U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 333-70437
Cardinal Airlines, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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Delaware 59-3492127
(State of incorporation) (I.R.S. Employer Identification No.)
1380 Sarno Road, Suite B
Melbourne, FL 32935
(Address of principal executive offices)
Registrant's telephone number: 407-757-7388
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Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of November 12, 1999 was 2,033,900.
===============================================================================
<PAGE>
2
Cardinal Airlines, Inc.
Index to Form 10QSB
Part I - Financial Information Page
----
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet - September 30, 1999...............................2
Condensed Statements of Operations - Three Months
and Six Months Ended September 30, 1999 and 1998
and for the period February 10, 1997 (Date of
Inception) through September 30, 1999......................................3
Condensed Statements of Cash Flows - Six Months Ended
September 30, 1999 and 1998 and for the period
February 10, 1997 (Date of Inception) through September 30, 1999...........5
Notes to Condensed Financial Statements....................................6
Item 2. Management's Discussion and Analysis or Plan of Operations...........8
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds...........................15
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 5. Other Information...................................................16
Item 6. Exhibits and Reports on Form 8-K....................................16
Signatures...................................................................17
Exhibit Index................................................................17
<PAGE>
3
Part I Financial Information
Item 1. Financial Statements
CARDINAL AIRLINES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
For the three months ended
September 30
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,034 $ 14,169
Interest Receivable 10,096 2,220
------------- --------------
TOTAL CURRENT ASSETS 11,130 16,389
PROPERTY AND EQUIPMENT, net 7,078 9,133
DEPOSITS 4,200 3,640
------------- --------------
TOTAL ASSETS $ 22,408 $ 29,337
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 60,881 $ -
Due to related parties 24,840 -
------------- --------------
TOTAL LIABILITIES $ 85,721 -
COMMITMENTS
Note Payable $ 5,000 $ -
------------- --------------
TOTAL LIABILITIES AND COMMITMENTS $ 90,721 $ -
============= ==============
TOTAL STOCKHOLDERS' EQUITY, (DEFICIT)
including deficit accumulated during the
development stage of $333,705 (68,313) 29,337
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 22,408 $ 29,337
============= ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 1 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 10, 1997 FOR THE THREE MONTHS ENDED
(INCEPTION) TO SEPTEMBER 30
SEPTEMBER 30, 1999 1999 1998
<S> <C> <C> <C>
-------------- ---------------- ------------------
REVENUES $ - $ - $ -
-------------- ---------------- ------------------
EXPENSES
Consulting Fees 190,269 36,484 19,700
Professional Fees 156,237 34,351 12,380
Rent 32,595 4,770 2,310
Supplies 20,098 5,185 810
Utilities 13,831 2,053 1,433
Depreciation and amortization 4,578 513 508
Miscellaneous 10,105 2,206 894
Taxes 241 - -
-------------- ---------------- -----------------
427,963 85,562 38,035
OTHER INCOME
Interest Income 10,096 1,350 2,220
-------------- ---------------- -----------------
NET (LOSS) before provision for
income taxes $ (417,867) $ (84,212) $ (35,815)
Provision for Income Taxes - - -
-------------- ---------------- -----------------
NET (LOSS) $ (417,867) $ (84,212) $ (35,815)
============== ================ =================
Net loss per share $ (0.21) $ (0.04) $ (0.03)
============== ================ =================
Shares used in computing net
loss per share 2,033,900 2,033,900 1,301,400
============== ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FEBRUARY 10, 1997 FOR THE THREE MONTHS ENDED
(INCEPTION) TO SEPTEMBER 30
SEPTEMBER 30, 1999 1999 1998
-------------------- ----------------- ----------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Cash paid for operating expenses $ (417,867) $ (84,212) $ (35,815)
--------------- --------------- ----------------
NET CASH USED IN OPERATING
ACTIVITIES: (417,867) (84,212) (35,815)
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (11,664) - (1,042)
Increase in security deposits (4,200) - (1,900)
--------------- --------------- ----------------
NET CASH USED IN INVESTING
ACTIVITIES (15,864) - (2,942)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 314,539 27,000 45,700
Increase in notes receivable -
related parties 54,115 762 7,401
