As filed with the Securities and Exchange Commission on January 18, 2001
Registration No. 333-47632
===============================================================================
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN UTILICRAFT CORPORATION
(Name of small business issuer in its charter)
DELAWARE 3721 54-1577735
(STATE OR JURISDICTION OF (PRIMARY STANDARD (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION IDENTIFICATION NUMBER)
INDUSTRIAL CODE NUMBER)
300 PETTY ROAD N.E., SUITE B
LAWRENCEVILLE, GEORGIA 30043
T: (678) 376-0898
(Principal Executive Office)
EDWARD F. EATON
CONNOLLY, BOVE, LODGE & HUTZ, LLP
1220 MARKET STREET
P.O. BOX 2207
WILMINGTON, DELAWARE 19899
T: (302) 888-6204
F: (302) 656-0116
(Agent for Service)
COPIES TO:
MARK R. ZIEBELL, ESQUIRE
JEFFERS, SHAFF & FALK, LLP
18881 VON KARMAN AVENUE, SUITE 1400
IRVINE, CALIFORNIA 92612
T: (949) 660-7700
F: (949) 660-7799
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
----------------------------- ------------------ --------------------------- ------------------------- -----------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SECURITY (1) PRICE REGISTRATION FEE
----------------------------- ------------------ --------------------------- ------------------------- -----------------
<S> <C> <C> <C> <C>
COMMON STOCK 10,000,000(2) $2.00 $ 20,000,000.00 $5,280.00
----------------------------- ------------------ --------------------------- ------------------------- -----------------
COMMON STOCK 1,200,000(3) $2.00 $ 2,400,000.00 $ 633.60
----------------------------- ------------------ --------------------------- ------------------------- -----------------
TOTAL 11,200,000(4) $ 22,400,000.00 $ 5,913.60
----------------------------- ------------------ --------------------------- ------------------------- -----------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(2) Includes 7,000,000 shares of common stock issuable as put shares to
Swartz Private Equity, LLC pursuant to the Investment Agreement. Also
includes 1,000,000 outstanding shares of common stock held by one other
selling stockholder and 2,000,000 shares to be offered directly by the
Registrant.
(3) Includes 700,000 shares issuable upon the exercise of warrants to be
issued to Swartz Private Equity, LLC pursuant to the Investment
Agreement and 500,000 shares issuable upon the exercise of a commitment
warrant granted to Swartz Private Equity, LLC.
(4) Pursuant to Rule 416, this Registration Statement also covers such
indeterminate number of shares of Common Stock as may be issuable
pursuant to the anti-dilution provisions of the warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THIS REGISTRATION STATEMENT COVERS BOTH A PRIMARY OFFERING OF SHARES OF COMMON
STOCK BY AMERICAN UTILICRAFT CORPORATION, A DELAWARE CORPORATION, AND THE
RE-OFFERING OF COMMON STOCK BY CERTAIN SELLING STOCKHOLDERS. THIS REGISTRATION
STATEMENT IS BEING FILED IN ORDER TO REGISTER, ON BEHALF OF THE SELLING
STOCKHOLDERS, A TOTAL OF 9,200,000 SHARES OF COMMON STOCK.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 18, 2001
PROSPECTUS
AMERICAN UTILICRAFT CORPORATION
11,200,000 SHARES OF COMMON STOCK
This prospectus covers the offer of 11,200,000 shares of American
Utilicraft Corporation common stock, $0.00001 par value, in an initial public
offering of which 2,000,000 shares are being offered by us and the balance of
9,200,000 shares are being offered by the following holders of our common stock:
o Up to 7,000,000 shares issuable to Swartz Private Equity, LLC
("Swartz") as put shares,
o Up to 500,000 shares issuable upon the exercise of a
commitment warrant issued to Swartz,
o Up to 700,000 shares issuable upon the exercise of purchase
warrants issuable to Swartz in connection with the exercise of
puts to Swartz, and
o 1,000,000 shares issued to Douglas E. Smith upon the
conversion of a promissory note.
The selling stockholders may, from time to time, offer and sell all or
a portion of the secondary shares in negotiated transactions or in trading
markets for our common stock that may develop. We will receive no proceeds from
the sale of the shares by the selling stockholders. However, we received
proceeds in connection with the issuance of the promissory note to Mr. Smith
which he subsequently converted into shares of our common stock and we may
receive proceeds from the sale of shares to Swartz and the exercise by Swartz of
warrants issued to it in connection with an Investment Agreement that we entered
into with Swartz for working capital purposes. We will also receive proceeds
from the sale of the primary shares offered by us.
Swartz, as the potential seller of up to 7,000,000 put shares and up to
1,200,000 shares issuable upon the exercise of warrants, is an underwriter and
as such, is subject to the same restrictions, including prospectus delivery
requirements with respect to sales of or offers to sell such shares, as is any
underwriter in a public offering. We are offering the 2,000,000 primary shares
that we are selling, directly and on a "best efforts basis" without an
underwriter. For information on how to subscribe please call (212) 473-3700 and
ask for Cynthia Demonte. Sale of our common stock will only be made in
connection with this prospectus.
This is an initial public offering. We estimate that the share price
will be $2.00. The initial offering price may not reflect the market price after
the initial offering. No public market currently exists for our shares and we
cannot assure you that any such market will develop. Our common stock is
considered to be penny stock and, as such, is subject to laws regulating trading
in penny stock, which may make it more difficult for stockholders to sell
shares. We will apply for the listing of our shares of common stock on the
NASD's Over-the-Counter ("OTC") Bulletin Board under the symbol "AUCC."
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is January 18, 2001
<PAGE>
Please read this prospectus carefully. It describes our company, finances and
products. Federal and state securities laws require us to include in this
prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained in this prospectus to make
your investment decision. We have not authorized anyone to provide you with
information that differs from the contents of this prospectus.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................1
ABOUT OUR COMPANY...........................................................1
ABOUT OUR BUSINESS..........................................................1
ABOUT OUR REVENUES..........................................................2
ABOUT OUR INVESTMENT AGREEMENT..............................................2
ADDITIONAL SHARES WE ARE REGISTERING........................................2
THE OFFERING................................................................2
RISK FACTORS...................................................................4
WE HAVE INCURRED OPERATING LOSSES OF APPROXIMATELY $1,583,194 FOR THE NINE
MONTH PERIOD ENDING SEPTEMBER 30, 2000, EXPECT FUTURE LOSSES AND MAY
NOT ACHIEVE OR SUSTAIN ANNUAL PROFITABILITY.............................4
WE HAVE ONLY APPROXIMATELY $220,255 AVAILABLE AS WORKING CAPITAL............4
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION WHICH MAY AFFECT
ITS LIQUIDITY...........................................................4
WE HAVE NO PUBLIC MARKET FOR OUR COMMON STOCK...............................4
THERE IS NO FIRM COMMITMENT TO PURCHASE OUR SHARES OF COMMON STOCK IN
THIS OFFERING...........................................................5
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING TO MEET OUR FUTURE
CAPITAL NEEDS...........................................................5
THE EXERCISE OF OUR PUT RIGHTS WITH SWARTZ PURSUANT TO THE INVESTMENT
AGREEMENT MAY LOWER THE MARKET PRICE OF OUR COMMON STOCK AND
SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER HOLDERS OF OUR COMMON
STOCK...................................................................5
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS MAY ADVERSELY AFFECT OUR
STOCK PRICE AND YOUR PERCENTAGE OWNERSHIP ..............................6
WE ARE REQUIRED TO MAKE MANDATORY PAYMENTS TO SWARTZ IN CERTAIN
CIRCUMSTANCES...........................................................6
THE LOSS OF JOHN DUPONT, THE FOUNDER OF OUR COMPANY AND DESIGNER OF ITS
PRODUCTS, WOULD ADVERSELY AFFECT OUR ABILITY TO SUCCEED. 6
IF WE DO NOT SUCCESSFULLY MANAGE FUTURE GROWTH, OUR ABILITY TO COMPLETE
PRODUCTION OF THE FF-1080-200 AIRCRAFT ACCORDING TO CURRENT SCHEDULES,
MAY BE ADVERSELY AFFECTED...............................................6
WE MAY ENCOUNTER OBSTACLES IN COMPLETING CONSTRUCTION OF THE FF-1080-200,
WHICH IS STILL IN THE DEVELOPMENTAL STAGE, SUCH AS PRODUCT SUPPLIER
DELAYS, DESIGN AND ENGINEERING DIFFICULTIES, AND FAA CERTIFICATION
DELAYS OR DENIALS.......................................................7
BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN THE MAJORITY OF OTHER AEROSPACE
COMPANIES, WE MAY BE AT A COMPETITIVE DISADVANTAGE IF THEY INTRODUCE
PRODUCTS THAT ARE SIMILAR TO OURS.......................................7
THE FF-1080-200 MAY NOT ACHIEVE MARKET ACCEPTANCE DUE TO MISCALCULATIONS OF
MARKET DEMAND OR PROFITABILITY OF THE PRODUCT ..........................7
WE MAY NOT BE ABLE TO CONCLUDE AGREEMENTS WITH THE MANUFACTURERS AND
SUPPLIERS THAT WE NEED AS PARTNERS IN OUR BUSINESS......................7
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS MAY
ADVERSELY AFFECT OUR ABILITY TO COMPETE....8
OUR ISSUANCE OF PREFERRED STOCK AND OUR RIGHT TO ISSUE ADDITIONAL PREFERRED
STOCK MAY FACILITATE MANAGEMENT ENTRENCHMENT ...........................8
USE OF PROCEEDS................................................................9
DETERMINATION OF OFFERING PRICE................................................9
SELLING STOCKHOLDERS..........................................................10
INVESTMENT AGREEMENT.......................................................11
ADDITIONAL SECURITIES BEING REGISTERED.....................................13
PLAN OF DISTRIBUTION..........................................................13
LEGAL PROCEEDINGS.............................................................14
DIRECTORS AND EXECUTIVE OFFICERS...........................................15
BOARD OF DIRECTORS.........................................................16
EXECUTIVE COMPENSATION.....................................................16
EMPLOYMENT AGREEMENT WITH JOHN DUPONT......................................17
EMPLOYMENT AGREEMENT WITH JAMES CAREY......................................18
EMPLOYMENT AGREEMENT WITH THOMAS DAPOGNY...................................18
DIRECTORS' COMPENSATION....................................................18
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<PAGE>
DESCRIPTION OF SECURITIES.....................................................21
COMMON STOCK...............................................................21
PREFERRED STOCK............................................................21
SERIES A CONVERTIBLE PREFERRED STOCK.......................................21
WARRANTS...................................................................22
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS..........................22
BUSINESS......................................................................25
INDUSTRY BACKGROUND........................................................25
TRENDS IN AIR CARGO TRAFFIC................................................25
GROWTH OF E-COMMERCE SALES.................................................26
THE FF-1080-200 AIRCRAFT AS A SOLUTION.....................................27
PARTNERSHIP ARRANGEMENTS...................................................27
COMPETITION................................................................28
TARGET MARKETS.............................................................30
PRODUCT DEVELOPMENT........................................................30
INTELLECTUAL PROPERTY......................................................31
GOVERNMENT REGULATION......................................................31
EMPLOYEES..................................................................32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF.......................................33
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................33
OUR BUSINESS..................................................................33
LIQUIDITY, CAPITAL RESOURCES AND RESULTS OF OPERATIONS........................34
RECENT ACCOUNTING PRONOUNCEMENTS..............................................35
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.................................35
ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................35
PROPERTIES.................................................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................36
MARKET FOR COMMON STOCK; SHARES ELIGIBLE FOR FUTURE SALE......................37
HOLDERS....................................................................37
DIVIDEND POLICY............................................................38
LEGAL MATTERS.................................................................38
EXPERTS.......................................................................38
ADDITIONAL INFORMATION........................................................38
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<PAGE>
PROSPECTUS SUMMARY
FEDERAL AND STATE SECURITIES LAWS REQUIRE THAT WE INCLUDE IN THIS
PROSPECTUS ALL THE IMPORTANT INFORMATION THAT YOU WILL NEED TO MAKE AN
INVESTMENT DECISION. THIS SUMMARY HIGHLIGHTS ALL MATERIAL INFORMATION CONTAINED
IN THIS PROSPECTUS. THIS INFORMATION CAN ALSO BE FOUND IN GREATER DETAIL
ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN
ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK.
IN ADDITION TO THIS SUMMARY, WE URGE YOU TO READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER
"RISK FACTORS" BEFORE YOU DECIDE TO BUY OUR STOCK.
This prospectus covers the offer of 11,200,000 shares of our common
stock in an initial public offering of which we are offering 2,000,000 shares
and certain selling stockholders are offering 9,200,000 shares. The selling
stockholders acquired these shares from us in various transactions, all of which
were exempt from registration under the Securities Act.
ABOUT OUR COMPANY
We were incorporated in Delaware on August 9, 1990 under the name of
"American Utilicraft Corporation." Although we have been in existence for over
ten years, we are a developmental stage enterprise that has not yet completed
production of any marketable products. We have operated and continue to operate
at a deficit, which on a cumulative basis through September 30, 2000, equals
$7,225,949, in a competitive industry with high barriers to entry. Our
principal executive and business offices are located at 300 Petty Road N.E.,
Suite B, Lawrenceville, Georgia 30043.
ABOUT OUR BUSINESS
Demand for fast and reliable parcel delivery is generated by a wide
range of industries and individuals, from attorneys moving sensitive documents
for authentic signatures to automobile manufacturers moving parts to production
lines. Acceptance of express air cargo as a reliable, high speed, time-definite
transportation method for valuable shipments has made air transportation the
transportation mode of choice by many industries. With this widespread
acceptance, express air cargo companies have expanded their air services to more
destinations, including small and remote cities around the world. From 1990 to
1997, overnight and two-day express parcel delivery shipments grew at an average
rate of 7.4% per year as compared to regular passenger cargo shipments which
grew at an average rate of 2.2% per year, according to U.S. Department of
Transportation Airport Activity Statistics published in 1991 and 1998.
At the same time, the commercialization of the Internet has created an
increasingly computer technology-driven economy. The Internet has proven to be
an efficient and effective marketing medium with the potential to greatly
increase retail sales. Forrester Research, a leading Internet research firm,
predicts that daily Internet shipments will grow from 650,000 packages per day
in 1999 to 4,200,000 packages per day in 2003, representing an electronic
commerce shipping growth rate of 59.4% per year. Total electronic commerce
sales, both business-to-business and business-to-consumer, grew from
approximately $27.6 billion in 1997 to an estimated $95.8 billion in 1999,
according to Forrester's statistics and retail sales estimates prepared by
International Data Corporation. This growth will put pressure on current
transportation services companies to improve their services and to provide more
efficient transportation and distribution systems.
Our company, which is located in the Atlanta-Metropolitan area near
Gwinnett County airport, was formed to meet the combined requirement for: (1)
improved express air cargo delivery to and from small communities that typically
do not have shipments large enough or runways long enough to justify the use of
cargo jets, and (2) electronic commerce retail deliveries directly to businesses
and individual customers. We have dedicated our efforts to resolving a
fundamental problem that exists in the air cargo industry, the lack of an
effective air transportation system to move air shipments to and from small
communities, which can include non-serviced major cities as well as smaller
cities at the spokes of the airlines "hub-and-spoke" systems. The
"hub-and-spoke" system allows air carriers to consolidate passengers from many
small spoke cities within a geographic region at a single hub airport, thus
helping to ensure that long haul flights of 1,000 to 3,000 miles from the hubs
to other U.S. regions and international cities have full loads. We are targeting
major dedicated freight companies, such as Federal Express and United Parcel
Service, as well as U.S. passenger airlines seeking to expand freight
operations, as our primary client base and international airlines seeking to
expand freight operations as our secondary client base. The cargo that we will
transport will be standard industry air containers containing a variety of
packages including commercial shipments from electronic commerce retailers and
manufacturers directly to customers.
Our research and development efforts have resulted in a system for
moving freight centered around a new air vehicle - the FF-1080-200 Freight
Feeder aircraft - specifically designed for short haul or feeder route segments
of 250 to 500 miles, i.e., the spokes within the hub-and-spoke system. The
FF-1080-200 is capable of carrying standard industry air containers on
short-to-medium range/medium density routes from feeder airports with runways as
short as 3,000 feet. Once the cargo reaches a central point or hub, the loaded
cargo containers are transferred onto large size aircraft for long-haul
transportation to another central reloading point or to a final destination.
1
<PAGE>
In addition, we have designed and are developing the Express
Turn-Around ("ETA") electronic freight tracking system which is an integrated
air cargo information system for the freight feed market. We believe that the
ETA system will meet the growing requirement for real-time in-transit tracking
and management of shipments throughout the entire distribution supply chain that
the increased growth in express parcel delivery has generated, by providing
automated two-way communication with respect to cargo handled to airline flight
dispatch offices. This feature makes it possible to monitor aircraft location
and capacity for en route re-direct and dispatch of cargo, maximizing the
utilization of the aircraft during its operating day. We expect the ETA to be
operational by the end of the year 2003. We have also designed and are
developing the Automatic Flat Rate System (the "AFRS") which computes a
fuel-efficient performance curve for each route segment based on the aircraft's
gross weight upon take-off and its overall container capacity. This system will
help to reduce pilot workload and help to ensure that the FF-1080-200 is
operated on a fuel-efficient basis. We expect the AFRS to be operational by the
end of the year 2003.
Our immediate objective is to build and fly the FF-1080-200
pre-production prototype aircraft during the year 2001 and to complete the
certification program of the Federal Aviation Administration ("FAA") for the
aircraft by the end of the year 2003. This requires completion of detailed
engineering specifications and construction of the pre-production prototype
aircraft with its initial flight test program to be conducted during 2001.
Simultaneously, within the next six to eight months, we intend to initiate the
FAA aircraft certification program with the objective of receiving certification
by the end of the following two-year period. During the certification process,
we plan to manufacture 48 FF-1080-200s for delivery upon FAA certification. We
forecast a production rate of approximately 96 aircraft per year after we
receive FAA certification. You should recognize that our forecasts are based on
certain assumptions regarding the growth in demand for air cargo feeder aircraft
and the production capacity of our company that may change due to a variety of
factors, including some that are not within our control. You should, therefore,
regard these projections with caution. We will update our forecasts if they
change significantly.
ABOUT OUR REVENUES
To date, we have not generated any revenues.
ABOUT OUR INVESTMENT AGREEMENT
We have entered into an Investment Agreement with Swartz to raise up to
$50,000,000 for working capital purposes through a series of sales of our common
stock to Swartz over a period of up to three years. The dollar amount of each
sale is limited by our common stock's trading volume. A minimum period of time
must elapse between sales. In turn, Swartz will either sell our stock in the
open market or to other investors through negotiated transactions or will hold
our common stock in its own portfolio. This prospectus covers the resale of our
common stock by Swartz either in the open market or to other investors.
ADDITIONAL SHARES WE ARE REGISTERING
We are registering for sale 2,000,000 shares of our common stock to be
sold directly by our company, and for resale, an additional 1,000,000 shares of
our common stock that we have issued to Douglas E. Smith pursuant to his
conversion of a promissory note.
THE OFFERING
Common stock outstanding prior to 8,938,969 shares(1)
this offering
Preferred stock outstanding 1,970,787 shares
Common stock being offered for 11,200,000 shares(2)
sale or resale to the public
Common stock outstanding after this 19,138,969 shares
Offering
Price per share to the public Market price at the time of sale
or resale.
2
<PAGE>
Total proceeds raised by offering We received proceeds from the
issuance of a promissory note which
a selling stockholder (Mr. Smith)
subsequently converted into our
common stock and we will receive
proceeds from the sale of shares
offered directly by us. We will
also receive proceeds from the
exercise of the warrants and from
the exercise of our put rights to
Swartz. However, we will not
receive any proceeds from the sale
of shares offered by Swartz or Mr.
Smith.
Use of proceeds For working capital needs and
general corporate purposes.
----------------------------
(1) Does not include 500,000 shares underlying a warrant issued to Swartz
in connection with the Investment Agreement nor any shares underlying
warrants which we may issue to Swartz in the future pursuant to the
Investment Agreement.
(2) Includes: (i) 1,000,000 shares that are presently outstanding, (ii) up
to 7,000,000 shares that may be issued to Swartz pursuant to the
Investment Agreement, (iii) up to 500,000 shares underlying a
commitment warrant issued to Swartz in connection with the Investment
Agreement, (iv) up to 700,000 shares underlying purchase warrants that
we may issue to Swartz in the future pursuant to the Investment
Agreement, and (v) up to 2,000,000 shares being offered by our company.
3
<PAGE>
RISK FACTORS
The shares of our common stock being offered for sale are highly
speculative and involve a high degree of risk. Only those persons able to lose
their entire investment should purchase these shares. Before purchasing any of
these shares, you should carefully consider the following factors relating to
our business and prospects. You should also understand that this prospectus
contains "forward-looking statements." These statements appear throughout this
prospectus and include statements as to our intent, belief or current
expectations or projections with respect to our future operations, performance
or position. Such forward-looking statements are not guarantees of future events
and involve risks and uncertainties. Actual events and results, including the
results of our operations, could differ materially from those anticipated by
such forward-looking statements as a result of various factors, including those
set forth below and elsewhere in this prospectus.
WE HAVE INCURRED OPERATING LOSSES OF APPROXIMATELY $1,583,194 FOR THE NINE MONTH
PERIOD ENDING SEPTEMBER 30, 2000, EXPECT FUTURE LOSSES AND MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY.
Since we commenced operations on August 9, 1990, we have incurred
cumulative operating losses of approximately $7,225,949. For the nine month
period ending September 30, 2000, we incurred operating losses of approximately
$1,583,194. Such losses have resulted primarily from significant costs
associated with the development of our products. We expect that we will continue
to incur operating losses until we are able to generate sufficient operating
revenues to support expenditures. However, we may never generate positive cash
flow or sufficient revenue to fund our operations and we may never attain
profitability.
WE HAVE ONLY APPROXIMATELY $220,255 AVAILABLE AS WORKING CAPITAL.
As of September 30, 2000, we had net working capital of approximately
$220,255. We expect to put shares to Swartz pursuant to the Investment Agreement
in order to meet our working capital needs for the year 2001. We have increased,
and plan to increase further, our operating expenses in order to fund higher
levels of product development, continue our sales and marketing efforts, and
increase our administrative resources in anticipation of future growth. We
anticipate that over the next two years, we will need approximately $7,000,000
to fund our operating expenses, $1,800,000 to undertake sales and marketing
efforts and $1,100,000 to expand our administrative resources. We intend to
undertake sales and marketing efforts that will consist primarily of direct
solicitation of potential customers, participation in air cargo industry trade
shows, and advertising and promotional campaigns in airline industry trade
publications. We will increase our administrative resources to support the
hiring of an estimated twenty additional employees in order to expand our
engineering design capacity as we approach the final stages of producing an
operational aircraft. If increases in revenues do not precede or subsequently
follow such increases in expenses, our business, operations and financial
condition could be materially adversely affected.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION WHICH MAY AFFECT ITS
LIQUIDITY.
