U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-70437
Cardinal Airlines, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 59-3492127
(State of incorporation) (I.R.S. Employer Identification No.)
1380 Sarno Road, Suite B
Melbourne, FL 32935
(Address of principal executive offices)
Registrant's telephone number: 407-757-7388
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of March 31, 2000 was 2,033,900.
<PAGE>
Cardinal Airlines, Inc.
Index to Form 10-Q
Part I - Financial Information Page
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet - March 31, 2000...................................2
Condensed Statements of Operations - Three Months
Months Ended March 31, 2000 and 1999
and for the period February 10, 1997 (Date of
Inception) through March 31, 2000..........................................3
Condensed Statements of Cash Flows - Three Months Ended
March 31, 2000 and 1999 and for the period
February 10, 1997 (Date of Inception) through March 31, 2000...............5
Notes to Condensed Financial Statements....................................6
Item 2. Management's Discussion and Analysis or Plan of Operations...........8
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds...........................15
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 5. Other Information...................................................16
Item 6. Exhibits and Reports on Form 8-K....................................16
Signatures...................................................................17
Exhibit Index................................................................17
<PAGE>
Part I Financial Information
Item 1. Financial Statements
CARDINAL AIRLINES, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
For the three months ended
March 31
2000 1999
------------ ------------
CURRENT ASSETS
Cash $ 3,867 $ 43,377
Interest Receivable 11,807 5,808
------------- --------------
TOTAL CURRENT ASSETS 15,674 49,185
PROPERTY AND EQUIPMENT, net 6,055 6,053
DEPOSITS 4,200 4,200
------------- --------------
TOTAL ASSETS $ 25,928 $ 59,438
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 37,429 $ -
-
------------- --------------
TOTAL LIABILITIES $ 37,429 -
COMMITMENTS 0 0
------------- --------------
TOTAL LIABILITIES AND COMMITMENTS $ 37,429 $ -
============= ==============
TOTAL STOCKHOLDERS' EQUITY, (DEFICIT)
including deficit accumulated during the
development stage of $333,705 (11,500) 59,438
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 25,929 $ 59,438
============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 1 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997 FOR THE THREE MONTHS ENDED
(INCEPTION) TO MARCH 31
MARCH 31, 2000 2000 1999
-------------- ---------------- ------------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
-------------- ---------------- ------------------
EXPENSES
Consulting Fees 205,119 10,250 37,300
Professional Fees 186,924 14,286 50,983
Rent 42,135 4,770 3,975
Supplies 21,728 1,330 3,857
Utilities 19,610 2,029 2,089
Depreciation and amortization 5,602 512 1,194
Miscellaneous 12,503 1,565 3,552
Taxes 503 137 -
-------------- ---------------- -----------------
494,124 34,879 102,950
OTHER INCOME
Interest Income 11,807 380 1,936
-------------- ---------------- -----------------
NET (LOSS) before provision for
income taxes $ (482,317) $ (34,499) $ (101,014)
Provision for Income Taxes - - -
-------------- ---------------- -----------------
NET (LOSS) $ (482,317) $ (34,499) $ (101,014)
============== ================ =================
Net loss per share $ (0.24) $ (0.02) $ (0.05)
============== ================ =================
Shares used in computing net
loss per share 2,033,900 2,033,900 2,031,200
============== ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997 FOR THE THREE MONTHS ENDED
(INCEPTION) TO MARCH 31
MARCH 31, 2000 2000 1999
-------------------- ----------------- ----------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Cash paid for operating expenses $ (482,317) $ (34,499) $ (101,014)
--------------- --------------- ----------------
NET CASH USED IN OPERATING
ACTIVITIES: (482,317) (34,499) (101,014)
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (11,664) 0 0
Increase in security deposits (4,200) 0 0
--------------- --------------- ----------------
NET CASH USED IN INVESTING
ACTIVITIES (15,864) 0 0
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 406,029 99,089
Increase in notes receivable -
related parties 37,077 -
Payments on notes receivable -
related parties 58,942 36,433 -
--------------- --------------- ----------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 502,048 36,433 99,089
--------------- --------------- ----------------
NET INCREASE (DECREASE) IN CASH 3,867 1,934 (1,925)
CASH AT BEGINNING OF PERIOD - 1,933 45,302
--------------- --------------- ----------------
CASH AT END OF PERIOD $ 3,867 $ 3,867 $ 43,377
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997 FOR THE THREE MONTHS ENDED
(INCEPTION) TO MARCH 31
MARCH 31, 2000 2000 1999
----------------------- -------------- -------------
RECONCILIATION OF NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (488,522) $ (34,631) $ (100,275)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 5,602 512 1,197
Increase in receivables (11,807) (380) (1,936)
--------------- --------------- ----------------
NET CASH USED IN
OPERATING ACTIVITIES $ (482,317) $ (34,499) $ (101,014)
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) NATURE OF OPERATIONS
The planned principal business activity of Cardinal Airlines, Inc.
