<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 0-10639
METRO AIRLINES, INC.
--------------------
(Exact name of Registrant as specified in its charter)
Delaware 74-2211124
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Post Office Box 612626
DFW Airport, TX 75261-2626
--------------------------
(Address of principal executive offices)
(214) 929-5117
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
------ ------
As of January 31, 1995, there were outstanding 23,034,415 shares of New
Common Stock of the Registrant.
Transitional small business disclosure format (check one):
Yes No X
------ ------
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS
January 31, April 30,
1995 1994
----------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 409 $ 725
Accounts receivable and other 169 150
--------- ---------
Total current assets 578 875
Note receivable from related party 2,287 2,287
Less allowance for doubtful accounts (2,287) (2,287)
--------- ---------
Total assets $ 578 $ 875
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities - accounts payable and other accrued liabilities $ 72 $ 137
Payable to Predecessor Company stockholders 506 738
Stockholders' equity:
New common stock, $.01 par value. Authorized 32,000,000
shares; issued and outstanding 23,034,415 shares 230 230
Additional paid-in capital (230) (230)
Retained earnings -- --
-------- --------
Total stockholders' equity -- --
-------- --------
Total liabilities and stockholders' equity $ 578 $ 875
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------------------------------------- ---------------------
Three Months Period from Reorganization Period from
Ended (December 29, 1993 to November 1, 1993 to
January 31, 1995 January 31, 1994) December 28, 1993
---------------- ----------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Operating revenues $ -- $ -- $ --
Operating expenses -
general and administrative expenses 54 57 130
-------- -------- --------
Operating loss from continuing operations (54) (57) (130)
Other income (expense):
Write-off of note receivable from related party -- -- (2,287)
Interest income, net 6 4 71
Reorganization items -- -- (119)
-------- -------- --------
Total other income (expense) 6 4 (2,335)
-------- -------- --------
Loss from continuing
operations before income taxes (48) (53) (2,465)
Provision for income taxes -- -- (7)
-------- -------- --------
Loss from continuing operations (48) (53) (2,472)
Discontinued air transportation operations:
Loss from operations (net of
applicable income taxes) -- -- (90)
Gain on disposal (net of applicable
income taxes) -- -- 2,900
-------- -------- --------
Income (loss) before extraordinary item -- (53) 338
--------
Extraordinary item - extinguishment of debt
(net of applicable income taxes) -- 22,803
-------- --------
Net income (loss) $ (48) $ (53) $23,141
--------- -------- --------
--------- -------- --------
Income (loss) per common share $ -- $ -- N.M.
--------- -------- --------
--------- -------- --------
Weighted average number of
common shares outstanding 23,034 23,034 N.M.*
--------- -------- --------
--------- -------- --------
See accompanying notes to consolidated financial statements.
- ------------------------------
<FN>
* N.M. - Not meaningful. Historical share and per share data for the
Predecessor Company is not meaningful since the Company has been recapitalized
and has adopted fresh start reporting as of December 28, 1993.
</TABLE>
-3-
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------------------------- ---------------------
Nine Months Period from Reorganization Period from
Ended December 29, 1993 to Day 1, 1993 to
January 31, 1995 January 31, 1994) December 28, 1993
---------------- ----------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Operating revenues $ -- $ -- $ --
Operating expenses -
general and administrative expenses 250 57 272
-------- -------- --------
Operating loss from continuing operations (250) (57) (272)
Other income (expense):
Write-off of note receivable from related party -- -- (2,287)
Interest income, net 18 4 3
Reorganization items -- -- (150)
Other, net -- -- --
-------- -------- --------
Total other income (expense) 18 4 (2,434)
-------- -------- --------
Loss from continuing
operations before income taxes (232) (53) (2,706)
Provision for income taxes -- -- --
-------- -------- --------
Loss from continuing operations (232) (53) (2,706)
Discontinued air transportation operations:
Income from operations (net of
applicable income taxes) -- -- 89
Gain on disposal (net of applicable
income taxes) -- -- 2,797
-------- -------- --------
Income (loss) before extraordinary item (232) (53) 180
Extraordinary item - extinguishment of debt
(net of applicable income taxes) -- -- 23,082
-------- -------- --------
Net income (loss) $ (232) $ (53) $23,262
-------- -------- --------
-------- -------- --------
Income (loss) per common share $ (.01) $ - N.M.