Our common stock is subject to regulations of the Securities and
Exchange Commission relating to the market for penny stocks. Penny stock, as
defined by the Penny Stock Reform Act, is any equity security not traded on a
national securities exchange or quoted on the NASDAQ National or SmallCap Market
that has a market price of less than $5.00 per share. The penny stock
regulations generally require that a disclosure schedule explaining the penny
stock market and the risks associated therewith be delivered to purchasers of
penny stocks and impose various sales practice requirements on broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors. The broker-dealer must make a suitability determination for each
purchaser and receive the purchaser's written agreement prior to the sale. In
addition, the broker-dealer must make certain mandated disclosures, including
the actual sale or purchase price and actual bid offer quotations, as well as
the compensation to be received by the broker-dealer and certain associated
persons. The regulations applicable to penny stocks may severely affect the
market liquidity for our common stock and could limit your ability to sell your
securities in the secondary market.
WE HAVE NO PUBLIC MARKET FOR OUR COMMON STOCK.
Before this offering, there has not been a public market for our common
stock. We will apply to have our common stock quoted on the NASD's OTC Bulletin
Board, an electronic quotation system, under the symbol "AUCC," but we do not
4
<PAGE>
know whether active trading in our common stock will develop and continue after
this offering. Because trading of securities on the OTC Bulletin Board is often
more sporadic than the trading of securities listed on an exchange or NASDAQ,
you might find it difficult to obtain accurate prices for or to dispose of our
common stock.
THERE IS NO FIRM COMMITMENT TO PURCHASE OUR SHARES OF COMMON STOCK IN THIS
OFFERING.
There is no commitment on the part of any entity or individual to
purchase all or any part of the shares that we are offering. The shares are
being offered on a "best efforts" basis.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL
NEEDS.
We do not expect our current cash resources and anticipated cash flows
from operating activities to be sufficient to meet our anticipated need for
working capital and, accordingly, it is doubtful that we can continue as a going
concern. We anticipate the need for additional financing in the future in order
to fund continued research and development and to respond to competitive
pressures. Although we have entered into the Investment Agreement with Swartz to
secure equity financing, our ability to raise funds under the Investment
Agreement is subject to certain conditions. These conditions include the
continuing effectiveness of a registration statement covering the resale of the
shares sold under the Investment Agreement, a limitation on the number of shares
we may issue based on our common stock's trading volume and the continued
listing of our stock on a national securities exchange, the NASDAQ National or
SmallCap Market, or the OTC Bulletin Board. We anticipate that our future cash
requirements may be fulfilled by product sales, the sale of additional equity
securities, debt financing and/or the sale or licensing of our technology. We
cannot guarantee, however, that any future funds required in excess of the
proceeds of the Investment Agreement will be generated from operations or from
the aforementioned or other potential sources. We do not have any binding
commitment with regard to additional funds. If adequate funds are not available
or not available on acceptable terms, we may be unable to fund expansion,
develop or enhance products and services or respond to competitive pressures,
any of which could have a material adverse effect on our business, results of
operations and financial condition.
THE EXERCISE OF OUR PUT RIGHTS WITH SWARTZ PURSUANT TO THE INVESTMENT AGREEMENT
MAY LOWER THE MARKET PRICE OF OUR COMMON STOCK AND SUBSTANTIALLY DILUTE THE
INTERESTS OF OTHER HOLDERS OF OUR COMMON STOCK.
AS WE EXERCISE OUR PUT RIGHTS PURSUANT TO OUR INVESTMENT AGREEMENT WITH
SWARTZ, WE WILL BE REQUIRED TO ISSUE SHARES OF OUR COMMON STOCK TO SWARTZ AT A
PRICE BELOW THE PREVAILING MARKET PRICE OF OUR COMMON STOCK.
The shares issuable to Swartz upon exercise of our put rights will be
issued at a price equal to the lesser of (i) the market price for our common
stock minus $0.25 or (ii) 91% of the market price for our common stock.
Accordingly, we will issue the shares issuable to Swartz upon exercise of our
put rights at a rate that will be below the market price of our common stock.
THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE PRICE
OF OUR COMMON STOCK AND ENCOURAGE SHORT SALES.
As we sell shares of our common stock to Swartz pursuant to our put
rights and if, and to the extent that Swartz sells our common stock, our common
stock price may decrease due to the additional shares in the market. As the
price of our common stock decreases, and if we decide to continue to exercise
our right to put shares to Swartz, we will be required to issue more shares of
our common stock for any given dollar amount invested by Swartz, subject to a
minimum put price and/or maximum dollar amount of common stock that may be
designated by us. This may encourage short sales, which could place further
downward pressure on the price of our common stock. Swartz has, however,
indicated to us that it will not engage in short selling of our common stock.
THE EXERCISE OF OUR PUT RIGHTS MAY SUBSTANTIALLY DILUTE THE INTERESTS
OF OTHER HOLDERS.
The shares of our common stock issuable upon exercise of our put rights
will be available for sale immediately upon issuance. Accordingly, subject to
(i) any designated minimum put price and/or maximum dollar amount we may
5
<PAGE>
specify, (ii) any minimum number of shares which we choose to put and (iii) any
volume limitations, as further described under "Selling Stockholders," the
exercise of our put rights may result in substantial dilution to the interests
of the other holders of our common stock and the price of our common stock may
decrease which would entitle Swartz to receive a greater number of shares of our
common stock upon further exercise of our put rights.
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS MAY ADVERSELY AFFECT OUR STOCK
PRICE AND YOUR PERCENTAGE OWNERSHIP.
If all of the warrants that may be issued to Swartz under the
Investment Agreement are issued, there will be outstanding options and warrants
to purchase 6,833,932 shares of our common stock, assuming that we issue
warrants to purchase a total of 1,200,000 shares to Swartz under the Investment
Agreement (including the warrant to purchase 500,000 shares which was already
issued). The number of warrants that we may issue to Swartz under the Investment
Agreement will fluctuate depending on the price at which we put shares to
Swartz, which in turn will depend on the market price of our common stock at the
time of the put. In the future, we may grant more warrants or options under
stock option plans or otherwise. The exercise of stock options and warrants that
are presently outstanding or may be issued in the future will dilute the
percentage ownership of our other stockholders.
The commitment warrant and purchase warrants issued or issuable to
Swartz provide, during their respective terms, an opportunity for Swartz to
profit from a rise in the market price of our common stock with resulting
dilution in the ownership interest in our company held by stockholders. Because
Swartz would most likely opt to exercise the warrants and receive the underlying
common stock at a time when we may be able to obtain capital by a new offering
of securities on terms more favorable than those provided by the warrants, the
terms on which we may be able to obtain additional capital could be adversely
affected.
WE ARE REQUIRED TO MAKE MANDATORY PAYMENTS TO SWARTZ IN CERTAIN CIRCUMSTANCES.
For each six month period during which we have not put at least
$1,000,000 worth of shares to Swartz, we must pay Swartz an amount equal to
$100,000 minus 10% of the aggregate dollar amount of the shares that were put to
Swartz during that period. If we terminate the Investment Agreement or if
certain events occur, such as the delisting of our common stock from a stock
exchange, the NASDAQ market or the OTC Bulletin Board that lasts for a period of
at least four months, we must pay Swartz the greater of the amount described
above or the amount equal to $200,000 minus 10% of the aggregate amount of the
shares put to Swartz to date.
THE LOSS OF JOHN DUPONT, THE FOUNDER OF OUR COMPANY AND DESIGNER OF ITS
PRODUCTS, WOULD ADVERSELY AFFECT OUR ABILITY TO SUCCEED.
We depend heavily on the contributions and efforts of John Dupont who
has over 25 years of experience in the aviation industry and has developed and
designed our key products, i.e., the FF-1080-200, the ETA and the AFRS. His
departure would deprive our company of substantial experience, capability and
vision which we need to successfully complete and market the FF-1080-200
aircraft. The employment agreement that we have negotiated with Mr. Dupont
provides that he will remain with us until February 28, 2005. We have no
assurance, however, that upon the expiration of this agreement, he will remain
in our employ. We intend to obtain key man insurance on the life of Mr. Dupont.
IF WE DO NOT SUCCESSFULLY MANAGE FUTURE GROWTH, OUR ABILITY TO COMPLETE
PRODUCTION OF THE FF-1080-200 AIRCRAFT ACCORDING TO CURRENT SCHEDULES, MAY BE
ADVERSELY AFFECTED.
Currently, we have six full-time and two part-time employees located in
our office in Lawrenceville, Georgia. We have plans to expand our operations
over the next 12 months by adding 25 employees in our Lawrenceville facility,
primarily in the engineering design area. Over the next 12 months, we intend to
construct our permanent headquarters and product completions facility at the
Gwinnett County Airport in Lawrenceville, Georgia at an estimated cost of
approximately $6,780,000. Our plans provide for a possible expansion of the
completions facility at a cost of $2,915,000 which we will undertake if we have
sufficient working capital available and demand for our product is strong. We
are also planning to construct our final assembly facility in Huntsville,
6
<PAGE>
Alabama over the next 18 months at an estimated cost of approximately
$14,555,000. Our plans provide for expansion of the final assembly facility at a
cost of an additional $14,555,000, with the option to build a duplicate assembly
facility at the same location. While we do not currently have leases for any of
these properties, we intend to pursue the negotiation and conclusion of such
agreements, although we cannot guarantee that we will be able to conclude them.
At this time, we have no plans for any additional domestic or international
expansion. If we are unable to manage our anticipated future growth effectively
with its resulting increases in operating, administrative, financial, accounting
and personnel systems, our ability to complete production of the FF-1080-200 on
schedule could be adversely affected.
WE MAY ENCOUNTER OBSTACLES IN COMPLETING CONSTRUCTION OF THE FF-1080-200, WHICH
IS STILL IN THE DEVELOPMENTAL STAGE, SUCH AS PRODUCT SUPPLIER DELAYS, DESIGN AND
ENGINEERING DIFFICULTIES, AND FAA CERTIFICATION DELAYS OR DENIALS.
Our technologies and products are in various stages of development,
which has taken longer than anticipated and could be subject to additional
delays. In particular, the FF-1080-200 aircraft, which will initially be our key
product, is still in the developmental stage and has not yet been constructed.
We anticipate that it will be at least two years before the FF-1080-200 is ready
to be marketed. We may experience product design and engineering difficulties as
we embark on the construction of what until now has only existed as a paper
design. In particular, the aircraft may fail to meet certain design performance
specifications. In addition, we may experience delays in constructing the
FF-1080-200 due to the failure by any manufacturing partner to fulfill its
obligations to us. Finally, the FAA may delay certification of the FF-1080-200
or may determine that it will not grant certification of the FF-1080-200 at all.
Such factors are not within our control. The occurrence of any of these
eventualities would require us to incur additional unplanned expenses which
could adversely impact our business.
BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN THE MAJORITY OF OTHER AEROSPACE
COMPANIES, WE MAY BE AT A COMPETITIVE DISADVANTAGE IF THEY INTRODUCE PRODUCTS
THAT ARE SIMILAR TO OURS.
Most of the other established aerospace companies, such as Boeing and
Airbus, have greater capital resources, more significant research and
development, marketing and distribution programs and facilities, and greater
experience in the production and marketing of aerospace products than we do. We
have identified one potential competitor, the Ayres Corporation, which intends
to build a competitive aircraft designed to transport cargo along short haul
routes, but which has recently entered Chapter 11 bankruptcy proceedings.
Although we have not identified any other companies that are producing or are
contemplating production of aircraft that we believe would be directly
competitive with the FF-1080-200, our ability to compete effectively would be
adversely affected if one of the more established companies that can devote
significant resources to the development, sale and marketing of its products
decides to compete with us.
THE FF-1080-200 MAY NOT ACHIEVE MARKET ACCEPTANCE DUE TO MISCALCULATIONS OF
MARKET DEMAND OR PROFITABILITY OF THE PRODUCT.
The FF-1080-200 may not achieve market acceptance due to
miscalculations by us of the actual market demand for a short to medium range
freight aircraft and the related cost/benefit analyses which form the basis of
our estimates of future profitability. If the market does not accept the
FF-1080-200 or evidences lower than expected needs for such an aircraft, our
ability to continue as a going concern will be adversely affected since the
viability of our company depends on a certain level of commercial success of the
FF-1080-200, which is our key product.
WE MAY NOT BE ABLE TO CONCLUDE AGREEMENTS WITH THE MANUFACTURERS AND SUPPLIERS
THAT WE NEED AS PARTNERS IN OUR BUSINESS.
We currently have an agreement with The Aerostructures Corporation for
the provision of technical design services for a wing system. Although we have
received verbal and in some cases preliminary written commitments from various
other manufacturers and suppliers that we need in order to complete the
construction of the FF-1080-200, we may not be able to conclude binding
agreements with them. Failure to conclude agreements with those companies that
have given us such commitments would require us to locate alternative sources
that are able to allocate a portion of their capacity sufficient to meet our
needs, produce subassemblies of acceptable quality, provide acceptable
manufacturing yields, deliver these products to us on time and be FAA-certified,
which could result in further delays to our production schedule. Such failure
could also require us to spend more money than we had anticipated in
constructing the FF-1080-200, since the preliminary arrangements that we will
attempt to document in binding agreements are supposed to involve favorable
pricing terms.
7
<PAGE>
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS MAY ADVERSELY
AFFECT OUR ABILITY TO COMPETE.
Our success depends significantly upon proprietary technology. We rely
on a combination of patent and trade secret laws, licensing agreements,
non-disclosure agreements and other contractual provisions to establish,
maintain and protect our proprietary rights, all of which afford only limited
protection. We currently have a U.S. design patent issued for the FF-1080-200
and a U.S. method patent issued for the ETA. We also have one U.S. patent
pending for the AFRS. The patent on that pending application may not be issued,
and if issued, any claims allowed may not be sufficiently broad to protect our
rights in such technology. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to infringe aspects of our products or
services or to obtain and use information that we regard as proprietary. We
recently identified a potential source of infringement of our design patent and
we have sent a letter to the appropriate party advising of this potential
infringement. We have subsequently learned that this party has entered into
Chapter 11 bankruptcy proceedings. We will monitor the situation and, if
warranted, we are ready to file a complaint and take whatever action we deem
necessary to protect our intellectual property rights.
OUR ISSUANCE OF PREFERRED STOCK AND OUR RIGHT TO ISSUE ADDITIONAL PREFERRED
STOCK MAY FACILITATE MANAGEMENT ENTRENCHMENT.
Our board of directors has the right to issue up to 7,500,000 shares of
preferred stock and to determine the rights, prices, preferences, privileges,
and restrictions, including voting rights, of these shares without the approval
of our stockholders. We have issued 1,970,787 shares of Series A Convertible
Preferred Stock to two of our officers in exchange for common stock held by
them. The holders are entitled to ten votes for each share of our common stock
into which the Series A Convertible Preferred Stock can be converted. Any
issuance of preferred shares could be used by our current management to delay,
defer or prevent a change in management, which may not be in the best interests
of the holders of our common stock.
8
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock by
the selling stockholders but we will receive funds from the sale of shares of
our common stock directly to new stockholders in the primary offering by our
company. We will also receive proceeds from the sale of our common stock to
Swartz pursuant to the Investment Agreement, and, if exercised, we will receive
proceeds from Swartz upon Swartz's exercise of warrants issued, or which may be
issued, pursuant to the Investment Agreement.
We estimate that the maximum proceeds to us from the sale of the
2,000,000 shares of our common stock that we are offering pursuant to this
prospectus will be approximately $4,000,000. We estimate that the maximum
proceeds from the sale of up to 7,000,000 put shares of our common stock to
Swartz will be approximately $14,000,000. These estimates are based on an
assumed initial public offering price of $2.00 per share. Maximum net proceeds,
which are determined after deducting all expenses of this offering (estimated to
be $154,013), will be approximately $17,845,987, assuming the sale of the
9,000,000 shares noted above.
We intend to use the net proceeds from this offering for working
capital and general corporate purposes, as follows:
<TABLE>
<CAPTION>
<S> <C>
Prototype Aircraft Development $6,995,000
Sales and Marketing Expenses $1,818,000
General and Administrative Expenses $1,176,688
---------------------------------------------------------------------------------------------------
Subtotal Prototype Aircraft Development $9,989,688
Construction of headquarters and completion facility at Gwinnett County Airport $6,780,000
General Working Capital $1,076,299
---------------------------------------------------------------------------------------------------
Total $17,845,987
</TABLE>
DETERMINATION OF OFFERING PRICE
Our management has arbitrarily determined the price at which the shares
are being offered for sale under this prospectus. Prior to this registration of
our common stock, there has been no public market for any of our securities and
we cannot give you any assurance that a market will develop. Broker-dealers and
market makers will determine the price of our common stock when sold by our
selling stockholders in negotiated transactions or in trades over the open
market where we intend to list our common stock. The following are some of the
factors that must be considered by broker-dealers, market makers and investors
in order to determine the price for our securities in the public market:
o Estimates of our business potential;
o Prevailing market conditions in the United States economy and
the market in which we intend to compete; and
o An evaluation of other companies comparable to our company and
their ability to effectively compete with our products.
9
<PAGE>
SELLING STOCKHOLDERS
The shares covered by this prospectus consist of 8,000,000 shares of
our common stock, 500,000 shares reserved for issuance upon exercise of a
commitment warrant granted to a selling stockholder to purchase 500,000 shares
of our common stock and 700,000 shares reserved for issuance upon exercise of
common stock purchase warrants to be granted to a selling stockholder in
connection with the exercise of our put rights. The selling stockholders will
actually determine the number of shares that may be sold by the selling
stockholders.
The following table sets forth information as of December 31, 2000
regarding the selling stockholders. The actual number of shares of our common
stock issuable upon exercise of the warrants to be issued and our put rights is
subject to adjustment and could be materially less or more than the amount set
forth in the table below, depending on factors which we cannot predict at this
time, including, among other factors, the future market price of our common
stock.
Mr. Douglas E. Smith, who has beneficial ownership of more than five
percent of our outstanding common stock, has entered into a lease agreement with
us for the lease of an aircraft. Swartz beneficially owns more than five percent
of our outstanding common stock as a result of its ownership of a warrant to
purchase 500,000 shares that is exercisable within 60 days. Neither Mr. Smith
nor Swartz is an affiliate of ours because neither party, as a result of such
party's ownership of our common stock or warrants to purchase our common stock,
has the ability to control, controls, is controlled by or is under common
control with the Company. Neither of the selling stockholders are or were
affiliated with registered broker-dealers. The selling stockholders have advised
us that they possess sole voting and investment power with respect to the shares
being offered.
The percentages shown in the table are based upon 8,938,969 shares of
our common stock issued and outstanding as of the date of this prospectus. The
numbers shown in the column "Maximum No. of Shares to be Sold in this Offering"
include additional shares that may be issuable to the selling stockholders upon
exercise by us of our put rights and exercise by the selling stockholders of
their warrants.
<TABLE>
<CAPTION>
PERCENT OF MAXIMUM NO. OF
SHARES CLASS OF SHARES SHARES TO BE PERCENT OF CLASS OF
BENEFICIALLY OWNED OWNED BEFORE SOLD IN THIS SHARES OWNED AFTER
NAME OF STOCKHOLDER PRIOR TO OFFERING THE OFFERING OFFERING THE OFFERING
--------------------------- ----------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Swartz Private Equity, LLC(1) 8,200,000 47.93% 8,200,000 0%
1080 Holcomb Bridge Road
200 Roswell Summit
Suite 285
Roswell, GA 30076
Douglas E. Smith(2) 1,608,900 17.70% 1,000,000 3.36%
997 Windy Hill Rd., Suite A
Smyrna, GA 30080
</TABLE>
----------
(1) Represents the estimated maximum number of shares of our common stock
that we may sell to Swartz pursuant to the Investment Agreement, plus
500,000 shares of our common stock underlying a warrant issued to
Swartz in connection with the Investment Agreement and exercisable
within 60 days of the date of this prospectus and 700,000 shares of our
common stock underlying warrants to be granted to Swartz in connection
with the exercise of our put rights. With respect to the exercise of
warrants, the warrants provide that no part of the warrant shall be
exercisable if such ability to exercise would cause Swartz to
beneficially own more than 4.9% of the issued and outstanding common
stock of our company, as determined for purposes of Section 13(d) of
the Securities Exchange Act of 1934. It is expected that Swartz will
not own beneficially more than 9.9% of our outstanding common stock at
any time. Eric S. Swartz beneficially controls Swartz. The Managers of
Swartz are Eric Swartz and Michael Kendrick.
(2) Includes 458,900 shares of our common stock owned by the Smith Family
Trust of which Mr. Smith is the trustee, and 150,000 shares of our
common stock issuable upon exercise of a common stock purchase warrant
that is exercisable by Mr. Smith within 60 days after the date hereof.
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<PAGE>
INVESTMENT AGREEMENT
On May 24, 2000, we entered into an Investment Agreement with Swartz.
The Investment Agreement entitles us to issue and sell our common stock to
Swartz for up to an aggregate of $50,000,000 from time to time during the
three-year period following the effective date of this registration statement.
Each election by us to sell stock to Swartz is referred to as a put right. Our
exercise of put rights will enable us to obtain the working capital that we need
to fund ongoing operations.
PUT RIGHTS. In order to invoke a put right, we must have an effective
registration statement on file with the Securities and Exchange Commission (the
"Commission") registering the resale of the shares of common stock issued as a
consequence of the exercise of that put right. We must also give at least ten
business days' notice (or if more than two months have elapsed since the
previous exercise of a put, at least 20 business days' notice) but not more than
20 business days' advance notice to Swartz of the date on which we intend to
exercise a particular put right and we must indicate the amount of shares of
common stock that we intend to sell to Swartz. At least 25 business days must
elapse between exercises of the puts. At our option, we may also designate a
maximum dollar amount of common stock (not to exceed $3,000,000) that we will
sell under the put and/or a minimum purchase price per common share at which
Swartz may purchase shares under the put. The minimum purchase price may not
exceed 80% of the closing bid price of our common stock on the date on which we
give Swartz advance notice of our exercise of a put right. The number of common
shares sold to Swartz shall equal the lesser of the amount that we designate as
the intended amount of shares that we will sell to Swartz or the lesser of (i)
15% of the aggregate daily reported trading volume of our common stock
(excluding certain block trades) during a period that begins on the business day
immediately following the day we exercise the put right and ends on and includes
the day that is 20 business days after the date we exercise the put right, (ii)
15% of the aggregate daily reported trading volume of our common stock
(excluding certain block trades) during a period that begins on the business day
that is 20 days before the date we exercise the put right, (iii) the lesser of a
Company-designated maximum put dollar amount or $3,000,000, (iv) a number of
shares which, when added with the number of shares acquired by Swartz during the
31 days prior to the put date, will not exceed 9.99% of the total number of
shares of our common stock that would be outstanding upon completion of the put,
or (v) 1,500,000 shares of common stock.
