U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)
For the fiscal year ended June 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)
For the transition period from _________ to _________
Commission file number 333-70437
CARDINAL AIRLINES, INC.
(Name of small business issuer in its charter)
Delaware 59-3492127
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Sarno Road, Suite B, Melbourne, FL 32935
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 321-757-7388
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock
(Title of Class)
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. X Yes No.
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB (X)
State issuer's revenues for its most recent fiscal year: $-0.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference at the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: Not applicable in that the common shares are not presently traded.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 2,189,900 shares of Common Stock
as of June 30, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check One): Yes No X
<PAGE>
PART I
Item 1. Description of 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, 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 frequencies
to coordinate service with connecting flights to and from the hub to other
destinations and hubs. This system allows airlines to:
o serve more destinations,
o capture a greater share of the passenger market, and
o 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.
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.
<PAGE>
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 headquartered 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 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. The system will cost between $400,000 and $500,000. 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.
<PAGE>
Cardinal will outsource services where it is more cost effective or productive.
These services may include:
o baggage handling,
o ground handling,
o certain aircraft maintenance and,
o specialized personnel training.
Outsourcing these services is common practice in the airline industry and is
usually cost effective. However, we will be d ependent on these contractors'
performance.
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:
o Kennedy Space Center,
o Port Canaveral,
o Beaches, and
o 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:
o newspaper and magazine advertisements,
o radio advertisements during the morning and
o afternoon commuter rush hours, and
o billboards on prominent highways in potential market areas.
Additionally, by direct contact and promotions, Cardinal will nurture a
preferred airline relationship with:
o area businesses,
o clubs, and
o 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.
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.
<PAGE>
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 short-term lease a substitute aircraft
during this time. Such short term leasing is a standard industry practice.
Such aircraft are generally available however, short-term lease rates may be
slightly higher than the standard range from $3,000 to $5,000 per aircraft
operating hour. See "Risk Factor- Our Airline Services May be Affected By the
Limited Number of Available 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 $500,000,000 in liability insurance. This amount
surpasses the minimum industry requirements and covers public liability,
passenger liability, baggage and cargo liability, property damage, including
coverage for loss and damage to its flight equipment and worker's
compensation 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, anyone 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.
<PAGE>
Federal Statute defines a "citizen of the United States" as:
o an individual who is a citizen of the United States;
o a partnership each of whose partners is an individual
o who is a citizen of the United States; or
o 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:
o information on Cardinal's then current operations,
o a summary of how its operations have changed during the year,
o a discussion of any changes it anticipates during its second year of
o operations,
o its second year current financial statements, and
o information on whether Cardinal had undergone any changes
o in ownership or management.
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.
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 31, 2001. 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.
<PAGE>
Employees
In 1999 the Company employed 4 persons on a full time basis. None of the
Company's employees belong to a union. The Company believes relations with its
employees are good.
Item 2. Description of Properties.
None
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Holders
As of October 10, 2000, the number of holders of record of shares of common
stock was approximately 62. No market presently exists from the common stock of
the Company.
Dividend Policy
The Company does not anticipate paying any cash dividends on its common
stock in the foreseeable future because it intends to retain its earnings to
finance the expansion of its business. Thereafter, declaration of dividends will
be determined by the Board of Directors in light of conditions then existing,
including without limitation the Company's financial condition, capital
requirements and business condition.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 it receives financing of at least
$5,350,000. From inception through June 30, 2000, we have sustained cumulative
losses of $454,713 of which $181,535 was for consulting fees, $178,940 was for
professional fees, $46,905 for rent, $21,422 for supplies, $20,887 for
utilities, $6,128 in depreciation, $10,208 for miscellaneous expenses, and $558
in taxes. For the fiscal year ended June 30, 2000, we sustained a cumulative
loss of $121,008 of which $27,750 was for consulting fees, $57,054 was for
professional fees, 19,080 for rent, $6,509 for supplies, $9,109 for utilities,
$2,054 in depreciation, $2,309 for miscellaneous expenses, and $267 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. 8,700 Units of the public offering
were sold for $87,000.00. The public offering terminated July 21, 2000.