("Company") is to provide commercial airline service to and from
major airports throughout the eastern United States with
operations based in Melbourne, Florida.
B) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash and/or cash
equivalents.
C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation computed
using the straight-line method over the assets' expected useful
lives. Leasehold improvements are amortized over the lessor of the
term of the lease or the assets' expected useful lives.
D) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported assets and
liabilities. Actual results could differ from these estimates.
E) INCOME TAXES
Deferred income taxes arise from the expected tax consequence of
temporary differences between the carrying amounts and the tax
basis of certain assets and liabilities. The differences result
primarily from different depreciation methods on property and
equipment.
F) ORGANIZATION COSTS
Organization costs consist of expenses related to the start-up of
the Company. These costs are expensed as incurred in accordance
with Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5).
- 5 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT.
G) EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" (SFAS 128) effective February
10, 1997 (Inception). As such, net loss per share is computed
using the weighted average number of common shares outstanding
during the period. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins and Staff Policy, such
computations include all common and equivalent shares issued as if
they were outstanding for all periods presented. Common equivalent
shares consist of the incremental common shares issuable upon the
conversion of the convertible preferred stock (using the if
converted method).
The Series A Preferred Stock issued has no preferences other than
voting rights over the common stock and no dividend payment
arrangements. The preferred stock has no effect in arriving at
income available to common shareholders in computing earnings per
share.
H) NEW ACCOUNTING STANDARDS
There have been no new significant accounting pronouncements
issued for the three month period ended March 31, 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 March 31, 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
March 31, 2000, the Company has Sixty-Two Stockholders.
- 6 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - PROPERTY AND EQUIPMENT
February 10, 1997
(inception) to
March 31, 2000 March 31,1999
--------------- ---------------
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 (5,610) (5,610)
------------ ------------
$ 6,055 $ 6,055
============ =============
Depreciation and amortization expense was $512 for the three month
period ended March 31, 2000; and $5610 for the period from
February 10, 1997 (Inception) to March 31, 1998.
NOTE 4 - RELATED PARTIES
The Company has made loans to four of its stockholders in exchange
for issuance of shares of common stock and preferred stock (NOTE
7). As of June 30, 1999, these four stockholders own 56% of the
outstanding common shares of stock.
The loans are unsecured, are due June 30, 2003 and bear interest
at 8% annually. Notes receivable due from related parties were
$109,321 as of June 30, 1999, and $96,671 as of June 30, 1998. A
summary of Notes receivable due from related parties is as
follows:
Common stock issued during the year ended June 30, 1998 $ 92,179
Common stock issued from March 1, 1997 to June 30, 1997 4,492
Preferred stock issued during the year ended June 30, 1999 1,000
Conversion of stock subscriptions to notes receivable
during the year ended June 30, 1999 (NOTE 7) 25,650
Repayment of notes receivable through March 31, 2000 (115,400)
----------
$ 7,921
==========
- 7 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 4 - RELATED PARTIES CONT.
The Notes receivable due from related parties are reported as a
reduction in stockholders' equity (deficit).
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company leases its facilities from an unrelated third party
under an operating lease expiring July, 2000. Rent expense was
$4,770 and $3,975 for the three month period ended March 31,
2000 and 1999 respectively.
Future minimum lease payments are as follows:
Year ending June 30,
2000 $ 19,080
2001 1,590
--------
$ 20,670
During the period January through March, 1999, the company issued
shares of stock to raise capital to fund its operations. The
sales may be in violation of Section 5 of the Securities Act of
1933 and accordingly, those who purchased may have the right to
rescind their shares. The potential liability to the company is
$253,100 plus interest.