For each share of common stock, Swartz will pay us the lesser of:
o The market price for such share, minus $0.25, or
o 91% of the market price for the share;
provided, however, that Swartz may not pay us less than the designated minimum
per share price, if any, that we indicate in our notice.
Market price is defined as the lowest closing bid price for the common
stock on its principal market during the pricing period. The pricing period is
defined as the 20 business days immediately following the day we exercise the
put right.
WARRANTS. Within five business days after the end of each pricing
period, we are required to issue and deliver to Swartz a warrant to purchase a
number of shares of common stock equal to 10% of the common shares issued to
Swartz in the applicable put. Each warrant will be exercisable at a price that
will initially equal 110% of the market price. Every six months following the
date of issuance, the exercise price of each warrant may be reset to the lower
of (i) the initial exercise price, or then current reset price, or (ii) the
average price of our common stock for the five trading days ending on such six
month anniversary. Each warrant will be immediately exercisable and have a term
beginning on the date of issuance and ending five years thereafter.
LIMITATIONS AND CONDITIONS PRECEDENT TO OUR PUT RIGHTS. Swartz is not
required to acquire and pay for any shares of our common stock with respect to
any particular put for which, between the date we give advance notice of an
intended put and the date the particular put closes:
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<PAGE>
o We have announced or implemented a stock split or combination
of our common stock;
o We have paid a common stock dividend;
o We have made a distribution of all or any portion of our
assets or evidences of indebtedness to the holders of our
common stock; or
o We have consummated a major transaction, such as a sale of all
or substantially all of our assets or a merger or tender or
exchange offer that results in a change of control of our
company.
SHORT SALES. Swartz and its affiliates are prohibited from engaging in
short sales of our common stock unless Swartz has received a put and the amount
of shares involved in the short sale does not exceed the number of shares
specified in the put notice.
CANCELLATION OF PUTS. We must cancel a particular put between the date
of the advance put notice and the last day of the pricing period if:
o We discover an undisclosed material fact relevant to Swartz's
investment decision;
o The registration statement registering resales of the common
shares becomes ineffective; or
o Our shares are delisted from the then primary exchange.
If a put is canceled, it will continue to be effective, but the pricing
period for the put will terminate at the end of the last full trading day prior
to delivery of the put to Swartz. Because the pricing period will be shortened,
the number of shares Swartz will be required to purchase in the canceled put
will be smaller than it would have been had the put not been canceled.
STOCKHOLDER APPROVAL. Under the Investment Agreement, we may sell
Swartz a number of shares that is more than 20% of our shares outstanding on the
date of this prospectus. If we become listed on The NASDAQ Small Cap Market or
NASDAQ National Market, we may be required to obtain stockholder approval to
issue some or all of the shares to Swartz. As our common stock will initially be
quoted on the OTC Bulletin Board, we presently do not need or anticipate needing
stockholder approval.
TERMINATION OF INVESTMENT AGREEMENT. We may terminate our right to
initiate further puts or terminate the Investment Agreement at any time, except
during the pricing period pertaining to any particular put, by providing Swartz
with written notice of such intention to terminate; however, any such
termination will not affect any other rights or obligations we have concerning
the Investment Agreement or any related agreement. The Investment Agreement will
automatically terminate if a registration statement for resale of the common
stock is not declared effective by May 24, 2001.
RESTRICTIVE COVENANTS. During the term of the Investment Agreement and
for a period of one year after the Investment Agreement is terminated, we are
prohibited from engaging in certain transactions. These include the issuance of
any equity securities, or debt securities convertible into equity securities,
for cash in a private transaction without obtaining the prior written approval
of Swartz. We are also prohibited, during that period of time, from entering
into any agreements with respect to private equity lines similar to the
Investment Agreement without obtaining Swartz's prior written approval.
MANDATORY PAYMENTS. For each six month period during which we have not
put at least $1,000,000 worth of shares to Swartz, we must pay Swartz an amount
equal to $100,000 minus 10% of the aggregate dollar amount of the shares that
were put to Swartz during that period. This represents the amount that we
negotiated with Swartz in consideration for its commitment costs, including due
diligence expenses. If we terminate the Investment Agreement or if certain
events occur, such as delisting from a stock exchange, the NASDAQ market or the
OTC Bulletin Board that lasts for a period of at least four months, we must pay
Swartz the greater of the amount described above or the amount equal to $200,000
minus 10% of the aggregate amount of the shares put to Swartz to date.
RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to
participate in any private capital-raising transaction of equity securities that
closes from the date of the Investment Agreement (May 24, 2000) through one year
after the Investment Agreement is terminated.
12
<PAGE>
SWARTZ'S RIGHT OF INDEMNIFICATION. We have agreed to indemnify Swartz
(including its stockholders, officers, directors, employees, investors and
agents) from all liability and losses resulting from any misrepresentations or
breaches we make in connection with the Investment Agreement, our registration
rights agreement, other related agreements, or the registration statement.
ADDITIONAL SECURITIES BEING REGISTERED
On July 11, 2000, we issued a convertible subordinated promissory note
to Douglas E. Smith in the aggregate principal amount of $1,000,000 bearing
interest at the rate of six percent per annum. The note was convertible into
1,000,000 shares of our common stock at a conversion price of $1.00 per share.
On October 9, 2000, Mr. Smith informed us that he would exercise his conversion
right. All of these shares are being registered for resale by this prospectus.
PLAN OF DISTRIBUTION
Swartz and the other selling stockholder may offer all or a portion of
their shares offered by this prospectus for sale, from time to time, pursuant to
this prospectus, in one or more private negotiated transactions, in open market
transactions in the over-the-counter market, in settlement of options
transactions, or otherwise, or by a combination of these methods, at fixed
prices, at market prices prevailing at the time of the sale, at prices related
to such market prices, at negotiated prices or otherwise. Swartz and the other
selling stockholder may effect these transactions by selling shares directly to
one or more purchasers or to or through broker-dealers or agents. The
compensation to a particular broker-dealer or agent may be in excess of
customary commissions.
To our knowledge, neither Swartz nor the other selling stockholder has
made any arrangement with any brokerage firm for the sale of the shares. Swartz
and the other selling stockholder have advised us that they presently intend to
dispose of the shares through broker-dealers in ordinary brokerage transactions
at market prices prevailing at the time of the sale. However, depending on
market conditions and other factors, Swartz and the other selling stockholder
may also dispose of the shares through one or more of the other methods
described above.
Swartz is, and the other selling stockholder may be deemed to be, an
"underwriter" within the meaning of the Securities Act in connection with each
sale of their shares. Any broker-dealers or agents who act in connection with
the sale of the shares may also be deemed to be underwriters. Profits on any
resale of the shares by Swartz and any discounts, commissions or concessions
received by such broker-dealers or agents will be deemed to be underwriting
discounts and commissions under the Securities Act. Because Swartz is, and the
other selling stockholder may be deemed to be, an underwriter within the meaning
of Section 2(a)(11) of the Securities Act, the selling stockholders will be, in
the case of Swartz, and may be in the case of the other selling stockholder,
subject to the prospectus delivery requirements of Section 5 of the Securities
Act for transactions involving the sale of the Company's common stock.
We have informed Swartz that the anti-manipulation rules of the
Commission, including Regulation M promulgated under the Securities Exchange Act
of 1934, will apply to its sales in the market, and we have informed the other
selling stockholder that these anti-manipulation rules may apply to its sales in
the market. Regulation M may limit the timing of purchases and sales of any of
the shares of our common stock by the selling stockholders and any other person
distributing our common stock. Furthermore, Regulation M of the Securities
Exchange Act may restrict the ability of any person engaged in the distribution
of shares of our common stock to engage in market-making activities with respect
to the particular shares of common stock being distributed for a period
beginning five business days prior to the commencement of such distribution and
ending upon such person's completion of participation in the distribution. All
of the foregoing may affect the marketability of our common stock and the
ability of any person or entity to engage in market-making activities with
respect to our common stock. Rules 101 and 102 of Regulation M under the
Securities Exchange Act, among other things, generally prohibit certain
participants in a distribution from bidding for, purchasing or inducing any
person to bid for or purchase, any of the securities that are the subject of the
distribution. Rule 104 of Regulation M governs bids and purchases made to
stabilize the price of a security in connection with a distribution of the
security. We have provided the selling stockholders with a copy of such rules
and regulations. The selling stockholders have informed us they will not be
engaging in short selling.
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<PAGE>
Swartz and the other selling stockholder will pay all commissions,
transfer taxes and other expenses associated with their sales. The shares
offered hereby are being registered pursuant to our contractual obligations, and
we have agreed to pay the expenses of the preparation of this prospectus. We
have also agreed to indemnify Swartz against certain liabilities, including,
without limitation, liabilities arising under the Securities Act.
Also, 2,000,000 shares being offered in this offering are being sold
directly by us and without an underwriter. We intend to market the 2,000,000
shares through general advertising media but only in those states where this
offering is authorized. For information on how to subscribe, call (212) 473-3700
and ask for Cynthia Demonte.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. However, on
September 15, 2000, we notified a company that we believe may be infringing, or
may be about to infringe, our design patent for the FF-1080-200 aircraft, of its
potential infringement. We have subsequently learned that this company has
entered into Chapter 11 bankruptcy proceedings. We will monitor the situation,
and we are ready to file a formal complaint against the company if required in
order to protect our intellectual property rights.
We have recently settled a claim for deferred compensation in the
aggregate amount of $315,850 allegedly owed to Mr. Chester D. Taylor, a former
director and consultant of our company. Pursuant to this settlement, we issued
Mr. Taylor a warrant to purchase 50,000 shares of our common stock at an
exercise price of $3.00 per share.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our current directors, executive officers and
significant employees:
NAME AGE POSITION
---- --- --------
John J. Dupont 53 President, Chief Executive Officer,
Director
James S. Carey 48 Executive Vice President; Vice
President of Marketing; Secretary;
Director
R. Darby Boland 49 Vice President, General Manager,
Director
Edward F. Eaton 52 General Counsel, Director
Thomas A. Dapogny 38 Vice President of Operations
M. Karen Shoemaker 43 Principal Accounting Officer
JOHN J. DUPONT
PRESIDENT AND CHIEF EXECUTIVE OFFICER; DIRECTOR
Mr. Dupont has been a director and President and Chief Executive
Officer of our company since 1990. From 1984 to 1989, Mr. Dupont was the
President and CEO of Skytrader Corporation, an aeronautical research and
development firm which he founded in 1984, and where he designed the UV-23 Scout
STOL (Skytrader). From 1989 through July 1990, Mr. Dupont was President of
Advanced Lift Research, Inc. where he completed a design feasibility study,
market review and operational competitive analysis of a new 17,000 lb. aircraft
design, the UC-219, specifically for the worldwide combination passenger/freight
market.
JAMES S. CAREY
EXECUTIVE VICE PRESIDENT; VICE PRESIDENT OF MARKETING, DIRECTOR
Mr. Carey has been the Executive Vice President of Marketing and a
director of our company since 1991. From 1985 to 1991, Mr. Carey was the Senior
Vice President of Airline Economics, Inc. where he developed production
processes for Airline Economics' publications, THE AIRLINE QUARTERLY and BLUE
CHIP AIRLINE FINANCIAL INDICATORS. He also supervised and/or performed all
project research for Airline Economics' consulting activities, airline traffic
forecasts, unit cost analysis, airline route and profitability analysis, and
airline asset valuation. Prior to that, Mr. Carey was the Director of Research
and a Director of Avmark, Inc. where he was responsible for preparation of its
airline statistical publications. He conducted aircraft values research and
performed aircraft appraisals and financial analyses for U.S. and foreign
airlines. Mr. Carey has also operated his own company, Micro Associates, which
assisted individuals and businesses in the introduction of microcomputers,
developed an aircraft leasing analysis system, provided assistance to Airline
Economics, Inc. in airline statistical publications, and instituted several
personal computer training programs. Mr. Carey has a Bachelor of Science degree
from Northeastern University in the fields of business administration and
aviation technology.
R. DARBY BOLAND
VICE PRESIDENT, GENERAL MANAGER, DIRECTOR
Mr. Boland has been the Vice President and General Manager of our
company since 1999 and a director since 2000. From 1975 to 1978, he was a Design
and Logistics Engineer with McDonnell Douglas Corporation in connection with the
F4, F15, Harpoon and Cruise Missile programs. From 1978 to 1989, he was the
Executive Manager with Southwestern Bell Corporation, where he was responsible
for the design, implementation and marketing technical support of fiber-optic
network systems for long distance and cellular service providing companies. From
1989 to 1992, he was the Director of Corporate Development of Restore
Industries, a telecommunications service equipment provider. In 1988, Mr. Boland
founded B&H Machine, Inc., a design manufacturer of metal cutting die products,
where he served as President and Chief Executive Officer, and financed the sale
15
<PAGE>
of the company in 1996. After 1996, Mr. Boland assisted American Utilicraft with
the ongoing development of their program until his recent appointment to Vice
President, General Manager and Director. Mr. Boland is a graduate of St. Louis
University with a B.S. degree in Aeronautical Engineering Management.
EDWARD F. EATON
GENERAL COUNSEL, DIRECTOR
Mr. Eaton has been a director of our company since 1992. He is an
attorney with Connolly, Bove, Lodge & Hutz of Wilmington, Delaware, where he has
been a partner since 1991. He practices in the areas of litigation, criminal
law, real estate law, and business and commercial law, and has been employed
with Connolly, Bove since 1986. Mr. Eaton received his J.D. from Temple
University and his Bachelor's degree from Cornell University.
THOMAS DAPOGNY
VICE PRESIDENT OF OPERATIONS
Mr. Dapogny has been the Vice President of Operations since 1998. From
1986 to 1997, he served as a consultant in information systems development for
clients such as E-Systems/Raytheon, Ernst & Young, CACI, Global One, CSC and
National Computer Systems. His project work included CASE tool management;
analysis and design; rapid prototype design and production; management and
production of system life-cycle technical, management, and user documentation;
development and production of Help systems; curriculum design and training
material production; user-group management; and contract proposal development.
M. KAREN SHOEMAKER
PRINCIPAL ACCOUNTING OFFICER
Ms. Shoemaker has been the Principal Accounting Officer of our company
since 2000. From 1988 to 2000, she served as President of By the Numbers, Inc.,
an accounting management consulting firm, which provided management of automated
accounting services, controller services and consulting services including
interface of payroll and order entry and other exterior programs with accounting
programs; and selection and implementation of automated accounting and payroll
systems for over 35 companies.
BOARD OF DIRECTORS
Upon this offering, we will have four directors. In accordance with our
amended Bylaws, the terms of office of the members of our board of directors are
divided into three classes: Class I, whose term will expire at the annual
meeting of our stockholders to be held in 2001, Class II, whose term will expire
at the annual meeting of our stockholders to be held in 2002 and Class III,
whose term will expire at the annual meeting of our stockholders to be held in
2003. Mr. Carey serves as the Class I director, Mr. Boland serves as the Class
II director, and Mr. Dupont and Mr. Eaton serve as the Class III directors. At
each annual meeting of our stockholders beginning with the 2001 annual meeting,
the successors to directors whose terms then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election and until their successors have been elected. If we add
additional directors, they will be distributed among the three classes so that,
as nearly as possible, each class will consist of one-third of the total number
of directors. The classification of our board of directors may have the effect
of delaying or preventing changes in control of our management.
There are no existing requirements regarding the composition of the
board of directors or any committees thereof.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the President
and Chief Executive Officer and two executive officers whose total compensation
exceeded $100,000 for fiscal year 2000, for services rendered in all capacities
to our company for each of the last three fiscal years. All the individuals
named in the table will hereinafter be referred to as the "Named Executive
Officers."
16
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
-------------------------------------------- ----------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
John J. Dupont (1) 2000 $200,000 $ 0 $ 0
President and Chief Executive Officer 1999 $200,000 $ 0 $ 0
1998 $200,000 $ 0 $ 0
-------------------------------------------- ----------- ------------------ --------------- -------------------
James S. Carey (2) 2000 $125,000 $1,500 $ 0
Executive Vice President; Vice 1999 $125,000 $ 0 $ 0
President of Marketing 1998 $125,000 $ 0 $ 0
-------------------------------------------- ----------- ------------------ --------------- -------------------
Thomas Dapogny (3) 2000 $100,000 $1,500 $ 0
Vice President of Operations; 1999 $100,000 $ 0 $ 0
1998 $ 60,000 $ 0 $ 0
-------------------------------------------- ----------- ------------------ --------------- -------------------
</TABLE>
(1) Mr. Dupont elected to defer a portion of his compensation for each of
the three fiscal years in the following amounts: (i) for 1998 he
deferred $84,792, (ii) for 1999 he deferred $35,882, and (iii) for 2000
he deferred $50,000. Mr. Dupont has been deferring a portion of his
compensation each year since 1990. As of December 31, 1999, Mr. Dupont
had deferred an aggregate of $410,962 in compensation. In October 2000
Mr. Dupont elected to convert all deferred compensation due him as of
December 31, 1999 into a warrant to purchase shares of our common
stock. For each dollar of deferred compensation owed to him, he
received a warrant to purchase one share of our common stock for a
total of 410,962 shares. The warrants have an exercise price of $3.00,
expire on the third anniversary of the date of issuance and vest as
follows: 50% immediately, 25% on the first anniversary of the date of
the warrant and 25% on the second anniversary of the date of the
warrant.
(2) Mr. Carey elected to defer a portion of his compensation for each of
the three fiscal years in the following amounts: (i) for 1998 he
deferred $73,700, (ii) for 1999 he deferred $30,961 and (iii) for 2000
he deferred $47,500. Mr. Carey has been deferring a portion of his
compensation each year since 1991. As of December 31, 1999, Mr. Carey
had deferred an aggregate of $336,461 in compensation. In October 2000
Mr. Carey elected to convert all deferred compensation due him as of
December 31, 1999 into a warrant to purchase shares of our common
stock. For each dollar of deferred compensation owed to him he received
a warrant to purchase one share of our common stock for a total of
336,461 shares. The warrants have an exercise price of $3.00, expire on
the third anniversary of the date of issuance and vest as follows: 50%
immediately, 25% on the first anniversary of the date of the warrant
and 25% on the second anniversary of the date of the warrant.
(3) Mr. Dapogny joined our company in 1998. He elected to defer a portion
of his compensation for each of the two fiscal years in the following
amounts: (i) for 1998 he deferred $49,500, (ii) for 1999 he deferred
$21,231 and (iii) for 2000 he deferred $25,000. As of December 31,
1999, Mr. Dapogny had deferred an aggregate of $70,731. In October 2000
Mr. Dapogny elected to convert all deferred compensation due him as of
December 31, 1999 into a warrant to purchase shares of our common
stock. For each dollar of deferred compensation owed to him he received
a warrant to purchase one share of our common stock for a total of
70,731 shares. The warrants have an exercise price of $3.00, expire on
the third anniversary of the date of issuance and vest as follows: 50%
immediately, 25% on the first anniversary of the date of the warrant
and 25% on the second anniversary of the date of the warrant.
EMPLOYMENT AGREEMENT WITH JOHN DUPONT
We entered into an employment agreement with John Dupont, the President
and Chief Executive Officer, on February 28, 1991, which was amended on April 6,
1999 to renew the Agreement for another six years until February 28, 2005. The
employment agreement was also amended on October 4, 2000 to adjust Mr. Dupont's
compensation as follows: (i) effective January 1, 1997, Mr. Dupont's annual base
salary was increased to $150,000, (ii) effective January 1, 1998, Mr. Dupont's
annual base salary was increased to $200,000 and (iii) upon the effectiveness of
this registration statement and our company becoming a reporting company under
the Securities Exchange Act of 1934, Mr. Dupont's base salary will be increased
to $250,000. The amendment also provides that we can elect to defer Mr. Dupont's
17
<PAGE>
compensation in the event that we have insufficient funds to pay said
compensation when earned. The employment agreement provides that Mr. Dupont will
devote his full time and efforts to our company once financing of approximately
$20,000,000 is in place. In addition, at such time, we will lend Mr. Dupont up
to $500,000, to be repaid by Mr. Dupont without interest from and at the rate of
50% of the first commissions paid to Mr. Dupont on the sale of the aircraft, as
described below. Mr. Dupont will also receive commissions of four percent of the
gross sale price of aircraft that we or any of our partners sell. In addition,
Mr. Dupont will earn an annual bonus of four percent of our net profits in any
given fiscal year in which Mr. Dupont worked for us. If Mr. Dupont's employment
with us is terminated as a result of a change in control of our company or if we
terminate Mr. Dupont's employment, Mr. Dupont will receive a lump sum payment of
ten times the average amount of his annual base salary and ten times the average
amount of bonus payments, paid for five years prior to the date of termination.
Mr. Dupont will also be able to surrender any stock option that he may own at
the higher of the option price and the price of the stock on the date of the
change of control or the date of termination. He will also have all employee
benefits that he receives paid for an additional two years.
EMPLOYMENT AGREEMENT WITH JAMES CAREY
We entered into an employment agreement with James Carey, the Executive
Vice President and Vice President of Marketing, on August 15, 1991, which was
amended on April 6, 1999 to renew the Agreement for six years until February 28,
2005. The employment agreement was also amended on October 4, 2000 to adjust Mr.
Carey's compensation as follows: (i) effective January 1, 1997, Mr. Carey's
annual base salary was increased to $100,000, (ii) effective January 1, 1998,
Mr. Carey's annual base salary was increased to $125,000 and (iii) upon the
effectiveness of this registration statement and our company becoming a
reporting company under the Securities Exchange Act of 1934, Mr. Carey's base
salary will be increased to $175,000. The amendment also provides that we can
elect to defer Mr. Carey's compensation in the event that we have insufficient
funds to pay said compensation when earned. Mr. Carey will also receive
commissions of 0.50% of the gross sale price of aircraft that we or any of our
partners sell. If we terminate Mr. Carey's employment for any reason other than
for cause, we will pay Mr. Carey a lump sum payment of two times the average
amount of his annual base salary. If Mr. Carey's employment is terminated other
than for cause as a result of a change in control, he shall receive a lump sum
payment of ten times the amount of his annual base salary, allowance of
surrender of stock options at the higher of the option price and the price of
the stock on the date of the change of control or date of termination and
employee benefits for an additional two years.