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. Upon receiving adequate funding, 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.
<PAGE>
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.
Cardinal entered into an agreement with a vendor to assist in the
submission of two Environmental Worksheets per requirements of the Federal
Aviation Authority Southern Region for the purpose of developing an air route
between Melbourne International Airport and Baltimore/Washington International
Airport.
Liquidity and Capital Resources
Until such time that Cardinal receives adequate funding, 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 January, 2001.
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 has delayed 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. 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 obtains financing, 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.
We require significant additional funding to begin operation. 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 within the next
six months, we may be required to delay for up to a year or more, scale back, or
eliminate certain aspects of our operations. If adequate additional funds are
not available, aircraft other than MD-80 may need to be used, and may need to be
leased rather than purchased, in which case 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.
<PAGE>
If the Company is unable to obtain $5,450,000 in funding, 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
When used in this report, the words "believes," expects," "anticipates" and
similar expressions are intended to identify forward-looking statements.
Statements herein regarding sales and research performance, expected financing,
and expected regulatory approval of the Company's products further constitute
forward-looking statements under federal securities laws. Such statements are
subject to certain risks and uncertainties that could cause the actual
realization to be delayed or to not occur. Management has made certain
assumptions regarding each of the statements which may or may not be accurate.
Actual research and development results may vary significantly from the current
plans. Actual Company financing activities may vary significantly from the
current plans and may result in the Company changing its plan of the use of such
proceeds.
Item 7. Financial Statements
Financial statements are submitted as an exhibit under Items 13(a)(1) and
(2) on this Form 10-KSB.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
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.
Name Age Position
Lawrence A. Watson 53 Chairman of the Board, President, CEO
H. Lawrence Mason 47 Chief Financial Officer, Vice-President
Finance, Secretary, Treasurer
Vincent T. Paris 52 Vice-President Logistics Support, Director
Ted A. Walker 56 Vice-President Properties and
Facilities, Director
Thomas L. Vandervelde 64 Vice-President Safety & Regulatory
Compliance
David A. Linsley 62 Vice-President Flight Operations
John J. Pertschi 53 Vice-President of Maintenance
Jack H. Freeman 69 Vice-President of Quality
Ronald J. Newbold 39 Vice-President Investor Relations
Karen D. Glover 36 Director of In-Flight Services
John J. Ryff 39 Director of Stores
Bruce Nierenberg Director
Houston Glover 65 Director
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 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 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.
<PAGE>
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 also 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.
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.
Bruce Nierenberg has been a member of the Cardinal's Board of Directors
since March, 2000. He is currently the President and C.E.O. of Premier Cruise
Line, a company he founded in 1983 As President of Bruce Nierenberg and
Associates, a tourism consulting firm, he has worked with the cruise industry,
the hotel/resort industry, airport and ship port authorities, tourist boards and
the attraction industry in the development of their Marketing and Sales Plans.
He has been a leader in innovative product development in the cruise line
industry for 20 years. Mr. Nierenberg created and implemented many products that
are still today staples of the cruise line industry. He developed the first
Air/Sea Package cruise vacations, implemented the first computerized
reservations system in the cruise industry, and developed the Out Island cruise
concept that is now enjoyed by most cruise lines.
Houston H. Glover will become Vice-President of Flight Operations after the
completion of the offering. Mr. Glover has over 40 years of experience in the
aviation industry, with over 22,000 hours of flight time. He has been involved
in the certification process of several airlines, serving as an aviation
industry consultant and F.A.A. aviation safety inspector. His career as a
commercial airline pilot began in 1965 as a captain with Pan American Airways.
He became Chairman of the Maintenance Committee at National Airlines, acting as
the liaison between pilots, flight operations and maintenance operations. He has
also served in the capacity of Chief Pilot, Vice-President of Operations,
Director of Operations and Chief Operating Officer for several small airlines
from 1991 through 1999.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representation from certain reporting persons, the Company believes
that during the fiscal year ended September 30, 2000, all filing requirements
applicable to the Company's executive officers, directors and more than 10%
shareholders were complied with.
Item 10. Executive Compensation
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.
