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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
FLIGHTSERV.COM
(Exact name of registrant as specified in its charter)
DELAWARE 1-8662 23-2265039
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
3343 PEACHTREE ROAD NE
SUITE 530
ATLANTA, GA 30326
(404) 869-2599
(Address of registrant's principal executive offices
including zip code and telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $0.04 American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Securities
Exchange Act of 1934: NONE
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Registrant's revenues for its most recent fiscal year (12 months
ending June 30, 2000): $1,118,478.
The aggregate market value of the voting stock held by non-affiliates
as of September 27, 2000 was $49,392,000.
Check whether the issuer filed all 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 [ ]
The number of shares outstanding of the Registrant's Common Stock as of
September 27, 2000: 51,088,654
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C>
PART I
ITEM 1. Description of Business 3
General 3
Recent Business Developments 3
Private Aviation Travel Services 4
Factors Affecting Future Results and Forward-looking 5
Statements
Commercial Real Estate Operations 8
Discontinued Operations-Residential Real Estate 9
Employees 9
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 10
ITEM 4. Vote of Security Holders 10
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 11
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
ITEM 7. Financial Statements 14
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 28
PART III
ITEM 9. Directors and Executive Officers 28
ITEM 10. Executive and Director Compensation 29
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management 31
ITEM 12. Certain Relationships and Related Transactions 32
PART IV
ITEM 13. Exhibits Lists and Reports on Form 8-K 34
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
flightserv.com ("FSW" or the "Company") is a Delaware corporation
incorporated in 1982. FSW is engaged in the operation of an Internet-based,
private aviation travel services business, a leisure charter travel service
business, a telecommunications call center business, and certain limited
commercial real estate activities. See "Recent Business Development," "Private
Aviation Travel Services" and "Commercial Real Estate Operations" below.
Prior to 1996, the Company, then known as Proactive Technologies, Inc.
operated a drug-screening and testing lab and a computer software development
business. In 1996 the Company discontinued these operations when it acquired
Capital First Holdings, Inc., a residential real estate development company.
Since fiscal 1996 and through the first half of fiscal 1999 the Company was
engaged primarily in the design, development and sale of single-family
subdivisions.
In the second half of fiscal 1999, the Company acquired commercial real
estate businesses consisting of two strip-mall, shopping centers and a hotel
development concept. Also during the second half of fiscal 1999, the Company
decided to discontinue its residential real estate development operations and
focus primarily on developing an Internet Web site to provide, as agent, access
to private aviation travel services. The Company changed its name to
flightserv.com in June 1999 to reflect the new business direction. Subsequent to
June 30, 2000, FSW acquired two companies in related businesses.
Certain statements contained in this report, including, without
limitation, statements containing the words "believes", "anticipates",
"expects", and words of similar import, constitute forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
international, national and local general economic and market conditions; the
ability of the Company to sustain, manage or forecast its growth; the ability of
the Company to successfully make and integrate acquisitions; existing
governmental regulations and changes in or the failure to comply with,
governmental regulations; adverse publicity; competition; changes in business
strategy or development plans; business disruptions; the ability to attract and
retain qualified personnel; and other factors referenced in this report. Certain
of these factors are discussed in more detail elsewhere in this report. Given
these uncertainties, readers of this report and investors are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
RECENT BUSINESS DEVELOPMENTS
In August 2000, the Company's Board approved a series of strategic
transactions that provided new capital, new management and the acquisition of
two related businesses to strengthen FSW's operations and permit the continued
development of FSW's existing business.
On August 25, 2000, the Company acquired Internet Aviation Services,
Ltd. ("IASL) for 1,750,000 shares of Common Stock (with a then market value of
$1,203,125). IASL is a new, leisure and business travel services company, which
will offer charter services. IASL has an agreement with a tour operator to
provide air charter services between Charlotte, North Carolina and Cancun,
Mexico for a 12-month period commencing December 21, 2000. IASL has an agreement
with Southeast Airlines to operate the aircraft. IASL also has entered into a
contract with Southeast Airlines to charter two additional DC-9-30 jet aircraft
with charter service commencing in mid-November 2000 for the first aircraft and
January, 2001 for the second.
On September 7, 2000, the Company acquired DM Marketing, Inc. ("DMM")
for 8,450,000 shares of Common Stock (with a then market value of $12,146,875).
DMM operates a telecommunications call center providing telemarketing, help desk
and other services for Internet related companies. DMM's call center operations
may be used to provide back office support for FSW's private aviation travel
services business.
In addition, the Company issued 7,070,000 common shares at $0.375 in a
private placement transaction on August 31, 2000. The net proceeds to the
Company after a 7.5% placement fee and legal expenses were approximately
$2,400,000.
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PRIVATE AVIATION TRAVEL SERVICES
General
FSW has developed an Internet Web site to provide, as agent, access to
private jet flight and travel services. The Web site, www.flightserv.com(TM),
was launched on March 9, 2000 and features the Company's Private Seats(TM)
program which is designed to aggregate individual demand for private jet travel
between designated cities to make chartering of an aircraft economical for the
charter operator and individual travelers. FSW, as agent, arranges for the
aircraft charter, collecting the fair and paying the charter operator in return
for an agency fee equal to the difference between the total fees paid by the
passengers and the charter fees paid to the charter operator.
On March 9, 2000, FSW began taking private jet charter reservations for
routes between Dekalb-Peachtree Airport near Atlanta, Georgia and Teterboro
Airport near New York City, New York. Flights reserved on the Company's Web site
commenced on April 17, 2000. From that date through June 30, 2000 the Company
chartered a limited number of flights. Thereafter, the Company, due to capital
constraints, has been unable to implement marketing plans, and, as a result, has
not generated sufficient passengers through its Web site to arrange for charter
flights. The Company is currently evaluating the most effective way to develop
and market its private aviation travel services business.
Supplier Agreements
In connection with the development of the Web site, FSW negotiated
preferred partner agreements with certain suppliers of services to the private
aviation marketplace. The Company's strategy in selecting preferred partners is
to contract with premium service providers. To date, FSW has executed a
preferred hospitality agreement with the Ritz-Carlton Hotel Company, LLC, a
leading provider of luxury hotel rooms worldwide, and a Master Executive
Protection Agreement with Vance International, Inc. ("Vance"), a leading
provider of personal and asset protection services.
FSW is in the process of negotiating agreements with other service
providers including certified charter flight operators. FSW will serve as agent
for operators having certificates from the Federal Aviation Administration under
Part 135 of Title 14 of the Code of Federal Regulations to provide such
services. FSW does not intend to own or operate any aircraft and will be
dependent upon certified charter operators to provide all flight services. FSW
has been in discussions and negotiations with certified charter operators and is
confident that it will be able to contract with suitable charter operators to
act as their agent in reserving and collecting payment for flight services.
Web Site Development
The FSW Web site was developed by an independent Web site contractor.
Also, FSW has worked closely with legal and other advisers to comply with all
applicable legal and other requirements.