EMPLOYMENT AGREEMENT WITH THOMAS DAPOGNY
We entered into a three-year employment agreement with Thomas Dapogny,
the Vice President of Operations, on July 15, 2000. The employment agreement was
amended on October 4, 2000 to adjust Mr. Dapogny's compensation as follows: (i)
Mr. Dapogny's annual base salary will be $100,000 and (ii) upon the
effectiveness of this registration statement and our company becoming a
reporting company under the Securities Exchange Act of 1934, Mr. Dapogny's base
salary will be increased to $125,000. The amendment also provides that we can
elect to defer Mr. Dapogny's compensation in the event that we have insufficient
funds to pay said compensation when earned. We will also pay Mr. Dapogny a bonus
of .125% of the price of any FF-1080-200 aircraft that is sold if such sale is
attributed to Mr. Dapogny. If we terminate Mr. Dapogny's employment for any
reason other than for cause, we will pay Mr. Dapogny a lump sum payment of two
times the average amount of his annual base salary. If Mr. Dapogny's employment
is terminated other than for cause as a result of a change in control, he shall
receive a lump sum payment of ten times the amount of his annual base salary,
allowance of surrender of stock options at the higher of the option price and
the price of the stock on the date of the change of control or date of
termination and employee benefits for an additional two years.
DIRECTORS' COMPENSATION
Our bylaws authorize our Board of Directors to fix the compensation of
directors for services related to their membership in Board committees and allow
the reimbursement of expenses of directors for their attendance at each meeting
of our Board of Directors.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 15, 2001, certain
information as to shares of our voting stock owned by (i) each person known to
beneficially own more than five percent of our outstanding voting stock, (ii)
each director, including nominees for director, and each executive officer of
our company, and (iii) all executive officers and directors of our company as a
group. Unless otherwise indicated, the address of each named beneficial owner is
the same as that of our company's principal executive offices located at 300
Petty Road N.E., Suite B, Lawrenceville, Georgia 30043.
<TABLE>
<CAPTION>
SHARES OF
VOTING STOCK PERCENTAGE OF CLASS
BENEFICIALLY BENEFICIALLY
NAME (AND ADDRESS) OF BENEFICIAL OWNER (1) TITLE OF CLASS OWNED (2)(3) OWNED
--------------------------------------- -------------- ------ -----
<S> <C> <C> <C>
John J. Dupont (4) Series A Preferred 1,083,000 54.95%
Common 1,288,481 12.60%
R. Darby Boland (5) Series A Preferred 887,787 45.05%
Common 887,787 9.03%
James S. Carey (6) Common 323,271 3.55%
Edward Eaton Common 101,232 1.13%
Thomas Dapogny (7) Common 129,722 1.45%
Douglas E. Smith (8) Common 1,608,900 17.70%
Karen Morgison (9) Common 1,209,329 13.34%
Patricia D. Parsons Common 912,000 10.20%
Harlyn Hubbs Common 779,076 8.72%
Swartz Private Equity, LLC (10) Common 500,000 5.30%
Leroy Svendsen Common 478,800 5.36%
Robert Young Common 456,000 5.10%
All executive officers and directors as a
group (5 persons)............................... Common 2,730,493 24.12%
Series A Preferred 1,970,787 100.00%
</TABLE>
-----------
(1) Mr. Smith's address is 997 Windy Hill Rd., Suite A, Smyrna, GA 30080;
Ms. Morgison's address is 1000 96th Terrace NE, Kansas City, MO 64155;
Ms. Parson's address is 2820 Sugarloaf Club Dr., Duluth, GA 30097; Mr.
Hubbs' address is 7230 Covered Bridge Dr., Waterloo, IL 62298; Mr.
Svendsen's address is 9015 Sumac Cove, San Antonio, TX 78266; and Mr.
Young's address is 6718 Whittier Ave., Suite 220, McLean, VA 22101.
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<PAGE>
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Pursuant to the rules of the
Securities and Exchange Commission, shares of our common stock that
each named person and group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights,
are deemed outstanding for purposes of computing shares beneficially
owned by and the percentage ownership of each such person and group.
However, such shares are not deemed outstanding for purposes of
computing the shares beneficially owned by or percentage ownership of
any other person or group.
(3) Unless otherwise noted, all shares listed are owned of record and the
record owner has sole voting and investment power, subject to community
property laws where applicable and the information contained in the
footnotes to this table.
(4) Includes 1,083,000 shares of our common stock issuable upon conversion
of our Series A Convertible Preferred Stock and 205,481 shares of our
common stock issuable upon exercise of a common stock purchase warrant
exercisable by Mr. Dupont at or within 60 days after the date hereof.
(5) Includes 887,787 shares of our common stock issuable upon conversion of
our Series A Convertible Preferred Stock convertible by Mr. Boland at
or within 60 days after the date hereof.
(6) Includes 168,231 shares of our common stock issuable upon exercise of a
common stock purchase warrant that is exercisable by Mr. Carey at or
within 60 days after the date hereof.
(7) Includes 35,366 shares of our common stock issuable upon exercise of a
common stock purchase warrant that is exercisable by Mr. Dapogny at or
within 60 days after the date hereof.
(8) Includes 458,900 shares of our common stock owned by the Smith Family
Trust of which Mr. Smith is the trustee, and 150,000 shares of our
common stock issuable upon exercise of a common stock purchase warrant
that is exercisable by Mr. Smith at or within 60 days after the date
hereof.
(9) Includes 126,329 shares of our common stock issuable upon exercise of a
common stock purchase warrant that is exercisable by Edward Morgison,
the spouse of Karen Morgison, at or within 60 days after the date
hereof.
(10) Includes 500,000 shares of our common stock issuable upon exercise of a
common stock purchase warrant that is exercisable by Swartz Private
Equity, LLC at or within 60 days after the date hereof.
20
<PAGE>
DESCRIPTION OF SECURITIES
The following description summarizes some of the terms of our capital
stock and provisions of our amended Certificate of Incorporation and Bylaws,
which have been filed as exhibits to our registration statement, and is
qualified in its entirety by reference to our amended Certificate of
Incorporation and Bylaws.
On the closing of this offering, our authorized capital stock will
consist of 35,000,000 shares of common stock, $0.00001 par value per share, and
7,500,000 shares of preferred stock, $0.00001 par value per share, of which
1,970,787 have been designated as Series A Convertible Preferred Stock. As of
the date of this prospectus, there were 8,938,969 shares of our common stock
outstanding and held of record by 54 holders and 1,970,787 shares of our Series
A Convertible Preferred Stock outstanding and held of record by 2 holders.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of our common stock
are entitled to receive such lawful dividends as may be declared by our board of
directors. In the event of our liquidation, dissolution or winding up, the
holders of shares of our common stock shall be entitled to receive pro rata all
of our remaining assets available for distribution to our stockholders. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and shares
of common stock to be issued pursuant to the Investment Agreement, when issued
and fully paid for by Swartz, will be fully paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority, without further action by our
stockholders, to issue up to 7,500,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions of these
shares of preferred stock without any further vote or action by our
stockholders. These rights and preferences include dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of the series. The issuance of our preferred stock could adversely affect the
voting power of holders of our common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control.
SERIES A CONVERTIBLE PREFERRED STOCK
Our company has filed a Certificate of Designation with the Secretary
of the State of Delaware to designate 1,970,787 shares of our preferred stock as
Series A Convertible Preferred Stock, with a par value equal to $0.00001 per
share. The Series A Convertible Preferred Stock has the following rights,
preferences and privileges.
DIVIDENDS
The holders of our Series A Convertible Preferred Stock are entitled to
such lawful dividends as may be declared by our board of directors on the shares
of our common stock, on a pro rata basis and PARI PASSU with our common stock.
CONVERSION
Initially, each share of Series A Convertible Preferred Stock will be
immediately convertible into one share of our common stock at the election of
the holder thereof. Each share of Series A Convertible Preferred Stock will be
automatically converted on the date that is six months after the date we receive
approval of our FF-1080-200 from the FAA. The conversion price of the Series A
Convertible Preferred Stock is initially equal to $1.00 per share and is subject
to adjustment upon the occurrence of certain events.
LIQUIDATION
Upon the liquidation, dissolution or winding up of our company, the
holders of our Series A Convertible Preferred Stock will be entitled to
participate, on a pro rata basis and PARI PASSU with the holders of our common
stock, in the distribution of our remaining assets available for distribution to
our stockholders.
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<PAGE>
VOTING
Prior to conversion, the holders of our Series A Convertible Preferred
Stock shall be entitled to ten votes for each share of our common stock into
which the Series A Convertible Preferred Stock could then be converted.
WARRANTS
As of October 10, 2000, the following warrants to purchase our common
stock were outstanding: (i) a warrant to purchase an aggregate of 500,000 shares
of our common stock at an exercise price equal to $1.00 per share, which expires
on May 3, 2005; (ii) a warrant to purchase 150,000 shares of our common stock
at an exercise price equal to $3.00 per share, which expires on September 13,
2003; (iii) warrants to purchase an aggregate of 2,520,000 shares of our common
stock at an exercise price equal to $5.00 per share, which expire on October 6,
2003; (iv) warrants to purchase an aggregate of 465,120 shares of our common
stock at an exercise price equal to $3.00 per share, which expire on October 6,
2003; and (v) warrants to purchase an aggregate of 2,498,812 shares of our
common stock at an exercise price equal to $3.00 per share, which expire on
October 6, 2003.
The warrants contain provisions that protect the holder against
dilution by adjustment of the exercise price. Such adjustments will occur in the
event, among others, of a merger, stock split or reverse stock split, stock
dividend or recapitalization. We are not required to issue fractional shares
upon the exercise of any warrant. The holder of the warrant will not possess any
rights as a stockholder of our company until the holder exercises the warrant.
The warrant may be exercised upon surrender on or before the expiration date of
the warrant at our office, with payment of the exercise price for the number of
shares with respect to which the warrant is being exercised. The exercise price
is payable either by (i) cash exercise, (ii) cashless exercise, or (iii) by a
combination of them, at the election of the holder of the warrants. The cashless
exercise of a warrant occurs when a number of shares of our common stock
underlying the warrant and having a fair market value equal to the aggregate
exercise price are canceled as payment of the exercise price.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203 of the Delaware General Corporation Law, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock. The existence of this provision would
be expected to have anti-takeover effects with respect to transactions not
approved in advance by our board of directors, such as discouraging takeover
attempts that might result in a premium over the market price of our common
stock.
In addition, some provisions of our Certificate of Incorporation and
Bylaws may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in a premium over
the market price for the shares held by our stockholders. These provisions
include:
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o BOARD OF DIRECTORS. Our board of directors is divided into
three classes of directors serving staggered terms. Our
amended Bylaws authorize our board of directors to fill vacant
directorships. Accordingly, even if a stockholder succeeds in
a proxy contest, he or she would likely only be able to elect
a minority of our board of directors.
o AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued
shares of our common stock and preferred stock are available
for future issuance without stockholder approval. These
additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued and
unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of our
company by means of a proxy contest, tender offer, merger or
otherwise.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company will act as transfer agent
and registrar for our common stock upon the effectiveness of this Registration
Statement.
INTEREST OF NAMED EXPERTS AND COUNSEL
None.
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DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the following provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that such a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Our Bylaws require us to indemnify each of our directors and officers,
whether or not then in office, with respect to expenses actually and reasonably
incurred by such persons in any threatened, pending or completed actions or
proceedings and appeals, whether civil, criminal, administrative or
investigative, in accordance with and to the fullest extent permitted by the
General Corporation Law of the state of Delaware or other applicable law, as
such law now exists or may hereafter be adopted or amended.
Our amended Certificate of Incorporation provides that pursuant to
Delaware law, our directors shall not be liable for monetary damages for breach
of the director's fiduciary duty as a director to our company and our
stockholders. This provision in the amended Certificate of Incorporation does
not eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to our
company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Provisions of the Investment Agreement also require us to indemnify and
hold harmless Swartz and all its stockholders, officers, directors, employees
and direct or indirect investors and any of their agents, members, partners or
other representatives from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages and
related expenses, including reasonable attorney's fees and disbursements,
incurred as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of a representation or warranty that we made in the
Investment Agreement or any related documents, (b) any breach of any covenant,
agreement or obligation of ours contained in the Investment Agreement or any
related documents, or (c) any cause of action, suit or claim, derivative or
otherwise, by any of our stockholders based on a breach by us or any of our
officers or directors of their fiduciary or other obligations to our
stockholders.
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BUSINESS
We were incorporated in Delaware on August 9, 1990 under the name
"American Utilicraft Corporation".
INDUSTRY BACKGROUND
Prior to the de-regulation of the U.S. airline industry, air cargo was
the monopoly of the scheduled air carriers that carried airfreight and mail over
Government-designated route systems. The airlines, for the most part, flew
linear routes from city to city, distributing freight and mail along the way.
Following de-regulation, the airlines organized route systems into more
efficient hub-and-spoke networks. The benefit of this system is that the
carriers can consolidate passengers from many small spoke cities within a
geographic region at a single hub airport. This practice helps to ensure that
long-haul flights from the hubs to other U.S. regions and international cities
have full loads.
In the early 1970s, Federal Express, Inc. expanded on the hub-and-spoke
concept, tailoring it for the fast movement of cargo. The unique feature of the
Federal Express concept was a nighttime hub which was more compatible with
shippers' practices of manufacturing during the day, consolidating shipments in
the afternoon, and shipping products out the door as late as possible during the
evening. By using the speed of dedicated all-cargo aircraft in its shipping
system, Federal Express made the nighttime hub-and-spoke the fastest way to ship
packages and goods, creating an entirely new service, the overnight express
product.
Both the passenger and freight hub-and-spoke systems proved to be
effective and profitable. By the mid 1980s, most major passenger and freight
airlines had implemented hub operations. With an efficient air system in place,
growing consumer demand for passenger and air cargo services was easily met.
More cities were added as spoke cities, including small or medium-sized cities
with limited amounts of demand. Turboprop feeder aircraft met the increasing
demand for passenger air service from smaller cities. However, these aircraft
did not provide any useful capacity for air cargo.
By the end of the 1990s, overnight express air cargo airlines had small
cargo feeder aircraft flying in most U.S. small or medium-sized cities; i.e.,
cities that did not have shipments large enough or runways long enough to
justify the use of a cargo jet. However, the demand for traditional express
cargo services from small cities has grown so rapidly that today many cities
require more than one aircraft to carry the daily loads. Additionally, the
acceptance of Internet retailing or e-commerce is predicted to increase the
requirement for small package delivery to homes with an Internet connection even
more. E-commerce will require new distribution services to and from both large
and small communities. The problem facing the cargo airlines today is the fact
that the demand for faster air cargo services to small or medium-sized cities is
growing beyond the capacity of currently available feeder aircraft.
TRENDS IN AIR CARGO TRAFFIC
Although periodically affected by industry and international political
developments, world air cargo traffic has maintained a steady long-term growth
rate since 1970, according to the World Air Cargo Forecast, published annually
by the Boeing Commercial Airplane Group. The forecast indicates that for the
last twenty years, global long term air cargo traffic has increased at an
average rate of over 7.8% annually, more than 2.5 times greater than the rate of
world GDP growth. Boeing predicts that growth of air cargo demand will continue,
with the world airfreight market expected to grow at a rate of 6.4% per year
through 2017. At this rate of growth, air cargo traffic will triple between 1997
and 2017. The airfreight statistics of the U.S. Air Transport Association
support the validity of that forecast, reporting a rise of 6.9% in U.S.
airfreight between 1998 and 1999.
However, demand in the United States for express air cargo services,
(i.e., next day and two day delivery) has out-paced world air cargo growth. For
example, based on the U.S. Department of Transportation Airport Activity
Statistics comparing 1997 to 1990, total cargo enplanements of the integrated
express airlines (Federal Express, United Parcel Service, and DHL) increased at
a rate of 7.4% per year while passenger airline cargo enplanements increased at
a rate of only 2.2% per year. Additionally, the Boeing Commercial Airplane Group
is forecasting that international express freight shipments between countries
within two to three days will grow 18% per year between 1999 and 2017.
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There are several reasons for the rapid increase in the use of air
transportation to move commodities around the world. The four primary reasons
are:
1. The explosion of business-to-business and business-to-consumer
Internet sales, all requiring individual shipments to final
destination,
2. Accelerated corporate efforts to build multinational
businesses and manufacturers,
3. The ability of multinational businesses to place manufacturing
facilities in countries with substantially lower labor costs,
and
4. Increasing activity by world governments and businesses to
reduce trade barriers and to stimulate foreign trade and
investment.
Beyond the contribution of these changes to increases in the use of air
cargo, the development of new reliable air express products provided by a highly
competitive group of specialist airlines has significantly reduced travel time
for cost and time sensitive products. One example of the value of these new
express air cargo services is the ability of manufacturers to implement
Just-In-Time ("JIT") inventory processes. Because of the reliability and speed
of express air cargo services, JIT provides the means to reduce the cost of
warehousing facilities and inventory required to support worldwide manufacturing
and assembly operations.
Express air cargo services have also facilitated and expanded the
retail distribution logistics systems for a wide group of industries. Computer
and electronic device manufacturers routinely use air cargo in "build-to-order"
operations, shipping customers their products immediately following assembly and
testing. The pharmaceuticals industry has been a long-time user of air cargo to
speed life-limited products to doctors and hospitals around the world. Producers
of perishable products, such as flowers and seafood, use express air cargo as
their primary shipping method.
GROWTH OF E-COMMERCE SALES
The most recent shipping demand trend that will influence future air
cargo and feeder aircraft requirements is the rapid growth of e-commerce sales.
According to Forrester Research, Internet sales of products to businesses and
individual consumers have doubled every year from 1996 to 1999. For the shipping
industry, e-commerce presents a unique challenge. In general, Internet products
are purchased directly by consumers from manufacturers, bypassing traditional
intermediary wholesalers and their warehousing systems. The shift to individual
purchases directly from producers means that more shipments have to be delivered
through traditional ground, air and rail networks to the end-use consumer.
Shipping and order fulfillment processes are becoming the primary customer
service function for Internet retailers.
Forrester is predicting that daily Internet shipments will grow from
650,000 packages per day in 1999 to 4,200,000 packages per day in 2003,
representing an e-commerce shipping growth rate of 59.4% per year. Based on
Forrester's prediction, there will be a requirement to transport 1.3 times more
e-commerce packages than the 3,200,000 currently shipped daily by Federal
Express. Forrester also reports that total e-commerce retail sales (including
combined business-to-business and business-to-consumer sales) grew from
approximately $27.6 billion in 1997 to an estimated $95.8 billion in 1999. This
means that e-commerce had grown from 1.2% of total U.S. retail sales in 1997 to
approximately 3.3% of retail sales by the end of 1999, according to Forrester's
statistics and retail sales estimates prepared by International Data
Corporation.
AIR CARGO TRANSPORTATION PROBLEMS
To our knowledge, there are no propeller-type all-cargo aircraft
available in sufficient quantities to support the development of a comprehensive
national e-commerce-focused distribution network. We believe that the current
freight feeder aircraft in use today do not provide enough capacity per
departure to efficiently develop effective e-commerce shipping networks. While
attempts have been made to use small aircraft which have been converted from
passenger to cargo to deliver freight to and from air hubs, these aircraft are
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not capable of carrying standard airline industry-compatible containers, which
results in delays at the hub due to freight sorting and container build-up
operations. Although intermediate-sized aircraft exist, they are designed to
carry passengers and are inefficient for freight hauling. Additionally, older
transport aircraft have high operating costs making them increasingly
unprofitable to operate in a high-frequency system. Finally, U.S. passenger
airlines that have been pressed into service as freight transporters have
extremely low amounts of available capacity on domestic passenger flights.
Compounding the problem are truck-based express delivery systems and container
road feeder services, which comprise the bulk of the freight feeder market for
U.S. passenger airlines, that are plagued with delays from highway congestion,
in-transit consolidation delays, inefficient multiple package handling, and
product theft and damage problems.
THE FF-1080-200 AIRCRAFT AS A SOLUTION
The primary market niche for which the FF-1080-200 twin-engine
turboprop aircraft is targeted is the growing e-commerce distribution
requirement for more shipments, in small quantities, delivered directly to
consumers' doors. This market niche includes the freight feed operations of the
overnight/two day express airlines, the airline freight feeder market, the world
postal services, the combination passenger/cargo airlines, and the international
airlines. Specifically, the initial client base that we are targeting consists
of the major dedicated freight companies, such as Federal Express, United Parcel
Service and DHL, as well as the major U.S. passenger airlines, such as American
Airlines, Continental Airlines, Delta Airlines, Northwest Airlines, Trans World
Airlines, United Airlines and US Air, seeking to expand their freight services.
A secondary target is major international passenger airlines seeking to expand
freight operations. The cargo that we will carry will be standard industry air
containers containing a variety of packages including commercial shipments from
e-commerce retailers and manufacturers directly to customers.
We believe that the high speed, high frequency, and high volume
required by an e-commerce distribution system will be best accomplished by using
the FF-1080-200 aircraft. The FF-1080-200 is an all-cargo aircraft that is
designed specifically for hub-and-spoke cargo operations. We believe that the
FF-1080-200 will contribute to the development of regional hub-and-spoke cargo
operations in the same way that passenger turboprop aircraft were used to build
the passenger hub-and-spoke systems. The FF-1080-200 will be able to fly to
smaller cities and airports that are located closer to e-commerce customers. The
FF-1080-200 is designed to have lower acquisition and operating costs than next
generation turboprop aircraft, such as the DeHavilland Dash 8, Aerospatiale ATR
42 and 72, the Saab 340, the Embraer EM 120 and the Dornier 328, while still
providing the speed needed to create high-performance, fast-delivery shipping.
Our goal is to provide airlines the critical flexibility needed to move air
cargo to more cities, more frequently, in manageable and trackable containerized
units.
Based on Boeing's estimate of an annual growth rate of 6.4% for world
air cargo traffic, and Regional Airline Association Region Fleet statistics for
1999, we estimate that a majority of the 1,389 propeller-driven all cargo
regional aircraft in the U.S. feeder aircraft fleet will need to be replaced
over the next decade. Our company's business plan projects manufacturing 578
FF-1080-200s from 2001 through 2008. At an average retail price of $7.0 million
per aircraft, our total sales during that time period are expected to be
approximately $4.0 billion. These projections are based on assumptions regarding
the growth in demand for air cargo feeder aircraft and the production capacity
of our company, which are subject to change. Therefore, you should regard these
projections with caution. We will update these forecasts if they change
significantly.
PARTNERSHIP ARRANGEMENTS
We are organized as a system integrator that will enable us to use
experienced aviation industry companies that work on specific tasks on an
as-needed basis. This approach will give us the flexibility to increase or
decrease, as needed, personnel and services based on planned requirements that
will result in substantial savings and control of overhead costs.
Subcontracting, or "outsourcing", is a standard industry practice and is used
extensively in the aerospace industry.