<PAGE>
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 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. 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 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 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.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table shows the ownership of the Common Stock of the Company
on October 10, 2000, by each person who, to the knowledge of the Company, owned
beneficially more than five (5%) of such stock, the ownership of each director,
and the ownership of all directors and officers as a group. Unless otherwise
noted, shares are subject to the sole voting and investment power of the
indicated person.
<TABLE>
Common Shares
Beneficially Owned Prior
to the Offering (1)
<S> <C> <C>
Shareholder Name
and Address Number Percent
Watson, Lawrence A. 293,000 13.38%
1564 Raymor St. N.W.
Palm Bay, FL 32907
Mason, H. Lawrence 283,000 12.92%
432 St.Johns Dr.
Satellite Beach, FL 32937
Paris, Vincent T. 280,000 12.79%
855 Hawser St. N.E.
Palm Bay, FL 32907
TAWCOT (trust managed by
Ted A. Walker)(2) 280,000 12.79%
8528 N.W. 66th St.
Miami, FL 33166
Vandervelde, Tom 50,000 2.28%
128 Albacore Lane
Foster City, CA 94404
Linsley, David A. 40,000 1.83%
6483 Fox Run Circle
Jupiter, FL 33458-1875
Pertschi, John J. 40,000 1.83%
5280 S.W. 4th Street
Plantation, FL 33317
Freeman, Jack 40,000 1.83%
1365 Lake Dow Road
McDonough, GA 30252
Newbold, Ronald J. 50,000 2.28%
600 Dinner St. N.E.
Palm Bay, FL 32907
Cunningham, Dennis 30,000 1.37%
Palm Bay, FL 32907
Glover, Karen D. 30,000 1.37%
2455 Summer Brook St.
Melbourne, FL 32940
Ryff, John J. Jr. 50,000 2.28%
365 Needle Blvd.
Merritt Island, FL 32953
Nierenberg, Bruce 150,000 6.85%
1007 Monticello Court
Melbourne, FL 32940
----------- --------
TOTALS 1,616,000 [85.26%]
</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)
Controlled by Ted A. Walker.
<PAGE>
Item 12. Certain Relationships and Related 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.
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 issued a total of 100,000 warrants for no
consideration to the selling shareholders on the basis of one warrant for each
share offered. The purpose of the issuance was to allow selling shareholders to
participate in the public offering. 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.
On March 20, 2000, the Cardinal entered into an agreement with Mr. Bruce
Nierenberg in which Mr. Nierenberg joined the Board of Directors of the company.
According to the agreement, Mr. Nierenberg received 150,000 shares of the common
stock of Cardinal. At the beginning of the second consecutive year of his term
as a member of the Board, he will also receive an option to purchase 20,000
shares of common stock at 80% of the IPO price or $8.00 per share. After his
second consecutive year as a member of the Board, he will receive an option to
purchase 20,000 shares of the common stock of Cardinal at 80% of the market
price of the common stock at the beginning of the year for each year that he
serves on the Board.
The Company borrowed money from four of its stockholders in exchange for
issuance of shares of common stock and preferred stock (NOTE 7). As of June 30,
2000, these four stockholders own 56% of the outstanding common shares of stock
and these notes have been paid in full.
As of June 30, 2000, and 1999, the Company had accrued $3,200 and $30,984
in consulting fees payable, respectively, to stockholders of the Company for
management and professional services rendered.
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:
<TABLE>
<S> <C>
Fiscal year ending June 30, 1999 $ 4,000
June 30, 2000 1,500
$ 5,500
</TABLE>
<PAGE>
PART IV.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits Page
(1) Reports of Independent Certified Accountants F-1
(2) Financial Statements
Exhibits required by Item 601, Regulation S-B:
2.0 Plan of acquisition, reorginization, arrangement,
liquidation, or succession None
* 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
9.0 Voting trust agreement None
* 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
**10.18 Agreement with Bruce Nierenberg dated February 23, 2000
11.0 Statement re: computation of per share earnings Note 1(G)
To Financial
Statements
13.0 Annual or quarterly reports, Form, 10-Q*
18.0 Letter on change in accounting principles None
21.0 Subsidiaries of registrant None
22.0 Published report regarding matters submitted to vote None
23.0 Consent of experts and counsel None
24.0 Power of attorney None
27.0 Financial Data Schedule
99.0 Additional Exhibits None
* Previously filed with Form S-1 on January 11, 1999.