-------- -------- --------
-------- -------- --------
Weighted average number of
common shares outstanding 23,034 23,034 N.M.*
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
- ------------------------------
<FN>
* N.M. - Not meaningful. Historical share and per share data for the
Predecessor Company is not meaningful since the Company has been recapitalized
and has adopted fresh start reporting as of December 28, 1993.
</TABLE>
-4-
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Reorganized Company Reorganized Company Predecessor Company
--------------------- --------------------- ---------------------
Nine Months Period from Reorganization Period from
Ended December 29, 1993 to Day 1, 1993 to
January 31, 1995 January 31, 1994) December 28, 1993
---------------- ----------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(232) $ (53) $(2,706)
Adjustments to reconcile loss to net cash
used by operating activities:
Write-off of note receivable from related party -- -- 2,287
Changes in assets and liabilities:
Accounts receivable and other assets (19) 15 754
Accounts payable and other accrued liabilities (65) (14) (790)
Amount due creditors -- (3,861) --
Liabilities subject to Chapter 11 proceedings -- -- (541)
-------- -------- --------
Net cash provided (used) by continuing operating
activities (316) -- (996)
Income from discontinued operations -- -- 94
-------- -------- --------
Net cash provided (used) by operating activities (316) (3,913) (902)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of discontinued operations,
net of cash included in assets sold -- -- 3,900
-------- -------- --------
Net cash provided by investing activities -- -- 3,900
-------- -------- --------
Cash flows from financing activities -- -- --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (316) (3,913) 2,998
Cash and cash equivalents at beginning of period 725 5,622 2,624
-------- -------- --------
Cash and cash equivalents at end of period $ 409 $ 1,709 $ 5,622
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
METRO AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL INFORMATION
The consolidated financial statements include the accounts of Metro
Airlines, Inc. ("Metro") and its wholly owned subsidiaries, Metroflight, Inc.
("Metroflight") and Metro Leasing, Inc. ("Metro Leasing"). As used herein, the
term "Company" refers to Metro and its subsidiaries.
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. Although the Company believes that the disclosure is
adequate to prevent the information presented from being misleading, it is
suggested that the consolidated financial statements be read in conjunction with
the audited financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-KSB.
(2) CHAPTER 11 REORGANIZATION
The Company's Joint Plan of Reorganization, as Amended and Modified, (the
"Plan"), was confirmed by the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division (the "Bankruptcy Court") on December 16, 1993
and the Plan became effective on December 28, 1993 (the "Effective Date").
The Plan called for the payment of approximately $4.5 million in cash,
including interest from March 22, 1993 to the date of payment, in satisfaction
of unsecured claims against Metroflight. The Plan also provided for the
cancellation of approximately $22.8 million in unsecured claims against Metro in
exchange for the issuance of approximately 99% of the common stock of the
Reorganized Company to the holders of such claims. The remaining 1% of the
common stock of the Reorganized Company was issued to the holders of the
Predecessor Company's common stock on December 28, 1993. As used herein, the
term "Predecessor Company" refers to the Company prior to December 28, 1993.
The stockholders of the Predecessor Company are also entitled to receive a
special payment of 27 cents per share of the Predecessor Company's stock (the
"Settlement Payment Right"), payable after all senior claims are paid. The Plan
calls for partial payment of the Settlement Payment Right to be made at such
time as the Reorganized Company has sufficient cash, after deducting certain
reserves, to pay at least 50%, or approximately $800,000, of the total
Settlement Payment Right, which is approximately $1.6 million. The Company
currently does not have sufficient resources to require such a payment. For
purposes of establishing the liability associated with the Settlement
-6-
<PAGE>
Payment Right, the Company recorded a payable to Predecessor Company
stockholders with a corresponding charge to the Predecessor Company
stockholders' accounts in an amount equal to the net assets of the Reorganized
Company as of the Effective Date. The payable is reduced as subsequent losses
are incurred since such losses reduce the net assets available for payment of
the Settlement Payment Right. Since the Effective Date, this payable has been
reduced by the net loss incurred from the Effective Date through January 31,
1995. The payable has not been reduced by reserves for future administrative
expenses or costs of litigation.