We have had discussions with companies that have provided verbal
commitments and, in some cases, preliminary written commitments to enter into
arrangements with us to produce a pre-production prototype aircraft. Our
intention is to structure these arrangements to provide products and/or services
to us on favorable pricing terms for both the pre-production prototype aircraft
and the conformity aircraft in exchange for our agreement to continue using
these products and/or services in the aircraft we will eventually produce for
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commercial sale. Companies with which we have had discussions include: Aircraft
Design Services, Inc. (engineering and construction documentation), Metalcraft
Technologies, Inc. (fuselage subassemblies), the Meggit Avionics, Inc. (cockpit
integration systems), Shaw Aero Devices, Inc. (fuel systems), AAR Advanced
Structures (cargo roller floors), AAR Composites (doors), Auxilec, Inc.
(electrical power systems), Pratt & Whitney (engines), Hi-Temp Insulation, Inc.
(insulation), Securaplane Technologies, Inc. (smoke detection equipment), UPS
Aviation Technologies, Inc. (navigation and communications), BF Goodrich
Aerospace (various systems), Lord Corporation (engine mount systems), General
Electrodynamics Corporation (weight and balance systems), Hamilton Standard
(propellers), S-TEC Corporation (autopilot and flight control systems), Castle
Precision Industries (landing gear) and IPECO (crew seats). We believe that the
participation of these companies would enhance the technical capability and
operational value of the FF-1080-200, in addition to contributing to the
likelihood of the success of the development and production program. We have
preliminary written commitments from Meggitt, Hi Temp, Shaw, UPS Aviation and
S-TEC which have agreed to provide various equipment to us free of charge for
use in the prototype aircraft upon the conclusion of contracts with these
companies to provide such equipment on an ongoing basis for the production of
the FF-1080-200. We have concluded a Technical Services Purchase Agreement with
The Aerostructures Corporation, which will remain in effect through June 30,
2002, for the provision of technical design services for a wing system at a cost
of $278,410. We cannot guarantee that we will be able to conclude written
agreements with the remaining companies.
Over the past three years, we have been involved in on-going
discussions with World Business Alabama ("WBA") and The Retirement Systems of
Alabama ("RSA"), a $25 billion retirement fund for Alabama's state police,
judges, teachers, and public employees. WBA is an Alabama state government
organization responsible for encouraging and supporting new companies that are
interested in the resources available in the state. During early 2000, WBA and
RSA indicated an interest in entering into aircraft fleet financing arrangements
with qualifying customers of our company, once the FF-1080-200 is built and
FAA-certified. In return, we have verbally agreed to locate our final assembly
facility at the Port of Huntsville in Huntsville, Alabama, where a 100,000
square foot hangar-like structure which we will lease from WBA will be
constructed on industrial park space, with runway access, which is currently
available. We cannot guarantee that we will be able to conclude a written
agreement with WBA.
COMPETITION
The companies that build small and intermediate-sized aircraft, such as
Spain's CASA, Canada's DeHavilland, Sweden's Saab, Germany's Dornier, and the
U.S.'s Beechcraft and Cessna pose no competitive threat to the FF-1080-200.
Aerospace (France) and British Aerospace, which build larger jet aircraft, also
manufacture intermediate-sized passenger aircraft that are often converted for
freight, but are too large to pose a threat to our targeted market segment.
LIGHT AIRCRAFT UNDER 20,000 POUNDS
----------------------------------
Aircraft in this category, such as the Cessna Caravan 208 and the
Dornier 228, are small and cannot accommodate the air cargo industry standard
containers. These planes are more suitable for the non-containerized, overnight
small package services in low volume markets. Federal Express has developed a
fleet of more than 250 Cessna 208 aircraft since the early 1980s. The other
overnight express operators also fly small fleets of the Cessna 208s, but the
majority of the aircraft used by these operators are older corporate executive
or passenger commuter aircraft converted into makeshift freighters. This class
of aircraft does not provide enough capacity per departure to meet increasing
shipping demand.
INTERMEDIATE AIRCRAFT
---------------------
Intermediate-sized aircraft such as the DeHavilland Dash 8,
Aerospatiale ATR42 and 72, Saab 340, Embraer EM120, Dornier 328 and CASA 235
were specifically designed to haul passengers at high speeds to the major hub
airports. Therefore, their designs cannot be modified to accommodate the
features needed in a pure freighter aircraft, such as a larger forward side
cargo door, high point-load capable floors, cargo net attachments, and a
container roller system, and, as a result, they pose no competitive threat to
our market segment. The new aircraft in this category, the CASA 235, was
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designed for dual passenger and cargo use. Although the CASA 235 has a rear ramp
door, its heavy aircraft empty weight and slow cruise speed causes a
range/payload deficiency in both freight and passenger operations. There is no
cost-effective means to convert any of these existing aircraft into cargo
airplanes which is why FAA-compliant cargo modification procedures for these
planes have not been developed. In addition, all of these aircraft are unable to
operate from airfields with runways of 3,000 feet or less because they were
designed for high-speed takeoffs from long runways. For these reasons, current
owners of fleets of these aircraft are presently exploring placing them in
Third-World and developing nations as passenger aircraft and parts (scavenged)
aircraft in order to gain some revenue from their use.
HEAVY/LARGE AIRCRAFT
--------------------
Several freight carriers are using Boeing 727s, 737s, and McDonnell
Douglas DC9s for feeder operations. These aircraft can carry containers, but
they are unnecessarily sophisticated, too large and too costly to operate in a
hub feeder role. These aircraft cannot be used to serve small feeder airports
because of landing/takeoff requirements. They are also not economical to operate
on the typical feeder stage length of 250 to 500 miles.
USED, OUT-OF-PRODUCTION AIRCRAFT
--------------------------------
The backbone of the utility/freight feeder fleet to date has been a
group of small piston and light turboprop aircraft. In the mid-1990s, product
liability litigation and passenger feeder market demand for much larger
turboprop aircraft resulted in the halt of production of most of the popular
aircraft used for air cargo operations. The out-of-production aircraft most
commonly used are the smaller Piper Cherokee Six, Piper Aztec, Piper Navajo,
Cessna 400 series, the DeHavilland Dash 6 Twin Otter, the Beech 99, and Beech
Baron. Larger aircraft in this category are the Convair 580, Convair 660, the
Fairchild F27, Shorts 330, Shorts 360, CASA 212, and the DeHavilland Dash 7.
With every passing year, fewer of these aircraft are available for the
utility market due to the increasing fleet age and the difficulty of getting
parts and other product support. Even when spare parts are available, the older
designs of these aircraft make them unattractive freight haulers. They are
heavy, fuel-intensive, and prone to breakdowns, grounding planes and stranding
cargo. These pose little real threat to the FF-1080-200 purely from an economic
standpoint, because they are too small and too expensive to operate with modern
freight handling systems.
NEW ENTRANTS
------------
We recently identified one company that we believe may be or is about
to be infringing our design patent for the FF-1080-200. We have informed this
company in writing of its potential infringement. We have subsequently learned
that this company has entered into Chapter 11 bankruptcy proceedings. We will
continue to monitor the situation and we are ready to pursue this matter to the
fullest extent should circumstances so warrant. We have found no other evidence
of new entrants in the airfreight feeder market, and dialogue with our potential
suppliers and industrial partners confirm this observation. The potential market
size can, however, support more than one or two producers of this type of
aircraft in the future in a similar way that passenger aircraft demand supports
two primary aircraft manufacturers, Boeing and Airbus.
Design, development, and production of other new designs will likely
take several years during which we should retain a first-mover advantage within
the freight feeder market. Our patent protection for our aircraft design and for
the ETA and AFRS systems will also help the FF-1080-200 retain a leading market
position.
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TARGET MARKETS
The air express cargo market has evolved into a highly competitive
industry. Six major dedicated freight companies (Federal Express, United Parcel
Service, Emery Worldwide, Airborne Express, DHL, and TNT) dominate the industry
and are building their systems into global freight networks. Primary targets for
use of the FF-1080-200 aircraft are these express freight carriers.
The passenger airlines also compete for a share of the airfreight
market. Some U.S. passenger airlines, which lost once-large shares of the
freight market by concentrating on passenger operations, are now planning to
step-up freight operations and regain lost market share. We are targeting the
FF-1080-200 to the top tier of the U.S. passenger airlines as a primary market,
i.e., American Airlines, Continental Airlines, Delta Airlines, Northwest
Airlines, Trans World Airlines, United Airlines and US Air. We believe that the
passenger airlines will eventually purchase FF-1080-200s because of the
expanding market opportunities for same-day, overnight, and international cargo
services. The FF-1080-200 is an appropriately sized freight feeder aircraft for
both the hub feeder role and the stand-alone regional express service.
The international passenger airlines are considered to be a secondary
target market for the FF-1080-200. This group of airlines is comprised of
carriers from around the world that provide inter-continental and inter-national
air services. For example, in addition to dedicated freight carriers, passenger
carriers, such as Lufthansa, Japan Airlines and British Airways, move
international express freight. The international airlines that are likely
candidates for FF-1080-200 sales include British Airways, Lufthansa, Japan
Airlines, Air France, All Nippon Airways, Alitalia and KLM Royal Dutch Airlines.
We intend to undertake sales and marketing efforts that will primarily
consist of direct sales initiatives with prospective airline customers. The
direct sales efforts will entail the preparation of aircraft route and market
analysis, and aircraft cost and benefit analysis, in conjunction with customer
airline planning teams. As customer sales initiatives approach the
decision-making stage, the sales effort will focus on the development of sales
contractual agreements and aircraft financing support. Secondarily, the
marketing and sales effort will consist of participation in air cargo industry
trade shows which will include the National Business Aircraft Association Annual
Conference, the Regional Airline Association Annual Meeting, the National
Defense Industry Association symposia, and other U.S. and international trade
shows. These presentations will include a display of the full-scale mockup of
the FF-1080-200 and video and graphic presentations of the key features and
operating economics of the FF-1080-200. Upon completion of the preproduction
prototype, trade show presentations and customer sales efforts will also include
flight demonstrations of the FF-1080-200 and the aircraft's systems. Finally,
the marketing effort will be supported by advertising and promotional campaigns
appearing in premier worldwide airline industry trade publications. These
efforts will emphasize the benefits and features of the FF-1080-200 to air
shippers and airline operators.
PRODUCT DEVELOPMENT
We are developing the FF-1080-200 aircraft which is an all aluminum,
twin-engine, high-wing, unpressurized, fixed gear, turboprop aircraft
specifically designed as a utility air freight transport system that uses
off-the-shelf systems and design standards. The FF-1080-200 is designed to fill
the need for cost-effective delivery of containerized air cargo to the major
hubs of the scheduled passenger carriers and the overnight express airlines. The
aircraft is designed for short take-off and landing capability. To the best of
our knowledge, this is the only short-haul, heavy-lift containerized feeder
aircraft that is capable of transporting six revenue tons over 500 miles or four
tons over 1,500 miles, from airfields with less than 3,000 feet of runway,
thereby expanding air cargo capacity to and from many smaller cities and
airports worldwide. The aircraft's design will enable it to accept passenger jet
cargo as well as dedicated cargo in standard containers using standard
airport-based cargo handling equipment.
All of the short/medium haul aircraft used today were originally
designed as small general aviation passenger aircraft or as passenger commuter
aircraft. Unlike these aircraft, the FF-1080-200 was specifically designed to
eliminate features needed for transporting passengers in order to minimize
unnecessary aircraft weight and to maximize cargo capacity. The FF-1080-200 is
the first commercial light twin-engine transport aircraft that has been designed
solely for the purpose of moving cargo on feeder routes.
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For example, since the FF-1080-200 is not designed for passenger use,
the need for windows in the cargo cabin is eliminated. Eliminating windows
increases the structural strength of the fuselage, making it possible to have
larger cargo doors and heavier cargo floor loading. The FF-1080-200 has both
side and rear cargo doors that accommodate standard containers. By designing the
FF-1080-200 with a non-retractable landing gear, there is no need to use space
in the cargo bay for the gear after retraction, resulting in a constant section
cargo bay with a full-length roller-floor system. Most of the aircraft currently
being used for feeder operations were designed with retractable gear to increase
speeds for the purpose of getting passengers to their destination as fast as
possible.
The FF-1080-200 features a streamlined fuselage with an interior width
that is six-feet-four-inches wide, which would be too narrow for a single aisle
with two rows of passenger seats. The cargo bay is not pressurized, a feature
needed in passenger aircraft that will fly for extended periods above 10,000
feet altitude. Having a non-pressurized cargo bay in the FF-1080-200 eliminates
the need for a "pressure vessel" within the outer fuselage, dramatically
reducing the empty weight of the aircraft and increasing revenue weight for the
operator.
The result of this mission-specific design philosophy is an aircraft
that has a significantly lighter empty weight compared to other aircraft of
similar size, resulting in a much higher cargo payload for the FF-1080-200. The
FF-1080-200 has a maximum payload that is 53% of the airplane's maximum gross
weight. This compares to a maximum payload of approximately 35% for aircraft
designed to carry passengers, according to our calculations which are based on
publicly available manufacturers' payload statistics for other aircraft, such as
the Shorts 360, Dornier 328, Saab 340A, Saab 340B and CASA 235.
We will begin the initial production of subassemblies of Production Lot
1, consisting of 48 aircraft, during the FAA certification program. We plan to
begin production of aircraft subassembly components through our manufacturing
partners upon FAA approval of the structural design and manufacturing
certification. This can be accomplished because all of the systems and
components of the aircraft are currently in service on other certified aircraft.
We have internally developed the design technologies used in our
products. We conduct research and development primarily in our facilities. Over
the last two fiscal years, we have spent approximately $864,000 on research and
development activities.
INTELLECTUAL PROPERTY
Our performance and ability to compete depend to a significant degree
on our proprietary knowledge. We rely or intend to rely on a combination of
patent and trade secret laws, non-disclosure agreements and other contractual
provisions to establish, maintain and protect our proprietary rights. In 1992,
the U.S. Patent and Trademark Office ("PTO") issued a method patent, which was
assigned to us, for the method of transporting cargo using freight feeder
aircraft by means of an automated freight management system. In 1993, PTO issued
a design patent, which was assigned to us, for the FF-1080-200 aircraft, which
expires in 2007. We filed for an additional patent in 2000 for the Automatic
Flat Rate Setting System for Freight Feeder Aircraft. We have nondisclosure
agreements with all of our employees.
We have identified a company that we believe is or is about to be
infringing our design patent for the FF-1080-200 aircraft. We have notified this
company in writing of this potential infringement. We have subsequently learned
that this company has entered Chapter 11 bankruptcy proceedings. We will
continue to monitor the situation and we will pursue this matter to the fullest
extent required in order to protect our intellectual property rights.
GOVERNMENT REGULATION
We are subject to regulations promulgated by the FAA with respect to
safety requirements for and certification of aircraft. The FF-1080-200 prototype
is a pre-certified, non-production aircraft that will be built under the
regulations for experimental aircraft. The FF-1080-200 is a simple twin-engine,
standard configuration, aluminum airframe that requires a low-risk, low-tech FAA
certification process. We believe that there are no systems on the aircraft
(such as hydraulic, retractable landing gear, assisted/boosted flight controls,
cargo cabin pressurization, emergency ejection egress, crash-worthy/fire
retardant passenger seats and passenger environmental control systems) that
could cause scheduling and approval difficulties with the FAA during the flight
test and static-test programs.
31
<PAGE>
We plan to execute FAA Part 25 Certification in two phases. Phase I
will include the development of the certification plan, filing of the
certification application, certification of the detailed production engineering,
construction of the static test articles and the conformity aircraft
subassemblies, and initial flight tests using the prototype aircraft. Phase II
will include final assembly of the conformity aircraft, initiation of limited
production of the aircraft, certification flight-testing and receipt of final
Part 25 Aircraft Type Certification.
We plan to begin the FAA Certification program upon completion of the
detailed engineering of the pre-production prototype aircraft, approximately six
months from the capitalization of the FF-1080-200 program. We anticipate that
FAA certification will be completed in 18 to 24 months.
We are also subject to regulations applicable to businesses generally.
EMPLOYEES
As of December 31, 2000, we had a total of six full-time and two
part-time employees. In addition, we use independent contractors when needed. We
currently lack the personnel that will be necessary for our expected growth.
Competition for such personnel is intense and we may not be able to successfully
attract, assimilate, or retain sufficiently qualified personnel. In order to
attract qualified personnel, we may be required to offer incentives such as
stock options, stock awards or other additional non-cash compensation. Our
future success will depend on our ability to attract and retain qualified
personnel. None of our employees is represented by a labor union and we consider
our employee relations to be satisfactory.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR BUSINESS
We are a development stage, research and development company located in
the Atlanta-Metropolitan area near Gwinnett County airport. We were incorporated
in the State of Delaware in August of 1990. We were formed to conceive and
implement a solution to the problem of insufficient capacity in the short haul
(or feeder) route segments of the air cargo hub-and-spoke system.
Our research and development efforts have resulted in the design of a
system for moving freight which is centered around a new air vehicle
specifically designed for feeder route segments - the FF-1080-200 Freight Feeder
aircraft. The FF-1080-200 is capable of carrying standard industry air
containers on short-to-medium range/medium density routes from feeder airports
with runways with less than 3,000 feet.
Additionally, we are developing the Express Turn-Around (ETA)
electronic freight tracking system, which is an integrated air cargo information
system for the freight feed market. The ETA system is fully integrated within
the FF-1080-200 aircraft and can be deployed in other aircraft and trucks.
We are also developing the Automated Flat Rate System (AFRS), which is
a fully automated fuel efficiency management system for the aircraft. The AFRS
system computes a fuel-efficient performance curve for each route segment based
on the aircraft's gross weight upon take-off and its overall container capacity.
The AFRS system will help to reduce pilot work-load and assure that the
FF-1080-200 is operated on a fuel-efficient basis.
In 1992, the U.S. Patent Office issued a method patent for the ETA
automatic freight tracking system and in 1993 issued a patent for the
FF-1080-200 design. We have recently filed for an additional patent for the
AFRS.
We have engaged in discussions with a number of companies that provide
aviation products and services needed to produce the FF-1080-200 about entering
into arrangements with us. These commitments would result in the provision by
these companies of products and/or services on favorable pricing terms, such as
the manufacturer's lowest direct cost, for both a pre-production prototype
aircraft and a conformity aircraft, in exchange for our agreement to continue
using the products and services in the aircraft we will eventually produce for
commercial sale. We believe such arrangements would enhance the technical
capability and operational value of the FF-1080-200, as well as contribute to
the success of the development and production program. We have concluded an
agreement for technical design services with a wing builder. There is no
guarantee that we will be able to conclude agreements with the remaining
companies.
Over the past three years, we have been involved in on-going
discussions with World Business Alabama (WBA) and The Retirement Systems of
Alabama (RSA), a $28 billion retirement fund for Alabama's State Business
Development organization responsible for encouraging and supporting new
companies that are interested in the resources available in the state. During
early 2000, WBA and RSA indicated an interest in providing aircraft fleet lease
financing to qualifying customers of the FF-1080-200 aircraft. We have also
discussed the location of a final assembly facility at Huntsville, Alabama that
will be leased from WBA in consideration for WBA participation in the
FF-1080-200 program. We have not yet concluded a final agreement with WBA and we
cannot guarantee that we will be able to do so.
Our current business plan is designed to expedite the certification and
production of the FF-1080-200, in order to get the aircraft to market by the end
of 2003. We plan to complete the detailed engineering of the FF-1080-200
pre-production prototype aircraft and to construct the prototype aircraft within
one year. The FF-1080-200 pre-production prototype is a pre-certified,
non-production aircraft that will be built under the regulations for
experimental aircraft.
Upon completion of the detailed engineering of the prototype, we will
initiate the FAA Certification program, which is anticipated to be completed
over an 18 month period. We plan to execute FAA Part 25 Certification in two
phases. Phase I will include the development of the certification plan, filing
of the certification application, certification of the detailed production
33
<PAGE>
engineering, and construction of the static test articles and the conformity
aircraft subassemblies. Phase II will include final assembly of the conformity
aircraft, initiation of limited production of Production Lot I (48 aircraft),
certification flight testing and receipt of final Part 25 Aircraft /type
Certification.
We have developed our manufacturing plan based on standard industry
practices. We will begin the initial production of subassemblies of Production
Lot #1 during FAA certification program. We plan to begin production of aircraft
subassembly components upon approval of the structural design and manufacturing
certification. This can be accomplished because all of the systems and
components of the aircraft are currently in service on other certified aircraft.
We currently have six full-time and two part-time employees. Five of
these are executive staff, while the remaining employees are administrative and
support personnel. We intend to continue our management, engineering supervision
and marketing efforts at facilities in Lawrenceville, Georgia. Our headquarters
will eventually be located at the airport in Lawrenceville, where we plan to
build or acquire an initial 46,000 sq. ft. hangar and office building where the
prototype aircraft will be hangared and maintained. We also plan to build or
lease (long-term) completion and final delivery facilities on land currently
available at Gwinnett County Airport.
We intend to perform the final assembly of the FF-1080-200 for the U.S.
market in a leased facility, to be developed to our specification, at the Port
of Huntsville, Huntsville, Alabama. It will be situated on industrial park space
with runway access, which is now available. A 100,000 sq. ft. hangar-like
structure can support our planned production rate of eight aircraft per month or
96 aircraft per year.
We plan to fly "green" aircraft from the Huntsville final assembly
facility to Gwinnett County Airport where our personnel will complete the
aircraft, e.g., exterior paint, cockpits and interiors, and installation of
buyer-furnished equipment, at our company's planned Lawrenceville airport
facilities.
The quality assurance flight testing program will be conducted at the
Lawrenceville facility. Additionally, customer on-site engineering employees
will be housed in this facility as well as the final customer flight test and
final delivery inspection personnel.
We plan to finance the FF-1080-200 development program through a
combination of private equity, public equity, and debt financing. To date, the
FF-1080-200 research, development and marketing efforts have been financed with
approximately $6 million dollars of private equity.
LIQUIDITY, CAPITAL RESOURCES AND RESULTS OF OPERATIONS
Costs incurred over the last ten years include approximately $2.7
million expended on research and development of our system, $1.4 million in
marketing our system to others for both current and future financial support and
approximately $2.6 million in general and administrative expenses. These and
other cash costs have been financed entirely through the raising of private
equity funds.
With no product to sell, no revenue stream, no reserves, significant
operating losses and a negative cash flow, our ability to continue as a going
concern is in jeopardy without significant additional funding. Unless we receive
the proceeds that we anticipate from this offering, we will not have sufficient
cash to fund operations over the next twelve months. We are, therefore,
dependent upon the outcome of this offering.
Our business plan contemplates the need for approximately $90 million
to conclude FAA certification and continue production beyond the first 48
aircraft. The current financing program anticipates financing a $10 million
pre-production prototype program through a private placement of equity with an
individual or group of individual investors or an investment banking
organization. We then plan to capitalize the $35 million Phase I: FAA
Certification program through the public equity market. We are pursuing an early
financing through the OTC Bulletin Board and/or with the issuance of a public
offering on the NASDAQ Market. We then plan to capitalize Phase II: FAA
Certification financing of $45 million by using commercial debt financing backed
by FF-1080-200 purchase agreements.