** Previously filed with Form S-1/A on April 9, 1999.
***Previously filed with Form 10Q on May 15, 2000.
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARDINAL AIRLINES, INC.
/s/ Lawrence A. Watson
By: ______________________________
Lawrence A. Watson,
Chairman of the Board and Chief Executive Officer
In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the Company and in the
capacities indicated on October 13, 2000.
SIGNATURE TITLE
/s/ Lawrence A. Watson
__________________________________
Chairman of the Board, President
Lawrence A. Watson and Director
/s/ H. Lawrence Mason
___________________________________
Secretary and Treasure, Director
H. Lawrence Mason
___________________________________
Director
Vincent T. Paris
/s/ Ted A. Walker
___________________________________
Director
Ted A. Walker
___________________________________
Director
Bruce Nierenberg
<PAGE>
EX-1
Report of Independent Accountants
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, 2000, and 1999,
and the related statements of operations, stockholders' equity and cash flows
for each of the two years in the period ended June 30, 2000 and for the period
from inception (February 10, 1997) to June 30, 2000. 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 audits. 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, 2000, and 1999, and the results of its operations and its cash flows for
each of the two years in the period ended June 30, 2000, and for the period from
inception to June 30, 2000, in conformity with generally accepted accounting
principles.
/s/
___________________________
Kenneth R. Rosenfield
Rosenfield & Co., P.A.
July 31, 2000
Orlando, Florida
F-1
<PAGE>
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENT OF STOCKHOLDERS' EQUITY 3-5
STATEMENTS OF CASH FLOWS 6-7
NOTES TO FINANCIAL STATEMENTS 8-13
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,2000 June 30,1999
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 30,251 $ 5,373
Interest Receivable 1,607 8,746
------------------- ------------------
TOTAL CURRENT ASSETS 31,858 14,119
PROPERTY AND EQUIPMENT, net 5,537 7,591
DEPOSITS 9,200 4,200
------------------- ------------------
TOTAL ASSETS $ 46,595 $ 25,910
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 22,658 $ 51,002
Due to related parties
3,200 30,984
------------------- ------------------
------------------- ------------------
TOTAL LIABILITIES 25,858 81,986
COMMITMENTS
TOTAL STOCKHOLDERS' EQUITY
including deficit accumulated during the
development stage of $454,713 20,737 (56,076)
------------------- ------------------
------------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 46,595 $ 25,910
=================== ==================
</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
(Inception) to
Year Ended Year Ended
June 30, 2000 June 30, 2000 June 30, 1999
---------------- ------------------- -------------------
<S> <C> <C> <C>
REVENUES
$ -- $ -- $ --
-------------- ------------------- ------------------
EXPENSES
Consulting Fees 181,535 27,750 153,785
Professional Fees 178,940 57,054 119,945
Rent 46,905 19,080 14,310
Supplies 21,422 6,509 11,907
Utilities 20,887 9,109 8,584
Depreciation
and amortization 6,128 2,054 2,051
Miscellaneous 10,208 2,309 7,899
Taxes 558 267 241
-------------- --------------- --------------
466,583 124,132 318,722
OTHER INCOME
Interest Income 11,870 3,124 8,746
-------------- --------------- --------------
NET (LOSS) before
provision for
income taxes $ (454,713) $ (121,008) $ (309,976)
Provision for
Income Taxes -- -- --
-------------- --------------- --------------
NET (LOSS) $ (454,713) $ (121,008) $ (309,976)
=============== ================ ===============
Net loss
per share $ (0.21) $ (0.06) $ (0.14)
=============== ================ ===============
Shares used in
computing net
loss per share 2,189,900 2,189,900 2,189,900
=============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
February 10, 1997 (Inception) to June 30, 2000
<TABLE>
<CAPTION>
Number of Common Preferred Additional Accumulated Total Shareholders'
Shares Stock Stock Paid-In Capital Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C
---------- --------- ---------- --------------- ----------- -------------------
Issuance of shares of
common stock:
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
(continued on next page)
<PAGE>
Number of Common Preferred Additional Accumulated Total Shareholders'
Shares Stock Stock Paid-In Capital Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C