Payments on notes receivable -
related parties 61,111 47,111 -
Promissory note payable -
Related parties 5,000 5,000 -
--------------- --------------- ----------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 434,765 79,873 53,101
--------------- --------------- ----------------
NET INCREASE (DECREASE) IN CASH 1,034 (4,339) 14,344
CASH AT BEGINNING OF PERIOD - 5,373 -
--------------- --------------- ----------------
CASH AT END OF PERIOD $ 1,034 $ 1,034 $ 14,344
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FEBRUARY 10, 1997 FOR THE THREE MONTHS ENDED
(INCEPTION) TO SEPTEMBER 30
SEPTEMBER 30, 1999 1999 1998
-------------------- ----------------- -----------------
RECONCILIATION OF NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (417,867) $ (84,212) $ (35,815)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 4,587 513 508
Increase in receivables (10,096) (1,350) -
Increase in accounts payable 60,881 9,879 -
Increase in due to related parties 24,840 (6,144) -
--------------- --------------- ----------------
NET CASH USED IN
OPERATING ACTIVITIES $ (337,655) $ (81,314) $ (35,307)
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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) 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.
C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation computed
using the straight-line method over the assets' expected useful
lives. Leasehold improvements are amortized over the lessor of the
term of the lease or the assets' expected useful lives.
D) 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.
E) 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 on property and
equipment.
F) ORGANIZATION COSTS
Organization costs consist of expenses related to the start-up of
the Company. These costs are expensed as incurred in accordance
with Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5).
- 5 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT.
G) 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 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.
H) NEW ACCOUNTING STANDARDS
There have been no new significant accounting pronouncements
issued for the three month period ended Sept 30, 1999 that would
have a direct material effect on the financial statements, except
for Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5) which is addressed in NOTE 1F.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company was formed February 10, 1997, and began operations
April 1, 1997. Through September 30, 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
September 30, 1999, the Company has Sixty-Two Stockholders.
- 6 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Feburary 10, 1997
(inception) to
September 30, 1999 September 30,1998
--------------- ---------------
<S> <C> <C>
Computers and equipment $ 9,955 $ 9,955
Furniture and fixtures 159 159
Leasehold Improvements 1,550 1,550
--------------- ---------------
11,664 11,664
Less accumulated depreciation
and amortization (4,586) (2,531)
--------------- ---------------
$ 7,078 $ 9,133
=============== ===============
</TABLE>
Depreciation and amortization expense was $513 for the three month
period ended Sept 30, 1999; and $2,531 for the period from
February 10, 1997 (Inception) to September 30, 1998.
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). As of June 30, 1999, these four stockholders own 56% of the
outstanding common shares of stock.
The loans are unsecured, are due June 30, 2003 and bear interest
at 8% annually. Notes receivable due from related parties were
$109,321 as of June 30, 1999, and $96,671 as of June 30, 1998. A
summary of Notes receivable due from related parties is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Common stock issued during the year ended June 30, 1998 $ 92,179
Common stock issued from March 1, 1997 to June 30, 1997 4,492
Preferred stock issued during the year ended June 30, 1999 1,000
Conversion of stock subscriptions to notes receivable
during the year ended June 30, 1999 (NOTE 7) 25,650
Repayment of notes receivable through Sept 30, 1999 (61,111)
--------------
$ 62,210
==============
</TABLE>
- 7 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 4 - RELATED PARTIES CONT.
The Notes receivable due from related parties are reported as a
reduction in stockholders' equity (deficit).
In addition, as of September 30, 1999, the Company had accrued
$24,840 in consulting fees payable to stockholders of the Company
for management and professional services rendered.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company leases its facilities from an unrelated third party
under an operating lease expiring July, 2000. Rent expense was
$4,770 and $2,310 for the three month period ended September 30,
1999 and 1998 respectively.
