use the money
received to obtain additional
financing to pay operating
expenses and to acquire FAA
and DOT certifications.
1
<PAGE>
Selected Financial Data
The Selected Financial Data presented below are derived from the Financial
Statements of Cardinal. They are qualified in their entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis or Plan of
Operation" and Cardinal's Financial Statements and the Notes thereto included
elsewhere in this prospectus. Cardinal is a development stage company.
Cardinal Airlines, Inc.
(A Development Stage Company)
Income Statement Data:
<TABLE>
<CAPTION>
February 10,1997 February 10,1997
(Inception) to 9 Months Ended Fiscal Year Ended (Inception) to
March 31, 1999 March 31, 1999 March 31, 1998 June 30, 1998 June 30, 1997
--------------- ------------------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ -
NET (LOSS) $ (208,191) $ (184,462) $ (11,550) $ (20,561) $ (3,168)
Net income
(loss) per
common share $ (.10) $ (.09) $ (.01) $ (.01) $ (.01)
======= ======= ======= ======= =======
Balance Sheet Data:
March 31, 1999 June 30, 1998 June 30, 1997
-------------- ------------- -------------
Total Assets $ 59,438 $ 24,000 $ 1,740
======== ======== =======
Total Liabilities
Stockholders Equity $ 59,438 $ 24,000 $ 1,740
======== ======== =======
</TABLE>
2
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in the shares.
Risks Related to Cardinal
- -------------------------
No Operating History. We have not begun airline operations. In order to
operate as an airline, Cardinal must obtain an FAA 121 air carrier certificate
or contract with a holder of a certificate to provide airline services. If fewer
than 600,000 units are sold, or an aggregate amount of $5,350,000 is raised,
Cardinal cannot obtain a certificate using its present business plan. If
Cardinal is unable to obtain the certificates, it will be forced to modify its
present business plan and offer services through certified contractors or
operate with less expensive aircraft. From inception through March 31, 1999,
Cardinal has sustained net losses in the amount of $208,191. Cardinal may be
vulnerable to fare discounts, changes in industry conditions and competitive
reactions by existing or new competitors.
No Committed Sources of Additional Financing. There can be no assurance
that even if all the units offered for sale herein are sold that we will be able
to successfully consummate our business plan. We have no commitments, from any
source, for additional funding. There can be no assurance that additional
funding could be obtained.
Dependence on Personnel. Although many of Cardinal's key personnel have
substantial airline industry experience, there is no assurance that they will
be able to successfully carry out its business plan.
Airline Competition's Reaction to Cardinal. The Airline Deregulation Act
of 1978 made the airline industry highly competitive. The Deregulation Act
substantially reduced government regulation of domestic routes and fares, and
increased the airlines ability to compete with respect to fares, destinations,
and flight frequencies. Although Cardinal would be the only airline providing
non-stop or direct service from Melbourne International Airport to Baltimore
Washington International Airport, it will compete with Delta Air Lines, Inc.,
Spirit Airlines, and other airlines that currently provide service from the
Orlando International Airport to these markets. Cardinal may also compete with
new airlines providing service to these markets and existing airlines increasing
service and/or lowering fares. Competition could prevent Cardinal from selling
tickets for more than 60% of its available seats, which Cardinal anticipates, or
even selling tickets for 42% of its available seats, which must be sold in order
for Cardinal to break even. The average load factor, or the number of seats
that need to be sold to cover Cardinal's costs on a flight, is 47 seats.
Fare Competition. Other airlines may offer fares equal to those offered by
Cardinal or introduce new non-stop service between cities served by its flight
to prevent Cardinal from attaining a share of the passenger traffic necessary to
maintain profitable operations. Cardinal's ability to meet price competition
depends on its ability to operate at costs equal to or lower than its
competitors or potential competitors. In addition, competitors with greater
financial resources than Cardinal may attempt to price their fares below
Cardinal's fares and/or increase their service, which could adversely effect its
profitability.
Possible Unfair, Exclusionary Airline Competition. The Department of
Transportation is proposing rules to eliminate exclusionary conduct
engaged in by some air carriers. Major air carriers have attempted to exclude
new entrant air carriers through a number of tactics including drastic price
cuts and flooding the market with new low-fare capacity. There can be no
assurance that these proposed rules will be adopted and that a large air carrier
will not exercise these predatory actions to unfairly compete against Cardinal.
This could adversely affect Cardinal's business plan.
No Independent Melbourne Airline Feasibility Study. Cardinal's business
plan for the continuing implementation of its business strategy is based on the
experience, judgment and certain assumptions of management, and upon certain
available market information which includes reports for Melbourne International
Airport and the Department of Transportation origination and destination data.
Cardinal has not obtained a third party independent feasibility study relating
to its plans to enter into the commercial airline business, nor does it plan to
commission such a study.
3
<PAGE>
Competitive Disadvantage; No Frequent Flyer Program. Cardinal's strategy
not to offer any frequent flyer programs could be a competitive disadvantage.
Other airlines offering these programs may attract more individuals and business
people who fly on a regular basis because of the upgrades and benefits received
from their frequent flyer programs.
Improved Delta Services could affect Customer Base. If Delta increases
flights or adds flights to Baltimore International Airport, it could adversely
affect our customer base. Delta and other airlines operating out of the Orlando
International Airport currently dominate the Melbourne market.
Cardinal Will By-pass Existing Reservation System. Cardinal does not plan
to use an existing reservations systems company such as SABER, System 1, or
Galilee. This could adversely affect our ability to market and sell tickets.
We have entered into a preliminary licensing agreement with EQUALS International
LTD. to use its airline computer software system. We plan to use the EQUALS
system which covers all airline operations including ticketing, reservations and
baggage tracking. The approximate cost is between $400,000 and $500,000.
Management Group Control Through Preferred Shares. After the completion
of the sale of all the units offered herein, Cardinal's executive officers and
directors, a group of four individuals, by virtue of their holdings of both
common stock and Series A Preferred Shares will hold approximately 82% of all
votes that could then be cast without taking into account the exercise of any
warrants to purchase common stock. As a result, the investors in this offering
will not be able to exercise any control over the management of Cardinal. See
"Principal And Selling Shareholders" to view a chart of anticipated stock
ownership after the offering.
Limited Number of Aircraft. Cardinal plans to start operations with two
aircraft. If any of our aircraft are out of service for an extended period of
time or lost, Cardinal's operations would be adversely affected until the
aircraft was replaced. In the event one aircraft is out of service, Cardinal
will attempt to temporarily lease or charter a suitable replacement. However,
there can be no assurance that a suitable aircraft can be located in a timely
manner. This would have a material effect on our operations. If Cardinal only
raised enough capital to start operations with one aircraft, and that aircraft
was out of service, our revenues would cease until a replacement was found.
No Assurance that Aircraft will be Available. Cardinal plans to initially
lease or lease/purchase 2 MD-80 series aircraft. We have identified sources and
availability of MD-80 series aircraft and the terms on which they can be leased
or lease/purchased. Currently, there are several MD-80 series aircraft available
for lease or sale. As of March 1999, we are aware of two airlines that are
making changes to their fleets and will have MD-80 aircraft available that meet
our requirements. However, there can be no assurance that such aircraft will be
available at the time that we need them. If aircraft are not available when
required we would have to amend our business plan to lease or purchase other
aircraft or contract for such services.
Effect of Aircraft Financing. The purchase price of the aircraft which
Cardinal intends to use is $13.5 million. Cardinal intends to lease or make an
installment purchase for such aircraft under terms of a down payment of
approximately 4% to 5% of the purchase price and monthly payments equal to 1%
of the price of the aircraft. Among the first use of proceeds will be to obtain
such aircraft. As a result, in the event few units are sold in this offering,
Cardinal could find itself in the position of having spent a significant portion
of its proceeds (approximately $540,000 per airplane), but having insufficient
remaining proceeds to pay lease payments of $135,000 per month, thereby
forfeiting its entire interest.
Importance of Non-Unionized Workforce. Based on management's previous
experience, we believe that Cardinal can develop a productive, loyal workforce,
and operate with lower personnel costs than competitors with unionized
workforce. We may not be able to achieve and maintain this advantage. Many
airline industry employees are represented by labor unions and if Cardinal is
unable to maintain a union free workforce, our costs could significantly
increase.
4
<PAGE>
Dependence on Service Contractors. Cardinal will enter into agreements
with contractors to provide certain equipment, facilities and services required
for support operations. These will include baggage and ground handling services,
certain aircraft maintenance, and specialized personnel training. It is standard
industry practice for small airlines to contract these services. Typically,
large airlines perform these services and use contractors on a supplemental
basis. Because this is standard industry practice, such contractual services
are available. However, dependence on others to provide essential services in a
timely and reliable manner, could adversely affect our operations.
Airport Access is Limited. Melbourne International Airport currently has
all necessary facilities including two gates available. Vacant gates are
assigned to carriers through negotiations based on airport use and the
anticipated volume of an airline's use. Baltimore Washington International
Airport has indicated that facilities are available, but that gates would have
to be shared until gates currently under lease become available, or additional
gates are constructed. Because adequate gates would be available for Cardinal's
flights under a sharing arrangement, a gate-sharing arrangement would not affect
our operations. If we are delayed or unable to secure access to any of these
airports, it would adversely effect our operations.
Contingent Liability for Sale of Unregistered Shares. Cardinal may have
liability to purchasers of 506,200 unregistered common shares at a price of
$.50 per share from June 10, 1998 through March 23, 1999. Persons who purchased
unregistered shares have the right to rescind under the Securities Act. The
maximum potential contingent liability for such sales is $253,100 plus interest.
Risks Related to the Airline Industry Generally
- -----------------------------------------------
Low Margin Business. The airline industry, historically, has low gross
profit margins with high fixed costs in comparison to revenues. Cardinal
believes it will be very cost effective and have lower fixed costs than other
airlines. However, if Cardinal is unable to operate at costs less than its
competitors and lower costs cannot be achieved, it could adversely affect
Cardinal's viability.
Cyclical Nature of Airline Industry. The airline industry has a cyclical
nature and is sensitive to overall economic conditions. Historically, downturns
in the economy have caused a reduction in leisure and business airline
passengers, any prolonged reduction in passenger traffic may adversely affect
Cardinal.
Fuel Cost and Availability. Typically fuel costs are the highest operating
expense for companies providing airline service. Fuel costs and availability can
be affected by political and economic conditions throughout the world. Any
changes in the availability or cost of fuel could adversely affect Cardinal.
See "Business - Fuel" for additional discussion of the effect of fuel costs on
operations.
Federal Regulations. Cardinal must obtain the necessary authorization
from several government agencies to commence flight operations, including a
Certificate of Public Convenience and Necessity from the Department of
Transportation and an operating certificate from the Federal Aviation
Administration. Such authority is subject to compliance with applicable
statutes, rules and regulations pertaining to the airline industry, including
any new rules and regulations that may be adopted in the future. Cardinal will
be required to file a progress report with the DOT after the first year of
operations, at which time the FAA and DOT will determine if we are still fit to
operate an airline. The FAA will maintain increased surveillance and scrutiny
of Cardinal's operations for up to five years. There is no assurance that
Cardinal will be able to comply with all present and future rules and
regulations. The cost of compliance may have an adverse effect on our
profitability. Cardinal started discussions with the FAA in December of 1998.
After meeting with the FAA District office, we were issued a Certification
Control Number and assigned a Certification Team. The Certification Control
Number puts Cardinal in a position to begin the Certification Process. The
Certification Team is assigned to oversee Cardinal through the certification
process, and thereafter, on an on-going basis. We have engaged counsel, Allan W.
Mark, PC, in Washington, D.C., to prepare our formal DOT application. The DOT
initial application should be filed by
5
<PAGE>
June 10, 1999. If this offering is successful, our best estimate is that we
expect to be certified by both DOT and FAA by December, 1999 at which time we
will commence flight operations.
Risks Related to this Offering
- ------------------------------
If This Offering Is Not Successful, Cardinal May Need Additional Financing.
We believe that our existing capital resources would be sufficient to meet
operating requirements at existing operating levels through December, 1999.
However, Cardinal requires the proceeds of this offering and interest thereon
to meet its planned operating requirements through that date. In the event that
our plans change or our assumptions change or prove to be inaccurate or the
proceeds of this offering prove to be insufficient to fund operations, we could
be required to seek additional financing. The terms and prices of any
additional financing may be significantly more favorable than those of the
units sold in this offering. There can be no assurance that additional funding,
if necessary, will be available on acceptable terms, if at all. If adequate
funds are not available, we may be required to delay, scale back, or eliminate
certain aspects of our operations. If adequate additional funds are not
available, Cardinal's business, financial condition, and results of operations
will be materially and adversely affected.
Direct Public Offering: No Underwriter. The units offered herein are
offered directly by Cardinal. We have not retained any underwriters, brokers,
dealers or placement agents in connection with this offering. However, we may
engage broker/dealers to assist in the sale and distribution of the units. None
of the directors or officers of Cardinal have any experience in making a
direct public stock offering. The absence of an underwriter could adversely
affect our ability to sell the units.
If Cardinal Uses Broker-Dealers to Sell Units, It Will Materially Reduce
the Proceeds We Receive from this Offering. Cardinal retains the right to use
broker-dealers to sell and distribute the units in this offering. If Cardinal
exercises this right, commissions paid to such broker-dealers may materially
affect the amount of proceeds received by Cardinal from the offering.
Current Prospectus and State Blue Sky Laws Registration Required to
Exercise Warrants. Purchasers of units will have the right to exercise the
warrants included therein only if a current prospectus relating to the shares
underlying the warrants is then in effect and only if such shares are qualified
for sale under applicable securities laws of the states in which the various
holders of the warrants reside. There is no assurance that Cardinal will be able
to maintain a current prospectus covering such shares or be able to register or
qualify such shares in the states where such warrant holders reside. The
warrants will be deprived of any value if a current prospectus covering such
shares issuable in exercise thereof is not kept effective or if such shares are
not registered in the states in which holders of the warrants reside. See
"Description of Securities -- Warrants" for additional discussion of the
warrants.
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution between the initial public offering price of $10.00
per unit and the pro forma net tangible book value per share of common stock
after the offering. Such dilution will amount to:
* $5.65 if all units are sold;
* $6.18 if 1,500,000 units are sold;
* $7.03 if 1,000,000 units are sold;
* $7.95 if 600,000 units are sold; and
* $8.22 if 500,000 units are sold.
In addition, current shareholders acquired their shares of stock at prices
lower than those set forth in this offering. See "Dilution" for further
information on dilution figures; See "Principal and Selling Shareholders" for
details of how many shares were sold at prices differing from this offering.
Risks of Low-Priced or Penny Stocks. If the trading price, if any, of the
common stock were to fall below $5.00 per share, trading in the common stock
would also be subject to certain rules promulgated under the Exchange Act of
1934. Those rules require additional disclosure by broker-dealers in connection
with any trades involving a stock
6
<PAGE>
market price of less than $5.00 per share. Such rules require the delivery of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such delivery must occur prior to any transaction. Additional
sales practice requirements are imposed on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser's written
consent to the transaction prior to sale. The broker-dealer also must disclose
the commissions payable to the broker-dealer, and current bid and offer
quotations for the penny stock. If the broker-dealer is the sole market-maker,
the broker-dealer must disclose this fact and the broker-dealer's presumed
control over the market. Such information must be provided to the customer
orally or in writing prior to effecting the transaction and in writing before
or with the customer confirmation. Monthly statements must be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements may discourage them from effecting
transactions in the common stock. This could severely limit the liquidity of
the common stock and the ability of purchasers in this offering to sell the
common stock in the secondary market.