Marketing
FSW is currently evaluating the most effective methods to publicize its
Web site and attract users to the Web site. The Company is also seeking
strategic partners who can help publicize the Web site and attract customer
traffic to it. In June 2000, FSW entered an agreement with Worldspan, L.P. to
market FSW's private aviation distribution services to Worldspan's complete
portfolio of customers - travel agencies, corporations, and travel suppliers -
utilizing Worldspan's distribution and reservations technology. Worldspan
provides global electronic distribution and Internet-based, reservations
capabilities for nearly 21,000 travel agents worldwide and processes more than
50 percent of all online travel agency bookings.
FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The Company's business, results of operations and financial condition
are subject to many risks, including those set forth below. The following
discussion highlights some of these risks and others are discussed elsewhere
herein or in other documents filed by the Company with the Securities and
Exchange Commission. In addition, statements in this report relating to matters
that are not historical facts are forward-looking statements based on
management's belief and assumptions using currently available information.
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Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances that
these expectations will prove to be correct. Such statements involve a number of
risks and uncertainties, including, but not limited to those set forth below.
FSW's Private Aviation Services Business Has Minimal Operating History
The Company has discontinued its residential real estate business and
its Web site has only been operational since March 2000. As a result, there is
minimal operating history upon which to base an evaluation of its business and
prospects. FSW's chances of financial and operating success should be evaluated
in view of the risks, uncertainties, expenses, delays and difficulties
associated with starting a new business and, in particular, a business using new
and unproven business models. There is no assurance that FSW will be successful
in the Internet-based, private aviation services market.
FSW Expects To Incur Operating Losses And There Can Be No Assurance That It Will
Achieve Or Sustain Profitability
To date, the Company has generated minimal revenue from its private
aviation services business. FSW incurred operating losses in fiscal 2000 and
1999 and expects to incur operating losses in fiscal 2001 as the result of
substantial marketing and promotion costs, systems costs, consulting fees, and
other development costs associated with the Private Seats(TM) program. As a
result of these costs and uncertain revenue growth, there can be no assurance
that FSW will achieve or sustain profitability.
Private Seats(TM) Is A Unique Product And There Can Be No Assurance That It Will
Be Successful
The use of the Internet to aggregate individual demand for private
aviation travel between designated cities is a unique product which FSW has
recently introduced. To be successful, FSW target customers -- professional
business travelers -- will have to become private aviation passengers. While FSW
believes that the advantages of private aviation travel, including the
convenience of the air terminals, the comfort and safety record of the planes
and the ability of passengers to establish departure times will be attractive to
certain of its target customers, there can be no assurance that Private
Seats(TM) will attract a sufficient number of passengers to be successful.
FSW Is Dependent On The Availability And Quality Of Charter Flight Operators and
Fixed-Base Operators
FSW does not intend to own or operate any aircraft and will be
dependent upon certified charter operators to provide all flight services. FSW
will also be dependent upon operators of the fixed-base ground terminals where
passengers will plane and deplane. The success of Private Seats(TM) will depend
directly on the ability of certified charter operators to provide quality
service between city pairs on a demand basis. Shortages in available charter
aircraft could be disruptive to FSW's business and could damage its brand name
and result in fewer customers. In addition, the quality of the services
(including the reliability and comfort of services at the airport and in flight)
provided by the charter operators and the fixed-base operators will be critical
to the success of FSW's business. While FSW intends to establish quality
standards, its success will be dependent on its ability to control the quality
of services provided to its customers on a day to day basis.
FSW Is Dependent On The Public Perception Of The Safety Of Private Aviation
Travel
Notwithstanding the safety record of private jet travel, FSW's ability
to attract customers to Private Seats(TM) is dependent on the public perception
of the safety of private jet travel. While the safety record of certified
charter private jet travel is superior to private aviation travel generally and
comparable to the safety record of commercial aircraft, the public may not
distinguish between different types of private aviation. As a result, if there
is an accident or other incident involving the private aviation industry
generally or a private charter operator that participates in the Private
Seats(TM) program, FSW's business may suffer from a temporary or permanent loss
of customers.
FSW's Business May Be Negatively Effected If The Cost Of Chartering Flights
Increases
FSW does not intend to own or operate any aircraft. However, FSW's
agency fee for a charter flight arranged by FSW will be equal to the difference
between the fares it collects, as agent, from individual passengers and the fee
charged by the charter operator for the flight. FSW plans to enter into
contracts with charter operators establishing charter fees, which will be fixed
for limited periods of time. However, if the costs of operating charter flights
increase over time, the charter operators may increase the price of chartering a
flight. In that event, FSW will have to increase the price of each seat or
experience a reduced profit margin it
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receives from each flight. FSW will have limited control over the cost of
chartering flights which could increase as a result of changes in operating
costs (such as jet fuel, pilot fees, airport fees or maintenance fees) or as a
result of other factors such as high demand for charter flights or general
economic conditions. If charter costs increase and, as a result, FSW increases
the price of a seat purchased through Private Seats(TM), it may lose customers
to competitors, including the commercial airlines.
FSW Is Dependent On Other Third Party Vendors
FSW does not plan to provide other travel related services offered on
its Web site directly but, instead, will offer, as agent, such services provided
by independent vendors. As a result, FSW's ability to enter into agreements with
such vendors or to otherwise arrange for services to be available through its
Web site is critical to the success of its business. In addition, the quality of
the services provided through third parties is critical to the success of its
business. While FSW intends to establish quality standards, its success will be
dependent on its ability to control the quality of services provided to its
customers on a day to day basis.
FSW Is Dependent On The Internet And On The Development Of Its Brand Name
The success of FSW's private aviation travel services business depends
on the continual growth of the use of the Internet generally and the actual use
of its Web site and Private Seats(TM) by its target customers -- professional
business travelers -- making charter flight reservations and arranging for other
travel related services. FSW's lack of operating history makes it impossible to
predict the number of existing professional business travelers that will use its
Web site and the Private Seats(TM) program. The development of broad recognition
and favorable consumer perception of the flightserv.com(TM) and Private
Seats(TM) brand names will be essential to attract existing and new private
aviation passengers to the Web site and will depend on the success of its
marketing efforts, the breadth and quality of flights arranged through Private
Seats(TM), the breadth and quality of the other services available on the Web
site, the successful completion of transactions through the Web site and FSW's
ability to provide adequate support and customer service to its customers. There
is no assurance that FSW will adequately develop the flightserv.com(TM) or
Private Seats(TM) brand names or otherwise attract a sufficient number of Web
site users.
Computer System Failures Or Lack Of Capacity Could Disrupt The Business And
Damage FSW's Brand Name
FSW's successful implementation and continued operation of the Web site
will depend upon communications hardware and computer hardware and software
provided by third parties, and any interruptions in service caused by the
failure of these systems will be outside of FSW's control. A system failure that
causes an interruption in service to the Web site or that results in slower
response times from the Web site could be disruptive to FSW's business and could
damage its brand name and result in fewer visits to the Web site. In addition,
high volume could strain the capacity of the software or hardware used by the
Web site resulting in slower response times or failures which could adversely
affect FSW's business.
Loss Of Key Management Personnel Could Adversely Affect The Business
FSW's success depends primarily on the skills of its management team.
Several of its officers have joined the Company recently and many of its key
personnel have worked together for a relatively short time. The loss of one or
more of our key management personnel may adversely affect FSW's business and
financial condition.