---------- --------- ---------- --------------- ----------- -------------------
common stock (continued):
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
----------
Issuance of shares of common
stock - June 30, 1999: 2,031,200
==========
Issuance of preferred stock:
October 16, 1998-Series A 100,000 - 1,000 - 1,000
===========
Less: Notes Receivable - Related
Parties
(2,186) (107,135) (109,321)
Less: Accumulated Deficit (333,705) (333,705)
--------- ---------- --------------- ----------- ------------
Balance - June 30, 1999 $ 18,126 $ 1,000 $ 258,503 $(333,705) $ (56,076)
Initial public offering of common
stock at $10.00 per share 2,700 27 - 26,973 - - 27,000
(continued on next page)
<PAGE>
Number of Common Preferred Additional Accumulated Total Shareholders'
Shares Stock Stock Paid-In Capital Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C
---------- --------- ---------- --------------- ----------- -------------------
October 31, 1999-Issuance of
common stock to officers 6,000 60 - 59,940 - 60,000
March 20, 2000-Issuance of common
stock for consulting fees 150,000 1,500 - - - 1,500
June 30, 2000-Conversion of
notes receivable-Related Parties
to common stock (NOTE 3) ---------- 2,186 - 107,135 - 109,321
Total Issuance of shares of common
stock-June 30, 2000: 2,189,900
==========
Net (loss) - - - (121,008) (117,808)
- - -
---------- --------- --------- --------------- ----------- -------------------
Balance-June 30, 2000 $ 21,899 $ 1,000 $ 452,551 $ (454,713) $ 20,737
========== ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
February 10, 1997
(Inception) to Year Ended Year Ended
June 30, 2000 June 30, 2000 June 30, 1999
<S> <C> <C> <C>
------------------- ---------------- ---------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Cash paid for operating expenses $ (434,598) $ (178,206) $ (234,686)
Cash received for interest 10,263 10,263 -
------------------- ------------------ --------------------
NET CASH USED IN OPERATING ACTIVITIES:
(424,335) (167,943) (234,686)
------------------- ------------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (11,664) - (1,550)
Increase in security deposits (7,460) (5,000) (2,460)
------------------- ------------------ --------------------
NET CASH USED IN INVESTING ACTIVITIES
(19,124) (5,000) (4,010)
------------------- ------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 376,039 88,500 241,550
Increase in notes receivable-
related parties (25,650) - (25,650)
Payments on notes receivable-
related parties 123,321 109,321 14,000
------------------- ------------------ --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
473,710 197,821 229,900
------------------- ------------------ --------------------
NET INCREASE (DECREASE) IN CASH 30,251 24,878 (8,796)
CASH AT BEGINNING OF PERIOD - 5,373 14,169
------------------- ------------------ --------------------
CASH AT END OF PERIOD $ 30,251 $ 30,251 $ 5,373
=================== ================== ====================
</TABLE>
<TABLE>
<CAPTION> February 10, 1997
(Inception) to Year Ended Year Ended
June 30, 2000 June 30, 2000 June 30, 1999
<S> <C> <C> <C>
------------------------ -------------------- --------------------
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Net loss $ (451,513) $ (121,008) $ (309,976)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 6,127 2,054 2,050
Increase/Decrease in receivables (1,607) 7,139 (8,746)
Increase/Decrease in accounts payable 22,658 (28,344)
51,002
Increase/ Decrease in due to
related parties - (27,784) 30,984
------------------- ------------------- ------------------
NET CASH USED IN
OPERATING ACTIVITIES $ (424,335) $ (167,943) $ (234,686)
=================== =================== ==================
SUPPLEMENTAL SCHEDULE OF
NON- CASH FINANCING ACTIVITIES:
Issuance of common stock in exchange
for Notes Receivable-Related Parties $ 122,320 $ - $ 25,650
=================== =================== ==================
=================== =================== ==================
Issuance of preferred stock in exchange for Notes
Receivable - Related Parties $ 1,000 $ - $ 1,000
=================== =================== ==================
Issuance of common stock to officers in exchange
for reimbursed expenses $ 6,000 $ 6,000 $ -
=================== =================== ==================
Issuance of common stock in exchange
for consulting fees $ 1,500 $ 1,500 $ -
=================== =================== ==================
</TABLE>
<PAGE>
- 13 -
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).