No Minimum Amount for This Offering. Because there is no minimum amount of
units required to be sold in the offering, all the cash received will go
directly to Cardinal to be used as described in "Use of Proceeds." While $80,000
of the total offering cost of $130,000 has previously been paid by Cardinal and
will not be reimbursed to Cardinal from the proceeds of this offering, $50,000
of the costs of this offering will be paid from the proceeds. If only 5,000 or
fewer units are sold, the result would be that all the proceeds will be used to
pay the remaining expenses of the offering. The sale of fewer than 600,000
units would materially and adversely effect Cardinal in that Cardinal would be
required to significantly limit its operational expenses, by curtailing
significantly or deferring the Company's planned airline services. See "Use of
Proceeds" for a more detailed discussion of how the cash received from this
offering will be used.
7
<PAGE>
USE OF PROCEEDS
Set forth below is Cardinal's anticipated use of proceeds after deduction
of estimated remaining offering expenses of $50,000. There is no minimum number
of units that must be sold in the offering, and all funds will be paid directly
to Cardinal. Since there are no minimum proceeds we may not be able to do
anything discussed in this section.
In the event all units offered herein are sold, Cardinal would receive
$17,050,000 of net proceeds from this offering after deduction of possible fees
paid to qualified broker-dealers and expenses of this offering. The net proceeds
of this offering will be used for:
* expenditures for deposits and down payments on aircraft, equipment and
inventory;
* development of maintenance and technical programs designed to comply with
federal regulatory requirements;
* federal certification expenses;
* identifying, hiring and training of necessary labor force; and
* working capital and general corporate purposes.
The amounts and timing of expenditures for each purpose is subject to the
broad discretion of the management and will depend on factors such as the amount
of net proceeds available to Cardinal and the effects of competition, many of
which are beyond Cardinal's control. If only 5,000 or fewer units are sold, the
result would be that all the proceeds would be used to pay offering expenses
and Cardinal would attempt to obtain additional funding to continue
implementing Cardinal's business plans as discussed in this prospectus.
Because Cardinal has no minimum proceeds in this offering, it is possible
that Cardinal will receive no funds or insufficient funds to enable it to
effectuate its planned use of proceeds set forth above.
Until required for operations, Cardinal's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments, and other investment-grade quality
instruments.
Cardinal will not receive any of the proceeds from the sale of shares of
common stock by the selling shareholders.
8
<PAGE>
The following table represents Cardinal's use of proceeds from the sale of
units in this offering. The columns for the unit sales of 30% and greater
include startup costs and 90 days of revenue flight operations. This is to meet
the D.O.T. Certification requirements of sufficient resources to cover all
pre-operating costs plus the operating costs incurred by Cardinal during the
first 3 months of normal operations. See "The Offering", "Use of Proceeds", and
"Management's Discussion and Analysis or Plan of Operation".
<TABLE>
<CAPTION>
100% 75% 50% 30% 25%
Unit Sales 1,900,000 1,500,000 1,000,000(1) 600,000(2) 500,000
<S> <C> <C> <C> <C> <C>
Gross Proceeds from Offering 19,000,000 15,000,000 10,000,000 6,000,000 5,000,000
Less Offering Expenses 50,000 50,000 50,000 50,000 50,000
Maximum (possible) Commissions 1,900,000 1,500,000 1,000,000 600,000 500,000
--------------------------------------------------------------------------------------
Net Proceeds from Offering 17,050,000 13,450,000 8,950,000 5,350,000 4,450,000
Use of Net Proceeds
Flight Operations (3) 2,188,030 2,188,030 2,188,030 1,140,459
Fuel (4) 863,244 863,244 863,244 446,622
Maintenance (5) 810,435 810,435 810,435 399,582
Passenger Services and Station
Operations (6) 1,769,371 1,769,371 1,769,371 1,037,902
Marketing, Sales and
Advertising (7) 714,922 714,922 714,922 452,417
General & Administrative (8) 834,998 834,998 834,998 659,018 450,000
Aircraft Deposits 1,080,000 1,080,000 1,080,000 540,000
Key Man Life Insurance 24,000 24,000 24,000 24,000 24,000
FAA DOT Certification 350,000 350,000 350,000 350,000 350,000
Computer System Lease 50,000 50,000 50,000 50,000 50,000
Initial Promotions 400,000 400,000 265,000 250,000
Working Capital 7,965,000 4,365,000 - - 3,576,000
---------- ----------- ---------- --------- ----------
Proceeds Used 17,050,000 13,450,000 8,950,000 5,350,000 4,450,000
</TABLE>
(1) This represents the minimum proceeds needed to obtain FAA & DOT
Certification and commence revenue operations with 2 MD-80 aircraft. No working
capital is shown because all the proceeds would be used to obtain DOT
certification.
(2) This represents the minimum proceeds needed to obtain FAA & DOT
Certification and commence revenue operations with 1 MD-80 aircraft. No working
capital is shown because all the proceeds would be used to obtain DOT
certification.
(3) Flight Operations Expense Includes
Flight Crew Cost of Labor
Flight Crew Training
Flight Support Personnel Cost of Labor
Aircraft Lease Expense(estimated to be $135,000 per month per aircraft)
Aircraft Hull Insurance
(4) Fuel Expense Includes
Cost of Fuel
Cost of Fuel Transportation and Storage
(5) Maintenance Expense Includes
Maintenance Personnel Cost of Labor
Cost of Maintenance Personnel Training
Ground Equipment Lease Expense
Maintenance Equipment Lease Expense
Maintenance Data Base Fees and Publications
(6) Passenger Services and Station Operations Expense Includes
Flight Attendant Cost of Labor
Flight Attendant Training Expense
Passenger Food Service Expense
Station Ramp Services Expenses
Terminal facilities Lease Expenses
(7) Marketing, Sales and Advertising Expense Includes
Reservation and Ticket Agent Personnel Expense
Staff Training Expenses
Advertising
Communications Systems Equipment Lease Expense
Web Site and Data Base Expenses
(8) General & Administrative Expenses Includes
Administrative Labor Costs
Accounting
Legal
Office Expense
Insurance - General Liability
9
<PAGE>
DILUTION
Dilution represents the difference between the initial public offering per
share of common stock and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. Pro forma net
tangible book value is the amount that results from subtracting the total
liabilities of Cardinal from its total tangible assets after giving effect to
common stock sold in a private placement. Dilution arises mainly from an
arbitrary decision by Cardinal with respect to the ring price per share of
common stock. In this offering, the level of dilution will be increased as a
result of Cardinal's low net tangible book value prior to this offering.
Based on the March 31,1999, financial statements the net tangible book
value of Cardinal's stock prior to this offering was $49,430 or $.02 per share
of common stock.
Between June 10, 1998, and March 23, 1999, Cardinal sold 506,200 common
shares for $0.50 per share to 34 purchasers in a private placement. We received
a total of $253,100 in the private placement.
If the maximum shares offered herein are sold, Cardinal will have 3,931,200
shares issued and outstanding upon completion of the offering. After giving
effect to the sale of the shares of common stock offered hereby by Cardinal and
the receipt and application of the estimated proceeds therefrom, net of
estimated commissions and offering expenses of the offering, the post offering
pro forma net tangible book value of Cardinal will be $17,099,430 or $4.35 per
share or 44% from the offering price of $10 per share. Net tangible book value
per share would increase to the benefit of present shareholders from $.02
prior to the offering to $4.35 after the offering, or an increase of $4.33
per share attributable to the purchase of the Shares by investors in this
offering.
The following table illustrates the estimated net tangible book value per
share after the offering and the dilution to persons purchasing shares based on
the foregoing maximum offering assumption:
<TABLE>
<CAPTION>
1,900,000 1,500,000 1,000,000 600,000 500,000 As of March 31
units units units units units 1999
<S> <C> <C> <C> <C> <C> <C>
Offering price of
common stock (per share) 10.00 10.00 10.00 10.00 10.00 10.00
Net tangible book value .02 .02 .02 .02 .02 .02
per share before the
offering
Increase per share 4.33 3.80 2.95 2.03 1.76
attributable to
payments by new
investors
Pro forma net tangible 4.35 3.82 2.97 2.05 1.78
book value per share
after the offering
Dilution per share to new 5.65 6.18 7.03 7.95 8.22
Investors
</TABLE>
10
<PAGE>
The following table set forth as of March 31, 1999, after giving effect to
the offering, the number of shares of common stock purchased from Cardinal, the
total consideration paid and the average price per share paid by existing
shareholders and by new investors on an as adjusted basis:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percentage Amount Percentage Shares (1)
---------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investors in this offering ...... 2,000,000 50.88% $20,000,000 98.11% $10.00
Current stockholders (2) ........ 1,931,200 49.12% 385,950 1.89% $ 0.20
------------ ----------- ----------- ------------ -----------
Totals ........................... 3,931,200 100% $20,385,950 100% $5.19
</TABLE>
(1) The average price per share is calculated by dividing the total
consideration paid by the total number of shares purchased.
(2) Sales by the selling shareholders in this offering would cause the
number of shares currently held by existing shareholders (2,031,200), to
be reduced to 1,931,200, or 49.12% of the total number of shares of common
stock to be outstanding after this offering.
DIVIDEND POLICY
Since inception, Cardinal has not declared or paid any cash dividends on
its capital stock. Cardinal currently intends to retain any future earnings for
funding growth and, therefore, does not anticipate paying any cash dividends in
the foreseeable future.
11
<PAGE>
CAPITALIZATION
The following table sets forth:
* the capitalization of Cardinal giving effect to the private placement of
$267,629 which concluded on March 23, 1999; and
* the capitalization of Cardinal, as adjusted to reflect the issuance and
sale of the common stock offered hereby at an assumed offering price of
$10.00 per share. This table should be read in conjunction with the
financial statements and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
As of
March 31, 1999 June 30, 1998 June 30, 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
Long Term Debt $ 0 $ 0 $ 0
Shareholder's Equity
common stock $.01
par value, 50,000,000
shares authorized,
2,031,200 shares
issued and outstanding $ 16,778 $ 10,167 $ 4,908
Preferred Shares
1,000,000 authorized
100,000 Series A issued,
900,000 unissued
and undesignated as
to series $ 1,000 $ 0 $ 0
Additional Paid-In
Capital $ 249,851 $ 35,539 $ 0
Retained Earnings ($ 208,191) ($ 21,706) ($ 3,168)
Total Shareholder's Equity $ 59,438 $ 24,000 $ 1,740
Total Capitalization $ 59,438 $ 24,000 $ 1,740
</TABLE>
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements herein regarding the dates on which Cardinal
anticipates commencing operations. With respect to such dates, Cardinal's
management team has made certain assumptions regarding, among other things:
1) the successful and timely completion of the offering,
2) the approval of its FAA certification,
3) the availability of adequate funding,
4) the absence of delays in acquiring necessary equipment, and
5) the availability of airport space available in an appropriate destination.
Cardinal's ability to commence operations on the dates anticipated is subject
to certain risks, including the risks discussed under "Risk Factors." Actual
airline activities may vary significantly from the current plans depending on
numerous factors including changes in the costs of such activities from current
estimates, the timing of regulatory submissions, the status of competitive
services and the status of the economy in general.
All of the above estimates are based on the current expectations of
Cardinal's management team, which may change in the future due to a large number
of potential events, including unanticipated future developments.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes thereto included elsewhere in
this prospectus. This prospectus contains forward-looking statements which
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and in "Special Note Regarding Forward-Looking Statements."
Results of Operations
- ---------------------
Cardinal is a development stage, airline company. Cardinal is considered
to be in the development stage because we have devoted substantially all of our
efforts to establishing the business plan, organization and raising capital.
Since inception in February 1997 our efforts have principally been devoted
to organization, development and raising capital. Cardinal has not received any
revenues from flight services, and does not expect any of its flights to be
commercially available until 600,000 units are sold. From inception through
March 31, 1999, we have sustained cumulative losses of $208,191 of which $85,900
was for consulting fees, $73,552 was for professional fees, $23,320 for rent,
$7,838 for supplies, $8,561 for utilities, $5,610 in depreciation, $9,168 for
miscellaneous expenses, and $50 in taxes. These losses have
13
<PAGE>
resulted primarily from expenditures incurred in connection with general and
administrative activities, organization and development, trademark registration
and offering costs.
Between June 10, 1998, and March 23, 1999, Cardinal sold 506,200 common
shares for $0.50 per share to 34 purchasers in a private placement. We received
a total of $253,100 in the private placement.
A quarterly comparative analysis for results of operations provides no
additional information. Since inception we have been a development stage company
and there have been no significant developments which would allow for a
comparative analysis of the interim financial statements.
We expect to incur substantial costs in the future resulting from the
acquisition of aircraft, equipment, agreements with airport service providers
such as baggage handling, and fuel service. Additional expenses will include
airport facilities, maintenance costs, and marketing. There can be no assurance
that Cardinal will ever achieve profitable operations.
To date, Cardinal has not marketed or generated revenues from the
commercialization of any service. Our current planned flights will not begin
until at least one month after 600,000 units of this offering are sold.
During this period following the sale of 600,000 units, we expect to hire
additional personnel. Depending on how rapidly units are sold, we may also be
finalizing arrangements for aircraft which could increase the time in which
scheduled operations would begin.
Cardinal has only a limited operating history upon which an evaluation of
its prospects can be based. The risks, expenses and difficulties encountered by
companies at an early stage of development must be considered when evaluating
Cardinal's prospects. To address these risks, Cardinal must, among other things,
successfully develop and commercialize its services, secure all necessary
proprietary rights, respond to competitive developments and continued government
regulation, and continue to attract, retain and motivate qualified persons.
There can be no assurance that we will be successful in addressing these risks.
See "Risk Factors" for additional discussion of how the limited offering history
may affect investment in Cardinal.
Our operating expenses will depend on several factors, including the level
of aircraft maintenance and repair expenses. Development of Cardinal's planned
flights will depend upon economic factors which we cannot predict. Management
may, in some cases, be able to control the timing of developmental expenses, in
part, by controlling growth. As a result of these factors, we believe that
period-to-period comparisons are not necessarily meaningful and should not be
relied upon as an indicator of future performance. Due to all of the foregoing
factors, it is possible that our operating results will be below the
expectations of market analysts, if any, and investors. In such event, the
prevailing market price, if any, of the common stock would likely be materially
adversely affected.
Liquidity and Capital Resources
- -------------------------------
Until such time that Cardinal receives the proceeds of this public offering
or other financing, it will continue to operate on a limited basis. Cardinal's
approximate monthly expenditures during this interim development period are
approximately $17,000 per month. Without additional funding, the Company can
maintain its present operating level through the end of December, 1999.
Cardinal can delay the majority of the expenditures which are necessary to
carry out its business plan until adequate funds are on hand or appear to be
available. Put another way, Cardinal will delay incurring significantly greater
costs than its present expenditures of $17,000 per month, such as additional
personnel and the purchase or lease of aircraft, until funds are available from
this offering. The bulk of FAA certification expenses will be incurred when
sufficient funds are available. For example, training
14
<PAGE>
periods for Cardinal's pilots and flight attendants are approximately two
weeks, because the time between which Cardinal acquires aircraft and necessary
maintenance and modifications are made will be significantly longer than 60
days. Expenditures relating to aircraft and certification will be made prior
to crew and maintenance salaries being incurred. If Cardinal determines that
the offering is not likely to raise at least $5.35 million, it will defer
flight-related and certification expenses to seek additional financing or
revise its Business Plan to provide for the use of less expensive aircraft.