NOTE 6 - INCOME TAXES
The Company's effective tax rate differs from the expected federal
income tax rate as follows:
Year Ended Year Ended
June 30, 1999 June 30, 1998
Income tax benefit at statutory Rate $ (113,460) $ (8,068)
Increase in valuation Allowance 113,460 8,068
Actual income taxes $ - $ -
- 8 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6 - INCOME TAXES CONT.
The components of the deferred tax assets and liabilities are as
follows:
June 30, 1999 June 30, 1998
------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 113,460 $ 8,068
------- -----
Total deferred tax assets 113,460 8,068
Less valuation allowance (113,460) (8,068)
Deferred tax assets, net of
valuation allowance - -
Deferred tax liabilities - -
- -
Net deferred tax asset (liability) $ - $ -
= =
A summary of the net operating loss carryforwards is as follows:
Generated June 30, 1997 $ 3,168 Expires June 30, 2012
Generated June 30, 1998 20,561 Expires June 30, 2013
Generated June 30, 1999 309,976 Expires June 30, 2014
------------------------------
$333,705
As of March 31, 2000, the Company is still in development
stage. As such, all income and deductions for tax purposes are
deferred until the Company's planned principal operations have
commenced.
NOTE 7 - STOCKHOLDERS' EQUITY
A summary of issuance of common stock involving non-cash
consideration is as follows:
On April 1, 1997, the Company issued 449,200 shares of stock
in consideration for notes receivable due from related
parties (NOTE 4) of $4,492. The shares were sold at $.01 par
value per share.
- 9 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - STOCKHOLDERS' EQUITY CONT.
On July 1, 1997, the Company issued 184,358 shares of stock
in consideration for notes receivable due from related
parties (NOTE 4) of $92,179. The shares were sold at $.01
par value per share, with $.50 per share consideration.
Through Dec 31, 1999, $115,400 was received in payment of
these notes (NOTE 4).
During the year ended June 30,1999, the Company issued
83,300 shares of stock in consideration for stock
subscriptions of $41,650. The shares were sold at $.01 par
value per share, with $.50 per share consideration. These
subscriptions were converted to a note receivable (NOTE 4).
As of June 30, 1997, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 940,000
shares issued and outstanding.
As of March 31, 1999, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 2,031,200
shares issued and outstanding.
As of March 31, 2000, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 2,033,900
shares issued and outstanding.
A summary of issuance of preferred stock involving non-cash
consideration is as follows:
On October 16, 1998, the Company issued 100,000 shares of
$.01 par value "Series A" preferred stock in consideration
for notes receivable due from related parties (NOTE 4) of
$1,000.
As of March 31, 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.
- 10 -
<PAGE>
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 8 - OFFERING
On July 21, 1999, the Company issued its initial S-1 filing with
the Securities and Exchanges Commission. This is an initial public
offering of 2,000,000 shares of common stock for $10 per share.
- 11 -
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
Results of Operations
Cardinal is a development stage, airline company. Cardinal is
considered to be in the development stage because we have devoted
substantially all of our efforts to establishing the business plan,
organization and raising capital.
Since inception in February 1997 our efforts have principally been
devoted to organization, development and raising capital. Cardinal has
not received any revenues from flight services, and does not expect
any of its flights to be commercially available until one month after
600,000 units are sold. From inception through March 31, 2000, we have
sustained cumulative losses of $482,317 of which $205,119 was for
consulting fees, $186,924 was for professional fees, $42,135 for rent,
$21,728 for supplies, $19,610 for utilities, $5,602 in depreciation,
$12,503 for miscellaneous expenses, and $503 in taxes. For the three
months ended March 31, 2000, we sustained a cumulative loss of $34,499
of which $10,250 was for consulting fees, $14,286 was for professional
fees, $4,770 for rent, $1,330 for supplies, $2,029 for utilities, $512
in depreciation, $1,565 for miscellaneous expenses, and $137 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.
As of March 31, 2000, we have sold 2,700 Units of the public offering
for $27,000.00.
We expect to incur substantial costs in the future resulting from the
acquisition of aircraft, equipment, agreements with airport service
providers such as baggage handling, and fuel service. Additional
expenses will include airport facilities, maintenance costs, and
marketing. There can be no assurance that Cardinal will ever achieve
profitable operations.