Protecting Intellectual Property And Proprietary Information Is Necessary
FSW currently has a patent pending with respect to its Private
Seats(TM) method and system. While FSW believes that its pending patent
application will result in the issuance of a patent providing protection for its
Private Seats(TM) method and system, it is possible that the pending application
may not result in the issuance of a patent. Even if a patent is issued, the
patent could be successfully
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challenged by one or more parties, newly discovered prior art could diminish the
value of or invalidate the patent once issued, or current or future competitors
could devise new methods of competing with FSW's business that would not be
covered by the patent. In addition, while FSW's pending patent is directed to a
unique method and system, it may be possible for a competitor to develop and
utilize a business model that appears similar to Private Seats(TM), but which
has sufficient distinctions such that it does not fall within the scope of FSW's
pending patent.
In addition to seeking patent protection for FSW's Private Seats(TM)
method and system, FSW regards its copyrights, service marks, trademarks, trade
secrets, domain names and similar intellectual property as critical to its
success and rely on trademark and copyright law, trade secret protection and
confidentiality agreements to protect its intellectual property rights.
Nonetheless, there can be no assurance that FSW will be able to secure
significant protection for its intellectual property rights.
FSW Faces Significant Competition In Both The Commercial And Private Jet
Industry
The success of Private Seats(TM) will depend on FSW's ability to
attract frequent business and other first class travelers from commercial travel
to private air travel and to have them arrange such travel through Private
Seats(TM). Generally, commercial airlines have financial resources substantially
greater than FSW and may compete aggressively to retain these valuable
customers. In addition, even if FSW is successful in attracting new private jet
aviation passengers, existing or future charter operators may compete directly
with FSW for these customers.
In addition, the other private aviation travel services to be offered
by FSW are available directly from the providers and through other channels,
including the Internet. Many of these competitors have financial resources
substantially greater than FSW. While FSW has obtained preferred Internet
distribution rights with certain service providers and intends to seek such
rights from other service providers, there can be no assurance that it will be
able to obtain exclusive or preferred rights in the future.
Government Regulation Of The Travel Industry Or The Internet Could Impact FSW's
Operations
Certain segments of the travel industry are regulated by the United
States Government and, while the Company is not currently required to be
certified or licensed under such regulation, certain services offered by the
Company are affected by such regulation. Charter flights operators, which FSW
depends on, are subject to vigorous and continuous certification requirements by
the Federal Aviation Administration ("FAA"). Changes in the regulatory framework
for private aviation travel could adversely affect FSW's business, operations
and financial condition.
In addition, while there are currently few laws or regulations directly
applicable to Internet commerce, the increase in Internet commerce could result
in new laws or regulations on such commerce including laws or regulations
regarding privacy, pricing and state or local taxation. Any such change could
adversely affect FSW's business, operations and financial condition.
IASL is a New Company with No Operating History
While IASL's management team has significant experience in the leisure
charter travel services business, IASL is a newly formed company with no
operating history. The success of IASL depends on its ability to both contract
with charter operators to operate charter jet flights and to generate sufficient
passenger revenue to cover the costs associated with operating such charter
flights. IASL intends to satisfy this demand through agreements with tour
operators and direct efforts but there can be no assurance that IASL will be
able to generate sufficient passengers to operate profitably in the future.
Internet Security Breaches Could Harm FSW's Business
The secure transmission of confidential information over the Internet
will be important in maintaining user and vendor confidence in FSW's Web site.
Significant or ongoing security breaches with respect to information transmitted
through FSW's Web site could cause it to lose customers. The Company will rely
on encryption and authentication technology licensed from third parties to
effect secure transmission of confidential information, including confidential
credit card information. However, there can be no assurance that advances in
computer capabilities or other developments will not result in unauthorized
persons obtaining access to confidential customer information in FSW's Web site.
In addition, prominent Web sites have been the victims of so-called "denial of
service" attacks by persons flooding the targeted web with such a high volume of
messages that access by legitimate users is effectively denied. If FSW was to
become a target of such an attack, it could adversely affect its business.
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Volatility of Stock Price/Potential for Future Sales of Restricted Securities
The market price of the Company's Common Stock is highly volatile and
is likely to continue to be subject to wide fluctuations in response to factors
including the announcement by the Company of future partnership agreements or
other corporate developments and the limited number of freely tradable shares in
public hands. Additionally, in recent years many companies with Internet related
businesses have experienced extreme price and volume fluctuations that have
often been unexplained by the operating performance of such companies. The
Company's stock price could also be negatively effected by the future sale of
shares of restricted Common stock or shares underlying options and warrants that
have been issued by the Company. Approximately 35,000,000 issued and outstanding
shares of the Company's Common Stock are believed to be restricted securities as
defined in Rule 144 promulgated under the Securities Act of 1933. Rule 144
provides generally that restricted securities must be held for one year prior to
resale and provides certain additional limitations on the volume of such shares
that a beneficial owner may sell in any three month period. Generally,
non-affiliated owners may sell restricted securities without the volume
limitations, after the shares have been held for at least two years. In
addition, certain holders of restricted shares have registration rights and, to
the extent any shares of restricted stock are included in a registration
statement filed by the Company, these shares will become freely tradable on the
effective date of such registration statement. The Company has also issued
warrants and options which, if exercised, could result in up to an additional
30,620,120 shares of the Company's Common Stock being outstanding.
COMMERCIAL REAL ESTATE OPERATIONS
Shopping Centers
The Company owns two commercial shopping centers in the Atlanta area.
The Headland-DeLowe Shopping Center is a strip-center, shopping mall
facility on approximately 11 acres of land with approximately 97,000 square feet
of leasable space. Headland is fully leased with a large, regional grocery store
as the anchor tenant. Headland historically has experienced an occupancy rate in
excess of 90%.
The Stonebridge Village Shopping Center is a strip-center, shopping
mall facility on approximately 20 acres of land with approximately 98,000 square
feet of leasable space. In fiscal 2000, Stonebridge lost its large regional
grocery store chain as anchor tenant and a major drug store chain and is
currently seeking replacement tenants. The remainder of the facility is
currently under lease. Stonebridge historically has experienced an occupancy
rate in excess of 90%.
The Company plans to continue to own and operate Headland and
Stonebridge but does not plan to acquire other shopping center properties. The
Company utilizes a professional commercial real estate management company to
operate its shopping centers. The company maintains and markets the properties
for a management fee typically based on rental revenues. The Company plans to
continue the utilization of professional management companies for its commercial
real estate properties.
The Company is subject to a variety of Federal, state and local
regulations concerning protection of health and the environment. The Company is
unaware of any environmental liability or compliance with applicable
environmental laws or regulations arising out of its properties that the Company
believes would have a material adverse effect on its business, assets or results
of operations.
Stratos Inns
The Company holds a lease on approximately two acres at the
Dekalb-Peachtree Airport in Dekalb County, Georgia (the "PDK Property") and owns
the Stratos Inns business concept. The PDK Property and similar properties at
other general aviation airports provide an opportunity for Stratos Inns or a
strategic partner to develop and provide a variety of lodging and related
hospitality services to private aviation pilots and passengers. The Company has
not begun construction of any facilities on the PDK Property and is in the
process of considering its options with respect to the PDK Property. The Company
does not expect to generate revenues from its Stratos Inns concept in fiscal
2001.