Cardinal has incurred negative cash flows from operations since its
inception. We have expended and expect to continue to expend in the future,
substantial funds to complete our planned service development efforts. Our
future capital requirements and the adequacy of available funds will depend on
numerous factors including:
* the successful commercialization of planned flights
* obtaining sufficient funding to acquire aircraft and equipment
* fuel price and availability
* hiring qualified personnel
* keeping pace with government regulation
* obtaining adequate insurance
* the development of contractual agreements with airports
* use of airport service providers
In the event our plans change or our assumptions change or prove to be
inaccurate or the proceeds of this offering prove to be insufficient to fund
operations, we could be required to seek additional financing. The terms and
prices of any additional financing may be significantly more favorable than
those of the units sold in this offering. Cardinal does not have any material
committed sources of additional financing, and there can be no assurance that
additional funding, if necessary, will be available on acceptable terms, if at
all. If adequate funds are not available, we may be required to delay, scale
back, or eliminate certain aspects of our operations. If adequate additional
funds are not available, Cardinal's business, financial condition, and results
of operations will be materially and adversely affected.
Cardinal may receive additional funding under the provisions pertaining to
the exercise of the warrants which are part of the units offered herein. See
"Warrants" for the terms of warrant exercise and pricing information.
Currently, we have no plans to sell or issue any additional preferred stock.
The net proceeds from the sale of 600,000 units in this offering is
estimated to be the minimum amount necessary to begin operations. If fewer than
600,000 units are sold, then we would use the proceeds to pay the offering
expenses and possibly commissions. Any remaining proceeds would be used to
secure additional funding to implement Cardinal's business plan or to amend the
plan and operate with less expensive aircraft or contract services.
BUSINESS
History
- -------
Cardinal Airlines, Inc. was organized as a Delaware corporation in February
1997. To date, all activities have been organizational and developmental in
nature. Cardinal was formed to provide non-stop air service between Melbourne
International Airport and certain key high yield destinations. Initial service
is planned between Melbourne International Airport and Baltimore Washington
International Airport,
15
<PAGE>
providing four peak departures and arrivals from each city daily. By carefully
selecting its markets, offering high levels of customer service, controlling
growth and efficiently using its resources, Cardinal believes it can profitably
offer airline services from Melbourne, Florida.
Industry Conditions and Competition
- -----------------------------------
The airline industry has experienced unprecedented growth and profits over
the last few years. Two basic reasons for this growth and profits are fuel costs
and an upturn in the economy. The cost of fuel greatly affects operating costs.
Demand for air service increases in a healthy economy.
Cardinal's business plan primarily focuses on the business passenger who
does not have the luxury of booking flights well in advance to get a low fare
and desires a higher level of service. While business travel, as a rule is not
discretionary, it generally diminishes during unfavorable economic times as
businesses tend to tighten cost controls. We anticipate, based on our experience
and DOT reports, that the weakest travel periods for business will generally be
during the months of January, May, and September. Leisure travel is highly
discretionary and may be subject to seasonal variations. Non-business pleasure
travel generally increases during the summer months and at holiday periods.
The Airline Deregulation Act of 1978 made the airline industry highly
competitive. It substantially reduced government regulation of domestic routes
and fares, and increased the airlines ability to compete with respect to fares,
destinations and flight frequencies.
Most major airlines today have complex hub systems, with several different
type and sizes of aircraft and partner with commuter airlines to feed passengers
to their hubs and code share ticketing to the final destinations. The major
airlines smaller jet aircraft usually serve secondary cities with commuter
aircraft serving the smaller cities and towns. Commuter aircraft usually carry
nineteen passengers. Flights between the hub and small towns, small cities
and secondary cities are usually operated on higher her frequencies to
coordinate service with connecting flights to and from the hub to other
destinations and hubs. This system allows airlines to:
* serve more destinations,
* capture a greater share of the passenger market, and
* produce greater revenues.
Most major hub cities are dominated by a single large carrier, such as
Delta Air Lines in Atlanta.
Hub systems are complex and inherently require flights that are not
profitable to meet scheduling requirements. These flights may be scheduled for
inconvenient times, or use an aircraft which has a greater capacity than
required for the flight. These flights increase operating costs which must be
offset by the flights with high load factors and profits. In an attempt to
increase load factors on these flights, airlines operating hub systems have
contrived restrictive, conditional and complicated fares. Low fare tickets
encourage airline use for flights with low load factors. Additionally, having
multiple classes of service, such as First Class, Business Class, and Coach
creates a complex reservations system that can be very frustrating to
passengers.
Airlines that do not operate a hub system such as Southwest Airlines have
various operating strategies, most operate a direct flight system with usually
one class of minimal service, no frills, and aircraft configured with high
density seating. These airlines usually avoid highly serviced routes and
generally choose routes that fill a niche market.
16
<PAGE>
To operate a profitable low fare airline, high load factors and low
operating costs must be maintained. Marketing substantially lower fares, direct
and consistent service can be very effective in maintaining high load factors.
Most low fare carriers, large and small, are very cost effective by focusing on
managing the airline, and outsourcing or contracting a majority of operations
and services.
Melbourne International Airport is presently serviced by two airlines,
Delta Air Lines, a major air carrier that operates a hub system and Spirit
Airlines, a small low fare air carrier. Delta Air Lines provides several daily
flights to Atlanta their major hub and flights from Atlanta to Cardinal's
planned destinations. Spirit provides two daily non-stop flights to New York's
LaGuardia Airport. Initially, Cardinal does not plan to provide service to the
New York LaGuardia Airport, but does plan to provide non-stop service to one of
New York's key airports. There can be no assurance that Delta, Spirit, or other
airlines will not provide additional service to Melbourne International Airport.
Company Strategy
- ----------------
Cardinal Airline's strategy is to focus on the business traveler who
usually does not have the luxury to book flights well in advance or to comply
with the highly restrictive conditions of low priced tickets. Because of this,
business travelers are usually forced to purchase a high priced full fare coach
ticket which offers a low level of service, or an extremely high priced first
class ticket that offers excellent service. Some airlines on some flights offer
a limited number of Business Class seats that provide more comfortable seating
and a higher level of service than coach. This is a desirable choice for the
business traveler, but often unavailable.
Cardinal believes that by developing a low cost highly efficient airline
it will be able to offer its passengers excellent service at a reasonable price,
while producing substantial profits. We plan to have a simple, straight forward
relationship with our customers offering full fare one price per destination
tickets that will approximate the cost of advanced restricted "coach" fares of
major airlines. Advanced tickets usually indicate 14 days or more prior to the
flight. The Passengers Bill of Rights which is before Congress at this time,
outlines airlines shortcomings in their relationship with passengers. Cardinal
wants to be recognized as an airline dedicated to safety, that provides a high
level of service and has an excellent relationship with its customers.
We believe that by offering the highest levels of safety and customer
service, as well as non-stop flights to key destinations, load factors would be
maximized. Cardinal will offer only one class of service which will be
equivalent to First Class service offered by other airlines. Cardinal will
configure its aircraft with large first class seats and specialized galleys to
facilitate serving excellent meals with complimentary champagne and wine.
Cardinal intends to support its flights by attracting customers now being
served by other airlines serving the Melbourne and Orlando airports. Melbourne
International Airport's air service area includes seven Florida counties with
an air service market of approximately 800,000 passengers. In a July 1997 study
conducted by SH&E Air Transport Consultancy for the Melbourne International
Airport, three of the top proposals SH&E made were:
o Improve Washington D.C. service to Non-Stop
o Expand service to the New York market
o Aggressively pursue having an airline headquarter in Melbourne
The same SH&E study estimates that 70% of Melbourne passengers are
diverted to Orlando every year. Further, a July 1997 survey of businesses in the
Melbourne air service market, conducted by the Melbourne - Palm Bay Chamber of
Commerce, showed that 76.3% of the businesses surveyed would
17
<PAGE>
commit 100% of their travel resources to the Melbourne International Airport
provided timing and rates were comparable with other airports. Because of these
results, we believe that Cardinal can not only meet but also exceed our
anticipated break even load factor of 42%.
We will place special importance on the selection of new employees.
Cardinal believes that by hiring qualified employees with a structured
employment program that allows for career advancement and job security; and
providing proper training, necessary resources, and a safe pleasant work
environment, that it will be able to develop and maintain a highly productive
workforce. We intend to develop a cafeteria style employee benefits program,
that would add significant valuable benefits to the employees, and meet
individual needs without hindering Cardinal's ability to maintain profit levels.
This may include programs such as excellent employee child care, insurance,
retirement benefits, stock options, and company sponsored clubs and
organizations. Cardinal believes such employee programs will promote loyalty
and productivity.
Cardinal believes that a simplified corporate structure with limited tier
levels will promote excellent communications and interaction throughout the
entire workforce, allowing Cardinal to benefit from its employees' experience.
Cardinal has not established an employee benefits plan at this time. We plan to
implement comprehensive employee benefit programs when airline operations
commence.
Cardinal has selected EQUALS, a mature, fully integrated, year 2000
compliant, automated, turn key airline software system used by several small
airlines and the Colombian Air Force, which provides for complete airline
capabilities and functions. This is a unified system that operates on readily
available generic IBM compatible computers, is designed to provide for growth
and expansion, and is simple to learn and operate. The EQUALS system covers the
entire spectrum of airline operations including customer services, flight
operations, ground operations, maintenance, inventory control, and
communications. As an example, it provides for automated reservations and
ticketing, with connectivity to travel agents and remote operating sites.
Travel agents will not be required to obtain additional software to interface
with our system. We believe that our ability to begin operations using a simple,
reliable, unified system will provide significant cost savings and a competitive
edge over other airlines using more complicated systems which have evolved over
a period of years.
Cardinal will outsource services where it is more cost effective or
productive. These services may include:
* baggage handling,
* ground handling,
* certain aircraft maintenance and,
* specialized personnel training.
Outsourcing these services is common practice in the airline industry and is
usually cost effective. However, we will be dependent on these contractors'
performance. See "Risk Factors - Dependence on Service Contractors" for a
discussion of this risk.
Geographic Market
- -----------------
Cardinal, based in Melbourne Florida, will initially provide service to
large key markets in the Eastern United States. Service between these prominent
markets and central Florida historically provides some of the highest passenger
and fare yields. We believe that Melbourne International Airport is
strategically located to capitalize on the significant business markets of
Central Florida, with an additional advantage of the close proximity to many
notable tourist attractions, such as:
18
<PAGE>
* Kennedy Space Center,
* Port Canaveral,
* Beaches, and
* major Orlando Theme Parks.
Fares, Route System, and Scheduling
- -----------------------------------
Cardinal will offer a simple full fare, one class open ticket without
restrictive conditions and a single price per destination. Initially, all
flights will be non-stop. Cardinal plans to commence flight operations with
non-stop service between Melbourne International Airport and Baltimore
Washington International Airport, then add service to the New York market.
Cardinal has begun negotiations with Baltimore Washington International Airport
and believes that gate and maintenance areas can be leased on favorable terms.
One of the most common mistakes by new carriers is uncontrolled growth.
Maintaining a steady, controlled growth, Cardinal would add additional service
to other prominent markets throughout the Eastern United States. Flights will
be scheduled to provide significant and convenient service to these markets.
Marketing
- ---------
Cardinal plans to add additional safety equipment to its aircraft which
exceeds the mandated requirements of the FAA, such as fire and smoke detection
in all cargo and baggage compartments, and equipment designed for the flight
crew to deal with smoke in the aircraft's cockpit. Flight crews will be trained
in the proper use of certain emergency medical equipment that will be on all
company aircraft. We believe our planned configuration of the aircraft with
fewer, more comfortable seats, is also inherently safer.
Cardinal plans to maximize the effectiveness of its marketing by
concentrating on passenger potential areas surrounding destinations served by
it. Cardinal will use local cost effective media such as:
* newspaper and magazine advertisements,
* radio advertisements during the morning and afternoon commuter rush hours,
and
* billboards on prominent highways in potential market areas.
Additionally, by direct contact and promotions, Cardinal will nurture a
preferred airline relationship with;
* area businesses,
* clubs, and
* governmental agencies.
We believe visibility and recognition are extremely important in marketing,
especially for a new airline. Cardinal believes that by painting its aircraft
a vivid Cardinal red color they will be highly visible parked at the gate,
taxiing, and in flight. Cardinal's bright red aircraft will actually act as a
logo, and be identified even from a distance.
The ease of making reservations and ticketing is a crucial part of
capturing the largest possible market share. Cardinal believes an efficient and
reliable automated reservations system with connectivity to travel agents and
the Internet will increase initial and repeat use of its airline services.
All reservations, counter, and gate positions will be adequately staffed with
competent, friendly, and courteous personnel. Programs will be developed with
travel agents that provides incentives to book customers with Cardinal.
19
<PAGE>
Management believes customers should have as many viable means of booking a
flight as possible such as through a national toll free number, the Internet
and travel agents. Cardinal will attempt to make purchasing a ticket as
convenient and customer friendly as possible as this is an important part of
the travel experience. Complete customer satisfaction will be a company
objective. Cardinal believes that word of mouth can be the most effective
advertising.
Aircraft Acquisition
- --------------------
We believe, to be cost effective, Cardinal should only operate one type of
aircraft. Operating one type of aircraft should significantly lower maintenance
and crew training costs. Cardinal has identified sources, general availability,
and average cost to lease or lease/purchase used MD-80 series aircraft. We
believe that two MD-80 series aircraft with approximately 30,000 to 35,000
flight hours, can be located, acquired and configured to our specifications to
commence flight operations. The frequency of scheduled maintenance on these
aircraft should be the same as on a new aircraft. The amount of maintenance
performed on a scheduled maintenance visit may be slightly higher. Cardinal can
perform all routine scheduled maintenance without removing the aircraft from
service except for extensive maintenance visits that are required approximately
every 2500 flight hours which equates to 9 to 10 months of service. The
aircraft will be out of service for approximately 10 days to complete this
maintenance. Cardinal will make arrangements for a substitute aircraft during
this time. See "Risk Factor Limited Number of Aircraft" for a discussion of
potential problems with replacing the aircraft when they are out of service.
Maintenance and Repairs
- -----------------------
Cardinal plans to operate MD-80 series aircraft, which are modern
commercial airliners, used extensively in the airline industry, with more than
1100 currently in service.
Cardinal will have maintenance operations managed and staffed by seasoned
airline personnel that will perform routine daily and turn-around maintenance.
Overhauls and heavy maintenance that require extensive maintenance facilities
will be outsourced to reputable, FAA approved companies certified to perform
maintenance on MD-80 series aircraft and engines. Cardinal will maintain a
presence of Quality Assurance personnel on site to insure all work performed
meets the requirements of Cardinal Airline's Maintenance Program. Cardinal has
not made any agreements with maintenance organizations that are certified to
perform maintenance on MD-80 series aircraft and engines.
Cardinal plans to maintain an inventory of spare parts to support its
maintenance operations and will also rely on FAA approved vendors and
manufactures for additional parts requirements. We believe replacement parts
are available in sufficient quantities. There can be no assurance that these
industry conditions will continue.
Fuel
- ----
Aircraft fuel is expected to be Cardinal's largest operating expense. Jet
fuel costs and availability, being subject to world economic and political
conditions, cannot be predicted with any degree of certainty. Cardinal will
attempt to enter into agreements with fuel suppliers to stabilize fuel costs.
An increase in fuel prices or a diminished supply could have a material adverse
effect on its operations.
Insurance
- ---------
Cardinal plans to maintain insurance policies of the type customary in the
industry in amounts adequate to meet DOT requirements and to protect Cardinal
against loss of property and life. The policies will provide coverage for public
liability, passenger liability, baggage and cargo liability, property damage,
including coverage for loss and damage to its flight equipment, and worker's
compensation
20
<PAGE>
insurance. However, there is no assurance that the amount of insurance carried
by Cardinal will be sufficient to protect it from material loss.