34
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During the second quarter of the year 2000, we concluded an irrevocable
equity line agreement with an Atlanta investment banking firm for an initial $50
million in program financing. Under the equity line, we will be able to secure
funds through a series of puts of publicly registered stock to the investment
company over a three-year period. It is contemplated that any additional
financing that will be required beyond the initial $50 million will be secured
from a combination of an additional equity line, public equity or debt
financing.
We cannot assure you that any or all of these funding events will
occur. Nor can we assure you that we will ever begin manufacturing airplanes on
a commercially viable basis.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements and their effect on our company are
described below:
In June 2000 and in June 1999 the FASB issued, respectively, SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133, and SFAS no. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133. The statements amend and defer,
respectively, the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and are effective for fiscal years beginning
after June 15, 2000.
SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair market value.
Under certain circumstances, a portion of the derivative's gain or loss is
initially reported as a component of other comprehensive income and subsequently
reclassified into income when the transaction affects earnings. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in income
in the period of change. SFAS No. 133 is effective, as amended by SFAS no. 137,
for all fiscal quarters beginning after June 15, 2000 and requires application
prospectively. Presently, we do not use derivative instruments either in hedging
activities or as investments. Accordingly, we believe that adoption of SFAS No.
133 will have no impact on our reported financial position or results of
operations.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In August 2000, our Board of Directors approved the engagement of Halt,
Thrasher & Buzas, LLP, as our independent certified public accountants, to audit
our financial statements for the fiscal years ending December 31, 1998 and 1999.
The audit reports provided by Halt, Thrasher & Buzas do not contain any adverse
opinions or disclaimers of opinion; however, the audit reports for such periods
do contain going concern qualifications. There have been no disagreements
between our company and Halt, Thrasher & Buzas on any matter of accounting
principles or practices, financial statement disclosures or auditing scope or
procedures. There were no "reportable events" (as such term is defined in Item
304 of Regulation S-B) that occurred within our two most recent fiscal years.
PROPERTIES
Our principal executive office is located at 300 Petty Road N.E., Suite
B, Lawrenceville, Georgia 30043 in the Atlanta Metropolitan area, near Gwinnett
County Airport. We have a five-year lease for 9,903 square feet of
office/warehouse space for a monthly rent of $4,169. The rent will increase on
the first day of each year of the lease. Our lease expires on December 31, 2003.
We intend to continue to use these facilities for our management, engineering
supervision, and marketing efforts until additional facilities are completed.
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We have been working with the architectural firm of R.W. Armstrong on
building design for our corporate headquarters, product completions facility and
final assembly facility. We plan to locate our headquarters and completions
facility at the Gwinnett County Airport in Lawrenceville, Georgia. We are
currently negotiating with the airport and county authorities for a land lease
of 11 acres for the construction of our headquarters and completions facility.
Our goal is to locate the final assembly facility at the Port of Huntsville
International Inter Modal Airport in Huntsville, Alabama. We are currently
negotiating with the airport authority in Huntsville to secure a 50-acre
building site for location of the final assembly facility.
R.W. Armstrong has provided our company with a cost estimate of
$6,780,000 for the 53,529 square foot Gwinnett headquarters and completions
facility, with expandability of the completions portion to 79,000 square feet at
an estimated cost of $2,915,000. The preliminary design and cost estimate for
the final assembly facility outline a 113,520 square foot assembly building
setup for an estimated cost of $14,555,000 with add-on expandability for an
estimated cost of $14,555,000, and the option to build a duplicate assembly
facility at the same location.
We do not have any limitations on the percentage of assets that we may
invest in any type of investment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Douglas E. Smith, a holder of 17.70% of our outstanding common stock,
including 150,000 shares of our common stock issuable upon the exercise of a
common stock purchase warrant that is exercisable at or within the next 60 days,
entered into a Lease Agreement with our company on May 11, 1998, as modified on
October 1, 1999, to lease a Piper Navajo N707HB aircraft to us for a five year
term. We will pay the monthly lease payments that Mr. Smith arranged with MBNA
Bank to finance the leasing of the aircraft; namely, monthly payments of
$1,187.29 from November 1999 through August 2000 increasing to $2,160 from
September 2000 through November 2004. We pay for the insurance, the storage
costs and all maintenance and inspections for the aircraft. Any equipment and
modifications that we add to the aircraft will remain on the aircraft and become
the property of Mr. Smith. At the end of the lease term or if we are unable or
unwilling to make the lease payments for any reason, John Dupont, our President
and Chief Executive Officer, has the right of first refusal to take over the
lease arrangement on the terms described above. If Mr. Dupont elects to take
over the lease arrangement but is unable to meet the terms of such arrangement
in the future or if Mr. Dupont elects not to take over the lease arrangement, he
will use his best efforts to expedite the sale of the aircraft on the open
market, on terms agreeable to Mr. Smith. In connection with the lease agreement
the Company issued to the Smith Family Trust as additional consideration 57,912
shares of common stock in 1998 and 45,600 shares of common stock in 2000.
On July 11, 2000, we issued to Mr. Smith a three-year convertible
subordinated promissory note in the principal amount of $1,000,000 and bearing
interest at the rate of six percent per annum. The note was convertible into
1,000,000 shares of our common stock at a conversion price of $1.00 per share.
On October 9, 2000 Mr. Smith informed us that he would exercise his conversion
right. In connection with the note, we issued to Mr. Smith a warrant to purchase
150,000 shares of our common stock at an exercise price of $3.00 per share. The
warrant vests over a two-year period and contains piggyback registration rights.
As of September 30, 2000, we had advanced an aggregate of $182,899 to
John Dupont, our President and Chief Executive Officer, over the past five
years. These advances bear interest at the imputed rate of eight percent per
annum and are to be repaid out of 50% of the commissions Mr. Dupont earns from
the sale of aircraft.
On May 25, 2000, Mr. Dupont assigned all of his right, title and
interest in his invention the "Automatic Flat Rate Setting System for Freight
Feeder Aircraft and Method of Setting of Engine Flat Rate" to our company. Prior
to the assignment, Mr. Dupont filed an application for a patent for AFRS with
the United States Patent and Trademark Office.
In August 2000, the employment agreement with Mr. Dupont was amended in
order to delete the provisions previously providing that intellectual property
assigned by Mr. Dupont to our company would revert to him if his employment were
terminated or if we ceased doing business. In exchange for Mr. Dupont giving up
these rights of reversion, we issued a warrant to him to purchase 2,000,000
shares of our common stock, and a right to three percent royalties on the gross
proceeds of the first 2,000 aircraft sold.
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MARKET FOR COMMON STOCK; SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock. Our stock is considered penny stock and is, therefore, subject to the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990. Penny stock,
as defined by the Act, is any equity security not traded on a national stock
exchange or quoted on NASDAQ that has a market price of less than $5.00 per
share. Additional disclosure is required in connection with any trades involving
a stock defined as a penny stock (subject to certain exceptions), including the
delivery, prior to any such transaction, of a disclosure schedule explaining the
penny stock market and the associated risks. Broker-dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchase and receive the purchaser's written consent prior to the
transaction.
No predictions can be made regarding the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. As described below, only a certain number of
shares will be available for sale shortly after this offering due to certain
contractual and legal restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price.
Upon completion of this offering, we will have 19,138,969 shares of our
common stock outstanding. The 11,200,000 shares of our common stock being sold
in this offering will be freely tradable, other than by our "affiliates" as such
term is defined in the Securities Act, without restriction or registration under
the Securities Act. The remaining 7,938,969 shares were issued and sold by us in
private transactions. The shares sold in private transactions are restricted
shares and are eligible for public sale if registered under the Securities Act
or sold in accordance with Rule 144 under the Securities Act. As of October 10,
2000, approximately 6,583,096 can be sold in accordance with Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person not deemed to be our affiliate, or a
person holding restricted shares who beneficially owns shares that were not
acquired from us or our affiliates within the previous year, would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of:
o One percent of the then outstanding shares of common stock, or
o The average weekly trading volume of our common stock during
the four calendar weeks preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are subject to requirements relating to manner of
sale, notice and availability of current public information about us. However,
if a person, or persons whose shares are aggregated, is not deemed to have been
our affiliate at any time during the 90 days immediately preceding the sale, he
or she may sell his or her restricted shares under Rule 144(k) without regard to
the limitations described above if at least two years have elapsed since the
later of the date the shares were acquired from us or from our affiliates. The
foregoing is a summary of Rule 144 and is not intended to be a complete
description of it.
In connection with this offering, approximately 95% of our stockholders
will be subject to lock-up agreements with our company under which holders of
the shares have agreed that they will not sell any common stock owned by them,
other than the shares being sold by the selling stockholders identified in this
prospectus, for a period of 180 days from the date of this prospectus.
Approximately 85% of these stockholders have also agreed that following the
expiration of the 180-day period, they will not, for a period of an additional
two years, without our written consent, sell during any 90-day period a number
of shares greater than 15% of the average weekly trading volume of our common
stock during the four week period immediately prior to such sale. These figures
do not take into account the 1,000,000 shares of our common stock held by Mr.
Smith or the 500,000 shares issuable to Swartz upon the exercise of its warrant,
all of which are being registered pursuant to this offering.
HOLDERS
As of January 15, 2001, there were 54 holders of record of our common
stock.
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DIVIDEND POLICY
We have not declared or paid any dividends on our capital stock since
inception and do not expect to pay any cash dividends for the foreseeable
future. The payment of cash dividends, if any, in the future will be at the sole
discretion of our Board of Directors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for our company by Jeffers, Shaff & Falk, LLP,
Irvine, California.
EXPERTS
Our financial statements at December 31, 1999 and December 31, 1998
included in this registration statement have been audited by Halt, Thrasher &
Buzas, LLP, independent certified public accountants, to the extent and for the
period set forth in their report, which includes an explanatory paragraph
regarding our company's ability to continue as a going concern, appearing
elsewhere herein, and are included herein in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form SB-2
under the Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For further
information with respect to our company and our common stock, reference is made
to the registration statement and the exhibits and schedules thereto. You may
read and copy any document we file at the Commission's public reference room
located at 450 Fifth Street N.W., Washington, D.C., or at the regional office of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference room. Our filings with the Commission are also available to the
public from the Commission's website at http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference rooms and the website of the Commission referred
to above.
38
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AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998 and 1999
----------
<PAGE>
TABLE OF CONTENTS
Independent auditors' report. . . . . . . . . . . . . . . . . . . 1.
Balance sheets . . . .. . . . . . . . . . . . . . . . . . . . . . 2.
Statements of operations. . . . . . . . . . . . . . . . . . . . . 3.
Statements of changes in stockholders equity. . . . . . . . . . . 4 - 5.
Statements of cash flows. . . . . . . . . . . . . . . . . . . . . 6 - 7.
Notes to financial statements . . . . . . . . . . . . . . . . . . 8 - 28.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
American Utilicraft Corporation
Lawrenceville, Georgia
We have audited the accompanying balance sheets of American Utilicraft
Corporation (the Company) as of December 31, 1998 and 1999, and the related
statements of operations, changes in stockholders equity, and cash flows for the
period July 17, 1990 (inception) through December 31, 1997 and for the years
ended December 31, 1998 and 1999, including cumulative amounts through December
31, 1999. These financial statements are the responsibility of Company
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 American Utilicraft
Corporation as of December 31, 1998 and 1999, and the results of its operations
and its cash flows for the period July 17, 1990 (inception) through December 31,
1997 and for the years ended December 31, 1998 and 1999, including cumulative
amounts through December 31, 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred significant
operating losses and negative cash flows since formation. In addition, the
Company expects to fund development expenditures and incur additional losses
until its operations are able to generate sufficient revenues to cover such
expenditures and losses. The Company does not currently have sufficient cash
reserves to cover such anticipated expenditures and cash requirements,
necessitating additional capital or financing. These factors, in addition to
other factors discussed in Note 4 to the financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plan regarding these matters is discussed in Note 4. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
January 12, 2001 HALT, THRASHER & BUZAS, LLP
Alexandria, Virginia
1.
<PAGE>
<TABLE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
BALANCE SHEETS
----------
<CAPTION>
ASSETS
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Current Assets:
Cash $ - $ 89,123 $ 216,058
Prepaid rent (Note 10) 24,091 10,480 10,480
Other assets 4,791 4,791 4,796
------------ ------------ ------------
Total current assets 28,882 104,394 231,334
Prepaid rent, noncurrent (Note 10) 72,909 39,338 31,472
Deferred offering costs (Note 10) - - 435,000
Property and equipment, net of
accumulated depreciation (Note 5) 58,838 233,125 259,394
Due from officers, net of allowance
for doubtful accounts (Note 6) - - -
------------ ------------ ------------
Total assets $ 160,629 $ 376,857 $ 957,200
============ ============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Bank overdraft $ 6,156 $ - $ -
Accounts payable 96,034 179,262 11,179
------------ ------------ ------------
Total current liabilities 102,190 179,262 11,179
Due to stockholders (Note 7) 1,078,000 1,078,000 1,078,000
Compensation payable (Note 10) 50,000 50,000 50,000
Deferred compensation (Note 10) 953,988 1,070,812 1,171,502
Convertible debenture, net of
discount of $80,000 (Note 9) - - 620,000
------------ ------------ ------------
Total liabilities 2,184,178 2,378,074 2,930,681
------------ ------------ ------------
Commitments and contingencies (Note 10) - - -
Stockholders equity (Notes 8, 10 and 12):
Common stock, par value $.00001
per share; 35,000,000 shares
authorized; 9,909,755 issued
and outstanding 72 90 99
Additional paid in capital 2,354,280 3,941,448 5,252,369
Stock subscription receivable (7,000) (300,000) -
Deficit accumulated during
the development stage (4,370,901) (5,642,755) (7,225,949)
------------ ------------ ------------
Total stockholders equity (2,023,549) (2,001,217) (1,973,481)
------------ ------------ ------------
Total liabilities and stockholders
equity $ 160,629 $ 376,857 $ 957,200
============ ============ ============
See notes to financial statements.
2.
</TABLE>
<PAGE>
<TABLE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
----------
<CAPTION>
FOR THE FOR THE JULY 17,1990 FOR THE JULY 17,1990
YEAR ENDED YEAR ENDED (INCEPTION) TO PERIOD ENDED (INCEPTION)TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 2000 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Expenses:
Research and development $ 408,731 $ 547,590 $ 2,013,603 $ 694,049 $ 2,707,652
General and administrative 319,426 442,648 1,991,045 616,838 2,607,883
Marketing 182,195 209,709 1,174,594 222,835 1,397,429
------------- ------------- ------------- ------------- -------------
Loss from operations 910,352 1,199,947 5,179,242 1,533,722 6,712,964
------------- ------------- ------------- ------------- -------------
Other income (expense):
Interest income 9,775 14,333 45,817 15,203 61,020
Interest expense 86,240 86,240 509,330 64,675 574,005
------------- ------------- ------------- ------------- -------------
Total other expense 76,465 71,907 463,513 49,472 512,985
------------- ------------- ------------- ------------- -------------
Net loss $ 986,817 $ 1,271,854 $ 5,642,755 $ 1,583,194 $ 7,225,949
============= ============= ============= ============= =============
Basic and diluted loss per share $ 0.13 $ 0.15 $ 0.92 $ 0.16 $ 1.11
============= ============= ============= ============= =============
Weighted average number of shares
outstanding 7,866,702 8,706,873 6,151,783 9,798,017 6,483,259
============= ============= ============= ============= =============
See notes to financial statements.
3.
</TABLE>
<PAGE>
<TABLE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the years ended December 31, 1998 and 1999
and the nine months ended September 30, 2000 (Unaudited)
<CAPTION>
COMMON STOCK DEFICIT
-------------------------------- ACCUMULATED
ISSUED AND PRICE ADDITIONAL STOCK DURING THE
OUTSTANDING PER $.00001 PAID-IN SUBSCRIPTION DEVELOPMENT
SHARES SHARE PAR VALUE CAPITAL RECEIVABLE STAGE TOTAL
----------- ------ --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of founders stock 2,566,596 $ - $ 26 $ - $ - $ - $ 26
Sale of common stock 2,059,306 0.59 21 1,210,305 (52,000) - 1,158,326
Issuance of common stock
for loan interest (Note 7) 2,194,034 - 22 336,828 - - 336,850
Net loss - - - - - (3,384,084) (3,384,084)
----------- --------- ----------- ------------ ------------ ------------
Balance, December 31, 1997 6,819,936 - $ 69 1,547,133 (52,000) (3,384,084) (1,888,882)
Sale of common stock
March 17, 1998 59,280 1.69 1 99,999 - - 100,000
Various dates 37,050 1.69 0 62,500 - - 62,500
Various dates 82,235 1.73 1 141,999 (7,000) - 135,000
Various dates 35,021 1.71 0 60,000 - - 60,000
June 16, 1998 21,432 1.73 0 37,000 - - 37,000
Various dates 23,712 4.22 0 100,000 - - 100,000
Various dates 14,364 1.73 0 24,800 - - 24,800
July 29, 1998 748 1.34 0 1,000 - - 1,000
October 5, 1998 27,027 1.29 0 35,000 - - 35,000
October 13, 1998 9,261 1.73 0 16,000 - - 16,000
October 23, 1998 12,462 1.73 0 21,500 - - 21,500
December 18, 1998 4,341 1.73 0 7,500 - - 7,500
December 21, 1998 6,658 1.73 0 11,500 - - 11,500
December 23, 1998 1,446 1.73 0 2,500 - - 2,500
Various dates 54,720 0.00 1 - - - 1
Issuance of common stock
for loan interest (Note 7) - - - 86,240 - - 86,240
Issuance of common stock
for airplane lease (Note 10) 57,912 1.72 - 99,609 - - 99,609
Collection of Stock
Subscription Receivable - - - - 52,000 - 52,000
Net loss - - - - - (986,817) (986,817)
----------- --------- ----------- ------------ ------------ ------------
Balance, December 31, 1998 7,267,605 - 72 2,354,280 (7,000) (4,370,901) (2,023,549)
-Continued-
See notes to financial statements.
4.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (CONTINUED)
For the years ended December 31, 1998 and 1999
and the nine months ended September 30, 2000 (Unaudited)
COMMON STOCK DEFICIT
-------------------------------- ACCUMULATED
ISSUED AND PRICE ADDITIONAL STOCK DURING THE
OUTSTANDING PER $.00001 PAID-IN SUBSCRIPTION DEVELOPMENT
SHARES SHARE PAR VALUE CAPITAL RECEIVABLE STAGE TOTAL
----------- ------ --------- ----------- ------------ ------------ ------------
Sale of common stock
Various dates 22,586 4.32 0 97,500 - - 97,500
January 5, 1999 2,777 4.32 0 12,000 - - 12,000
Various dates 9,845 1.73 0 17,000 - - 17,000
January 22, 1999 1,446 1.73 0 2,500 - - 2,500
January 22, 1999 8,974 2.56 0 23,000 - - 23,000
February 3, 1999 1,856 4.31 0 8,000 - - 8,000
Various dates 22,526 0.84 0 19,000 - - 19,000
February 16, 1999 1,423 4.22 0 6,000 - - 6,000
March 23, 1999 2,075 1.69 0 3,500 - - 3,500
Various dates 155,040 0.97 2 149,998 - - 150,000
May 11, 1999 38,760 2.58 1 99,999 - - 100,000
Various dates 921,120 1.10 9 1,009,991 (300,000) - 710,000
Various dates 517,332 0.00 6 - - - 6
Issuance of common stock
for loan interest (Note 7) - - - 86,240 - - 86,240
Issuance of common stock
for airplane lease (Note 10) 45,600 1.15 - 52,440 - - 52,440
Collection of Stock
Subscription Receivable - - - - 7,000 - 7,000
Net loss - - - - - (1,271,854) (1,271,854)
----------- --------- ----------- ------------ ------------ ------------
Balance, December 31, 1999 9,018,964 - 90 3,941,448 (300,000) (5,642,755) (2,001,217)
Sale of common stock
February 22, 2000 61,733 2.02 1 124,999 - - 125,000
February 22, 2000 49,385 2.53 0 125,000 - - 125,000
February 25, 2000 24,692 1.01 0 25,000 - - 25,000
February 25, 2000 180,850 1.69 2 306,248 - - 306,250
February 29, 2000 49,385 2.02 1 99,999 - - 100,000
Various dates 29,530 1.69 0 50,000 - - 50,000
Various dates 495,216 0.00 5 - - - 5
Issuance of common stock
for loan interest (Note 7) - - - 64,675 - - 64,675
Issuance of stock warrants
(Notes 9 and 10) - - - 515,000 - - 515,000
Collection of Stock
Subscription Receivable - - - - 300,000 - 300,000
Net loss - - - - - (1,583,194) (1,583,194)
----------- --------- ----------- ------------ ------------ ------------
Balance, September 30, 2000 9,909,755 - $ 99 $5,252,369 $ - ($7,225,949) ($1,973,481)
----------- ========= =========== ============ ============ ============
See notes to financial statements.
5.
</TABLE>
<PAGE>
<TABLE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
----------
<CAPTION>
FOR THE FOR THE JULY 17, 1990 FOR THE JULY 17, 1990
YEAR ENDED YEAR ENDED (INCEPTION) TO PERIOD ENDED (INCEPTION)TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 2000 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (986,817) $ (1,271,854) $ (5,642,755) $ (1,583,194) $ (7,225,949)
------------- ------------- ------------- ------------- -------------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Stock issued for loan interest 86,240 86,240 509,330 64,675 574,005
Stock issued for rent expense 6,778 95,453 102,231 7,866 110,097
Depreciation and amortization 25,495 42,296 83,833 72,532 156,365
Loss on disposal of assets - 1,166 29,878 - 29,878
Bad debt provision, loans to
officers 22,875 95,633 234,141 53,703 287,844
Changes in assets and liabilities:
Increase in compensation
payable - - 50,000 - 50,000
Decrease(increase) in other
assets (8,960) 4,169 (4,791) (5) (4,796)
Increase(decrease) in bank
overdraft 6,156 (6,156) - - -
Increase (decrease) in accounts
payable (20,752) 83,228 179,262 (168,083) 11,179
Increase in deferred
compensation 242,592 116,824 1,070,812 100,690 1,171,502
------------- ------------- ------------- ------------- -------------
Total adjustments 360,424 518,853 2,254,696 131,378 2,386,074
------------- ------------- ------------- ------------- -------------
Net cash used in operating
activities (626,393) (753,001) (3,388,059) (1,451,816) (4,839,875)
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of equipment (41,790) (217,749) (346,836) (98,801) (445,637)
Loans to officers (17,875) (95,633) (234,141) (53,703) (287,844)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities (59,665) (313,382) (580,977) (152,504) (733,481)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of
capital stock 666,302 1,155,506 2,980,159 1,031,255 4,011,414
Convertible debenture - - - 700,000 700,000
Loans from stockholders - - 1,078,000 - 1,078,000
------------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities 666,302 1,155,506 4,058,159 1,731,255 5,789,414
------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash (19,756) 89,123 89,123 126,935 216,058
Cash, beginning of period 19,756 - - 89,123 -
------------- ------------- ------------- ------------- -------------
Cash, end of period $ - $ 89,123 $ 89,123 $ 216,058 $ 216,058
============= ============= ============= ============= =============
-Continued-
See notes to financial statements.