Future minimum lease payments are as follows:
Year ending June 30,
2000 $ 19,080
2001 1,590
-----
$ 20,670
During the period January through March, 1999, the company issued
shares of stock to raise capital to fund its operations. The
sales may be in violation of Section 5 of the Securities Act of
1933 and accordingly, those who purchased may have the right to
rescind their shares. The potential liability to the company is
$253,100 plus interst.
NOTE 6 - INCOME TAXES
The Company's effective tax rate differs from the expected federal
income tax rate as follows:
Year Ended Year Ended
June 30, 1999 June 30, 1998
---------------- ----------------
Income tax benefit at statutory Rate $ (113,460) $ (8,068)
Increase in valuation Allowance 113,460 8,068
---------------- ----------------
Actual income taxes $ - $ -
================ ================
- 8 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 6 - INCOME TAXES CONT.
The components of the deferred tax assets and liabilities are as
follows:
June 30, 1999 June 30, 1998
---------------- ----------------
Deferred tax assets:
Net operating loss carryforwards $ 113,460 $ 8,068
---------------- ----------------
Total deferred tax assets 113,460 8,068
Less valuation allowance (113,460) (8,068)
Deferred tax assets, net of
valuation allowance - -
Deferred tax liabilities - -
---------------- ----------------
Net deferred tax asset (liability) $ - $ -
================ ================
A summary of the net operating loss carryforwards is as follows:
Generated June 30, 1997 $ 3,168 Expires June 30, 2012
Generated June 30, 1998 20,561 Expires June 30, 2013
Generated June 30, 1999 309,976 Expires June 30, 2014
------------------------------
$333,705
As of September 30, 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.
NOTE 7 - STOCKHOLDERS' EQUITY
A summary of issuance of common stock involving non-cash
consideration is as follows:
On April 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.
- 9 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 7 - STOCKHOLDERS' EQUITY CONT.
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.
Through Sept 30, 1999, $14,000 was received in payment of
these notes (NOTE 4).
During the year ended June 30,1999, 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. These
subscriptions were converted to a note receivable (NOTE 4).
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 Sept 30, 1998, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 1,301,400
shares issued and outstanding.
As of Sept 30, 1999, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 2,033,900
shares issued and outstanding.
A summary of issuance of preferred stock involving non-cash
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 Sept 30, 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 into common stock and do not
have any other rights or preferences.
- 10 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 8 - OFFERING
On July 21, 1999, the Company issued its initial S-1 filing with
the Securities and Exchanges Commission. This is an initial public
offering of 2,000,000 shares of common stock for $10 per share.
- 11 -
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
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 one
month after 600,000 units are sold. From inception through
September 30, 1999, we have sustained cumulative losses of $427,963
of which $190,269 was for consulting fees, $156,237 was for
professional fees, $32,595 for rent, $20,098 for supplies, $13,831
for utilities, $4,587 in depreciation, $10,105 for miscellaneous
expenses, and $241 in taxes. For the three months ended September
30, 1999, we sustained a cumulative loss of $84,212 of which
$36,484 was for consulting fees, $34,351 was for professional fees,
$4,770 for rent, $5,185 for supplies, $2,053 for utilities, $513 in
depreciation, $2,206 for miscellaneous expenses, and $0 in taxes.
These losses have 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.
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-
Cardinal Has Not Begun Operations And There Is No Guarantee We Will
Ever Operate As An Airline" 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
12
<PAGE>
analysts, if any, and investors. In such event, the prevailing
market price, if any, of the common stock would likely be
materially adversely affected.
Cardinal entered into negotiations with Capstone Partners, Inc.,
for selling agent and investment banking services. Cardinal has
signed an agreement with Capstone which will provide for the
formation of a selling group and will solicite subscriptions on a
best efforts bases. Under that Agreement, Capstone shall receive 10%
compensation equal to 10% commissions on sales.
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. Our approximate monthly expenditures during this
interim development period are approximately $17,000 per month.