Government Regulations
- ----------------------
Under United States Federal Statute, any one who wants to provide air
transportation service as an air carrier must first obtain two separate
authorizations from the Department of Transportation: 1) the safety
authorization, in the form of an Air Carrier Certificate and Operations
Specifications from the FAA and 2) the economic authorization, from the Office
of the Secretary of Transportation (the Department), in the form of a
certificate for interstate passenger and/or cargo authority issued under the
Federal Statute. A certificate authorizing interstate air transportation may be
issued after a finding by the Department that the applicant is "fit, willing and
able" to perform the proposed service.
* "Air Transportation," as defined by Federal Statute, means the
transportation of passengers or property by aircraft as a common carrier for
compensation, or the transportation of mail by aircraft, in interstate air
transportation.
* "Interstate air transportation," as defined by Federal Statute, means
operations between place in a state, territory, or possession of the United
States and another state, territory, or possession of the United States.
Cardinal plans to only provide air transportation services within the United
States, its territories or possessions.
* Federal Statute defines a "citizen of the United States" as:
an individual who is a citizen of the United States;
a partnership each of whose partners is an individual who is a citizen of
the United States; or
a corporation or association organized under the laws of the United States
or a state, the District of Columbia, or a territory or possession of the
United States. It must have a president and at least two-thirds of the
board of directors and other managing officers who are citizens of the
United States. At least 75 percent of the voting interest must be owned
or controlled by persons who are citizens of the United States.
Cardinal's President and Board of Directors are U.S. citizens and we
anticipate that a majority of the public investors will be U.S. citizens.
Cardinal will be required to provide information to the Department to
assess the financial position and its understanding of the costs of starting
its operations. Prior to being granted an effective certificate, Cardinal must
provide independent, third-party verification, that it has available to it
resources sufficient to cover all of its pre-operating costs and the operating
expenses that are reasonably projected for three months of normal operations.
In calculating available resources, projected revenues cannot be included.
Once Cardinal has been found fit initially, it becomes subject to the
requirements of Federal Statute which require that Cardinal must remain fit in
order to continue to hold its authority to provide air transportation services.
The Department will require Cardinal to provide a progress report twelve (12)
months after it commences operations. This report would include:
* information on Cardinal's then current operations,
* a summary of how its operations have changed during the year,
* a discussion of any changes it anticipates during its second year of
operations,
* its second year current financial statements, and
* information on whether Cardinal had undergone any changes in ownership or
management.
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<PAGE>
Cardinal will submit application to the proper authorities for the
necessary certification to operate a domestic airline. We believe we will be
able to obtain and maintain the proper certifications. If we are delayed or
unable to meet these requirements we would not be able to operate as an airline
under our own certificate.
According to the DOT informational packet, How to Become a Certified Air
Carrier, dated September, 1998,
"Before being granted an effective Certificate, an applicant must
provide independent, third-party verification that it has available
to it resources sufficient to cover all of its pre-operating costs
plus the operating expenses that are reasonably projected to be
incurred by the applicant during three months of "normal" operations."
We estimate that the funds necessary to meet this DOT certification requirement
and therefore to begin operations are approximately $5,350,000. This is
equivalent to the net proceeds for the sale of 600,000 units.
Year 2000
- ---------
Defective date programming in computer hardware and software might cause
problems in the year 2000. Date errors may impact computer applications and
also production resources, and the procedures of outside suppliers and
independent contractors. Importantly, it is not always known where such date
information is used.
Cardinal has entered into a letter of intent for its ticketing system and
has received written assurance that this system is year 2000 compliant.
Melbourne International Airport, Baltimore International Airport and First
Union Bank have also stated that they are Year 2000 compliant. The MD-80 series
aircraft and the EQUALS Airline Computer Software system, are year 2000
compliant. We will continue to request written assurances of year 2000
compliance from all software, hardware and information technology vendors.
Cardinal plans to conduct regular back-ups of ticket sales throughout 1999
and immediately prior to the year 2000 to preserve previously received
reservations. We will not make significant changes in operation, such as
adding destinations or flights, during the period immediately before and after
December 31, 1999. As a contingency we will prepare to adjust flight schedules
just as the FAA has stated it would reduce air traffic capacity before
compromising the safety of the National Airspace System. The FAA has adopted
the U.S. Government Accounting Office's recommended five-phase repair process
to address the Year 2000 issue, the final phase is scheduled to be complete on
June 30, 1999. Cardinal has completed the necessary evaluations under the FAA's
Year 2000 5-Phase Repair Approach. The 5 phases are:
1 Awareness
2 Assessment
3 Renovation
4 Validation
5 Implementation
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<PAGE>
Miscellaneous
- -------------
All air carriers are also subject to certain provisions of the
Communications Act of 1934, as amended, because of their extensive use of radio
and other communication facilities, and are required to obtain an aeronautical
radio license from the Federal Communications Commission. To the extent
Cardinal is subject to FCC requirements, it will take all necessary steps to
comply with those requirements.
Cardinal's operations may become subject to additional federal requirements
in the future under certain circumstances. For example, Cardinal's labor
relations are covered under Title II of the Railway Labor Act of 1926, as
amended, and are subject to the jurisdiction of the National Mediation Board.
During a period of past fuel scarcity, air carrier access to jet fuel was
subject to allocation regulations promulgated by the Department of Energy.
Cardinal is also subject to state and local laws and regulations at locations
where it will operate and the regulations of various local authorities that
operate the airports it will serve.
Properties
- ----------
Cardinal leases approximately 2,200 square feet of office space at its
principal address for general corporate and operational use at a current
monthly rent of approximately $1,250.00 under a lease which expires July of
1999. Cardinal is presently negotiating leases for counter, office, gate,
maintenance and hangar facilities at Melbourne, and Baltimore Washington,
International Airports. Some facilities may be subleased from other airlines.
Cardinal believes that sufficient and adequate facilities exist at most airports
currently under consideration which can be leased on favorable terms.
Service Marks
- -------------
Cardinal has filed intent to use service mark applications for "Cardair,"
"Dedicated to Safety and Service" and "The Little Airline with the Big Seats."
There is no assurance that the U.S. Patent and Trademark Office will approve
these service marks.
Legal Proceedings
- -----------------
There are no legal proceedings pending in which Cardinal is a party or of
which any of its property is the subject of any legal proceeding.
AVAILABLE INFORMATION
Cardinal has filed with the SEC a registration statement on Form S-1 under
the Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules thereto, certain portions having been omitted as
permitted by the rules and regulations of the SEC. For further information with
respect to Cardinal, the common stock offered hereby, the registration
statement, including the exhibits and financial statement schedules thereto,
contact the public reference facility maintained by the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 where these materials may be
inspected without charge. Copies of such material may be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at the prescribed rates. With respect to each such document filed with
the SEC as an exhibit to the registration statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
23
<PAGE>
MANAGEMENT
The following table contains the name, age and position with Cardinal of
each executive officer and director as of the date of this prospectus. All the
officers will be employed full-time by Cardinal. The respective backgrounds of
the officers and directors are described following the table.
Age Position
Lawrence A. Watson 52 Chairman of the Board, President, CEO
H. Lawrence Mason 46 Chief Financial Officer, Vice-President
Finance, Secretary, Treasurer
Vincent T. Paris 51 Vice-President Logistics Support, Director
Ted A. Walker 55 Vice-President Properties and Facilities,
Director
Thomas L. Vandervelde 63 Vice-President Safety & Regulatory Compliance
David A. Linsley 61 Vice-President Flight Operations
John J. Pertschi 52 Vice-President of Maintenance
Jack H. Freeman 68 Vice-President of Quality
Ronald J. Newbold 38 Vice-President Investor Relations
Dennis M. Cunningham 51 Chief Pilot
Karen D. Glover 35 Director of In-Flight Services
John J. Ryff 38 Director of Stores
Lawrence A. Watson has been Chairman of the Board and Chief Executive
Officer of Cardinal since its inception in February 1997, and President since
March of 1997. He is a multi-engine, instrument rated commercial pilot with
extensive experience in the aviation industry. Mr. Watson in 1990 was one of
the Founders of Allied Aviation Inc., a commercial aircraft parts company,
where as Vice President of Corporate Development he organized the management
team,directed two private placements, and researched and developed new business.
He has been a member of Allied's Board of Directors since 1990. Mr. Watson was
a F.A.A. Air Traffic Controller at the Miami Air Route Control Center from 1970
to 1976.
Dr. H. Lawrence Mason has been Secretary Treasurer, Director,
Vice-President of Finance and Chief Financial Officer of Cardinal since
March of 1997. Dr. Mason has held a wide variety of research, engineering,
administrative, and executive level positions in various corporate settings.
He was Vice President of Finance from 1990 to 1996 for Allied Aviation,
Inc. and currently holds a position on the Board of Directors. Dr. Mason was
President and C.E.O. of Florida Design Build Systems, Inc. from 1985 to 1992.
He was President and C.E.O. of F.D.C.S.I. from 1984 to 1989. Dr. Mason
attended the University of Kentucky, the University of South Florida,
University of Louisville Graduate School and School of Medicine/Dentistry.
Vincent T. Paris has been a member of Cardinal's Board of Directors
since March of 1997. Mr. Paris has been involved in our development is a
consultant since March of 1998 and will become the Vice-President of Logistics
Support after the completion of this offering. Mr. Paris began his aviation
career in 1964 with the United States Navy. Mr. Paris held numerous
managerial and executive positions in the throughout his career. Mr. Paris was
employed by Allied Aviation, Inc. from 1992 to 1998 he was the Vice President
of Operations from 1994 to 1998, and was also a member of the Board of
Directors. From 1990 to 1992 he served as Director of Quality Assurance for Pan
American Airways Surplus Parts Subsidiary "Allmat International." Mr.
Paris was involved with several start up
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<PAGE>
established operations in the past. He has a Bachelor of Science degree in
Technology from Florida International University.
Ted A. Walker has been a member of Cardinal's Board of Directors since
March of 1997 and will become the Vice-President of Properties and Facilities
after the completion of this offering. Mr. Walker graduated from South
Florida Junior College with an Associate of Arts degree in Business in 1968.
He was a Staff Sergeant in the United States Army and after leaving the Army
became a FAA Air Traffic Controller from 1970 to 1981. Since 1981, Mr. Walker
has been President and C.E.O. of Add Fire Inc., which he founded in that year.
He is also very active in many trade organizations and Community projects.
Thomas L. Vandervelde is currently a consultant for Cardinal, assisting
Cardinal to obtain the 121 Air Carrier Certificate from the F.A.A. and the
Economic Authority from the Secretary of Transportation (D.O.T.). After
Cardinal obtains its Certifications Mr. Vandervelde will become the Vice
President of Safety & Regulatory Compliance. Mr. Vandervelde was with the
Federal Aviation Administration for 35 years, and held various positions in the
Flight Standards District Offices. Since his retirement in 1991 from the
Federal Aviation Administration, Mr. Vandervelde has held various top level
management positions with Tech.Ops. International, Michael Goldfarb and
Associates, and InterFlight Services. Mr. Vandervelde has assisted in the Part
121 Certification process of several start-up airlines. He has developed
interactive database maintenance programs for commercial aircraft, and has
conducted numerous safety compliance audits and provided recommendations to
several large commercial aviation operators.
David A. Linsley will become the Vice-President of Flight Operations
after the completion of this offering. Mr. Linsley has over 40 years of
flying experience, including a distinguished career as military pilot in
the United States Marine Corp. from 1958 to 1967 where he flew more than
120 combat missions over Vietnam. His career as a Commercial Airline Pilot
began in 1967 with United Airlines. He retired as a Senior Captain in 1997
after 30 years of service. Mr. Linsley has over 18,000 hours of accident and
incident free flying with over 5300 hours as Pilot in Command. Mr. Linsley
Graduated from San Diego State University with a B.A. in English. Mr.
Linsley is the Founder and President of the Pegasus Fear of Flying
Foundation. He is also Editor and publisher of Pegasus Magazine, a travel
and entertainment magazine for airline employees worldwide.
John J. Pertschi will become the Vice-President of Maintenance after the
completion of this offering. Mr. Pertschi has more than 35 years of experience
in the aviation maintenance business. Mr. Pertschi was a jet mechanic in
the United States Air Force from 1963 to 1967. Mr. Pertschi has held several
key managerial positions with a major airline, start up airlines and
maintenance facilities. From 1968 to 1983 Mr. Pertschi worked for Continental
Airlines and was the Line Maintenance Supervisor from 1981 to 1983.
Mr. Pertschi left Continental to take a position as Manager of Technical
Services for a new start up airline; Frontier Horizon, Inc. Mr. Pertschi was
also a manager of aircraft maintenance for Evergreen Air Center, Inc., Director
of Maintenance for Jetborne Aircraft Leasing, Inc. from 1986 to 1989, and
Director of Maintenance for Carnival Airlines from 1989 to 1992. From
1993 to 1999, he was Assistant Director of Maintenance and Production
Control Operations Manager for Commodore Aviation.
Jack H. Freeman will become the Vice-President of Quality after the
completion of this offering. Mr. Freeman has more than 39 years of experience
in airline maintenance operations. Mr. Freeman began his career in 1948 as an
aircraft mechanic in the United States Navy. His career in commercial airline
operations began in 1957 with Delta Airlines and he was with Delta until in
1994. Mr. Freeman was an aircraft mechanic until 1970, at which time he was
assigned to the inspection department. While in the inspection department he
inspected all fleet aircraft for airworthiness, including identifying any
aircraft
25
<PAGE>
engine and systems malfunctions and instituted corrections. Delta's fleet
included Boeing 727, 737, 747, 757,767, Douglas DC-8, DC-9, DC-10 MD-80,
and Lockheed L-1011 aircraft. Mr. Freeman had assignments as Quality Control
Representative for Delta at the Douglas and Lockheed Aircraft Factories, where
he was responsible for aircraft inspection during their construction.
Additionally, he was an inspector for Delta at the Boeing Aircraft Company.
Since his retirement from Delta in 1994, Mr. Freeman has been engaged as a
consultant and inspector for several aviation companies.
Ronald J. Newbold has worked as a consultant for Cardinal since October
1998, and was appointed Vice-President of Investor Relations on December 1st
1998. Mr. Newbold has an extensive background in sales, marketing and business
management and has held numerous management positions. He has developed
programs for streamlining operational procedures. Mr. Newbold has designed
several database and network systems to track aircraft, inventory's, as well
as sales and marketing of products. He has to developed markets and accounts
for new and existing product lines. Mr. Newbold graduated from Wichita State
University with a Bachelor of Business Administration in Marketing. From
September 1992 through March 1995, Mr. Newbold was employed at Dallas
Aerospace engaging in commercial aircraft parts and engine sales. Following
that, Mr. Newbold worked for thirteen months at AmTec as a Sales Manager. From
April 1996 until April 1997, he was engaged in the same position for Kellstrom,
Inc. He then worked for Allied Aviation, Inc. as Marketing Manger for commercial
aircraft parts.
Dennis M. Cunningham will become the Chief Pilot after the completion of
this offering. Mr. Cunningham has over 28 years of experience in airline
operations and flight training, with a total of over 15,000 flight hours and
10,884 hours as Pilot in Command. Mr. Cunningham began his commercial airline
career in 1970 with Air New England until 1980. Mr. Cunningham is experienced
with all aspects of Airline Certification, Simulator Training, Proficiency
Checks, Instructor Pilot. Responsible for training pilots during Initial
Operating Experience and Flight Training. Mr. Cunningham has extensive
experience on both Domestic and International Routes. He also has endorsements
by the FAA as an Instructor Pilot/Check Airman on the DC9/MD80 and Simulator
Instructor on both DC-9 and L-1011. Mr. Cunningham has previously assisted in
establishing a training department and participated in developing Operational
Manuals, Training Syllabuses and Crew Instructions. From 1990 to 1995 Mr.