To date, Cardinal has not marketed or generated revenues from the
commercialization of any service. Our current planned flights will not
begin until at least one month after 600,000 units of this offering
are sold. During this period following the sale of 600,000 units, we
expect to hire additional personnel. Depending on how rapidly units
are sold, we may also be finalizing arrangements for aircraft which
could increase the time in which scheduled operations would begin.
Cardinal has only a limited operating history upon which an evaluation
of its prospects can be based. The risks, expenses and difficulties
encountered by companies at an early stage of development must be
considered when evaluating Cardinal's prospects. To address these
risks, Cardinal must, among other things, successfully develop and
commercialize its services, secure all necessary proprietary rights,
respond to competitive developments and continued government
regulation, and continue to attract, retain and motivate qualified
persons. There can be no assurance that we will be successful in
addressing these risks. See "Risk Factors- Cardinal Has Not Begun
Operations And There Is No Guarantee We Will Ever Operate As An
Airline" for additional discussion of how the limited offering history
may affect investment in Cardinal.
Our operating expenses will depend on several factors, including the
level of aircraft maintenance and repair expenses. Development of
Cardinal's planned flights will depend upon economic factors which we
cannot predict. Management may, in some cases, be able to control the
timing of developmental expenses, in part, by controlling growth. As a
result of these factors, we believe that period-to-period comparisons
are not necessarily meaningful and should not be relied upon as an
indicator of future performance. Due to all of the foregoing factors,
it is possible that our operating results will be below the
expectations of market
12
<PAGE>
analysts, if any, and investors. In such event, the prevailing market
price, if any, of the common stock would likely be materially
adversely affected.
Cardinal entered into negotiations with Capstone Partners, Inc., for
selling agent and investment banking services. Cardinal has signed an
agreement with Capstone which will provide for the formation of a
selling group and will solicit subscriptions on a best efforts bases.
Under that Agreement, Capstone shall receive 10% compensation equal to
10% commissions on sales.
Liquidity and Capital Resources
Until such time that Cardinal receives the proceeds of this public
offering or other financing, it will continue to operate on a limited
basis. Our approximate monthly expenditures during this interim
development period are approximately $17,000 per month. Without
additional funding, Cardinal can maintain its present operating level
through the end of July 1, 2000.
Cardinal can delay the majority of the expenditures which are
necessary to carry out its business plan until adequate funds are on
hand or appear to be available. Put another way, Cardinal will delay
incurring significantly greater costs than its present expenditures of
$17,000 per month, such as additional personnel and the purchase or
lease of aircraft, until funds are available from its public offering.
The bulk of FAA certification expenses will be incurred when
sufficient funds are available.
Cardinal has incurred negative cash flows from operations since its
inception. We have expended and expect to continue to expend in the
future, substantial funds to complete our planned service development
efforts. Our future capital requirements and the adequacy of available
funds will depend on numerous factors including:
o the successful commercialization of planned flights
o obtaining sufficient funding to acquire aircraft and equipment
o fuel price and availability
o hiring qualified personnel
o keeping pace with government regulation
o obtaining adequate insurance
o the development of contractual agreements with airports
o the use of airport service providers
Expenditures relating to aircraft and certification will be made prior
to crew and maintenance salaries being incurred. If Cardinal
determines that the offering is not likely to raise at least $5.35
million, it will defer flight-related and certification expenses to
seek additional financing or revise its business plan to provide for
the use of less expensive aircraft.
At such time as Cardinal sells 600,000 units, the proceeds of the
offering would be used to commence operations by purchasing one MD-80
Aircraft. $540,000 would be used for aircraft deposit. Over a period
of three to nine months from the date of commencement, $1,037,902
would be used to staff operations at both Melbourne International
Airport and Baltimore Washington International Airport. Approximately
$1,140,459 would be used to finance flight operations beginning in the
fifth month of operations. Fuel and maintenance expense totaling
approximately $846,204 for the six month period would begin in the
fifth month of operations. Beginning in the third month of operations,
Cardinal would expend a total of $702,417 for advertising and initial
promotions. During this period, Cardinal anticipates expending
approximately $659,018 on general and administrative expenses, $50,000
for computer leases and software and $24,000 for key man insurance.