Without additional funding, Cardinal 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 its public
offering. The bulk of FAA certification expenses will be incurred
when sufficient funds are available.
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:
o the successful commercialization of planned flights
o obtaining sufficient funding to acquire aircraft and equipment
o fuel price and availability
o hiring qualified personnel
o keeping pace with government regulation
o obtaining adequate insurance
o the development of contractual agreements with airports
o the use of airport service providers
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.
At such time as Cardinal sells 600,000 units, the proceeds of the
offering would be used to commence operations by purchasing one MD
80 Aircraft. $540,000 would be used for aircraft deposit. Over a
period of three to nine months from the date of commencement,
$1,037,902 would be used to staff operations at both Melbourne
International Airport and Baltimore Washington International
Airport. Approximately $1,140,459 would be used to finance flight
operations beginning in the fifth month of operations. Fuel and
maintenance expense totaling approximately $846,204 for the six
month period would begin in the fifth month of operations. Beginning
in the third month of operations, Cardinal would expend a total of
$702,417 for advertising and initial promotions. During this period,
Cardinal anticipates expending approximately $659,018 on general and
administrative expenses, $50,000 for computer leases and software
and $24,000 for key man insurance. FAA and DOT certification
expenses are expected to be approximately $350,000 during the period
of three to six months following commencement of operations.
In the event our plans change or our assumptions change or prove to
be inaccurate or the proceeds of our public 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 our public 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
13
<PAGE>
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 our public
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.
If less than 600,000 units are sold, as an alternative until we are
able to receive our own certificate, Cardinal could contract its
flight services to another company which holds a FAA Operators
Certificate. If this occurs, Cardinal may be required to make
certain deposits and bonds and would contract actual flight
operations. The usual cost per aircraft operating hour is $3,000 to
$5,000. Assuming average operating hours of 240 per month, the
estimated monthly cost of using contracted flight services would
range from approximately $720,000 to $ 1,200,000 per month. Costs
vary widely depending on operating requirements, including the time
of day and time of year. Contract flight service fees typically
include flight crew, fuel, insurance and maintenance. This option
could be accomplished with substantially fewer capital resources
than required to begin independent flight operations with our own
operating certificate.
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.
If all computer systems and imbedded computers on which we relied
failed as a result of the Year 2000, the Company would be forced to
cancel flights. In order to avoid this, 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 Washington 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 complied with the FAA's Year 2000 5-Phase
Repair Approach. The 5 phases are:
1 Awareness
2 Assessment
3 Renovation
4 Validation
5 Implementation
14
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles and By-Laws None
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(11)* Statement re: Computation of Per Share Earnings Note 1(G)
to Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
- ----------
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CARDINAL AIRLINES, INC.
SIGNATURE TITLE DATE
/S/ Lawrence A. Watson
_________________________ President, Chairman of the Board November 12, 1999
LAWRENCE A. WATSON Chief Executive Officer
/S/ H. Lawrence Mason
________________________ Secretary Treasurer, November 12, 1999
H. LAWRENCE MASON Chief Financial Officer
Exhibit Index
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3.5) Articles and By-Laws
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(11)* Statement re: Computation of Per Share Earnings Note 1(G)
to Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(23) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Financial
Statements for the three (3) months ended September 30, 1999, and is qualified
in its entirety by reference to such form 10-QSB for quarterly period ended
September 30, 1999.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Sep-30-1999
<CASH> 1,034
<SECURITIES> 0
<RECEIVABLES> 10,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,130
<PP&E> 7,078
<DEPRECIATION> 4,587
<TOTAL-ASSETS> 22,408
<CURRENT-LIABILITIES> 85,721
<BONDS> 5,000
<COMMON> 18,153
0
1,000
<OTHER-SE> (68,313)
<TOTAL-LIABILITY-AND-EQUITY> 22,408
<SALES> 0
<TOTAL-REVENUES> 1,350
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 85,562
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,350
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,212)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.21)
</TABLE>