Cunningham served as Captain/Instruct or Pilot for Saudi Arabian Airlines, from
1995 to 1996 was Captain for Caribjet, from 1996 to 1997 Project Manager/Check
Airman for Nations Air, from 1997 to 1998 Captain for Gemini Air Cargo and is
currently flying for TradeWinds Airlines.
Karen D. Glover will become the Director of In-Flight Services after the
completion date of this offering. Ms. Glover began her career as a Flight
Attendant with Ansett Australian Airlines in 1985 and was employed there until
1991. From 1991 to 1993 Eva Airways employed her as an Instructor. She is
qualified as a flight attendant on 7 aircraft types. While with Ansett, she was
a member of the Cabin Safety Committee. Ms Glover has held several positions in
all aspects of In-Flight Services, from assisting in developing an In-Flight
Department, Crew Scheduling, Training, Safety and Standards Compliance. She has
developed, written, and revised Flight Attendant Manuals, Training manuals, in
addition to developing Standards Programs.
John J. Ryff has worked as a consultant for Cardinal and will become
Director of Stores after the completion of this offering. Mr. Ryff served
for 13 years in the United States Marine Corps and achieved the rank of
Sergeant. The last position he held was Maintenance Control Chief where his
duty was overseeing the units Material Support and Supply Division. Upon
leaving the Marine Corps, in December 1993, Mr. Ryff was employed by
Allied Aviation, a supplier of commercial aircraft parts. Mr. Ryff was
initially employed as the Inventory Control Manager, then appointed to the
company's sales department and later promoted to Sales Manager until June of
1998.
26
<PAGE>
Summary of Cash and Certain Other Compensation
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards Restricted Securities
Fiscal Deferred Cash Other Annual Stock Underlying Bonus LTIP Payouts Other
Name Year1 Salary Salary Compensation Awards Options/SARs
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence A Watson 1997 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1999 ----- $ 3,000 ---------- ------ ---------- ---- ---- ----- ----
H. Lawrence Mason 1997 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
Vincent T. Paris 1997 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1999 ----- $ 41,400 ---------- ------ ---------- ---- ---- ----- ----
Ted A. Walker 1997 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ----- ----
Thomas L. Vandervelde 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
David A. Linsley 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
John J. Pertschi 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
Jack H. Freeman 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
Ronald J. Newbold 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- $ 17,000 ---------- ------ ---------- ---- ---- ---- ----
Dennis M. Cunningham 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
Karen D. Glover 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- $ 3,000 ---------- ------ ---------- ---- ---- ---- ----
John J. Ryff 1997 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1998 ----- ------ ---------- ------ ---------- ---- ---- ---- ----
1999 ----- $ 20,100 ---------- ------ ---------- ---- ---- ---- ----
</TABLE>
1 1999 figures reflect the first three quarters of Cardinal's fiscal year.
27
<PAGE>
On July 1, 1998, Cardinal entered into a five-year employment agreement
with Mr. Watson, providing for an annual salary of $110,000 per year to be
increased to $130,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Watson's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice upon one-half of Mr. Watson's base salary for the remaining
term of the contract. Mr. Watson's employment agreement is renewable for
five-year terms unless either party gives written notice of termination at
least 60 days before the then current term.
On July 1, 1998, Cardinal entered into a three-year employment agreement
with Mr. Mason, providing for an annual salary of $100,000 per year to be
increased to $110,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Mason's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Mason will receive
one-half of his base salary for the remaining term of the contract. Mr. Mason's
employment agreement is renewable for three-year terms unless either party gives
written notice of termination at least 60 days before the then current term.
On July 1, 1998, Cardinal entered into a three-year employment agreement
with Mr. Paris, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Paris's disability for consecutive months or nine months
out of a 12-month period. The agreement may be terminated without cause on 60
days' notice. Upon such termination, Mr. Paris will receive one-half of his
base salary for the remaining term of the contract. Mr. Paris's employment
agreement is renewable for three-year terms unless either party gives written
notice of termination at least 60 days before the then current term.
On July 1, 1998, Cardinal entered into a three-year employment agreement
with Mr. Walker, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Walker's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice. Upon such termination, Mr. Walker will receive one- half of
his base salary for the remaining term of the contract. Mr. Walker's employment
agreement is renewable for three-year terms unless either party gives written
notice of termination at least 60 days before the then current term.
On November 5, 1998, Cardinal entered into a one-year employment agreement
with Mr. Vandervelde, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the date Cardinal receives it's 121 Air Carrier
certificate from the FAA and Economic authority from the office of the Secretary
of Transportation. The agreement may be terminated for cause upon Mr.
Vandervelde's disability for nine consecutive months or
28
<PAGE>
nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Vandervelde will receive
one-half of his base salary for the remaining term of the contract. Mr.
Vandervelde's employment agreement is renewable annually unless either party
gives written notice of termination at least 60 days before the then current
term.
On November 5, 1998, Cardinal entered into a one-year employment agreement
with Mr. Linsley, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Linsley's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice. Upon such termination, Mr. Linsley will receive one-half of
his base salary for the remaining term of the contract. Mr. Linsley's employment
agreement is renewable annually unless either party gives written notice of
termination at least 60 days before the then current term.
On December 10, 1998, Cardinal entered into a one-year employment agreement
with Mr. Pertschi, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Pertschi's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice. Upon such termination, Mr. Pertschi will receive one-half
of his base salary for the remaining term of the contract. Mr. Pertschi's
employment agreement is renewable annually unless either party gives written
notice of termination at least 60 days before the then current term.
On January 11, 1999, Cardinal entered into a one-year employment agreement
with Mr. Freeman, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Freeman's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice. Upon such termination, Mr. Freeman will receive one-half of
his base salary for the remaining term of the contract. Mr. Freeman's employment
agreement is renewable annually unless either party gives written notice of
termination at least 60 days before the then current term.
On October 2, 1998, Cardinal entered into a one-year employment agreement
with Mr. Newbold, providing for an annual salary of $90,000 per year to be
increased to $100,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Newbold's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice. Upon such termination, Mr. Newbold will receive one-half of
his base salary for the remaining term of the contract. Mr. Newbold's employment
agreement is renewable annually unless either party gives written notice of
termination at least 60 days before the then current term.
On January 15, 1999, Cardinal entered into a one-year employment agreement
with Mr. Cunningham, providing for an annual salary of $85,000 per year to be
increased to $95,000 per year "upon Cardinal
29
<PAGE>
reaching break-even load factor and maintaining that level for 30 consecutive
days." The term of the employment agreement will commence on the earlier of,
the date agreed to by employee and Cardinal or upon completion of this offering.
The agreement may be terminated for cause upon Mr. Cunningham's disability for
nine consecutive months or nine months out of a 12-month period. The agreement
may be terminated without cause on 60 days' notice. Upon such termination, Mr.
Cunningham will receive one-half of his base salary for the remaining term of
the contract. Mr. Cunningham's employment agreement is renewable annually
unless either party gives written notice of termination at least 60 days before
the then current term.
On December 10, 1998, Cardinal entered into a one-year employment agreement
with Ms. Glover, providing for an annual salary of $70,000 per year to be
increased to $80,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Ms. Glover's disability for nine consecutive months or nine
months out of a 12-month period. The agreement may be terminated without cause
on 60 days' notice. Upon such termination, Ms. Glover will receive one-half of
her base salary for the remaining term of the contract. Ms. Glover's employment
agreement is renewable annually unless either party gives written notice of
termination at least 60 days before the then current term.
On October 2, 1998, Cardinal entered into a one-year employment agreement
with Mr. Ryff, providing for an annual salary of $70,000 per year to be
increased to $80,000 per year "upon Cardinal reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of, the date agreed to by employee and
Cardinal or upon completion of this offering. The agreement may be terminated
for cause upon Mr. Ryff's disability for nine consecutive months or nine months
out of a 12-month period. The agreement may be terminated without cause on 60
days' notice. Upon such termination, Mr. Ryff will receive one-half of his base
salary for the remaining term of the contract. Mr. Ryff's employment agreement
is renewable annually unless either party gives written notice of termination
at least 60 days before the then current term.
CERTAIN TRANSACTIONS
The following is a summary of certain transactions among Cardinal and
related persons.
On March 1, 1997, Cardinal issued a total of 890,000 shares to its
directors for $.01 per share Two hundred thirty thousand shares were purchased
by Mr. Watson; 220,000 shares were purchased by Mr. Mason; 220,000 shares were
purchased by Mr. Paris; and 220,000 shares were purchased by TAWCOT, a trust
controlled by Mr. Walker.
On March 1, 1997, Cardinal issued a total of 50,000 shares to William
Rackley for $.01 per share.
On July 1, 1997, Cardinal issued a total of 240,000 shares to its directors
for $.50 per share Sixty thousand shares each were purchased by Mr. Watson,
Mr. Mason, Mr. Paris and the TAWCOT trust, a trust controlled by Mr. Walker.
The purchase price was payable in cash or by the execution of a promissory note
bearing interest at 8% payable in full on or before June 30, 2003. In
connection with these purchases, Mr. Watson executed a promissory note in the
original pre-paid amount of $17,123; Mr. Walker executed a promissory note for
$27,971; Mr. Paris for $26,183; and Mr. Mason executed a promissory note for
$25,394.
30
<PAGE>
On October 16, 1998, Cardinal sold each to Mr. Watson, Mr. Mason,
Mr. Walker and Mr. Paris 25,000 Series A Preferred Shares for a purchase price
of $.01 per share.
On January 11, 1999, Cardinal authorized the issuance of a total of
100,000 warrants to the selling shareholders on the basis of one warrant for
each share offered. See "Selling Shareholders" for stock ownership information.
Cardinal entered into a consulting agreement with Maviation, LLC, which is
owned by a key employee, Thomas Vandervelde. Pursuant to the terms of the
contract, Maviation will provide consulting services in obtaining Cardinal's
Part 121 Certification at a rate of $800.00 per day.
PRINCIPAL AND SELLING SHAREHOLDERS
The following tables set forth certain information regarding the beneficial
ownership of Cardinal's common stock as of March 31, 1999, and as adjusted to
give effect to the sale of the units offered hereby, by
* the selling shareholders,
* each person (or group or affiliated persons) known to Cardinal to be the
beneficial owners of more that 5% of its common stock,
* each director of Cardinal,
* each of Cardinal's executive officers, and
* all of the directors and officers as a group.
31
<PAGE>
Selling Shareholders
Other than Principal Shareholders, Officer and Directors
<TABLE>
Number of Common Shares Number of Common Shares
Beneficially Owned Prior Beneficially Owned After
to the Offering (1) the Offering (2)
<CAPTION>
Shareholder Name
and Address Number Percent Offered Number Percent
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Beauchesne, Alfred M. & Maryann 20,000 0.98% 2,000 18,000 0.46%
297 HWY A1A #315
Satellite Beach, FL 32937
Berkley, Thomas S. 30,000 1.48% 3,000 27,000 0.69%
8505 Sheridan Road
Melbourne, FL 32904
Couch, Eugene J. Jr. 5,000 0.25% 500 4,500 0.11%
3561 Sparrow Lane
Melbourne, FL 32935
Greenwood, Bruce D. & Mayra S. 30,000 1.48% 1,600 28,400 0.72%
1321 Mallard Court
Ft. Pierce, FL 34982
INDEGO(trust managed by Litton Walker) 36,000 1.77% 2,000 34,000 0.86%
P.O. Box 352
Avon Park, FL 33825
Kee, Terry L. 20,200 0.99% 1,540 18,660 0.47%
PSC 78 Box 2872 APO AP 96326-2872
APO AP, 96326-2872
Mason, L. Dianne 20,000 0.98% 2,000 18,000 0.46%
5415 Collins Ave., #602
Miami Beach, FL 33140
Newbold, Darin K. 10,000 0.49% 1,000 9,000 0.23%
4141 Horizon N. Parkway Apt. 1333
Dallas, TX 75287
Rackley, William R. Jr. 50,000 2.46% 5,000 45,000 1.14%
1000 Eastwood Rd. Apt. J7
Hilliard, FL 32046
Riles, Dennis 20,000 0.98% 2,000 18,000 0.46%
1823 Van Pelt Road
Sebring, FL 33870
Serrao, Michael A. 26,000 1.28% 2,600 23,400 0.60%
218 Nemo Circle N.E.
Palm Bay, FL 32907
Shores, Derrick V. & Shores, Faith L. 10,000 0.49% 1,000 9,000 0.23%
1458 Manzanita St. N.W.
Palm Bay, FL 32907
Simoncelli, Raymond A. 20,000 0.98% 2,000 18,000 0.46%
25461 Nottingham Ct
Laguna Hill, CA 92653
Waters, Christine A. 17,000 0.84% 1,500 15,500 0.39%
P.O. Box 9022
Reston, VA 20195
</TABLE>
(1) The information presented in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under
the Exchange Act. All information with respect to the beneficial ownership
of any shareholder and, except as otherwise indicated, each shareholder has
sole voting and investment power with respect shares listed as beneficially
owned by such shareholder. Pursuant to the rules of the Commission, in
calculating percentage ownership, each person deemed to beneficially own
shares subject to options or warrants exercisable within 60 days of the date
of this prospectus.
(2) Assumes the sale of all of the units offered herein.
32
<PAGE>
Common Stock Owned by Principal Shareholders, Officers and Directors
of Cardinal Airlines
<TABLE>
<CAPTION>
Number of Common Shares Number of Common Shares
Beneficially Owned Prior Beneficially Owned After
to the Offering (1) the Offering (2)
Shareholder Name
and Address Number Percent Offered Number Percent
=============================================================================================
<S> <C> <C> <C> <C> <C>
Watson, Lawrence A. 290,000 14.28% 14,080 275,920 7.02%
1564 Raymor St. N.W.
Palm Bay, FL 32907
Mason, H. Lawrence 280,000 13.78% 16,600 263,400 6.70%
432 St.Johns Dr.
Satellite Beach, FL 32937
Paris, Vincent T. 280,000 13.78% 14,080 265,920 6.76%
855 Hawser St. N.E.
Palm Bay, FL 32907
TAWCOT(trust managed by Ted A. Walker)(3) 280,000 13.78% 15,000 265,000 6.74%
8528 N.W. 66th St.
Miami, FL 33166
Vandervelde, Tom 50,000 2.46% 2,500 47,500 1.21%
128 Albacore Lane
Foster City, CA 94404
Linsley, David A. 40,000 1.97% 0 40,000 1.02%
6483 Fox Run Circle
Jupiter, FL 33458-1875
Pertschi, John J. 40,000 1.97% 0 40,000 1.02%
5280 S.W. 4th Street
Plantation, FL 33317
Freeman, Jack H. 40,000 1.97% 0 40,000 1.02%
1365 Lake Dow Road
McDonough, GA 30252
Newbold, Ronald J. 50,000 2.46% 5,000 45,000 1.14%
600 Dinner St. N.E.
Palm Bay, FL 32907
Cunningham, Dennis M. 30,000 1.48% 0 30,000 0.76%
Palm Bay, FL 32907
Glover, Karen D. 30,000 1.48% 0 30,000 0.76%
2455 Summer Brook St
Melbourne, FL 32940
Ryff, John J. Jr. 50,000 2.46% 5,000 45,000 1.14%
365 Needle Blvd.
Merritt Island, FL 32953
--------- ------ ------ --------- ------
TOTALS 1,460,000 85.26% 72,260 1,387,740 35.30%
</TABLE>
(1) The information presented in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under
the Exchange Act. All information with respect to the beneficial ownership
of any shareholder and, except as otherwise indicated, each shareholder has
sole voting and investment power with respect shares listed as beneficially
owned by such shareholder. Pursuant to the rules of the Commission, in
calculating percentage ownership, each persons deemed to beneficially own
shares subject to options or warrants exercisable within 60 days of the
date of this prospectus.