DISCONTINUED OPERATIONS - RESIDENTIAL REAL ESTATE
The Company discontinued its residential real estate development
business in fiscal 1999. During fiscal 1999 and 2000 the Company disposed of the
majority of its residential real estate holdings.
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EMPLOYEES
As of June 30, 2000, the Company employed 26 people. Subsequent to June
30, 2000, the Company restructured its operations and, in connection therewith,
the Company reduced the number of employees associated with its private aviation
services business. At the same time, as a result of the acquisitions of DMM and
IASL, the Company and its subsidiaries currently have approximately 22
employees. The Company has no collective bargaining agreements with any unions
and believes that overall relations with its employees are good.
ITEM 2. PROPERTIES
General
At June 30, 2000 the Company leased approximately 4,300 square feet in
an office building located at 3343 Peachtree Road NE, Atlanta, Georgia for its
headquarters and approximately 3,400 square feet in an office building located
at Dekalb-Peachtree Airport in Atlanta, Georgia for its operations center.
Management believes that all property occupied by the Company and its
subsidiaries is adequately covered by insurance.
Shopping Centers
The Company operates the Headland-DeLowe Shopping Center located at
2020 Headland Drive, Atlanta, Georgia ("Headland") and the Stonebridge Village
Shopping Center located at 7982 Rockbridge Road, Dekalb County, Georgia
("Stonebridge"). Headland and Stonebridge are retail strip shopping centers with
approximately 97,000 and 98,000 of leaseable space, respectively.
Schedule of Properties:
The following reflects information on tenants occupying 10% or more of
the leasable square footage for Headland and Stonebridge, respectively.
<TABLE>
<CAPTION>
Nature of Business Square Footage Annual Rent Lease Expiration
------------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Headland Grocery store 38,752 sq. ft. $ 185,676 8/04/2002
Stonebridge Grocery store 35,000 sq. ft. $ 233,496 3/14/2010
</TABLE>
For fiscal 2000 and 1999, the average annual rental rate for Headland
was $4.75 and $3.99/per square foot, respectively; for Stonebridge was $7.27
and $7.98/per square foot, respectively. The average occupancy rate during
fiscal 2000 for Headland and Stonebridge was 93% and 94%, respectively. In 1999,
Stonebridge lost its large, regional grocery store chain as the anchor tenant
and a large drug store chain tenant and has been seeking replacement tenants.
While the grocery store and drug store tenants have ceased their operations,
they remain obligated under their leases through 2010.
The following is a schedule of lease expirations for the years
2001-2010.
<TABLE>
<CAPTION>
% of Gross
Number of Expirations Square Feet Annual Rent Annual Rent
--------------------- ------------------ ----------- -----------
Headland
--------
<S> <C> <C> <C> <C>
2001 3 10,390 sq.ft. 46,932 11
2002 4 13,848 67,272 16
2003 3 44,152 219,816 3
2004 1 1,680 12,960 4
<CAPTION>
Stonebridge
-----------
<S> <C> <C> <C> <C>
2001 2 3,820 sq. ft. 27,936 4
2002 7 17,380 146,724 20
2003 4 6,313 61,764 8
2004 1 1,500 16,224 2
2005 4 13,137 103,620 14
2006-2010 2 43,640 315,576 43
</TABLE>
The real estate taxes during fiscal 2000 and 1999 for Headland were
$54,836 and $27,420 respectively; for Stonebridge were $56,892 and $30,654
respectively.
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The leasing of commercial retail properties is highly competitive.
There are other commercial retail properties within the market area served by
Headland and Stonebridge and the number and quality of such properties could
have a material adverse effect on the occupancy and rental rates of Headland and
Stonebridge and the ability of Stonebridge to attract a new anchor tenant.
The outstanding aggregate mortgage balance on Headland and Stonebridge
at June 30, 2000 was $7,711,390. The mortgages include principal and interest
payments based on an 8% interest rate and a 25-year amortization period with
balloon principal payments due on October 1, 2000. The mortgages also include
additional interest agreements, which provide for the lender to receive 50% of
the net cash flow of the properties and 50% of the appraised value over the
mortgage balances at the time of a sale of the properties or maturity of the
loans. In September 2000, the Company received a commitment from the creditor to
extend the balloon principal payments until October 1, 2001.
Set forth below is the gross carrying value, accumulated depreciation,
depreciable life, method of depreciation and Federal income tax basis of the
properties.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
-------- ---------- ------------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Headland $3,528,829 $158,981 39 yrs S/L $ 3,528,829
Stonebridge 5,331,080 246,146 39 yrs S/L $ 5,331,080
</TABLE>
The Company believes that Headland and Stonebridge are adequately covered by
insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved from time to time in
various claims and legal actions in the ordinary course of business. In the
opinion of management, the Company is not party to any legal proceedings that
the adverse outcome of which would have any material adverse effect on its
business, its assets, or results of operations.
ITEM 4. VOTE OF SECURITY HOLDERS
On July 11, 2000, the Company held its fiscal 1999 Annual Meeting of
Stockholders at which the following five proposals were submitted to a vote of
stockholders:
(1) The election of William B. Astrop, Sylvia A. de Leon, C. Beverly
Lance, Dr. James A. Verbrugge and Arthur G. Weiss to serve a one year term as
directors; (2) the approval of an amendment to the Company's Certificate of
Incorporation to (a) increase the number of authorized shares of Common Stock
from 60,000,000 to 100,000,000 shares and (b) authorize the Company to issue up
to 10,000,000 shares of preferred stock; (3) the approval of the Company's 2000
Stock Option Plan authorizing the grant of options to purchase up to 10,000,000
shares of Common Stock to officers, directors, employees or consultants of the
Company as determined by the Board of Directors; (4) the approval of the
previous grant of warrants to purchase Common Stock granted to Four Corners
Capital, LLC in connection with the Company's sale of Common Stock to Four
Corners in January 2000; and (5) the ratification of the appointment of Ernst &
Young, LLP as the independent auditors of the Company for the fiscal year ending
June 30, 2000.
Proposal 1. Election of Directors
<TABLE>
<CAPTION>
Votes Cast
-----------------------------------
Director Nominee For Against or Withheld
---------------- ---------- --------------------
<S> <C> <C>
William B. Astrop 19,945,898 183,656
Sylvia A. de Leon 19,960,923 168,631
C. Beverly Lance 14,547,243 5,582,311
Dr. James A. Verbrugge 19,960,985 168,569
Arthur G. Weiss 19,945,910 183,644
Proposal 2. To increase the Company's authorized shares 19,494,813 634,741
Proposal 3. To approve the Company's 2000 Stock Option Plan 14,432,780 5,696,774
</TABLE>
A-10
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Proposal 4. To approve to the grant of warrants to Four Corners Capital, LLC 14,504,681 5,624,873
Proposal 5. To ratify the appointment of Ernst & Young LLP as
independent auditors for fiscal year ending June 30, 2000 20,096,417 33,173
</TABLE>
Each of the five proposals was approved by the required number of votes.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company's Common Stock is listed on the American Stock Exchange
("AMEX"). The following table shows the high and low trading and closing prices
of the Common Stock during the last two fiscal years as reported on AMEX:
<TABLE>
<CAPTION>
2000 High Low Close
---- ------ ------ -----
<S> <C> <C> <C>
First Quarter $ 7.31 $ 2.00 $6.50
Second Quarter 11.88 4.88 8.88
Third Quarter 12.00 4.00 6.25
Fourth Quarter 6.31 0.56 0.81
<CAPTION>
1999 High Low Close
---- ------ ------ -----
First Quarter $ 0.88 $ 0.44 $0.63
Second Quarter 0.56 0.25 0.25
Third Quarter 0.63 0.25 0.44
Fourth Quarter 3.50 0.38 2.44
</TABLE>
The prices reflect inter-dealer prices, without retail markup,
mark-down or commission and may not represent actual transactions.