6.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUED)
----------
FOR THE FOR THE JULY 17, 1990 FOR THE JULY 17, 1990
YEAR ENDED YEAR ENDED (INCEPTION) TO PERIOD ENDED (INCEPTION)TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 2000 2000
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
Supplemental disclosure of
noncash transactions:
Stock issued for loan interest $ 86,240 $ 86,240 $ 509,330 $ 64,675 $ 574,005
Stock issued for current and
future rent expense $ 99,609 $ 52,440 $ 152,049 $ - $ 152,049
Stock warrants issued for costs
associated with proposed public
offering $ - $ - $ - $ 435,000 $ 435,000
Stock warrants issued in conjunction
with convertible debenture $ - $ - $ - $ 80,000 $ 80,000
See notes to financial statements.
7.
</TABLE>
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
1. Description of the Company
American Utilicraft Corporation (the Company) was incorporated in the
State of Delaware in August of 1990. The Company was formed to conceive and
implement a solution to the problem of declining capacity in the short haul (or
feeder) route segments of the air cargo hub and spoke system.
The Company's ten years of research and development have resulted in
the design of a system for moving freight, which is centered around a new air
vehicle specifically designed for feeder route segments. The FF-1080-200 is
capable of economically carrying standard industry air containers on
short-to-medium range/medium density routes from feeder airports with runways as
short as 3,000 feet.
Additionally, the Company has developed an integrated air cargo
information system for the freight feeder market, the Express Turn-Around (ETA)
electronic freight tracking system. The ETA system is fully integrated within
the FF-1080-200 aircraft and can be deployed in other aircraft and trucks.
The Company has also developed the Automated Flat Rate System (AFRS), a
fully automated fuel efficiency management system for the aircraft. The AFRS
system computes the most economical performance curve for each route segment
based on the change in aircraft gross weight on the segment. The AFRS system
reduces pilot work-load and assures that the FF-1080-200 is operated with the
highest fuel efficiency.
The Company's current business plan is designed to expedite the
certification and production of the FF-1080-200, getting the aircraft to market
within the next two years. This accelerated plan will bring sales into the
Company faster and get the Company to profitability quicker.
Management believes that the Company operates in one business segment.
8.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
The accompanying financial statements include the financial positions,
results of operations and cash flows of the Company. To this point, the Company
has not generated revenue from its operations, and a majority of its activities
have been devoted to developing its product and starting production.
Accordingly, the Company's activities have been accounted for as those of a
"development stage enterprise" as set forth in Statement of Financial Accounting
Standards (SFAS) No. 7.
2. Summary of significant accounting policies
Use of estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income taxes
------------
Deferred income taxes are provided in accordance with SFAS No.
109, ACCOUNTING FOR INCOME TAXES. Accordingly, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities, using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation allowances
are provided where the likelihood of realizing the tax benefit of a deferred tax
asset cannot be determined as more likely than not. Deferred tax assets and
liabilities are classified as current or noncurrent based on the classification
of the related asset or liability for financial reporting purposes, or based on
the expected reversal date for deferred taxes that are not related to an asset
or liability.
Bad debts
---------
The Company reserves against potentially uncollectible
accounts.
9.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Property and equipment
----------------------
Property and equipment are reflected in the financial
statements at cost, net of accumulated depreciation and amortization.
Depreciation and amortization are computed using straight-line and accelerated
methods with leasehold improvements being depreciated over the term of the lease
or useful lives of the assets, whichever is shorter, and vehicles, furniture,
software and equipment being depreciated and amortized over 3 to 10 years.
Maintenance and repairs are charged to operations when
incurred. Improvements and repairs which extend the life or increase the value
of property and equipment are capitalized. When property and equipment are sold
or otherwise disposed of, the asset and related accumulated depreciation
accounts are relieved, and any gain or loss is included in other income
(expense) in the year the disposal occurs.
Research and development costs
------------------------------
According to SFAS No. 2, ACCOUNTING FOR RESEARCH AND
DEVELOPMENT COSTS, all companies are required to expense research and
development costs, including those in the development stage. The Company
expensed such costs of $408,731, $547,590 and $694,049 in 1998, 1999 and for the
period ended September 30, 2000 respectively, and has expensed $2,013,603 from
inception through December 31, 1999.
Interim financial statements
----------------------------
The accompanying interim financial statements for the period
ended September 30, 2000 are unaudited but, in the opinion of management,
reflect all adjustments (consisting primarily of normal recurring adjustments)
necessary for a fair presentation of the results of the period presented. The
results of the period ended September 30, 2000 are not necessarily indicative of
the results to be obtained for the full fiscal year.
10.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Net loss per share
------------------
Net loss per share is based on the weighted average number of
shares of common stock outstanding during each period, after giving effect to
the recapitalization and stock split described in Note 8. There is no difference
between basic and diluted loss per share since the Company is in a loss
position.
Recent accounting pronouncements
--------------------------------
In June 2000 and in June 1999 the FASB issued, respectively,
SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES - AN AMENDMENT OF FASB STATEMENT NO. 133, and SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133. The statements amend and defer,
respectively, the provisions of SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, and are effective for fiscal years beginning
after June 15, 2000.
SFAS No. 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair market
value. Under certain circumstances, a portion of the derivative's gain or loss
is initially reported as a component of other comprehensive income and
subsequently reclassified into income when the transaction affects earnings. For
a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective, as
amended by SFAS No. 137, for all fiscal quarters beginning after June 15, 2000
and requires application prospectively. Presently, the Company does not use
derivative instruments either in hedging activities or as investments.
Accordingly, the Company believes that adoption of SFAS No. 133 will have no
impact on its reported financial position or results of operations.
Start-up activities
-------------------
The costs of start-up activities, including organization
costs, have been expensed as incurred.
11.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Fair value of financial instruments
-----------------------------------
The carrying values of cash and accounts payable approximate
fair value due to the short-term maturity of these instruments. Financial
instruments also include long-term debt. Based on current borrowing terms
available to the Company, estimated fair value of these financial instruments
approximate their recorded amounts.
Asset impairment
----------------
In accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG - LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company
records impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. Based on current estimates, management does not believe
impairment of long-lived assets is present.
Stock-based compensation
------------------------
The Company has adopted the disclosure-only provisions of SFAS
No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION with respect to warrants
granted to employees.
Comprehensive income
--------------------
The Company has adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. Comprehensive income as defined includes all changes to equity except
those resulting from investments by owners and distributions to owners. The
Company has no items of comprehensive income to report.
12.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Deferred offering costs
-----------------------
Direct, incremental costs incurred with the Company's offering
of common stock are deferred and included as an asset in the accompanying
balance sheets until the proceeds of the offering are received, whereupon these
costs will be recognized as a reduction to the respective capital accounts. If
the offering is not completed or the offering terms are substantially revised,
the deferred offering costs will be expensed. Indirect costs relating to the
offering are expensed when incurred.
Accounting for extinguishment of debt
-------------------------------------
Gain and losses from extinguishment of debt are calculated and
reported according to the provisions of SFAS No. 125, ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES. Such gains
and losses are reported as extraordinary items to net income.
3. Development stage operations
The Company is in the development stage. The Company commenced
its current operations in 1990, and its activities have been primarily directed
to research and development of its technologies and administrative activities.
The Company has experienced in the past and may experience in the future many of
the problems, delays and expenses encountered by early stage businesses, some of
which are beyond the Company's control. These inherent risks include, but are
not limited to, delays in testing and development of its new products,
unexpected high manufacturing and marketing costs, uncertain market acceptance,
limited capital and other unforeseen difficulties. The Company believes it has
properly identified the risks in the environment it which it operates and plans
to implement strategies to effectively reduce the financial impact of these
risks.
13.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
4. Going concern
The financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred a net loss of $986,817, $1,271,854 and
$1,583,194 in 1998, 1999 and for the nine months ended September 30, 2000,
respectively, and has incurred losses since formation, resulting in an
accumulated deficit of $5,642,755 and $7,225,949 as of December 31, 1999 and
September 30, 2000, respectively. For the periods ended December 31, 1999 and
September 30, 2000, respectively, the Company also generated negative cash flow
from operations of $753,001 and $1,451,816. Such losses and negative cash flow
have resulted primarily from significant costs associated with the development
of the Company's products and marketing of these products. The Company expects
to incur additional operating losses and negative cash flow in the future unless
and until it is able to generate operating revenues sufficient to support
expenditures. There is no assurance that sales of the Company's products will
ever generate sufficient revenues to fund its continuing operations, that the
Company will generate positive cash flow from operations or that the Company
will attain and thereafter sustain profitability in any future period.
14.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
According to the Company's long-term business plan, management
anticipates the Company's cash requirements for the next twelve months may be
satisfied from the proceeds of the Investment Agreement (see Note 10 -
Investment Agreement.) The Company anticipates its future cash requirements may
be satisfied by product sales, the sales of additional equity securities, debt
financing and/or the sale or licensing of certain of the Company's technologies.
However, the Company does not have any binding commitment with regard to
additional funds, and there can be no assurance that any funds required would be
generated from operations or from the aforementioned sources. The lack of
additional capital could force the Company to substantially curtail or cease
operations and would therefore have a material adverse effect on the Company's
business. Further, there can be no assurance that any such required funds, if
available, will be available on attractive terms or that they will not have a
significantly dilutive effect on existing shareholders of the Company. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
5. Property and equipment
The following summarizes property and equipment:
September 30,
1998 1999 2000
--------- --------- ---------
(unaudited)
Computer equipment $ 98,925 $183,206 $208,101
Equipment 4,250 23,746 79,583
Furniture - 32,509 38,464
Leasehold improvements - 77,497 89,611
--------- --------- ---------
Total cost 103,175 316,958 415,759
Accumulated depreciation
and amortization $ 44,337 83,833 156,365
--------- --------- ---------
Net property and equipment $ 58,838 $233,125 $259,394
========= ========= =========
Depreciation and amortization expense of property and
equipment for the year ended December 31, 1998 and 1999 and for the period ended
September 30, 2000 was $25,495, $42,296 and $72,532, respectively.
15.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
6. Due from officers
Since 1993 the Company has, from time to time, advanced funds
to its President, such amounts aggregating to $182,899 through December 31,
1999. Interest, imputed at an annual rate of 8%, has been accrued on these
lendings, such interest income amounting to $9,775, $14,333 and $15,203 for
1998, 1999 and for the period ended September 30, 2000, respectively.
The Company also advanced $5,425 to another officer during
this same period.
By verbal agreement between the parties, these amounts will be
later repaid out of bonus commissions otherwise due on future aircraft sales.
Because there is substantial doubt about the Company's ability to generate such
future sales, all amounts due from officers have been fully reserved. Such
amounts, and the equal reserve amount, were $138,508, $234,141 and $287,844 as
of December 31, 1998, December 31, 1999 and September 30, 2000, respectively.
7. Due to stockholders
Between the years 1992 and 1996, the Company entered into
various memorandums of understanding (MOU's) by which $1,078,000 in aggregate
funds were accepted in exchange for written promises to repay such amounts.
Either explicitly or constructively, these MOU's bear interest, and an annual
rate of 8% has been applied. Concurrent with the signing of the MOU's, the
Company issued, in the aggregate, 2,194,034 shares of common stock intended to
represent the interest associated with these monies.
On approximately October 1, 2000 the Company proferred certain
common stock warrants as a settlement of the promises to repay (see Note 12).
Interest expense associated with these monies amounted to
$86,240 in 1998 and $86,240 in 1999. Since the market value of the common stock
issued for interest was de minimus during the period 1992 to 1996, these shares
of common stock have been assigned a value equal to calculated interest expense.
16.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
8. Stock split and authorized shares
On April 24, 2000 the company amended its corporate charter so
as to increase the number of authorized shares of common stock from 10,000 to
20,000. On May 24, 2000 the Company again amended its corporate charter to
further increase the number of authorized shares of common stock from 20,000 to
24,000,000. Par value of the common stock was unchanged at $.00001 per share. On
May 24, 2000 the Company also effected a 456:1 stock split. The financial
statements reflect the stock split for all periods presented.
In September 2000 the Company again amended its corporate
charter so as to increase the number of authorized shares of common stock from
24,000,000 to 35,000,000, with par value unchanged at $.00001. Simultaneously,
the Company authorized 7,500,000 shares of preferred stock, par value $.00001
per share, with preferences to be determined at the time of issuance.
In September 2000 the Company authorized the issuance of
Series A Preferred Stock. The Series A stock is identical in all respects to the
Company's common stock, except for associated voting rights, which are in a
ratio of 10:1 versus the voting rights of common. The preferred stock is
convertible upon request to common on a one-to-one basis. In the event of
certification of the Company's airplane by the Federal Aviation Administration
such exchange will occur automatically.
The Company has authorized 1,970,787 shares of the Series A
preferred stock. On October 6, 2000 a plan of recapitalization was entered into
by which these shares were issued to the Company's President and another officer
in exchange for the return and cancellation of a like number of shares of common
stock otherwise held by them.
17.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
9. Convertible debenture
In July 2000 a stockholder agreed to advance $1,000,000 to the
Company in exchange for a convertible subordinated debenture and a warrant to
purchase 150,000 shares of the Company's common stock. As of September 30, 2000,
$700,000 of such funds had been received.
The debenture bears interest at an annual rate of 6%, with
principal and accrued interest due in July 2003. Upon repayment, whether at
maturity or earlier, the Company shall pay a premium of $300,000 in addition to
amounts otherwise due. At the stockholder's option, some or all of the principal
balance may be converted to shares of common stock at a conversion price of the
lesser of $3 per share or 80% of the then-market value, but subject to a floor
of $1 per share.
The warrant to purchase 150,000 shares of common stock vests
immediately and expires after three years. The exercise price is $5 per share,
which may be later adjusted pursuant to an antidilution clause, and which may
also be beneficially adjusted for otherwise reductions in market value of the
stock. In the event that the warrant is partially or wholly exercised, the
stockholder agrees to restrict sales of the common stock thus received to 15% or
less of otherwise trading volume in any 90 day period.
On October 9, 2000 the stockholder opted to convert the
debenture to 1,000,000 shares of the Company's common stock. On October 25, 2000
the stockholder provided the final $300,000 of the agreed-upon $1,000,000 in
funds. Because the conversion of the debenture to common stock occurred before
the stockholder had the opportunity to realize any benefit from the $300,000
premium otherwise due on the debenture, no accounting recognition of the premium
had been accorded.
18.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Consistent with Accounting Principles Board Opinion No. 14,
ACCOUNTING FOR CONVERTIBLE DEBT AND DEBT ISSUED WITH STOCK PURCHASE WARRANTS,
the value of the warrant to purchase 150,000 shares of common stock ($.59 per
warranted share) has been recognized at its fair value pro-rata to the combined
fair value of the debenture and the warrant, with a resulting discount of
$80,000 assigned to the debenture. Upon conversion of the debenture in October,
the remaining discount will be written off to interest expense.
10. Commitments and contingencies
Stock offering
--------------
The Board of Directors has approved the filing of a
registration statement with the SEC for sale of an undetermined number of shares
of common stock at a price to be determined upon the effectiveness of the
registration statement.
Investment agreement
--------------------
Pursuant to certain agreements made in May 2000 between the
Company and Swartz Private Equity, LLC (Swartz), the Company may issue an
undetermined number of shares of its common stock, plus common stock warrants
(purchase warrants) for additional shares of common stock equal to 10% of common
stock thus issued pursuant to this agreement, in exchange for up to $50 million
from Swartz. As an additional inducement to Swartz, the Company has also
provided Swartz a warrant to purchase up to 500,000 shares of its common stock
at an initial price of $1 per share (the commitment warrant).
19.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Shares of common stock, and accompanying purchase warrants,
will be issued to Swartz via Puts (contracts issued at the Company's option,
requiring Swartz to purchase the securities described). No Puts will be
exercised until such time as the Securities and Exchange Commission (SEC) has
declared effective the Company's registration statement with the SEC (effective
date) (see Note 12, stock offering) and the Company's common stock has been
listed for and is actively trading on a national exchange. The Company shall
have until May 24, 2001 to have its registration statement declared effective,
or this investment agreement will terminate. No Puts will be exercised after the
date that is three years after the effective date.
Each Put shall specify the number of shares of common stock
being offered and the sale price per share. Although the Puts will specify the
number of shares being offered, Swartz can opt to buy fewer shares if to do
otherwise would result in Swartz owning more than certain agreed upon amounts
(generally, 9.99% of total common stock outstanding, computed on a fully diluted
basis). The parties agree that the sale price per share will generally be
calculated at 91% of market price. Should such sales occur, the discount in sale
price will be accounted for as a deemed dividend to Swartz.
The parties further agree that Puts with at least $1 million
total value must be offered each six month period, or a non-usage fee of
$100,000, or less, will be paid by the Company.
Purchase warrants shall be exercisable for a period of five
years from date of issuance with an initial exercise price of 110% of
then-market price, with periodic adjustments for changes in market price.
The commitment warrant shall also be exercisable for a five
year period; that five year period shall begin May 3, 2000 as to 400,000 shares,
and at the earlier of the effective date or October 14, 2000 for the remaining
100,000 shares. The initial exercise price of $1 per share may be periodically
lowered commensurate with declines in market price. The fair value of the
commitment warrant ($.87 per warranted share) is reflected on the financial
statements as a deferred offering cost.
20.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
In addition to the purchase warrants and commitment warrant
described above, the Company may also provide additional warrants to Swartz in
order to ensure that the sum of the number of shares of common stock represented
by the commitment warrant plus any additional warrants shall always equal at
least four percent of total common stock outstanding, computed on a fully
diluted basis. The additional warrants will be issued at the earlier of the
first Put notice or April 14, 2001. The additional warrants shall also be
exercisable for a five year period, and shall have an initial exercise price of
$1 per share, which can also be periodically lowered commensurate with declines
in market price.
The Company has agreed to reserve, on a best efforts basis, 10
million of its authorized 24 million shares of common stock for issuance to
Swartz relative to the Put and warrant agreements herein described. The Company
has also agreed to provide Swartz a right of first refusal for any common stock
otherwise offered for sale pursuant to any private capital raising transactions.
This right of first refusal shall exist from May 2000 until four years after the
effective date.
Stock warrants
--------------
In August 2000 the employment agreement with the Company's
President was amended so as to delete the provision previously providing that
intellectual property assigned by the President to the Company would revert to
the President if the President was terminated or if the Company ceased doing
business. In exchange for the President giving up these rights of reversion, the
Company subsequently provided the President with a warrant to purchase 2,000,000
shares of the Company's common stock (see Note 12), and a right to 3% royalties
on the gross proceeds of the first 2,000 aircraft sold.
21.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
There were no stock warrants outstanding as of December 31,
1998 or 1999. As of September 30, 2000, stock warrants were outstanding as
follows:
<TABLE>
<CAPTION>
Expiration Warranted Exercise
Holder Issue Date Vesting Date Date Shares Price
-------------- ------------------ ------------------ ------------------ --------- --------
<S> <C> <C> <C> <C> <C>
Swartz Private
Equity, LLC May 3, 2000 May 3, 2000 May 3, 2005 400,000 $1.00
Swartz Private
Equity, LLC May 3, 2000 October 14, 2000 May 3, 2005 100,000 $1.00
Stockholder September 13, 2000 September 13, 2000 September 13, 2003 150,000 $5.00
</TABLE>
See also "investment agreement" above, "due to former
officer", below and Note 12.
Operating leases
----------------
In October 1998 the Company entered into a lease agreement for
new office/warehouse space in Lawrenceville, Georgia. During 2000 all remaining
obligations associated with the Company's former office space were satisfied.
The new office/warehouse space was occupied January 1999.
The lease agreement for the new space expires December 31,
2003. Aggregate annual minimum lease commitments in future years are as follows:
2000 $ 50,028
2001 51,012
2002 52,008
2003 52,990
------------
Total $ 206,038
============
Office rental expense for 1998, 1999 and the period ended
September 30, 2000 was $44,906, $56,761 and $36,619, respectively.
22.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
In May 1998 the Company entered into a lease agreement with
the one of its stockholders for use of a plane. The agreement was substantially
modified in October 1999. The lease agreement runs through October 2004, and
requires monthly payments of $1,187 through August 2000, and $2,160 thereafter.
In addition to these agreed-upon monthly payments, the lease agreement of May
1998 also required the Company to provide the stockholder with 57,912 shares of
common stock. Based on sales of common stock sold to third parties during the
period just preceding this stock issuance, the 57,912 shares of common stock
have been valued at $99,609. That amount was partially expensed in 1998 as
additional rent expense, with the remainder expensed in 1999 concurrent with the
early termination of the lease agreement of May 1998.
The lease agreement of October 1999 required the Company to
provide the stockholder with 45,600 additional shares of common stock. That
stock has been valued at $52,440, which amount is being amortized over the 60
month period of the lease.
Future annual minimum lease commitments are as follows:
2000 $ 28,624
2001 36,408
2002 36,408
2003 36,408
2004 30,340
------------
Total $ 168,188
============
Plane rental expense for 1998, 1999 and the period ended
September 30, 2000 was $12,049, $103,683 and $19,522 respectively.
Employment agreements
---------------------
The Company has entered into employment agreements with
various of its officers. All agreements provide that salaries will be paid on a
best efforts basis only until such time as major financing (defined generally as
the receipt of debt or equity funding of at least $20 million) is achieved. All
agreements also provide for varying commissions for airplane sales.
23.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
One such agreement, expiring February 28, 2005, provides that
in the event of termination by the Company, for other than cause, the employee
shall be provided with a lump-sum payment of $480,000. In the event of a
significant change in control of the Company (defined, generally, as ownership
of 20% or more of outstanding common stock by a single person, or a majority of
the board of directors being persons not on the board as of February 28, 1991)
the same lump-sum payment shall also be due if the officer's position is
downgraded and the officer resigns rather than accept the downgraded position.
The agreement provides for annual salary amounts of $24,000, $38,000 or $48,000
dependent upon the Company's operational status with respect to airplane
production.