(2) Assumes the sale of all of the units offered herein.
(3) Controlled by Ted A. Walker.
33
<PAGE>
DESCRIPTION OF SECURITIES
Cardinal's Articles of Incorporation, as amended, authorize it to issue
50,000,000 shares of common stock, $0.01 par value per share and 1,000,000
shares of preferred stock, par value $.01. As of the date of this prospectus,
2,031,200 shares of the common stock were outstanding and 100,000 Series A
Preferred Shares were outstanding. The description in this prospectus of the
capital stock of Cardinal is qualified by and subject to the Delaware General
Corporation Law and Cardinal's Articles of Incorporation and By-laws, copies of
which Articles and By-laws have been filed as exhibits to the registration
statement of which this prospectus is a part and to which reference is made for
the provisions thereof which are summarized below.
Units
- -----
Each unit offered hereby consists of one (1) share of common stock and one
warrant to purchase one share of common stock. Each unit will be offered for a
price of $10.00. Warrants may be exercised at a price of $11.00 until five
years from the effective date of this offering. The warrants hereby are
immediately transferable separately from the common stock and issued with the
common stock as part of the units. The warrants are subject to the terms of a
warrant resolution by Cardinal's Board of Directors which defines the terms
under which the warrants may be exercised, called and transferred.
Common Stock
- ------------
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and have no cumulative voting
rights. Holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution, or
winding up of Cardinal, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock offered hereby will also be fully paid and nonassessable.
Warrants
- --------
The holder of each warrant is entitled, upon payment of the exercise price
of $11.00 to purchase one (1) share of common stock. Unless previously redeemed,
the warrants are exercisable at any time until five years from the effective
date of this offering, provided that at such time a current prospectus relating
to the underlying common stock is in effect and the underlying common stock is
qualified for sale or exempt from qualification under applicable state
securities laws. The warrants included in the units offered hereby are
immediately transferable separately from the common stock and issued with such
warrants as part of the units. The warrants are subject to redemption, as
described below.
Redemption. Commencing on the date of this prospectus, the warrants are
subject to redemption by Cardinal, on not more than sixty (60) nor less than
thirty (30) days' written notice, at a price of $.05 per warrant, if the
average closing bid price of the common stock for any thirty (30) consecutive
business days ending within 15 days of the date on which the notice of
redemption is given exceeds $15.00 per share. In the event Cardinal elects to
redeem the warrants, any remaining restrictions on transfer or exercise will
expire. Holders of warrants will automatically forfeit their rights to purchase
the shares of
34
<PAGE>
common stock issuable upon exercise of such warrants unless the warrants are
exercised before the close of business on the date immediately prior to the
date set for redemption. The notice of redemption shall be made by first class
mail, postage prepaid, not less than 15 days prior to the date of redemption,
and shall specify the redemption price, the date fixed for redemption, the
place where the warrant certificates shall be delivered and the redemption
price to be paid, and that the right to exercise the warrants shall terminate
at 5:00 PM EST on the business day immediately preceding the date fixed for
redemption. Cardinal may without notice to warrant holders extend the time in
which the warrants may be exercised or reduce the exercise price.
The warrants may be exercised upon surrender of the certificate(s) therefor
on or prior to the earlier of their expiration of the redemption date at the
offices of the warrant agent with the form of subscription agreement on the
reverse side of the certificate(s) filled out and executed as indicated,
accompanied by payment of the full exercise price for the number of warrants
being exercised.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, certain issuance of common stock below fair
market value, sale of substantially all of the assets, and for other
extraordinary events in order to enable the holders of the warrants to obtain
the same or equivalent rights which they would have obtained if the warrants
had been exercised prior to the event.
Cardinal is not required to issue fractional shares of common stock, and
in lieu thereof will make a cash payment based upon the current market value of
such fractional shares. The holder of a warrant will not possess any rights as
a stockholder of Cardinal unless and until the person exercises the warrant.
Preferred Shares
- ----------------
Cardinal has issued 100,000 Series A Preferred Shares of the 1,000,000
preferred shares authorized. Cardinal's Board of Directors will determine the
rights and preferences of preferred shares issued in the future, if any.
Holders of preferred shares have no right to receive dividends, but shall be
entitled to a preference in the amount of $.01 per share in the event of
dissolution. Holders of preferred shares are entitled to vote with the holders
of common shares on any matter upon which common shareholders are entitled to
vote, including without limitation the election of directors, at a rate of 100
votes for every share held. As a result, the holders of the 100,000 preferred
shares, Mr. Watson, Dr. Mason, Mr. Paris and Mr. Walker possess 10,000,000
votes and will control the affairs of Cardinal. Preferred shares are
non-transferable.
Undesignated Preferred Stock
- ----------------------------
The authorized but unissued preferred stock (900,000 shares) may be issued
in series, and shares of each series will have such rights and preferences as
are fixed by the Board of Directors in the resolutions authorizing the issuance
of that particular series. In designating any series of preferred stock, the
Board of Directors may, without further action by the holders of common stock:
* fix the number of shares constituting that series, and
* fix the dividend rights, dividend rates, conversion rights, voting rights
(which may be greater or lesser than the voting rights of the common stock),
and
* fix the rights and terms of redemption (including any sinking fund
provisions), and the liquidation preferences of the series of Undesignated
Preferred Stock.
35
<PAGE>
The holders of any series of preferred stock, when and if issued, are
expected to have priority claims to dividends and to any distribution upon
liquidation of Cardinal, and they may have other preferences over the holders
of the common stock.
The Board of Directors may issue series of preferred stock without action
by the shareholders of Cardinal. Accordingly, the issuance of preferred stock
may adversely affect the rights of the holders of the common stock. In
addition, the issuance of preferred stock may be used as an anti-takeover
device without further action on the part of the shareholders. Issuance of
preferred stock may dilute the voting power of holders of common stock. One
example of this dilution would be the issuance of preferred stock with super-
voting rights. The issuance of preferred stock may render more difficult the
removal of current management, even if such removal may be in the shareholders'
best interest. Cardinal has no current plans to issue any additional preferred
stock.
Transfer Agent - Warrant Agent
- --------------------------------
The transfer agent, registrar for the common stock and warrant agent is
First Union National Bank.
Limitation of Liability and Indemnification of Directors.
- --------------------------------------------------------
The right of the shareholders to sue any director for misconduct in
conducting the affairs of Cardinal is limited by its Articles of Incorporation
and Delaware statutory law to cases for damages resulting from breaches of
fiduciary duties involving acts or omissions involving intentional misconduct,
fraud, knowing violations of the law or the unlawful payment of dividends.
Ordinary negligence is not a ground for such a suit. The statute does not limit
the liability of directors or officers for monetary damages under the Federal
Securities laws.
Cardinal also has the obligation, pursuant to its By-laws, to indemnify
any director or officer of Cardinal for all expenses incurred by them in
connection with any legal action brought or threatened against such person for
or on account of any action or omission alleged to have been committed while
acting in the course and scope of the person's duties, if the person acted in
good faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of Cardinal's, and with respect to criminal
actions, had no reasonable cause to believe the person's conduct was unlawful,
provided that such indemnification is made pursuant to then existing provisions
of Delaware General Corporation Law at the time of any such indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, may be permitted to directors, officers or persons
controlling Cardinal pursuant to the foregoing provisions, Cardinal has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
SECURITIES ELIGIBLE FOR FUTURE SALE
At the completion of this offering, there will be 3,931,200 shares of
common stock outstanding if all units are sold. There will be 2,000,000 shares
of common stock issuable upon the exercise of outstanding warrants. There is no
current market for Cardinal's securities, and no market may exist at the
conclusion of this offering. In the event a market for Cardinal's stock
develops, Cardinal cannot predict the effect, if any, that market sales of
restricted shares of common stock or the availability of such shares for sale
will have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of common stock may be sold in the public
market would likely adversely affect any prevailing
36
<PAGE>
market price for the common stock and could impair Cardinal's ability to raise
capital through the sale of its equity securities.
Sales of Restricted Securities
- ------------------------------
Assuming all units offered herein are sold, 1,931,200 shares of common
stock outstanding prior to the offering, were or will be issued and sold by
Cardinal in private transactions not involving a public offering in reliance
upon exemptions under the Securities Act. These securities are treated as
restricted securities and may not be resold except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom. No outstanding shares are subject to registration rights.
PLAN OF DISTRIBUTION
Of the 2,000,000 units of common stock offered hereby, Cardinal is selling
1,900,000 units and the selling shareholders are selling 100,000 units. Each
unit offered consists of one share of common stock and one warrant to purchase
one share of common stock for a price of $11.00 a share until five years from
the effective date of this offering. Cardinal will not receive any of the
proceeds from the sale of units by the selling shareholders. There is no
minimum number of units to be sold in the offering, and all funds received will
go immediately to Cardinal. The offering will be terminated upon the earliest
of: the sale of all units, twelve months after the date of this prospectus,
unless extended, or the date on which Cardinal decides to close the offering. A
minimum purchase of 100 units ($1,000) is required. Cardinal reserves the right
to reject any Unit Purchase Agreement in full or in part. Units being offered
by selling shareholders will only be sold following the sale of all 1,900,000
units offered by Cardinal.
Cardinal plans to offer and sell the units directly to investors and has
not retained any underwriters, brokers, dealers, or placement agents in
connection with the offering. However, Cardinal reserves the right to use
brokers, dealers, or placement agents and could pay commissions equal to as
much as 10 percent of the gross proceeds. Cardinal will effect offers and sales
of units through printed copies of this prospectus delivered by mail and
electronically, by contacting prospective investors by publicizing the
offering through a posting on Cardinal's World Wide Web site, through
newspaper advertisements, and by contacting additional potential investors by
direct e-mail and regular mail solicitation. Any voice or other communications
will be conducted in certain states through Cardinal's executive officers, and
in other states, where required, through a designated sales agent, licensed in
those states.
Residents of Virginia purchasing units must have a net worth of at least
$225,000 or a net worth of at least $60,000 and an annual income of at least
$60,000. Net worth in all cases is calculated exclusive of home, furnishings
and automobiles. Virginia residents may not invest more than 10% of their
readily marketable assets in the offering.
LEGAL MATTERS
Brashear & Associates, P.L. of Gainesville, Florida will pass upon certain
legal matters in connection with validity of the units offered hereby for
Cardinal.
37
<PAGE>
EXPERTS
The financial statements of Cardinal for the period from February 10, 1997
(inception) to June 30, 1998, appearing in this prospectus and registration
statement have been audited by Rosenfield & Company, P.A., independent auditors,
and unaudited interim financial statements for the period from February 10, 1997
(inception) to March 31, 1999 as set forth in their reports thereon appearing
elsewhere herein and in the registration statement, and are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
38
<PAGE>
UNIT PURCHASE AGREEMENT
[To purchase any of the units, you must be a resident of a state where the sale
of units is permitted under the state's securities laws.]
To: Cardinal Airlines, Inc.
1380 Sarno Road, Suite B
Melbourne, FL 32935 USA
Phone: (407) 757-7388
Fax: (407) 757-7390
E-mail: [email protected]
I have received and had an opportunity to read the prospectus by which the
units are offered. Enclosed is payment for____________ units (minimum 100), at
$10.00 per unit, totaling $______________.
Make check payable to Cardinal Airlines, Inc.
Signature(s)____________________________________________ Date______________
Register the units in the following name(s) and amount(s):
Name(s)_______________________________________________ Number of units______
As (check one): Individual______ Joint Tenants_______ Trust_______ IRA_______
Tenants in Common_____ Corporation______ Keogh_____ Other_____
For the person(s) who will be registered owner(s):
Mailing Address:_______________________________________________________________
City, State & Zip Code: _______________________________________________________
Business Phone: (_____)___________________ Home Phone: (_____)_______________
Social Security or Taxpayer ID Number: ________________________________________
(Please attach any special mailing instructions other than shown above)
NO UNIT PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE.
(You will be mailed a signed copy of this Agreement to retain for your records.)
Subscription accepted by Cardinal Airlines, Inc.
_______________________________ ______________
Lawrence A. Watson Date
President
VIRGINIA SUBSCRIBERS
Virginia subscribers must meet the following suitability requirement:
I certify that I am (initial blank) _____________________________ a person who
(a) has an annual income of $60,000 and a net worth of at least $60,000 or
(b) has a net worth of at least $225,000 (in each case excluding home, home
furnishings, and personal automobiles) and that I am not investing more than
10% of my readily marketable assets in this offering.
39
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cardinal Airlines, Inc.
Melbourne, Florida
We have audited the accompanying balance sheets of Cardinal Airlines, Inc. (a
Delaware corporation in the development stage) as of June 30, 1998, and June 30,
1997, the related statements of operations and cash flows for the nine months
ended March 31, 1998, from February 10, 1997 (Inception) to March 31, 1998, for
the fiscal year ended June 30, 1998, from February 10, 1997 (Inception) to June
30, 1998 as well as February 10, 1997 (Inception) to June 30, 1997 and the
statements of stockholders' equity from February 10, 1997 (Inception) to June
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cardinal Airlines, Inc. as of
June 30, 1998 and June 30, 1997, and the results of its operations and its cash
flows for the nine months ended March 31, 1998, from February 10, 1997
(Inception) to June 30, 1998 as well as February 10, 1997 (Inception) to June
30, 1997, in conformity with generally accepted accounting principles.
Rosenfield & Company, P.A.
February 15, 1999
Orlando, Florida
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
TABLE OF CONTENTS
BALANCE SHEETS..............................................................F-1
STATEMENTS OF OPERATIONS....................................................F-2
STATEMENT OF STOCKHOLDERS' EQUITY...........................................F-3
STATEMENTS OF CASH FLOWS..............................................F-4 - F-5
NOTES TO FINANCIAL STATEMENTS........................................ F-6 - F-11
<PAGE>
CARDINAL AIRLINES, INC.
(A Development State Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30,1998 JUNE 30,1997
---------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 43,377 $ 14,169 $ --
Interest Receivable 5,808 -- --
--------------- ------------ ------------
TOTAL CURRENT ASSETS 49,185 14,169 --
PROPERTY AND EQUIPMENT, net 6,053 8,091 --
DEPOSITS 4,200 1,740 1,740
--------------- ------------ ------------
TOTAL ASSETS $ 59,438 $ 24,000 $ 1,740
=============== ============ ============
COMMITMENTS
STOCKHOLDERS' EQUITY, including deficit
accumulated during the development stage of
$208,191 $ 59,438 $ 24,000 $ 1,740
=============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
CARDINAL AIRLINES, INC.