Dividends
The Company has never paid cash dividends and currently intends to
retain any future earnings to expand its operations. Therefore, it is not
contemplated that cash dividends will be paid on the Company's Common stock in
the foreseeable future.
Record Holders
The number of record holders of the Company's Common Stock as of
September 26, 2000 was 1,042.
Sales of Unregistered Securities
During fiscal 2000, the Company sold the following shares in private
placements:
As of January 18, 2000, the Company entered into Common Stock purchase
agreements (the "Purchase Agreements") with Acqua-Wellington Value Fund, Ltd.,
("AWVF"), Four Corners Capital, LLC, ("Four Corners") which provided for a
private placement of restricted Common Stock and warrants to purchase Common
Stock. As of January 18, 2000 Four Corners purchased from the Company 165,070
shares of restricted Common Stock for $1,000,000. Under the terms of the AWVF
Purchase Agreement, AWVF agreed to purchase from the Company 1,650,709 shares of
restricted Common Stock and warrants to purchase shares of Common Stock for
$10,000,000. The AWVF Purchase Agreement required AWVF to complete the
acquisition of the Common Stock and warrants in two equal tranches. The first
tranche for $5,000,000 closed simultaneously with the execution of the AWVF
Purchase Agreement. The second tranche was to have closed no later than February
29, 2000. AWVF has failed to close the second tranche as required by the AWVF
Purchase Agreement. See Note 7 to the Consolidated Financial Statements for
further discussion of this matter.
In March 2000, the Company sold 50,000 shares of treasury stock for
$312,500 in a private placement transaction to a third party. The shares were
issued at prices, which represented the approximate market value of unrestricted
Common Stock at the time the purchase price was agreed to by the parties.
During fiscal 2000 the Company issued 1,135,995 shares of Common Stock
in connection with the exercise of Common Stock options and warrants.
A-11
<PAGE> 12
Also in fiscal 2000, the Company issued 400,000 shares of Common Stock
in connection with the settlement of certain issues involving prior business
transactions.
In connection with its new Internet-based, private aviation travel
services business, the Company issued warrants to purchase its Common Stock to
individuals and firms for consulting services and for strategic vendor alliances
and to certain investors. Following is a summary of warrants issued in fiscal
2000.
<TABLE>
<CAPTION>
No. of Shares Purchasable Per Share Exercise Price Grant Date Term
------------------------- ------------------------ ---------- --------
<S> <C> <C> <C>
400,000 $ 2.50 7/99 120 mos.
250,000 1.75 8/99 120
2,635,000 1.75 9/99 120
1,200,000 4.00 11/99 120
1,000,000 2.00 1/00 120
3,000,000 4.00 1/00 120
2,063,386 6.06 1/00 18
742,817 9.77 1/00 18
1,547,540 9.77 1/00 60
900,000 4.00 3/00 120
5,556,377 0.04 6/00 54
</TABLE>
The above warrants are exercisable except 5,556,377 warrants with an
exercise price of $0.04 that vest in stages over periods ranging from six to 30
months and 25,000 warrants with an exercise price of $0.50 that vest over one
year.
During fiscal 2000, the Company granted options for its directors,
officers, and certain employees to purchase 9,175,000 shares of Common Stock at
exercise prices from $0.42 to $4.00 per share. 5,450,000 of these options were
subsequently cancelled. The options are not exercisable without shareholder
approval, which was not submitted for a shareholder vote at the Annual Meeting
held on July 11, 2000. The shareholders could approve these options at a later
date.
Information regarding other sales of unregistered securities by the
Company during the fiscal year ended June 30, 2000 is contained in the Company's
Quarterly Reports on Form 10-QSB for the quarters ended September 30, 1999,
December 31, 1999 and March 31, 2000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
During fiscal 2000 and 1999 the Company's continuing operations
included an Internet-based, private aviation travel services business,
commercial real estate operations and other investments. Effective January 1,
1999 the Company discontinued its residential real estate development business.
As a result, the statement of operations for fiscal 2000 and 1999 reflect the
operating loss and loss on disposal of that business as discontinued operations.
Results of Continuing Operations
The Company's revenues in fiscal 2000 were $1,118,478 including $10,040
from private aviation travel services and $1,108,438 from the Company's shopping
centers. All of the Company's revenues in 1999 of $602,026 were generated by the
shopping centers. The shopping center revenues increased in fiscal 2000 due to a
full year of operation in the current year compared to six months in the prior
year. The Company realized a gross margin deficit in fiscal 2000 in its private
aviation business due to chartering aircraft at below break-even seating
capacity and to cancellation charges incurred to reserve aircraft during the
start up operations, which commenced April 17, 2000. From that date through June
30, 2000, the Company chartered a limited number of flights on its route between
Dekalb-Peachtree Airport near Atlanta and Teterboro Airport near New York City.
The Company, which was constrained by limited capital in the fiscal fourth
quarter (see "Liquidity and Capital Resources" below), has been unable to
implement its marketing plans and as a result has not generated sufficient
passenger reservations through its Web site to charter flights. The Company is
currently evaluating the most effective method to grow its private aviation
services business.
General and administrative expenses increased by $3,786,812 from
$3,236,243 in fiscal 1999 to $7,023,055 in fiscal 2000. These expenses include
consulting, legal fees, compensation and overhead associated with the
development of the new Internet-based,
A-12
<PAGE> 13
private aviation travel services business and operating expenses of the shopping
centers. The increase is due primarily to a full year of expenses associated
with the development of its private aviation business and a full year of
operations of the shopping centers compared to six months in fiscal 1999.
During fiscal 2000, the Company also incurred significant employee
related expenses in connection with preparing to launch its Web site and to
operate its private aviation services business. As a result of the lack of
passenger reservations, the Company has taken steps to reduce its operating
expenses by, among other things, reducing the number of employees hired to
perform back office services. As a result of these reductions, the Company
expects to be able to reduce operating expenses significantly on an annualized
basis. The Company believes that its new subsidiary DMM will be able to provide
back office services for the Company's private aviation services business as the
need for those services arises in the future.
The Company in fiscal 2000 and 1999 issued stock options to officers
and directors and warrants to outside third parties and recognized $48,996,238
and $1,736,048, respectively, of related non cash compensation expense.