The Company accounted for transactions related to the reorganization
proceedings in accordance with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," issued by the American
Institute of Certified Public Accountants in November 1990 ("SOP 90-7"). In
connection with its emergence from bankruptcy, the Company adopted fresh start
reporting in accordance with SOP 90-7 and reflected the effects of such adoption
in its consolidated balance sheet as of December 28, 1993. The adjustments to
reflect the consummation of the Plan, including the gain on debt discharge of
prepetition liabilities, have been reflected in the accompanying consolidated
financial statements. Accordingly, a black line is shown to separate the
Reorganized Company and Predecessor Company financial statements since they have
not been prepared on a consistent basis.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
Until January 1991, the Company, through its wholly owned subsidiaries,
operated four separate regional passenger airlines and an air cargo carrier.
Since January 1991, the Company has sold or shut down all of its passenger
operations and its cargo operation.
The Company filed for reorganization under Chapter 11 of the Code on April
1, 1991. The Company's reorganization plan was confirmed on December 11, 1992.
On December 22, 1992, the Company sold substantially all of the assets of
Metroflight (the "Asset Sale"), its primary operating subsidiary. The Company
currently has no ongoing operations. Since the Asset Sale, its activities have
been limited to the pursuit of certain claims and implementation of the Plan,
which became effective, as modified, on December 28, 1993.
As of January 31, 1995, the Company had cash and cash equivalents on hand
of approximately $409,000, compared to $725,000 at April 30, 1994.
At December 22, 1992, the Company received cash proceeds from the Asset
Sale and Settlement of approximately $1.7 million, of which approximately $1.4
million was used to pay postpetition taxes and payables. An additional $11.0
million from the proceeds was placed in two escrow accounts (the "Escrows").
Prior to December 28, 1993, approximately $4.6 million had been disbursed to the
Company from the Escrows. On December 28, 1993, the remaining contingencies in
connection with the Asset Sale and Settlement were resolved, with the Company
receiving $3.9 million of the remaining funds held in the Escrows. Concurrent
with receipt of the escrow funds, the Plan, as modified, became effective. In
connection with the settlement of the escrow disputes, the Company recorded
additional gain on the sale of discontinued operations of approximately
$2,797,000 during the period ended December 28, 1993.
Under the Plan, payments in full of allowed prepetition claims, with
interest from March 22, 1993 to the payment date, were to be made to Metroflight
unsecured creditors. From December 29, 1993 through April 30, 1994, the Company
paid approximately $4.5 million in full satisfaction of such claims. The
stockholders of the Predecessor Company at the Effective Date are also entitled
to receive a special payment of 27 cents per share of the Predecessor Company's
stock (the "Settlement Payment Right"), payable after all senior claims are
paid. The Plan calls for partial payment of the Settlement Payment Right to be
made at such time as the Reorganized Company has sufficient cash, after
deducting certain reserves, to pay at least 50%, or approximately $800,000, of
the total Settlement Payment Right, which is approximately $1.6 million. The
Company currently does not have sufficient resources to require such a payment.
For purposes of establishing the liability associated with the Settlement
Payment Right, the Company recorded a payable to Predecessor Company
stockholders with a corresponding charge to the Predecessor Company
stockholders' accounts in an amount equal to the net assets of the Reorganized
Company at the Effective Date. The payable is reduced as subsequent losses are
incurred since such losses reduce the net assets
-8-
<PAGE>
available for payment of the Settlement Payment Right. Since the Effective
Date, the payable has been reduced by the net loss incurred from the Effective
Date through January 31, 1995. The payable has not been reduced by reserves for
future administrative expenses or costs of litigation.
In addition to cash on hand, the Company has certain other assets,
primarily miscellaneous receivables and deposits, that it expects to liquidate
at amounts approximating carrying value.
Metro also has a note receivable from Aeroflight Holdings, Inc. ("AHI") in
the amount of $2,287,000 due in 2001 which represents the balance of the
purchase price of the Company's former subsidiary, Aviation Associates, Inc.
("AAI"). The note is secured by the stock of AAI and bears interest at the
prime rate. AHI and AAI filed for protection under Chapter 11 of the Bankruptcy
Code on December 14, 1993.