(A Development State Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
February 10, 1997 --------------------------------------- February 10, 1997 Fiscal Year February 10, 1997
(Inception) to (Inception) to Ended (Inception) to
March 31, 1999 March 31, 1999 March 31, 1998 June 30, 1998 June 30, 1998 June 30, 1997
------------------- ----------------- -------------------- --------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ -- $ --
EXPENSES
Consulting Fees 85,900 85,900 -- -- -- --
Professional Fees 73,552 71,611 504 1,941 756 1,185
Rent 23,320 9,805 7,150 13,515 11,920 1,595
Supplies 7,838 4,832 2,000 3,006 2,942 64
Utilities 8,561 5,367 1,896 3,194 2,870 324
Depreciation 5,610 3,587 -- 2,023 2,023 --
Miscellaneous 9,168 9,168 -- -- -- --
Taxes 50 -- -- 50 50 --
----------- ----------- ---------- ---------- ----------- ----------
213,999 190,270 11,550 23,729 20,561 3,168
Interest Income 5,808 5,808 -- -- -- --
----------- ----------- ---------- ---------- ----------- ----------
NET (LOSS) $ (208,191) $ (184,462) (11,550) $ (23,729) $ (20,561) $ (3,168)
Provision for Federal
Income Taxes -- -- -- -- -- --
NET (LOSS) $ (208,191) $ (184,462) $ (11,550) $ (23,729) $ (20,561) $ (3,168)
=========== =========== =========== ========== =========== ==========
Net loss per share $ (0.10) $ (0.09) $ (0.01) $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ========== =========== ===========
Shares used in computing
net loss per share 2,031,200 2,031,200 2,031,200 2,031,200 2,031,200 2,031,200
=========== =========== =========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
CARDINAL AIRLINES, INC.
(A Development State Company)
STATEMENT OF STOCKHOLDER'S EQUITY
February 10, 1997 (Inception) to March 31, 1999
<TABLE>
<CAPTION>
Additional
Number Common Preferred Paid-In Accumulated Total Stockholders'
of Shares Stock Stock Capital Deficit Equity
--------- -------- --------- -------- ----------- ------------------
ISSUANCE OF SHARES OF COMMON STOCK:
<S> <C> <C> <C> <C> <C> <C>
March 1, 1997 940,000 $ 9,400 $ -- $ -- $ -- $ 9,400
July 1, 1997 240,000 2,400 -- 117,600 -- 120,000
June 10, 1998 30,000 300 -- 14,700 -- 15,000
August 10, 1998 20,000 200 -- 9,800 -- 10,000
August 20, 1998 10,000 100 -- 4,900 -- 5,000
August 31, 1998 35,400 354 -- 17,346 -- 17,700
September 10, 1998 10,000 100 -- 4,900 -- 5,000
September 30, 1998 16,000 160 -- 7,840 -- 8,000
October 2, 1998 115,000 1,150 -- -- -- 1,150
October 3, 1998 17,000 170 -- 8,330 -- 8,500
October 5, 1998 5,000 50 -- 2,450 -- 2,500
November 5, 1998 90,000 900 -- -- -- 900
November 16, 1998 20,000 200 -- 9,800 -- 10,000
November 28, 1998 20,000 200 -- 9,800 -- 10,000
November 30, 1998 46,000 460 -- 22,540 -- 23,000
December 9, 1998 10,000 100 -- 4,900 -- 5,000
December 10, 1998 70,000 700 -- -- -- 700
December 28, 1998 8,000 80 -- 3,920 -- 4,000
December 29, 1998 10,000 100 -- 4,900 -- 5,000
January 6, 1999 6,000 60 -- 2,940 -- 3,000
January 11, 1999 40,000 400 -- -- -- 400
January 15, 1999 58,000 580 -- 13,720 -- 14,300
January 19, 1999 20,000 200 -- 9,800 -- 10,000
January 28, 1999 20,000 200 -- 9,800 -- 10,000
March 2, 1999 18,800 188 -- 9,212 -- 9,400
March 3, 1999 4,000 40 -- 1,960 -- 2,000
March 5, 1999 40,000 400 -- 19,600 -- 20,000
March 11, 1999 62,000 620 -- 30,380 -- 31,000
March 13, 1999 10,000 100 -- 4,900 -- 5,000
March 17, 1999 30,000 300 -- 14,700 -- 15,000
March 19, 1999 6,000 60 -- 2,940 -- 3,000
March 23, 1999 4,000 40 -- 1,960 -- 2,000
----------
TOTAL ISSUANCE OF SHARES OF
COMMON STOCK: 2,031,200
==========
ISSUANCE OF PREFERRED STOCK:
October 16, 1998-Series A 100,000 -- 1,000 -- -- 1,000
==========
LESS: STOCK SUBSCRIPTIONS (1,199) -- (24,451) -- (25,650)
LESS: NOTES RECEIVABLE-RELATED PARTIES (2,335) (91,336) -- (93,671)
NET (LOSS) -- -- -- (208,191) (208,191)
-------- -------- ---------- ----------- ------------
BALANCE - MARCH 31, 1999 $ 16,778 $ 1,000 $ 249,851 $ (208,191) $ 59,438
========= ======== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CARDINAL AIRLINES, INC.
(A Development State Company)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
February 10,
February 10, 1997 Nine Months Ended February 10, 1997 Fiscal 1997
(Inception) to -------------------------------------- (Inception) to Year Ended (Inception) to
March 31, 1999 March 31, 1999 March 31, 1998 June 30, 1998 June 30, 1998 June 30, 1997
----------------- ----------------- ----------------- ------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash paid for operating
expenses $(208,389) $(186,683) $ (11,550) $ (21,706) $ (18,538) $ (3,168)
--------- --------- ----------- ---------- --------- ----------
NET CASH USED IN OPERATING
ACTIVITIES (208,389) (186,683) (11,550) (21,706) (18,538) --
--------- --------- ----------- ---------- --------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (11,663) (1,549) (6,961) (10,114) (10,114) --
Increase in security deposits (4,200) (2,460) -- (1,740) -- --
--------- --------- --------- ---------- --------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (15,863) (4,009) (6,961) (11,854) (10,114) --
--------- --------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 262,629 214,900 18,511 47,729 42,821 3,168
Issuance of preferred stock 1,000 1,000 -- -- -- --
Cash received from notes
receivable 4,000 4,000 -- -- -- --
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 267,629 219,900 18,511 47,729 42,821 --
--------- --------- --------- ---------- --------- ---------
NET INCREASE IN
CASH 43,377 29,208 -- 14,169 14,169
CASH AT BEGINNING OF PERIOD -- 14,169 -- -- -- --
--------- --------- --------- ---------- --------- ----------
CASH AT END OF PERIOD $ 43,377 $ 43,377 $ -- $ 14,169 $ 14,169 $ --
========= ========= ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CARDINAL AIRLINES, INC.
(A Development State Company)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
February 10,
February 10, 1997 Nine Months Ended February 10, 1997 Fiscal 1997
(Inception) to -------------------------------------- (Inception) to Year Ended (Inception) to
March 31, 1999 March 31, 1999 March 31, 1998 June 30, 1998 June 30, 1998 June 30, 1997
----------------- ----------------- ----------------- ------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO
NET CASH USED IN OPERATING
ACTIVITIES:
Net loss $ (208,191) $ (184,462) $ (11,550) $ (23,729) $ (20,561) $ (3,168)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation 5,610 3,587 -- 2,023 2,023 --
Increase in receivables (5,808) (5,808) -- -- -- --
--------- ------------ ------------ ----------- --------- --------
NET CASH USED IN
OPERATING ACTIVITIES $(208,389) $ (186,683) $ (11,550) $ (21,706) $ (18,538) $ (3,168)
========= ============ ============= =========== ========= ========
SUPPLEMENTAL SCHEDULE OF NON-
CASH FINANCING ACTIVITIES:
Issuance of common stock in
exchange for notes receivable $ 97,671 $ -- $ -- $ 97,671 $ 92,179 $ --
========= ============ ============ ========== ========= ========
Increase in notes receivable
- - related parties in exchange
for preferred stock $ 1,000 $ 1,000 $ -- -- -- --
========= ============ ============ ========== ========= ========
Issuance of stock
subscriptions $ 41,650 $ 41,650 $ -- -- -- --
========= ============ ============ ========== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) NATURE OF OPERATIONS
The planned principal business activity of Cardinal Airlines, Inc.
("Company") is to provide commercial airline service to and from major
airports throughout the eastern United States with operations based in
Melbourne, Florida.
B) INTERIM FINANCIAL INFORMATION
The interim financial information for 1998 and 1999 is unaudited but
includes all adjustments, consisting of normal recurring adjustments,
which the Company considers necessary for a fair presentation of the
financial position at such date and the operating results and cash
flows for those periods.
C) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash and/or cash equivalents.
D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the assets' expected useful lives.
E) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported assets and liabilities.
Actual results could differ from these estimates.
F) INCOME TAXES
Deferred income taxes arise from the expected tax consequence of
temporary differences between the carrying amounts and the tax basis
of certain assets and liabilities. The differences result primarily
from different depreciation methods.
G) ORGANIZATION COSTS
Organization costs consist of expenses related to the start-up of the
Company. These costs are expensed as occurred in accordance with
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5).
H) EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" (SFAS 128) effective February 10, 1997
(Inception). As such, net loss per share is computed using the
weighted average number of common shares outstanding during the
period. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins and Staff Policy, such computations include all
common and equivalent shares issued as if they
F-6
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-cont.
H) EARNINGS PER SHARE-CONT.
were outstanding for all periods presented. Common equivalent shares
consist of the incremental common shares issuable upon the conversion
of the convertible preferred stock (using the if converted method).
The Series A Preferred Stock issued has no preferences other than
voting rights over the common stock and no dividend payment
arrangements. The preferred stock has no effect in arriving at income
available to common shareholders in computing earnings per share.
I) NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 130 establishes
standards for the reporting and presentation of comprehensive income
and its components. SFAS 131 establishes standards for reporting
information about operating segments. The Company is required to adopt
both SFAS 130 and SFAS 131 in fiscal 1999. SFAS 131 has no effect on
the Company's financial statements at the present time.
In March 1998, the American Institute of Certified Public Accountants
AICPA) issued Statement of Position 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1),
which defines the type of costs related to such activities that should
be capitalized versus expensed as incurred. This statement is not
applicable to the Company at the present time.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5), which requires all
costs incurred in the start-up of a new business or business segment
to be expensed as incurred.
In May, 1998, the FASB issued Statement of Financial Accounting
Standards 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" (SFAS 132), which revises employers'
disclosures about pension and other postretirement benefit plans. This
statement is not applicable to the Company at the present time.
In June 1998, the FASB issued Statement of Financial Accounting
Standards 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), which establishes accounting and reporting
standards for derivatives and hedging activities.
F-7
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-cont.
I) NEW ACCOUNTING STANDARDS-CONT.
This pronouncement has no effect on the Company's financial statements
at the present time.
The Company is required to adopt SOP 98-1 and SFAS 133 in fiscal 2000.
The Company has adopted SOP 98-5 effective February 10, 1997
(inception) through March 31, 1999.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company was formed February 10, 1997, and began operations April
1, 1997. Through March 31, 1999, operations have been devoted
primarily to raising capital, negotiating leasing of airplanes,
related equipment, and related facilities as well as the performance
of general administrative functions. As of March 31, 1999, the Company
has 49 Stockholders.
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
March 31, 1999 June 30,1998 June 30,1997
----------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Computers and equipment $ 9,955 $ 9,955 $ --
Furniture and fixtures 159 159 --
Leasehold Improvements 1,549 -- --
----------------- --------------- ---------------
11,663 10,114 --
Less accumulated depreciation (5,610) (2,023) --
----------------- --------------- ---------------
$ 6,053 8,091 $ --
================= =============== ===============
</TABLE>
Depreciation expense was $3,587 for the nine months ended March 31,
1999; $2,023 for the fiscal year ended June 30, 1998; and $0 from
February 10, 1997 (Inception) to June 30, 1997.
F-8
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 4 - RELATED PARTIES
The Company has made loans to four of its stockholders in exchange for
issuance of shares of common stock and preferred stock (NOTE 7). The loans
are unsecured, are due June 30, 2003 and bear interest at 8% annually.
Notes receivable due from related parties were $93,671 as of March 31,
1999, $96,719 as of June 30, 1998, and $4,492 as of June 30, 1997. A
summary of notes receivable is as follows:
Common stock issued during the fiscal
year end June 30, 1998 $ 92,179
Common stock issued from March 1, 1997 to
June 30, 1997 4,492
Preferred stock issued during the nine months
ended March 31, 1999 1,000
Payment of notes receivable during the nine
months ended March 31, 1999 (4,000)
------------
$ 93,671
============
The Notes receivable due from related parties are reported as
a reduction in stockholders' equity.
NOTE 5 - COMMITMENTS & CONTINGENCIES
The Company leases its facilities from an unrelated third party under an
operating lease expiring July, 1999. Rent expense was $9,805 and $23,320
for the nine months ended March 31, 1999 and February 10, 1997 (inception)
to March 31, 1999 respectively.
Future minimum lease payments are as follows:
Fiscal year ending June 30,
1999 $ 4000
2000 1,500
----------
$ 5,500
==========
NOTE 6 - INCOME TAXES
The Company's effective tax rate differs from the expected federal income
tax rate as follows:
F-9
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 6 - INCOME TAXES-cont.
<TABLE>
<CAPTION>
February 10, 1997
Nine Months Ended Fiscal Year Ended (Inception) to
March 31, 1999 June 30, 1998 June 30, 1997
----------------- ------------------ ----------------
(Unaudited)
<S> <C> <C> <C>
Income tax benefit at statutory
rate $ (70,785) $ (8,068) $ (1,077)
Increase in valuation
allowance 70,785 8,068 1,077
--------------- ------------------ ----------------
Actual income taxes $ -- $ -- $ --
=============== ================== ================
</TABLE>
The components of the deferred tax assets and liabilities areas follows:
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998 June 30, 1997
----------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 70,785 $ 8,068 $ 1,077
Total deferred tax assets 70,785 8,068 1,077
Less valuation allowance (70,785) (8,068) (1,077)
Deferred tax assets, net of
valuation allowance -- -- --
Deferred tax liabilities -- -- --
----------------- ------------ ------------
Net deferred tax asset (liability) $ -- $ -- $ --
================= ============ ============
</TABLE>
A summary of the net operating loss carryforwards is as follows:
<TABLE>
<S> <C>
Generated June 30, 1997 $ 3,168 expires June 30, 2012
Generated June 30, 1998 $ 20,561 expires June 30, 2013
Generated March 31, 1999 $ 184,462 expires March 31, 2014
=========
$ 208,191
=========
</TABLE>
As of March 31, 1999, the Company is still in development stage. As
such, all income and deductions for tax purposes are deferred until
the Company's planned principal operations have commenced.
F-10
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 7 - STOCKHOLDERS' EQUITY
A summary of issuance of common stock involving noncash consideration is as
follows:
On March 1, 1997, the Company issued 449,200 shares of stock in
consideration for notes receivable due from related parties (NOTE 4)
of $4,492. The shares were sold at $.01 par value per share.
On July 1, 1997, the Company issued 184,358 shares of stock in
consideration for notes receivable due from related parties (NOTE 4)
of $92,179. The shares were sold at $.01 par value per share, with
$.50 per share consideration.
During the nine months ended March 31, 1999, the Company issued
83,300 shares of stock in consideration for stock subscriptions of
$41,650. The shares were sold at $.01 par value per share, with $.50
per share consideration.
As of June 30, 1997, the Company's common stock had a par value $.01 per
share with 50,000,000 shares authorized and 940,000 shares issued and
outstanding.
As of June 30, 1998, the Company's common stock had a par value $.01 per
share with 50,000,000 shares authorized and 1,210,000 shares issued and
outstanding.
As of March 31, 1999, the Company's common stock had a par value $.01 per
share with 50,000,000 shares authorized and 2,031,200 shares issued and
outstanding.
A summary of issuance of preferred stock involving noncash consideration is
as follows:
On October 16, 1998, the Company issued 100,000 shares of $.01 par
value "Series A" preferred stock in consideration for notes receivable
due from related parties (NOTE 4) of $1,000.
As of March 31, 1999, the Company's preferred stock had a par value
$.01 per share with 1,000,000 shares authorized. There are 100,000
shares issued and outstanding as "Series A" preferred stock. The
900,000 unissued shares have not been designated.