The Company's fiscal 2000 depreciation and amortization expense of
$466,482 and interest expense of $862,975 increased over 1999 due to a full year
of operations in fiscal 2000 and commencement of the amortization of the cost of
the Company's Web site in fiscal 2000.
Also, in fiscal 2000 the Company recognized a $1,011,716 loss in
connection with the write-off of capitalized costs related to certain corporate
office space deposits and advances to a company which intended to acquire
aircraft for use in FSW's private aviation travel services business.
Management expects revenues to increase significantly in fiscal 2001
due to continued development and growth of the Company's Internet-based, private
aviation travel services business, and the recent acquisition of related
businesses (see "Recent Business Developments" above). However, management
expects to continue to incur losses due to the development of its private
aviation travel services business.
Discontinued Operations
From July 1, 1998 through December 31, 1999, the Company incurred a
loss of $4,291,505 on its residential real estate business. From January 1, 1999
through June 30, 1999, the Company incurred a loss of $6,913,728 on disposal of
the assets of its discontinued operations. In fiscal 2000, the Company
recognized a $600,000 loss on disposal of discontinued operations, which
reflects revised estimates of costs and expenses to liquidate the remaining
assets of discontinued operations.
Liquidity and Capital Resources
The net loss in fiscal 2000 of $57,935,549 was offset by Common Stock,
option and warrant issuances resulting in a net increase in stockholders' equity
of $2,395,437. The Company will continue to incur operating losses as it
attempts to grow its private aviation travel services business and as IASL
implements its related charter services business.
In the third fiscal quarter, a major investor breached a private
placement agreement to provide the Company with $5,000,000 of working capital.
This breach, together with limited funding available in capital markets to
Internet related companies, resulted in a continued decline in the Company's
working capital in the fourth fiscal quarter. The Company's cash balance at June
30, 2000 was $526,657 compared to $3,486,221 a year ago. This cash reserve was
not adequate to complete the development of the private aviation travel services
business. Subsequent to June 30, 2000, the Company's Board approved a series of
transactions to provide new capital and business acquisitions (see "Recent
Business Developments" above). The transactions included a private placement
from which the Company received approximately $2,400,000 of cash, net of fees
and expenses. This new capital together with the cash balances and the expected
positive cash flows from the acquired businesses and expected cost efficiencies
will provide the Company, in management's opinion, with adequate capital to
continue the development of its private aviation travel services business as
well as the newly acquired leisure charter travel and telecommunications call
center businesses. However, in order to continue to grow its businesses, the
Company may require additional debt or equity financing during the fiscal year
ending June 30, 2001, with the need for such financing and the timing of such
need depending in large part on the rate at which the revenues generated from
the Company's businesses increase and the magnitude of the costs the Company
incurs in connection with growing its businesses. There can be no assurance that
additional financing will be available when needed or, if available, that it
will be on terms favorable to the Company and its stockholders. If the Company
is not successful in generating sufficient cash flow from operations, or in
raising additional capital when required in sufficient amounts and on terms
acceptable to the Company, these failures could have a material adverse effect
on the Company's
A-13
<PAGE> 14
business, results of operations and financial condition. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
its then-current stockholders could be diluted.
The Company's mortgage notes payable on its shopping center properties
have balloon principal payments due October 1, 2000. The Company has received a
commitment from the creditor to extend the balloon payments until October 1,
2001.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are contained in this Item 7:
Report of Independent Auditors.
Consolidated Balance Sheets as of June 30, 2000 and 1999.
Consolidated Statements of Operations for the years ended June 30, 2000
and 1999.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended June 30, 2000 and 1999.
Consolidated Statements of Cash for the years ended June 30, 2000 and
1999.
Notes to the Consolidated Financial Statements.
A-14
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
Board of Directors
flightserv.com and Subsidiaries
We have audited the accompanying consolidated balance sheet of
flightserv.com and Subsidiaries as of June 30, 2000 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The financial statements of flightserv.com and
Subsidiaries for the year ended June 30, 1999 were audited by other auditors
whose report dated September 24, 1999 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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 flightserv.com and
Subsidiaries at June 30, 2000, and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
September 21, 2000,
except for the first paragraph of Note 5,
as to which the date is September 28, 2000
A-15
<PAGE> 16
FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 526,657 $ 3,486,221
Accounts and notes receivable 55,995 475,114
Prepaid expenses - compensation 4,615,862 --
Prepaid expenses - other 119,912 4,431
------------ ------------
Total current assets 5,318,426 3,965,766
Deferred costs and other assets 924,743 465,518
Predevelopment costs 1,164,043 1,085,048
Property and equipment, net 9,561,842 8,853,427
------------ ------------
Total assets $ 16,969,054 $ 14,369,759
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable - current portion $ 128,683 $ 118,821
Accounts payable and accrued expenses 839,146 404,663
------------ ------------
Total current liabilities 967,829 523,484
Net liabilities of discontinued operations 5,852 104,138
Notes payable 7,582,707 7,711,390
Accrued interest payable 848,424 861,942
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.04 par value, 60,000,000 shares authorized,
33,554,584 and 31,593,235 issued, respectively 1,342,183 1,263,729
Additional paid-in capital 78,147,672 18,089,625
Accumulated deficit (71,788,106) (13,852,557)
Treasury stock - at cost (435,930 and 1,050,000 shares, respectively) (137,507) (331,992)
------------ ------------
Total shareholders' equity 7,564,242 5,168,805
------------ ------------
Total liabilities and shareholders' equity $ 16,969,054 $ 14,369,759
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-16
<PAGE> 17
FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Sales - private aviation $ 10,040 $ --
Lease income - commercial real estate 1,108,438 602,026
------------ ------------
1,118,478 602,026
Cost of sales - private aviation 93,561 --
------------ ------------
Gross profit 1,024,917 602,026
General and administrative expenses 7,023,055 3,236,243
Compensation expense related to issuance of stock options and warrants 48,996,238 1,736,048
Depreciation and amortization 466,482 129,263
Interest expense, net 862,975 468,249
Loss on investments 1,011,716 --
------------ ------------
Loss before discontinued operations (57,335,549) (4,967,777)
------------ ------------
Discontinued operations:
Loss from discontinued operations -- (4,291,505)
Loss on disposal of discontinued operations (600,000) (6,913,728)
------------ ------------
Net loss $(57,935,549) $(16,173,010)
============ ============
Basic and diluted loss per share:
Loss per share before discontinued operations $ (1.81) $ (.24)
Discontinued operations (0.02) (.54)
------------ ------------
Net loss $ (1.83) $ (.78)
============ ============
Weighted average shares outstanding used in
calculating basic and diluted net loss per share 31,596,541 20,793,855
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-17
<PAGE> 18
FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Accumulated Treasury Note
Shares Amount Capital Deficit Stock Receivable Total
---------- ----------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 17,092,657 $ 683,706 $12,657,420 $ 2,320,453 $(1,950,077) $ (477,524) $ 13,233,978
Net loss June 30, 1999 -- -- -- (16,173,010) -- -- (16,173,010)