FAA and DOT certification expenses are expected to be approximately
$350,000 during the period of three to six months following
commencement of operations.
In the event our plans change or our assumptions change or prove to be
inaccurate or the proceeds of our public offering prove to be
insufficient to fund operations, we could be required to seek
additional financing. The terms and prices of any additional financing
may be significantly more favorable than those of the units sold in
our public offering. Cardinal does not have any material committed
sources of additional financing, and there can be no assurance that
additional funding, if necessary, will be available on acceptable
terms, if at all. If adequate funds are not available 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.
13
<PAGE>
Cardinal may receive additional funding under the provisions
pertaining to the exercise of the warrants which are part of the units
offered herein. See "Warrants" for the terms of warrant exercise and
pricing information.
Currently, we have no plans to sell or issue any additional preferred
stock.
The net proceeds from the sale of 600,000 units in our public offering
is estimated to be the minimum amount necessary to begin operations.
If fewer than 600,000 units are sold, then we would use the proceeds
to pay the offering expenses and possibly commissions. Any remaining
proceeds would be used to secure additional funding to implement
Cardinal's business plan or to amend the plan and operate with less
expensive aircraft or contract services.
If less than 600,000 units are sold, as an alternative until we are
able to receive our own certificate, Cardinal could contract its
flight services to another company which holds a FAA Operators
Certificate. If this occurs, Cardinal may be required to make certain
deposits and bonds and would contract actual flight operations. The
usual cost per aircraft operating hour is $3,000 to $5,000. Assuming
average operating hours of 240 per month, the estimated monthly cost
of using contracted flight services would range from approximately
$720,000 to $ 1,200,000 per month. Costs vary widely depending on
operating requirements, including the time of day and time of year.
Contract flight service fees typically include flight crew, fuel,
insurance and maintenance. This option could be accomplished with
substantially fewer capital resources than required to begin
independent flight operations with our own operating certificate.
Compensation
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.
14
<PAGE>
Part II - Other Information
Item 2. Change in Securities and Use of Proceeds.
On February 23, 2000, Registrant agreed to issue 150,000 common shares to Bruce
Nierenberg in consideration of his agreeing to serve as a director. The Company
also agreed to issue an option to purchase 20,000 shares per year for each year
(beginning the second year) Mr. Nierenberg served as diretor at an exercise
prcie or $8.00 per share, exercisable for a period of two (2) years. The shares
will be issued in a private transaction which is exempt from registration
pursuant to the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles and By-Laws None
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(10.1) Agreement with Bruce Nierenberg
(11)* Statement re: Computation of Per Share Earnings Note 1(G)
to Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARDINAL AIRLINES, INC.
SIGNATURE TITLE DATE
/S/ Lawrence A. Watson
_________________________ President, Chairman of the Board May 14, 2000
LAWRENCE A. WATSON Chief Executive Officer
/S/ H. Lawrence Mason
________________________ Secretary Treasurer, May 14, 2000
H. LAWRENCE MASON Chief Financial Officer
<PAGE>
[Cardinal Letterhead]
23 February, 2000
Bruce Nierenberg
Premier Cruise Lines
400 Challenger Road
Cape Canaveral, FL 32920
Dear Mr. Nierenberg,
The Board of Directors and I feel that your knowledge and experience
would be a valuable asset to Cardinal. Therefore I would like to
formally offer you a seat on the Cardinal Airlines' Board of Directors.
Remuneration is described below and is per our conversation.
1. 150,000 shares of common stock for your initial year on the Board of
Cardinal.
2. Options to purchase 20,000 shares of stock at the beginning of your
second consecutive year on the Board at 80% of the IPO price
or $8.00.
3. After your second year, options to purchase 20,000 shares of stock
at the beginning of each consecutive year that you shall be elected
to serve on the Board at 80% of the market price of the common stock
at the beginning of the year during which you will serve.
I have enclosed a copy of the signed Written Action of the Board of
Directors authorizing said remuneration.
Sincerely,
/S/ Lawrence A. Watson
Lawrence A. Watson
Chairman and President
Accepted
/S/ Bruce Nierenberg 3/20/00
Bruce Nierenberg Date
<PAGE>
WRITTEN ACTION OF THE BOARD OF DIRECTORS
OF CARDINAL AIRLINES, INC.