The shares of "Series A" preferred stock have super voting rights at
the multiple of 100 votes per share. In the event of liquidation, the
preferred stock has preference over the common stock. The shares are
not convertible to common stock and do not have any other rights or
preferences.
F-11
<PAGE>
No dealer, salesman or any other person has been authorized by Cardinal to
give any information or to make any representations other than those contained
in this prospectus in connection with the offering made hereby, and if given or
made, such information or representations may not be relied upon. The prospectus
does not constitute an offer to sell or the solicitation of an offer to buy any
securities other than those specifically offered hereby or an offer to sell.
Nor does it constitute a solicitation of an offer to buy, to any person in any
jurisdiction in which such offer or sale would be unlawful. Neither the delivery
of this prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of Cardinal
since any of the dates as of which information is furnished or since the date
of this prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary 1
Risk Factors 3
Use of Proceeds 8 2,000,000 Units
Dilution 10
Dividend Policy 11
Capitalization 12 CARDINAL AIRLINES, INC.
Special Note Regarding INC.
Forward-Looking Statements 13
Management's Discussion And
Analysis or Plan of Operation 13 Common Stock
Business 15 Warrants
Available Information 23
Management 24
Certain Transactions 30
Principal Shareholders 31
Description of Securities 34 PROSPECTUS
Securities Eligible For Future Sale 36
Plan of Distribution 37
Legal Matters 37
Experts 38
Unit Purchase Agreement 39 June _________, 1999
Financial Statements F-1
Until ___________, 1999 (90 days after the date of this prospectus) all dealers
effecting transactions in the registered securities, whether or nor
participating in this distribution, may be required to deliver a prospectus.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The fees and expenses to be paid by Cardinal in connection with this
offering are as follows:
SEC filing fee ...................................................$10,619
NASD filing .........................................................4,000
Blue Sky qualification fees and expenses* .........................10,000
Accounting fees and expenses* .....................................30,000
Legal fees and expenses* ..........................................40,000
Transfer Agent and Registrar Fees* .................................5,000
Printing Costs* ...................................................20,000
Miscellaneous* ....................................................10,381
Total ...........................................................$130,000
- ----------------------------
* Estimated
Item 14. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation provide that directors of the
Registrant will not be personally liable for monetary damages to the Registrant
for certain breaches of their fiduciary duty as directors to the fullest extent
allowable by Delaware law. Under current Delaware law, directors would remain
liable for: (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law, and (ii) approval of certain illegal dividends or
redemption's. In appropriate circumstances, equitable remedies or non-monetary
relief, such as an injunction, will remain available to a stockholder seeking
redress from any such violation. In addition, the provision applies only to
claims against a director arising out of his role as a director and not in any
other capacity (such as an officer or employee of the Registrant).
The Registrant also has the obligation, pursuant to the Registrant's
By-laws, to indemnify any director or officer of the Registrant for all expenses
incurred by them in conjunction with any legal action brought or threatened
against such person for or on account of any action or omission alleged to have
been committed while acting in the course and scope of the person's duties, if
the person acted in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interests of the Registrant, and
with respect to criminal actions, had no reasonable cause to believe the
person's conduct was unlawful, provided that such indemnification is made
pursuant to then existing provisions of Delaware General Corporation Law at the
time of any such indemnification.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Since its inception, Cardinal has made the following sales of unregistered
securities:
<TABLE>
<CAPTION>
Shareholder Name
Date (Name on Subscription
Type of Stock Purchased Agreement) Shares Owned Consideration
- ------------- ---------- --------------------- ------------ -------------
<S> <C> <C> <C> <C>
Common 03/11/99 Aragona, Joseph 10,000 $ 0.50/share
Common 11/16/98 Beauchesne, Alfred M. 20,000 $ 0.50/share
Common 06/10/98 Berkley, Thomas S. 30,000 $ 0.50/share
Common 01/15/99 Braun, Laura 10,000 $ 0.50/share
Common 01/19/99 Cicione, Denise 4,000 $ 0.50/share
Common 01/28/99 Cominsky, Bill 10,000 $ 0.50/share
Common 03/11/99 Cooper, Lan Vo 10,000 $ 0.50/share
Common 10/05/98 Couch, Eugene J. Jr. 5,000 $ 0.50/share
Common 01/15/99 Cunningham, Dennis M. 30,000 $ 0.01/share
Common 03/05/99 Davidson, Philip 40,000 $ 0.50/share
Common 12/28/98 Ellis, Marie D. 8,000 $ 0.50/share
Common 03/17/99 Falvo, Nicholas S. 10,000 $ 0.50/share
Common 01/11/99 Freeman, Jack H. 40,000 $ 0.01/share
Common 12/10/98 Glover, Karen D. 30,000 $ 0.01/share
Common 03/17/99 Gold, Corey B. 10,000 $ 0.50/share
Common 03/11/99 Goodman, Herbert J. 32,000 $ 0.50/share
Common 03/02/99 Greenwood, Bruce D. 14,000 $ 0.50/share
Common 09/30/98 Greenwood, Bruce D. 16,000 $ 0.50/share
Common 01/15/99 Icolari, Vincent 18,000 $ 0.50/share
Common 01/19/99 INDEGO (trust managed 16,000 $ 0.50/share
by Litton Walker)
Common 08/10/98 INDEGO (trust managed 20,000 $ 0.50/share
by Litton Walker)
Common 03/23/99 Jones, Susan 4,000 $ 0.50/share
Common 03/11/99 Judeman, Charles W. 10,000 $ 0.50/share
Common 03/02/99 Kee, Terry L. 4,800 $ 0.50/share
Common 08/31/98 Kee, Terry L. 15,400 $ 0.50/share
Common 03/13/99 Killeen, Alma L. 10,000 $ 0.50/share
Common 01/28/99 Lingsch, Edwin F. 10,000 $ 0.50/share
Common 11/05/98 Linsley, David A. 40,000 $ 0.01/share
Common 03/17/99 Maslanka, Mark R. 10,000 $ 0.50/share
Common 07/01/97 Mason, H. Lawrence 60,000 $ 0.50/share
Common 03/01/97 Mason, H. Lawrence 220,000 $ 0.01/share
Common 11/28/98 Mason, L. Dianne 20,000 $ 0.50/share
Common 01/06/99 Mulholland, Arleen C. 6,000 $ 0.50/share
Common 08/20/98 Newbold, Darin K. 10,000 $ 0.50/share
Common 10/02/98 Newbold, Ronald J. 50,000 $ 0.01/share
Common 07/01/97 Paris, Vincent T. 60,000 $ 0.50/share
Common 03/01/97 Paris, Vincent T. 220,000 $ 0.01/share
Common 12/10/98 Pertschi, John J. 40,000 $ 0.01/share
Common 03/01/97 Rackley, William R. Jr 50,000 $ 0.01/share
Common 08/31/98 Riles, Dennis 20,000 $ 0.50/share
Common 10/02/98 Ryff, John J. Jr. 50,000 $ 0.01/share
Common 11/30/98 Serrao, Michael A. 26,000 $ 0.50/share
Common 03/03/99 Shore, Benjamin D. 4,000 $ 0.50/share
Common 09/10/98 Shores, Derrick V. 10,000 $ 0.50/share
Common 11/30/98 Simoncelli, Raymond A. 20,000 $ 0.50/share
Common 03/01/97 TAWCOT (trust managed 220,000 $ 0.01/share
by Ted Walker)
Common 07/01/97 TAWCOT (trust managed 60,000 $ 0.50/share
by Ted Walker)
Common 12/29/98 Vandervelde, Todd 10,000 $ 0.50/share
Common 11/05/98 Vandervelde, Tom 50,000 $ 0.01/share
Common 03/19/99 Waters, Charles K. 6,000 $ 0.50/share
Common 10/02/98 Waters, Charles K. 15,000 $ 0.01/share
Common 10/03/98 Waters, Christine A. 17,000 $ 0.50/share
Common 07/01/97 Watson, Lawrence A. 60,000 $ 0.50/share
Common 03/01/97 Watson, Lawrence A. 230,000 $ 0.01/share
Common 12/09/98 Wheeler, James 10,000 $ 0.50/share
Series A Pref 10/16/98 Mason, H. Lawrence 25,000 0.01
Series A Pref 10/16/98 Paris, Vincent T. 25,000 0.01
Series A Pref 10/16/98 Walker, Ted A. 25,000 0.01
Series A Pref 10/16/98 Watson, Lawrence A. 25,000 0.01
</TABLE>
All issuances of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 as transactions by an issuer not involving public offering. In each
instance, the purchaser was either a founder of Cardinal or other company
insider as a result of his relationship with Cardinal, the offers and sales
were made without any public solicitation, the stock certificates bear
restrictive legends and appropriate stop transfer instructions have been or will
be given to the transfer agent. No underwriter was involved in the transactions
and no commissions were paid.
<PAGE>
Exhibit
Number Description
* 3.1 Restated Articles to the Certificate of Incorporation
* 3.2 Bylaws of Registrant, as amended and restated
* 4.1 Form of Registrant's Common Stock Certificate
* 4.2 Form of Warrant to Purchase Common Stock
* 4.3 Warrant Resolution
5.1 Opinion of Bruce Brashear, Esq. regarding legality
*10.1 Employment Agreement dated July 1, 1998, between Registrant and
Lawrence A. Watson.
*10.2 Employment Agreement dated July 1, 1998, between Registrant and H.
Lawrence Mason
*10.3 Employment Agreement dated July 1, 1998, between Registrant and
Vincent T. Paris
*10.4 Employment Agreement dated October 2, 1998, between Registrant and
John Ryff
*10.5 Employment Agreement dated October 2, 1998, between Registrant and
Ronald Newbold
*10.6 Employment Agreement dated July 1, 1998, between Registrant and
Ted A. Walker
*10.7 Employment Agreement dated December 10, 1998, between Registrant and
Karen D. Glover
*10.8 Employment Agreement dated November 5, 1998, between Registrant
and David A. Linsley
*10.9 Employment Agreement dated December 10, 1998, between Registrant and
John J. Pertschi
*10.10 Employment Agreement dated November 5, 1998, between Registrant and
Thomas L. Vandervelde
**10.11 Promissory Note dated July 1, 1997 between Registrant and H.
Lawrence Mason
**10.12 Promissory Note dated July 1, 1997 between Registrant and Vincent T.
Paris
**10.13 Promissory Note dated July 1, 1997 between Registrant and Ted A.
Walker
**10.14 Promissory Note dated July 1, 1997 between Registrant and Lawrence A.
Watson
*10.15 Consulting Contract dated December 10, 1998 between Registrant and
Maviation, Inc.
**10.16 Employment Agreement dated January 11, 1999, between Registrant
and Jack H. Freeman
**10.17 Employment Agreement dated January 15, 1999 between Registrant and
Dennis M. Cunningham
**11.1 Statement regarding computation of earnings per share
24.1 Consent of Independent Accountants
24.2 Consent of Bruce Brashear, Esq. (included in Exhibit 5.1)
25. Power of Attorney (included with the signature page to the
registration statement)
*27. Financial Data Schedule
* Previously filed with Form S-1 on January 11, 1999.
** Previously filed with Form S-1/A on April 9, 1999.
Item 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant, Cardinal, pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
had been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The Registrant hereby undertakes that for purposes of determining
any liability under the Securities Act, (i) the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective,
and (ii) each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) (To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Form S-1 Amendment No. 2 and authorized
this registration statement to be signed on its behalf by the undersigned, in
the City of Melbourne, State of Florida, on the 1st day of June, 1999.
CARDINAL AIRLINES, INC.
By:___/s/_________________________________
Lawrence A. Watson
President
Chief Executive Officer
Chairman of the Board
By:__/s/__________________________________
H. Lawrence Mason
Chief Financial Officer
Chief Accounting Officer
Vice President of Finance
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints , Lawrence A. Watson his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities (including his capacity
as a director and/or officer of Cardinal Airlines, Inc.) to sign any or all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities on the 1st of June, 1999.
SIGNATURE TITLE
___/s/__________________________ President, Chief Executive Officer,
Lawrence A. Watson Chairman of the Board, and Director
__/s/____________________________ Vice President of Finance,
H. Lawrence Mason Secretary, Treasurer, and Director
__/s/_____________________________ Director
Vincent T. Paris
__/s/_____________________________ Director
Ted A. Walker
__/s/_____________________________
Lawrence A. Watson, Attorney in Fact
June 3, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Amendment No. 2 to Registration Statement on Form S-1
Cardinal Airlines, Inc.
Gentlemen:
This firm has acted as counsel for Cardinal Airlines, Inc. (the
"Company")in connection with the proposed public offering by the Company of one
million nine hundred thousand(1,900,000) Units, and of one hundred thousand
(100,000) Units by certain shareholders, each Unit being comprised of one (1)
share of Common Stock (par value $.01) (the "Common Shares") and one (1) Warrant
to purchase one (1) share of Common Stock (the "Units"). The shares of voting
common stock issuable upon the exercise of the warrants are referred to herein
as the "Underlying Shares." In connection with the proposed public offering and
above-described registration statement, we have reviewed the following:
1. The Certificate of Incorporation and amendments thereto of the Company;
2. The By-Laws and amendments thereto of the Company;
3. The minute books of the Company; and
On the basis of such investigation and the examination of such other records as
we deemed necessary, we are of the opinion that:
a) the Company has been duly incorporated and is validly existing under
the laws of the State of Delaware;
b) the 2,000,000 Units have been duly and validly authorized;
c) the 2,000,000 Common Shares have been duly and validly authorized and, when
certificates therefor have been duly authenticated, delivered and paid for in
accordance with all applicable laws and agreements, will be duly and validly
issued, fully paid and nonassessable; and
d) the 2,000,000 Underlying Shares have been duly and validly authorized and,
(i) assuming the Underlying Shares will be duly and validly authorized as of the
date of issuance and (ii) when certificates therefor have been duly
authenticated, delivered and the Underlying Shares have been paid for in
accordance with all applicable laws and the Warrant Resolution, the Underlying
Shares will be duly and validly issued, fully paid and nonassessable.
4. The 2,000,000 Warrants have been duly and validly authorized and, when the
Warrants have been duly authenticated, delivered and paid for in accordance with
all applicable laws and the Warrant Resolution, the Warrants will be valid and
binding obligations of the Company enforceable against the Company, except that
such enforcement may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
We consent to the use of our name under the caption "Legal Matters" in
the Registration Statement, and to the filing of this opinion as an exhibit to
the Registration Statement. By giving you this opinion and consent, we do not
admit that we are experts with respect to any part of the Registration Statement
within the meaning of the term "expert" as used in Section 11 of the 1933 Act,
or the rules and regulations promulgated thereunder, nor do we admit that we are
in the category of persons whose consent is required under Section 7 of the 1933
Act.
Sincerely,
BRASHEAR & ASSOCIATES, P.L.
/s/ Bruce Brashear
Bruce Brashear, Esq.
CONSENT OF ACCOUNTANT
We consent to the use of our Audit of the balance sheet of Cardinal
Airlines, Inc. (A Delaware Company in the Development Stage) as of
June 30, 1998, and June 30, 1997, the related statements of operations
and cash flows for the nine months ended March 31, 1998, from February 10,
1997 (inception) to March 31, 1998, for the fiscal year ended June 30,
1998, from February 10, 1997 (Inception) to June 30, 1998 as well as
February 10, 1997 (Inception) to June 30, 1997 and the statements of
stockholder's equity from February 10, 1997 (Inception) to June 30, 1998
dated February 15, 1999 and the unaudited financial statements from
December 31, 1998 through March 31, 1999 to be included in this registration
statement.
/s/ Rosenfield & Company, P.A.
Rosenfield & Company, P.A.
June 1, 1999