Issuance of Common Stock 5,000,000 200,000 1,800,000 -- -- -- 2,000,000
Stock issued for services 2,503,778 100,151 1,142,430 -- -- -- 1,242,581
Purchase of businesses 6,700,000 268,000 1,407,000 -- -- -- 1,675,000
Issuance of options and
warrants -- -- 1,736,048 -- -- -- 1,736,048
Sale of real estate -- -- -- -- (2,240,792) -- (2,240,792)
Issuance of treasury stock -- -- 1,676,200 -- 1,773,800 -- 3,450,000
Issuance of treasury stock
for services -- -- 110,000 -- 135,000 -- 245,000
Cancellation of notes
receivable -- -- (2,427,601) -- 1,950,077 477,524 --
Reinstatement of
cancelled shares 296,800 11,872 (11,872) -- -- -- --
---------- ----------- ------------ ------------ ------------ ----------- ------------
Balance at June 30, 1999 31,593,235 1,263,729 18,089,625 (13,852,557) (331,992) -- 5,168,805
---------- ----------- ------------ ------------ ------------ ----------- ------------
Net loss June 30, 2000 -- -- -- (57,935,549) -- -- (57,935,549)
Issuance of Common Stock 825,354 33,014 4,559,219 -- -- -- 4,592,233
Exercise of options and
warrants 1,135,995 45,440 (45,440) -- -- -- --
Issuance of treasury stock -- -- 1,184,495 -- 68,005 -- 1,252,500
Legal settlement -- -- 67,334 -- 126,480 -- 193,814
Issuance of options and
warrants -- -- 54,292,439 -- -- -- 54,292,439
---------- ----------- ------------ ------------ ------------ ----------- ------------
Balance at June 30, 2000 33,554,584 $ 1,342,183 $ 78,147,672 $(71,788,106) $ (137,507) $ -- $ 7,564,242
========== =========== ============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-18
<PAGE> 19
FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows used by operating activities:
Loss before discontinued operations $(57,335,549) $(4,967,777)
Adjustments to reconcile net loss to net cash used by operating
activities:
Compensation expense related to issuance of options and warrants 48,996,238 1,736,048
Depreciation and amortization 466,482 129,263
Deferred debt amortization interest 291,825 134,023
Issuance of common stock for services -- 1,421,000
Changes in operating assets and liabilities:
Accounts and notes receivables 419,119 (10,114)
Prepaid expenses (115,481) --
Deferred costs and other assets (85,050) (4,431)
Accounts payable and accrued expenses 420,965 382,538
------------ -----------
Cash used by operating activities before discontinued operations (6,941,451) (1,179,450)
------------ -----------
Discontinued operations, net 129,530 (397,771)
------------ -----------
Net cash used by operating activities (6,811,921) (1,577,221)
------------ -----------
Cash flows from investing activities:
Predevelopment costs (78,995) (185,048)
Purchase of property and equipment (1,160,558) (85,091)
Investing activities of discontinued operations, net 1,291,166 --
------------ -----------
Net cash provided (used) by investing activities 51,613 (270,139)
------------ -----------
Cash flows from financing activities:
Principal debt payments (118,821) (55,951)
Proceeds from issuance of common stock 5,844,733 5,450,000
Financing activities of discontinued operations, net (1,925,168) (67,708)
------------ -----------
Net cash provided by financing activities 3,800,744 5,326,341
------------ -----------
Net (decrease) increase in cash and cash equivalents (2,959,564) 3,478,981
Cash and cash equivalents at beginning of year 3,486,221 7,240
------------ -----------
Cash and cash equivalents at end of year $ 526,657 $ 3,486,221
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 571,150 $ 1,526,896
============ ===========
Income Taxes $ -- $ --
============ ===========
Schedule of non-cash transactions:
Sale of real estate in exchange for note receivable $ 3,267,570 --
============ ===========
Issuance of compensatory stock purchase warrants
in connection with strategic vendor alliance $ 5,389,686 --
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-19
<PAGE> 20
FLIGHTSERV.COM AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements include the operations of flightserv.com
("FSW") and its subsidiaries (collectively "Company"). In June 1999 FSW changed
its name from Proactive Technologies, Inc. to reflect the new business direction
of the Company. All significant intercompany balances and transactions have been
eliminated. Certain prior period amounts have been reclassified to conform to
the fiscal 2000 presentation.
Cash and Cash Equivalents
The Company classifies as cash equivalents any investments which can be
readily converted to cash and have an original maturity of less than three
months. At times cash and cash equivalent balances at a limited number of banks
and financial institutions may exceed insurable amounts. The Company believes it
mitigates its risks by depositing cash or investing in cash equivalents in major
financial institutions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line basis over the
assets' estimated useful lives. Expenditures for maintenance and repairs are
expensed as incurred, and expenditures for improvements which extend the useful
life or add value to the asset are capitalized.
Sales and disposals of assets are recorded by removing the related cost
and accumulated depreciation amounts with any resulting gain or loss reflected
in income.
The carrying value of property and equipment and predevelopment costs
is reviewed for impairment whenever events or changes in circumstances indicate
that such amounts may not be recoverable. If such an event occurred, the Company
would prepare projections of future results of operations for the remaining
useful lives of such assets. If such projections indicated that the expected
future net cash flows (undiscounted and without interest) would become less than
the carrying amounts of the property and equipment and the predevelopment costs,
the Company would record an impairment loss in the period such determination is
made.
Revenue Recognition
Revenue related to the Company's private aviation travel services
consists of ticket sales and is recognized upon completion of the related
flight. Lease income is recognized monthly on the accrual basis in connection
with the Company's shopping center investments.
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No.
128, "Earnings per Share" which requires dual presentations of basic earnings
per share ("EPS") and diluted EPS.
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares outstanding and
potentially dilutive shares outstanding during the period. Options and warrants
to purchase 22,445,120 and 7,200,000 shares of Common Stock were outstanding at
June 30, 2000, and 1999, respectively. Such outstanding options and warrants
could potentially dilute earnings per share in the future but have not been
included in the computation of diluted net loss per share in 2000 and 1999 as
the impact would have been antidilutive.
A-20
<PAGE> 21
Income Taxes
The Company accounts for income taxes in accordance with the liability
method as provided under SFAS No. 109, "Accounting for Income Taxes."
Accordingly, deferred income taxes are recognized for the tax consequences of
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any benefits that, based on available
evidence, are not expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Investments and Hedging Activities," ("SFAS
133") as amended, which establishes a new model for accounting for derivatives
and hedging activities and supersedes several existing standards. SFAS 133, as
amended by SFAS 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect that the adoption of
SFAS 133 will have a material impact on its financial statements.
NOTE 2. CONTINUING OPERATIONS
Private Aviation Travel Services
In fiscal 2000 and 1999, FSW developed an Internet-based, private
aviation travel services business including an Internet Web site. The Company
launched its Web site in March 2000 and commenced private jet charter flights
for its customers on April 17, 2000. Through June 30, 2000 FSW generated $10,040
in revenue from its private seats travel services operation. Cost of sales
exceeded this revenue due to operating charter flights below breakeven capacity
and cancellation fees to reserve aircraft for the startup operation.
In fiscal 2000 and 1999, FSW incurred approximately $6,677,627 and
$850,000 respectively, of general and administrative expense in connection with
development and implementation of this new business. The expense includes
aviation industry, Internet operations, Web site development, marketing, and
business plan consulting and other professional services. In addition FSW issued
warrants to purchase its Common Stock for strategic vendor alliances and to
certain investors related to the private aviation travel services business.