The following actions were taken by the Board of Directors of Cardinal
Airlines, Inc. (the "Company") pursuant to Delaware Statutes, without holding a
meeting thereon, each of the undersigned waiving notice of a meeting regarding
such action.
1. RESOLVED, that the number of the Corporation's Board of Directors be
increased to five directors.
2. RESOLVED, that Bruce Nierenberg be elected to serve on the Board of
Directors to serve until his successor is duly elected and seated. Said election
being contingent upon Mr. Nierenberg's consenting to serve as a director.
3. RESOLVED, that in the event Mr. Nierenberg consents to serve as a
director and in consideration of Mr. Nierenberg's consenting to serve as a
director of the Corporation for period of one (1) year, the Corporation issue
150,000 shares of its common stock to Mr. Nierenberg. Said shares of common
stock shall be restricted and shall bear the following restrictive legend:
The securities represented by this certificate have been acquired
pursuant to an investment representation on the part of the Purchaser
thereof and have not been registered under the Securities Acts of any
state in reliance on exemptions contained therein or the
inapplicability thereof, and have not been registered under the
Securities Act of 1933 (the 1933 Act) in reliance on exemptions
therefrom. Said securities shall not be sold, pledged, hypothecated,
donated, or otherwise transferred, whether or not for consideration, by
the Purchaser except upon the issuance to Cardinal Airlines, Inc. (the
"Company"), of a favorable opinion of its counsel and/or the submission
to the Company of such other evidence as may be satisfactory to counsel
of the Company, in either case to the effect that any such transfer
shall not be in violation of the 1933 Act, as amended, and applicable
state securities law.
4. RESOLVED, that in the event Mr. Nierenberg is elected to serve as a
director of the Corporation for an additional one- (1) year period following his
initial one-year term, and should he consent to serve as a director of the
Corporation, the Corporation will issue to Mr. Nierenberg an option to purchase
an additional Twenty Thousand (20,000) shares of common stock at an exercise
price of Eight Dollars ($8.00) per share. Said option shall be exercisable by
Mr. Nierenberg for a period of two (2) years from the date of issuance. Said
option shall become effective upon the Corporation's issuance of a formal option
agreement upon terms and conditions acceptable to the Corporation and Mr.
Nierenberg.
5. RESOLVED, that for each consecutive year that Mr. Nierenberg shall
be elected to serve as a director of the Corporation and he shall consent to act
as a director of the Corporation, the Corporation shall issue an additional
option to purchase an additional Twenty Thousand (20,000) shares of common stock
at an exercise price of eighty percent (80%) of the market at the beginning of
the year on which Mr. Nierenberg will serve on the Board. Said option(s) shall
be exercisable by Mr. Nierenberg for a period of two (2) years from the date of
issuance. Said option(s) shall become effective upon the Corporation's issuance
of a formal option agreement upon terms and conditions acceptable to the
Corporation and Mr. Nierenberg.
<PAGE>
FURTHER RESOLVED, that the above-named officers are hereby directed to
execute all documents and do all actions required by law and are otherwise
desirable or necessary to cause such listing agreement to be ratified and
adopted.
WAIVER AND CONSENT
The undersigned being all of the Directors of Cardinal Airlines, Inc.,
a corporation organized and existing under the laws of the State of Delaware, do
hereby waive all notice provided by the laws of the State of Delaware, or by the
Articles of Incorporation or the By-Laws of this corporation, of the time, place
and purpose of a special meeting of the Board of Directors of said corporation
for the purpose of adopting the above resolution.
Effective: _________________
/s/ Lawrence A. Watson /s/H. Lawrence Mason
- ---------------------------- --------------------------
LAWRENCE A. WATSON H. LAWRENCE MASON
/s/ Ted A. Walker /s/ Vincent T. Paris
- ---------------------------- --------------------------
TED A. WALKER VINCENT T. PARIS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Financial Statements for the three (3) months ended March 31, 2000, and
is qualified in its entirety by reference to such form 10-QSB for quarterly
period ended March 31, 2000.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-2000
<PERIOD-END> Mar-31-2000
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<COMMON> 2,033,900
0
1000
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