In connection with the sale of AAI to AHI, Metro indemnified AHI for
certain tax liabilities. AHI has asserted claims under the indemnification of
up to approximately $2.4 million and has offset all interest payments due Metro
to date against these alleged claims. In February 1994, AHI filed suit against
Metro in their Bankruptcy Court to seek to collect amounts it claims are due
under the indemnification. Metro disputes AHI's indemnification claims and,
prior to AHI's bankruptcy filing, made demand on AHI to pay amounts the Company
believes are in default on the note. In May 1994, AAI and AHI filed a
disclosure statement in connection with a proposed plan of reorganization.
Under the proposed reorganization plan, Metro would likely receive little or no
consideration in satisfaction of its note receivable from AHI. On July 17,
1994, AAI ceased operations and subsequently returned its aircraft to the
lessors. Creditors of AAI and AHI have filed a motion to convert the cases to a
Chapter 7 liquidation. The Company, together with AHI and its principals, has
filed a joint objection to the conversion. The Company has also reached a
tentative agreement with AHI and its principals, who are also Predecessor
Company stockholders. Under the terms of the settlement, which is subject to
approval by the Bankruptcy Court, all litigation between the parties would be
dismissed and all claims of the Company and AHI against each other would be
released. In addition, the Settlement Payment Right due AHI's principals would
be reduced by 15%, or approximately $100,000. The Company would also make an
initial partial distribution of $250,000 of the Settlement Payment Right,
subject to Bankruptcy Court approval. If the proposed settlement is not
consummated, the Company intends to vigorously pursue protection of its
interests in the AHI bankruptcy. Pending resolution of these issues, Metro has
fully reserved the note receivable on its books.
The Company also has asserted a claim in excess of $6 million in the
Chapter 7 bankruptcy proceedings of Metro Express, the Company's subsidiary that
is being liquidated by a trustee. The Company's claim has not yet been allowed
in the Metro Express bankruptcy. Although the Company expects to receive a cash
distribution on its claim from the liquidation of Metro Express, there can be no
assurance as to the amount or timing of such distribution. Any distribution
will likely be only a small percentage of the allowed claim.
-9-
<PAGE>
The Company believes that its current cash on hand is sufficient to fund
operating expenses during the implementation of the Plan, which is expected to
last through fiscal 1995, as well as to pursue the Company's claims with regard
to the note from AHI and the claim against Metro Express, including litigation,
if necessary. If the Company is unsuccessful in pursuing and realizing claims
in amounts sufficient to fund ongoing operations, it is anticipated that it will
be liquidated.
The Company has no commitments for capital expenditures or leases. The
Company currently has no available borrowing capability and it is unlikely that
it would be able to obtain additional outside financing. Under the terms of the
Plan, the Company is not permitted to pledge any assets owned as of the
effective date of the Plan without approval of a committee representing the
interest of prepetition creditors. All of the Company's available cash, after
payment of administrative expenses, is currently committed to payments to
creditors and Predecessor Company stockholders.
PART 2. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its former airline operations,
except for a suit filed in February 1994 in the United States Bankruptcy Court
in Houston, Texas by AHI, which seeks up to $2.4 million from the Company based
on alleged claims under tax indemnifications in connection with the February
1991 sale of AAI to AHI. Metro disputes AHI's indemnification claims and has
made demand on AHI to pay amounts the Company believes are in default under a
related note. The Company and AHI have reached a tentative agreement with AHI
and its principals under which the litigation would be dismissed and all claims
of the Company and AHI against each other would be released. Such agreement is
subject to approval by the Bankruptcy Court. If the proposed settlement is not
consummated, the Company intends to vigorously defend this suit and pursue
collection of amounts due under the note.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
-10-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 17, 1995 METRO AIRLINES, INC.
------------------------ ------------------------------
(Registrant)
/s/ BRIAN K. MILLER
------------------------------
Brian K. Miller
President
Principal Financial Officer
/s/ MITCHELL E. GASSAWAY
------------------------------
Mitchell E. Gassaway
Controller
Principal Accounting Officer
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosure normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 409
<SECURITIES> 0
<RECEIVABLES> 169
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 578
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 578
<CURRENT-LIABILITIES> 72
<BONDS> 0
<COMMON> 230
0
0
<OTHER-SE> (230)
<TOTAL-LIABILITY-AND-EQUITY> 578
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (232)
<INCOME-TAX> 0
<INCOME-CONTINUING> (232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