<PAGE>
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
year ended June 30, 2000 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 June 30, 2000, 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 June 30, 2000, the Company has 63 Stockholders.
<TABLE>
<CAPTION>
NOTE 3 - PROPERTY AND EQUIPMENT
June 30, 2000 June 30,1999
<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 (6,127) (4,073)
------------------ -------------------
$ 5,537 $ 7,591
================== ===================
</TABLE>
Depreciation and amortization expense was $2,054 for the year ended June 30,
2000; and $4,073 for the period from February 10, 1997 (Inception) to June 30,
1999.
NOTE 4 - RELATED PARTIES
The Company had 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, 2000, these four stockholders own 56% of the outstanding common shares
of stock and these notes have been paid in full.
As of June 30, 2000, and 1999, the Company had accrued $3,200 and $30,984 in
consulting fees payable, respectively, to stockholders of the Company for
management and professional services rendered.
NOTE 5 - COMMITMENTS
The Company leases its facilities from an unrelated third party under an
operating lease expiring July, 2001. Rent expense was $19,080 and $14,310
for the years ended June 30, 2000 and 1999 respectively.
<PAGE>
<TABLE>
<CAPTION>
Future minimum lease payments are as follows:
<S> <C>
Year ending June 30,
2001 $ 19,080
2002 1,590
--------------------
$ 20,670
====================
</TABLE>
NOTE 6 - INCOME TAXES
The Company's effective tax rate differs from the expected federal income
tax rate as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 2000 June 30, 1999
<S> <C> <C>
------------------ --------------------
Income tax benefit at statutory Rate $ (154,602) $ (113,460)
Increase in valuation Allowance 154,602 113,460
------------------ --------------------
Actual income taxes $ - $ -
================== ====================
</TABLE>
The components of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION> June 30, 2000 June 30, 1999
<S> <C> <C>
------------------ --------------------
Deferred tax assets:
Net operating loss carryforwards $ 154,602 $ 113,460
------------------ --------------------
Total deferred tax assets 154,602 113,460
Less valuation allowance (154,602) (113,460)
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:
<S> <C> <C>
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
Generated June 30, 2000 121,008 Expires June 30, 2015
------------------
$ 454,713
==================
</TABLE>
<PAGE>
NOTE 6 - INCOME TAXES, cont.
As of June 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. 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. As of June 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). During the year ended June 30, 2000, the Company issued
150,000 shares of stock in consideration for consulting fees of $1,500 to an
individual. The shares were sold at $.01 par value per share. 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 June 30,
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.
NOTE 7 - STOCKHOLDERS' EQUITY, cont.
As of June 30, 2000 the Company's common stock had a par value $.01 per
share with 50,000,000 shares authorized and 2,189,900 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 June 30, 2000, 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.
NOTE 8 - SUBSEQUENT EVENTS
The Company finalized an agreement with an underwriter to handle duties
associated with a public offering of their securities. The Company had given the
underwriter $5,000 as of the balance sheet date as a deposit. The Company
entered into an agreement with a vendor to assist in the submission of two
Environmental Worksheets per requirements of the Federal Aviation Authority
Southern Region for the purpose of developing an air route between y had given
the underwriter $5,000 as of the balance sheet date as a deposit. The Company
entered into an agreement with a vendor to assist in the submission of two
Environmental Worksheets per requirements of the Federal Aviation Authority
Southern Region for the purpose of developing an air route between Melbourne
International Airport and Baltimore/Washington International Airport. Melbourne
International Airport and Baltimore/Washington International Airport.