In the event of a major financing, an employment agreement
with the Company's President, expiring February 28, 2005, and as amended by an
amendment to the employment agreement proferred to the employee approximately
October 1, 2000, but not yet executed, specifies that up to $500,000 of such
funds shall be lent to the President in the form of a non-interest bearing loan
to be later repaid out of bonus commissions otherwise due on future aircraft
sales. In the event of a major financing, the employment agreement also
specifies that in the event of termination by the Company for other than cause
the President shall be provided with a lump-sum payment of $2,500,000, plus ten
times five years' worth of bonus commissions prior earned, or projected to be
earned, on aircraft sales. In the event of a significant change in control of
the Company, subsequent to a major financing, the same lump-sum payment shall
also be due if the President's position is downgraded and the President resigns
rather than accept the downgraded position, or if the President is terminated by
the Company. The agreement provides for annual salary amounts as $200,000, or
$250,000 upon the Company having become a reporting company under the Exchange
Act of 1934.
24.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Also in the event of a major financing, the employment
agreement with another officer, expiring February 28, 2005, and as amended by an
amendment to the employment agreement proferred to the employee approximately
October 1, 2000, but not yet executed, provides that in the event of termination
by the Company for other than cause the employee shall be provided with a
lump-sum payment ranging from $250,000 to $350,000, dependent upon the Company
having become a reporting company under the Exchange Act of 1934 at the point of
termination. In the event of a significant change in control of the Company,
subsequent to a major financing, the agreement provides that in the event of
termination by the Company for other than cause the lump-sum payment shall
instead range from $1,250,000 to $1,750,000. The agreement provides for annual
salary amounts of $125,000, or $175,000 upon the Company having become a
reporting company under the Exchange Act of 1934.
On July 15, 2000 additional employment agreements were entered
into with two additional officers. Both agreements expire July 15, 2003. One
agreement has been amended by an amendment to the employment agreement proferred
to the employee approximately October 1, 2000, but not yet executed. Both
agreements provide that in the event of major financing and in the event of
termination by the Company for other than cause, the employee shall be provided
with lump-sum payments ranging from $200,000 to $250,000, and $160,000 to
$250,000, respectively, dependent, respectively, upon the Company having become
a reporting company under the Exchange Act of 1934 or upon the Company's
operational status with respect to aircraft production at the point of
termination. Both agreements further provide that in the event of a significant
change in control of the Company, subsequent to a major financing, lump-sum
payments of $1,000,000 to $1,250,000, and $800,000 to $1,250,000, respectively,
dependent, respectively, upon the Company having become a reporting company
under the Exchange Act of 1934 or upon operational status, shall be provided if
the employee's position is downgraded and the employee resigns rather than
accept the downgraded position, or if the employee is terminated by the Company
for other than cause. The agreements provide for annual salary amounts of
$100,000 (or $125,000 upon the Company having become a reporting company under
the Exchange Act of 1934) and $80,000, $100,000 or $125,000 dependent upon the
Company's operational status, respectively.
25.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Deferred compensation
---------------------
Per agreement between the Company and certain of its officers
and employees, payment for compensation for past services has been deferred to a
future date. Principal amounts due as of December 31, 1998 were $953,988.
Principal amounts due as of December 31, 1999 were $1,070,812; however, these
amounts were subsequently converted to stock warrants (see Note 12). Additional
amounts, not subject to the conversion to stock warrants, of $100,690 have
accrued as of September 30, 2000.
Due to former officer
---------------------
On August 28, 2000 a stockholder, and former officer, asserted
a claim of $315,850 for deferred compensation due. Company management believes
no more than $50,000 is owed, and has offered to settle for that amount with the
proferring of a stock warrant on approximately October 1, 2000. The warrant
would provide the stockholder the right to purchase 50,000 shares of the
Company's stock at $3 per share. Since the market value of the warrant is
uncertain in amount, the liability has been left unchanged from the $50,000
value recorded in the financial statements during the period ended December 31,
1997.
In November 2000 the stockholder agreed to accept the stock
warrant as full settlement for all amounts due. To the extent that the value of
the debt thus extinguished may exceed the fair value of the warrants a gain on
debt extinguishment may be recorded.
11. Income Taxes
The tax effect of the temporary differences that give rise to
significant portions of deferred tax assets at December 31, 1998 and 1999 are
summarized as follows:
26.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
1998 1999
------------- -------------
Research and development costs $ 496,370 $ 653,330
Start-up and organizational costs 499,329 674,775
Accrued compensation expense 324,356 364,076
Accrued interest expense 125,786 150,361
------------- -------------
Total deferred tax assets 1,445,841 1,842,542
Less: valuation allowance (1,445,841) (1,842,542)
------------- -------------
Net deferred tax assets $ - $ -
============= =============
Net deferred tax assets for the year ending December 31, 2000
are also expected to be zero.
12. Subsequent events
On approximately October 1, 2000 the Company proferred to
certain of its stockholders common stock warrants in settlement of amounts
otherwise due pursuant to certain MOU's (see Note 7.) Management expects that
all proferred warrants will be duly accepted.
In total, the warrants provide the right for the holders to
purchase 1,078,000 shares of the Company's common stock at an exercise price of
$3 per share. The exercise price may be later adjusted pursuant to an
antidilution clause. The holders' right to exercise the warrants shall vest as
to half of the warrant shares after one year, with vesting in the remaining
shares occurring after two years. The warrants shall expire after three years.
To the extent that the value of the extinguished debt may exceed the fair value
of the warrants a gain on debt extinguishment may be recorded.
In the event that the warrants are exercised, the holders
agree to restrict their sales of common stock thus received to 15% or less of
otherwise trading volume in any 90 day period.
27.
<PAGE>
AMERICAN UTILICRAFT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
September 30, 2000 (Unaudited)
Also on approximately October 1, 2000 the Company proferred to
certain of its stockholders common stock warrants providing the right for the
holders to purchase 1,285,120 shares of the Company's stock at exercise prices
ranging from $3 to $5 per share, with exercise price adjustment provisions,
vesting provisions and sales restrictions identical to the warrants described
above.
Also on approximately October 1, 2000 the Company proferred to
its President a common stock warrant providing the right to purchase 2,000,000
shares of the Company's stock at an exercise price of $5 per share, with
exercise price adjustment provisions, vesting provisions and sales restrictions
identical to the warrants described above.
Also on approximately October 1, 2000 the Company proferred to
certain of its stockholders common stock warrants in settlement of amounts
otherwise due pursuant to deferred compensation agreements (see Note 10).
Management expects that all proferred warrants will be accepted.
In total, the warrants provide the right for the holders to
purchase 1,070,812 shares of the Company's common stock at an exercise price of
$3 per share. The exercise price may be later adjusted pursuant to an
antidilution clause. The holders' right to exercise the warrants shall vest
immediately as to half of the warrant shares, after one year as to 25% of the
warrant shares and after two years as to the remaining 25% of the warrant
shares. The warrants shall expire after three years. To the extent that the
value of the extinguished deferred compensation liability may exceed the fair
value of the warrants, a gain on debt extinguishment may be recorded.
In the event that the warrants are exercised, the holders
agree to restrict their sales of common stock thus received to 15% or less of
otherwise trading value in any 90 day period.
28.
<PAGE>
================================================================================
YOU SHOULD RELY ON THE INFORMATION 11,200,000 SHARES
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO GIVE YOU INFORMATION
DIFFERENT THAN THAT CONTAINED IN THIS
PROSPECTUS. WE ARE OFFERING TO SELL SHARES
OF COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS
CURRENT ONLY AS OF ITS DATE, REGARDLESS OF AMERICAN UTILICRAFT CORPORATION
THE TIME YOU RECEIVE THIS PROSPECTUS.
----------------
COMMON STOCK
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 1
Risk Factors............................ 4
Use of Proceeds......................... 9
Determination of Offering Price......... 9
Selling Stockholders.................... 10
Plan of Distribution.................... 13
Legal Proceedings....................... 14
Description of Securities............... 21 ---------------
Business................................ 25
Management's Discussion and Analysis of PROSPECTUS
Financial Condition and Results of
Operations........................... 33 ---------------
Certain Relationships and Related
Transactions......................... 36
Shares Eligible for Future Sale......... 37
Dividend Policy......................... 38
Legal Matters........................... 38
Experts................................. 38
Additional Information.................. 38
----------------
January 17, 2001
UNTIL , 2001, ALL DEALERS THAT
EFFECT TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation, or an amendment
thereto validly approved by stockholders, to eliminate or limit personal
liability of members of its Board of Directors for violations of a director's
fiduciary duty of care. However, the elimination or limitation shall not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or a knowing violation of a law, the payment of a
dividend or approval of a stock repurchase which is deemed illegal or an
improper personal benefit is obtained. Article X of our amended Certificate of
Incorporation includes the following language limiting the liability of, and
providing indemnification for, directors:
"No director of the Corporation shall have any personal liability to
the Corporation or its stockholders for monetary damages for breach of his or
her fiduciary duty as a director; provided, however, that this provision shall
not eliminate or limit the liability of a director (i) for any breach of his or
her duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware or (iv) for any transaction from which the director derived an improper
personal benefit."
Additionally, our Bylaws provide that we will indemnify each of our
directors and officers, whether or not then in office, with respect to expenses
actually and reasonably incurred by such person in any threatened, pending or
completed actions, suits or proceedings, whether civil, criminal, administrative
or investigative, except in such cases that involve gross negligence or willful
misconduct. We will advance expenses in advance of the final disposition of any
civil or criminal action, suit or proceeding upon receipt of an undertaking by
or on behalf of the concerned director or officer to repay such amount unless it
is ultimately determined that such person is entitled to indemnification
pursuant to the Bylaws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) that we have incurred or expect to incur in connection with the
issuance and distribution of the securities being offered hereby (items marked
with an asterisk (*) represent estimated expenses):
Filing Fee--Securities and Exchange Commission............ $ 5,913.60
Fees and Expenses of Accountants.......................... $ 75,000.00
Fees and Expenses of Counsel.............................. $ 50,000.00
Printing and Engraving Expenses........................... $ 3,100.00
Blue Sky Fees and Expenses................................ $ 5,000.00*
Transfer Agent Fees....................................... $ 5,000.00*
Miscellaneous Expenses.................................... $ 10,000.00*
------------
Total........................................... $154,013.00
============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the
unregistered securities that we have sold in the last three years, the
consideration that we have received for such securities, and information
relating to the section of the Securities Act or rule of the Commission under
which exemption from registration was claimed. None of these securities was
registered under the Securities Act. No sales of securities involved the use of
an underwriter and no commissions were paid in connection with the sale of any
securities.
II-1
<PAGE>
1. On March 17, 1998 we sold 59,280 shares of our common stock to
one investor at an agreed price of $1.69 per share.
2. On March 24, 1998 and April 13, 1998, we sold an aggregate of
37,050 shares of our common stock to one investor, who was an
existing shareholder, at an agreed price of $1.69 per share.
3. From March 30, 1998 to January 29, 1999, we sold an aggregate
of 82,235 shares of our common stock to 3 investors, all of
whom were existing shareholders, at an agreed price of $1.73
per share.
4. On May 11, 1998 we issued 54,720 shares of our common stock to
a founding shareholder of the Company at par value.
5. On June 1, 1998 we issued 57,912 shares of our common stock to
the Smith Family Trust in connection with the lease of an
airplane.
6. On June 3, 1998 and July 17, 1998, we issued an aggregate of
35,021 shares of our common stock to two investors, both of
whom were existing shareholders, at an agreed price of $1.71
per share.
7. On June 16, 1998, we issued 21,432 shares of our common stock
to one investor, who was an existing shareholder, at an agreed
price of $1.73 per share.
8. From July 6, 1998 to August 20, 1998, we sold an aggregate of
23,712 shares of our common stock to one investor at an agreed
price of $4.22 per share.
9. From July 16, 1998 to July 29, 1998, we sold an aggregate of
14,364 shares of our common stock to one investor, who was an
existing shareholder, at an agreed upon price of $1.73 per
share.
10. On July 29, 1998, we sold an aggregate of 748 shares of our
common stock to one investor, who was an existing shareholder,
at an agreed upon price of $1.34 per share.
11. On October 5, 1998, we sold 27,027 shares of common stock to
an investor, who was an existing shareholder, at an agreed
upon price of $1.29 per share.
12. From October 13, 1998 to December 23, 1998, we issued an
aggregate of 34,168 shares of our common stock to two
investors, both of whom were existing shareholders, at an
agreed price of $1.73 per share.
13. From January 4, 1999 to January 21, 1999, we sold an aggregate
of 25,363 shares of our common stock to four investors, each
of whom was an existing shareholder, at an agreed price of
$4.32 per share.
14. From January 20, 1999 to January 29, 1999, we sold an
aggregate of 11,291 shares of our common stock to one
investor, who was an existing shareholder, at an agreed upon
price of $1.73 per share.
15. On January 22, 1999 we sold 8,974 shares of our common stock
to an investor, who was an existing shareholder, at an agreed
price of $2.56 per share.
II-2
<PAGE>
16. On January 25, 1999 we issued 28,956 shares of our common
stock to one of our founding shareholders at par value.
17. On February 3, 1999 we sold 1,856 shares of our common stock
to one investor, who was an existing shareholder, at an agreed
price of $4.31 per share.
18. On February 16, 1999, we issued 1,423 shares of our common
stock to one investor, at an agreed price of $4.22 per share.
19. On February 10, 1999 we sold 22,526 shares of our common stock
to one investor, who was an existing shareholder, at an agreed
price of $0.84 per share.
20. On February 18, 1999 we issued 29,640 shares of our common
stock to a founding shareholder at par value.
21. On February 18, 1999 we issued 319,200 shares of our common
stock for no additional consideration to two existing
shareholders who had anti-dilution rights with respect to
their prior investments in the Company. The issuances were
valued at par value.
22. On March 23, 1999, we sold 2,075 shares of our common stock to
one investor, who was an existing employee and shareholder, at
an agreed price of $1.69 per share.
23. On March 23, 1999, we issued 57,456 shares of our common stock
for no additional consideration to three existing shareholders
who had anti-dilution rights with respect to their prior
investments in the Company.
24. On March 24, 1999 we issued 127,680 shares of our common stock
to a founding shareholder at par value.
25. On April 9, 1999 and April 16, 1999 we sold an aggregate of
155,040 shares of our common stock to two investors, both of
whom where existing shareholders, at an agreed price of $0.97
per share.
26. On May 11, 1999 we sold 38,760 shares of our common stock to
one investor at an agreed price of $2.58 per share.
27. From August 18, 1999 to December 13, 1999 we sold an aggregate
of 921,120 shares of our common stock to two investors, both
of whom were existing shareholders, at an agreed price of
$1.10 per share.
28. On February 16, 2000 we issued 364,800 shares of our common
stock for no additional consideration to two existing
shareholders who had anti-dilution rights with respect to
their prior investments in the Company. The issuances were
valued at par value.
29. On February 18, 2000, we issued 84,816 shares of our common
stock for no additional consideration to three existing
shareholders who had anti-dilution rights with respect to
their prior investments in the Company. The issuances were
valued at par value.
30. On February 22, 2000 we sold 61,733 shares of our common stock
to one investor at an agreed price of $2.02 per share.
31. On February 22, 2000 we sold 49,385 shares of our common stock
to one investor, who was an existing shareholder, at an agreed
price of $2.53 per share.
32. On February 25, 2000 we sold 24,692 shares of our common stock
to one investor, who was an employee and shareholder, at an
agreed price of $1.01 per share.
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33. From February 25, 2000 to May 3, 2000, we sold an aggregate of
210,380 shares of our common stock to one investor, who was an
existing shareholder, at an agreed price of $1.69 per share.
34. On February 29, 2000, we sold 49,385 shares of our common
stock to one investor at an agreed price of $2.02 per share.
35. On May 3, 2000 we granted a common stock purchase warrant to
purchase 500,000 shares of our common stock to Swartz Private
Equity, LLC in consideration for entering into the Investment
Agreement. The warrant exercise price is initially equal to
$1.00 per share and it expires on May 3, 2005. The warrant
vests immediately as to all of the warrant shares.
36. On September 13, 2000 we granted a common stock warrant to
Douglas E. Smith to purchase 150,000 shares of our common
stock in connection with a loan to our company of $1,000,000.
37. On October 6, 2000 we granted common stock purchase warrants
to purchase an aggregate of 520,000 shares of our common stock
to certain employees of our company as payment of bonus
compensation. The exercise price for each warrant is equal to
$5.00 per share, they each expire on October 6, 2003 and they
vest as to 50% of the warrant shares on the first anniversary
of the date of grant and the remaining 50% on the second
anniversary of the date of grant.
38. On October 6, 2000 we granted common stock purchase warrants
to purchase an aggregate of 465,120 shares of our common stock
to certain investors in connection with their prior purchase
for cash of our common stock. The exercise price for each
warrant common stock is equal to $3.00 per share, each warrant
expires on October 6, 2003 and vests as to 50% of the warrant
shares on the first anniversary of the date of grant and the
remaining 50% on the second anniversary of the date of grant.
39. On October 6, 2000 we granted a common stock purchase warrant
to John Dupont to purchase 2,000,000 shares of our common
stock in consideration for assigning certain patents to our
company. The exercise price is equal to $5.00 per share, the
warrant expires on October 6, 2003 and vests as to 50% of the
warrant shares on the first anniversary of the date of grant
and the remaining 50% on the second anniversary of the date of
grant.
40. On October 5, 2000 we granted common stock purchase warrants
to purchase an aggregate of 1,078,000 shares of our common
stock to certain investors who converted their loans to our
company into warrants. The conversion price was equal to $1.00
per share of our common stock. The exercise price for each
warrant is equal to $3.00 per share, each warrant expires on
October 5, 2000 and vest as to 50% of the warrant shares on
the first anniversary of the date of grant and the remaining
50% on the second anniversary of the date of grant.
41. On October 6, 2000 we granted common stock purchase warrants
to purchase an aggregate of 1,070,812 shares of our common
stock to John Dupont, James Carey, Thomas Dapogny, and Edward
Morgison in payment of deferred compensation owed to these
employees. The exercise price for each warrant is equal to
$3.00 per share, they each expire on October 5, 2003 and they
vest as to 50% of the warrant shares immediately, 25% on the
first anniversary of the date of grant and the remaining 25%
on the second anniversary of the date of grant.
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42. On October 6, 2000 we granted common stock purchase warrants
to purchase an aggregate of 300,000 shares of our common stock
to various consultants in consideration for consulting and
advisory services rendered to our company. The exercise price
for each warrant is equal to $3.00 per share, each warrant
expires on October 5, 2003 and vests as to 50% of the warrant
shares on the first anniversary of the date of grant and the
remaining 50% on the second anniversary of the date of grant.
43. On October 6, 2000 we granted a common stock purchase warrant
to purchase 50,000 shares of our common stock to Chester D.
Taylor, Jr. in settlement of his claims against our company
for deferred compensation. The exercise price of the warrant
is equal to $3.00 per share and it expires on October 5, 2003.
The warrant vests as to 50% on the first anniversary of the
date of grant and the remaining 50% on the second anniversary
of the date of grant.
44. On October 6, 2000, we issued 1,083,000 shares of preferred
stock to John Dupont and 887,787 shares of preferred stock to
Darby Boland in exchange for common stock held by them.
45. On October 25, 2000, we issued 1,000,000 shares of our common
stock to Douglas E. Smith upon conversion of a promissory note
for $1,000,000 held by Mr. Smith.
46. In year 2000 we issued 45,600 shares of our common stock to
the Smith Family Trust in connection with the lease of an
airplane.
No underwriter was involved in any of the above issuances of
securities. All of the above securities were issued in reliance upon the
exemptions set forth in Section 4(2) of the Securities Act of 1933 on the basis
that they were issued under circumstances not involving a public offering.
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ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION
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3.1 Certificate of Incorporation of American Utilicraft
Corporation filed with the Delaware Secretary of State on
August 9, 1990.
3.2 Bylaws of American Utilicraft Corporation.
3.3 Certificate of Amendment of the Certificate of Incorporation
of American Utilicraft Corporation filed with the Delaware
Secretary of State on April 24, 2000.
3.4 Certificate of Amendment of the Certificate of Incorporation
of American Utilicraft Corporation filed with the Delaware
Secretary of State on May 24, 2000.
3.5 Certificate of Amendment of the Certificate of Incorporation
of American Utilicraft Corporation filed with the Delaware
Secretary of State on October 5, 2000.
3.6 Certificate of Secretary of American Utilicraft Corporation
dated October 6, 2000 amending Bylaws.
3.7 Certificate of Determination of American Utilicraft
Corporation creating the Series A Convertible Preferred Stock
filed with the Delaware Secretary of State on October 5, 2000.
4.1 Specimen stock certificate of common stock of American
Utilicraft Corporation.
5.1* Opinion of Jeffers, Shaff & Falk, LLP.
10.1 Investment Agreement by and between American Utilicraft
Corporation and Swartz Private Equity, LLC dated May 24, 2000.
10.2 Employment Agreement by and between American Utilicraft
Corporation and John Dupont dated February 28, 1991.
10.3 Employment Agreement by and between American Utilicraft
Corporation and James Carey dated August 15, 1991.
10.4 Amendment Number One to Employment Agreement by and between
American Utilicraft Corporation and John Dupont dated January
21, 1993.
10.5 Amendment Number One to Employment Agreement by and between
American Utilicraft Corporation and James Carey dated January
21, 1993.
10.6 Amendment Number Two to Employment Agreement by and between
American Utilicraft Corporation and John Dupont dated April 6,
1999.
10.7 Amendment Number Two to Employment Agreement by and between
American Utilicraft Corporation and James Carey dated April 6,
1999.
10.8 Employee Agreement by and between American Utilicraft
Corporation and Thomas Dapogny dated July 15, 2000.
10.9 Third Amendment to Employment Agreement by and between
American Utilicraft Corporation and John Dupont dated October
4, 2000.
10.10 Third Amendment to Employment Agreement by and between
American Utilicraft Corporation and James Carey dated October
4, 2000.
10.11 First Amendment to Employment Agreement by and between
American Utilicraft Corporation and Thomas Dapogny dated
October 4, 2000.
10.12 Convertible Subordinated Promissory Note dated July 11, 2000
made by American Utilicraft Corporation in favor of Douglas E.
Smith.
10.13 Assignment entered into by John Dupont in favor of American
Utilicraft Corporation dated May 24, 2000.
10.14* Technical Services Purchase Agreement between American
Utilicraft Corporation and The Aerostructures Corporation,
dated December 1, 2000.
23.1* Consent of Jeffers, Shaff & Falk, LLP (included in Exhibit
5.1).
23.2* Consent of Halt, Thrasher & Buzas, LLP, Chartered Accountants.
27.1 Financial Data Schedule.
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* Filed herewith.
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ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events which, individually or together,
represent a fundamental change in the
information in the registration statement;
and
(iii) To include any additional or changed
material information on the plan of
distribution.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be treated as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Amendment No 1
to the Registration Statement to be signed on its behalf by the undersigned, in
the State of Georgia on January 18, 2001.
AMERICAN UTILICRAFT CORPORATION
By: /S/ JOHN J. DUPONT
-------------------------------------
John J. Dupont
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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