Also in fiscal 2000 the Company recognized a $1,011,716 loss in
connection with the write-off of capitalized costs related to certain corporate
office space deposits and advances to a company which had intended to acquire
aircraft for use in FSW's the private charter aviation services business.
At June 30, 2000 and 1999, FSW had capitalized $1,043,900 and $88,500,
respectively, in Web site development costs. Web site development costs are
being amortized over a three year period. Amortization for the year ended June
30, 2000 was $115,988.
Commercial Real Estate Investments
In January 1999, the Company purchased from the current Chairman and
his children an entity that owns two shopping center properties in the Atlanta,
Georgia area in exchange for 3,100,000 shares of the Company's Common Stock
which was valued at $775,000 based on the then current market value of the
Common Stock.
Stratos Inns Concept
In fiscal 1999, the Company purchased PDK Properties, Inc. ("PDK") from
a trust of which the Company's former President is trustee in exchange for
3,600,000 shares of Common Stock, which were valued at $900,000 based on the
then current market value of
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<PAGE> 22
the Common Stock. PDK holds a 30-year ground lease at a regional airport in
Dekalb County, Georgia and owns Stratos Inns, a hotel and hospitality business
concept. The lease provides for a 54-month development period and a 30-year
lease term after a hotel is constructed and opened.
The Company has completed a preliminary study for development of its
first Stratos Inn hotel and is evaluating its options in connection with PDK. At
June 30, 2000 and 1999, the Company's investment in predevelopment costs of PDK
is $1,164,043 and $1,085,048, respectively.
NOTE 3. DISCONTINUED OPERATIONS
Effective January 1, 1999 the Company discontinued its residential real
estate development operations. Residential real estate operations include
developed lots, undeveloped land, and equity investments in residential real
estate development companies, partnerships, and joint ventures. The fiscal 1999
statement of operations reflects the Loss From Discontinued Operations through
December 31, 1998 and the Loss on Disposal of Discontinued Operations from
January 1, 1999 through June 30, 1999. The Company made certain estimates
regarding the fair values of certain assets and the costs to dispose of the
remaining assets of the discontinued operations at June 30, 2000 and 1999.
The fiscal 1999 Loss on Disposal of Discontinued Operations includes
transactions with a former chief executive officer and a former officer of the
Company. These former executives purchased assets with an aggregate book value
of $16,000,000. The Company received cash, notes receivable or FSW Common Stock
in these transactions. In addition the purchasers assumed all of the Company's
mortgage indebtedness outstanding on the properties. At June 30, 1999 the
Company held notes receivable in the amount of $465,000 in connection with
certain real estate sales transactions with the former Company executives. The
Company received full payment on the notes subsequent to June 30, 1999. In
September 1999, the Company reacquired certain real estate, which was part of
these transactions, for approximately $583,000.
In fiscal 1999, the Company sold certain residential real estate
holdings to a former company director and a former officer in exchange for the
return of 1,000,000 shares of FSW Common Stock and sold certain residential real
estate to an entity in which a former Company director held a controlling
interest for $610,000.
In July 1999, the Company sold certain discontinued operations assets
with a net carrying value of approximately $400,000 for cash. In September 1999,
the Company sold the remaining discontinued operations real estate assets to an
entity, in which a former chief executive officer was an affiliate. At June 30,
2000 the Company holds a note receivable from that entity in the amount of
$900,000 (the "Note") which is secured by residential real estate. The Company
believes collection of the Note is doubtful due to the inability of the entity
to develop the land as contemplated by the terms of the Note. As of June 30,
2000, the Company reserved the entire Note. The Company is contingently liable
on indebtedness aggregating $2.2 million due to mortgageholders. In the event
that the entity is not able to satisfy the $2.2 million of mortgage notes, the
Company would be obligated to satisfy such obligations and would have the right
to foreclose on the land.
Following is a summary of the Net Liabilities of Discontinued
Operations at June 30:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Real estate inventories $ 632,817 $ 4,595,912
Accounts and notes receivable 898,859 --
Investments in real estate equity securities -- 676,500
Notes payable (402,000) (4,449,756)
Reserve for estimated expenses and other liabilities (1,135,528) (926,794)
----------- -----------
$ (5,852) $ (104,138)
=========== ===========
</TABLE>
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<PAGE> 23
NOTE 4. PROPERTY AND EQUIPMENT
At June 30, 2000 and 1999 property and equipment consists of the
following:
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Land $ 739,650 $ 739,650
Buildings and improvements - shopping centers 8,120,259 8,100,329
Leasehold improvements 25,069 4,995
Web site development costs 1,043,901 88,500
Furniture, fixtures and equipment 179,946 21,825
------------ -----------
10,108,825 8,955,301
Accumulated depreciation (546,983) (101,874)
------------ -----------
Total net $ 9,561,842 $ 8,853,427
============ ===========
</TABLE>
NOTE 5. NOTES PAYABLE
Notes payable as of June 30, 2000 and 1999 consisted of mortgage notes
payable to an insurance company with interest rates of 8%. Interest and
principal on the mortgage notes are due monthly based on a 25 year amortization
with balloon principal payments due on October 1, 2000. In September 2000, the
Company received notice from the creditor that the balloon principal payments
are extended to October 1, 2001. Accordingly, the debt is presented as
noncurrent in the June 30, 2000 balance sheet. The notes are collateralized by
shopping center properties.
The mortgage financing on the shopping center properties includes
additional interest agreements which provides that the lender receive 50% of the
net cash flows on a quarterly basis and the excess of appraised value over the
mortgage loan balance at the time of any sale of the property or maturity of the
mortgage. The Company has recorded deferred discount and accrued interest
payable to reflect the lenders allocation of the excess appraisal value over the
loan. At June 30, 2000 and 1999 the deferred debt discount cost, net of
amortization, is $205,815 and $430,431, respectively. In fiscal 2000 and 1999,
the Company recognized $912,118 and $334,226, respectively, of interest expense
on the mortgage notes including $291,825 and $134,023 in fiscal 2000 and 1999,
respectively, to reflect the lenders allocation of additional interest. At June
30, 2000 and 1999, the accrued additional interest liability was $738,348 and
$731,216 respectively.
Based on the relatively short maturities of fixed rate debt, and the
market rates of interest such debt bears, management believes the aggregate
carrying amount of its fixed rate debt approximates such debt's fair value.
Interest rates on variable rate debt fluctuate with market conditions.
NOTE 6. INCOME TAXES
Deferred income tax assets and (liabilities) consisted of the
following:
<TABLE>
<CAPTION>
June 30
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Deferred income tax assets:
Reserve for discontinued operations $ 442,856 $ 270,260
Warrants and stock options 19,609,571 677,059
Deferred compensation 36,460 --
Net operating loss carryforwards 8,951,701 5,081,500
------------ -----------
Total deferred income tax assets 29,040,588 6,028,819
Deferred income tax liabilities - property and equipment (407,121) (34,515)
------------ -----------
Net deferred income tax assets 28,633,467 5,994,304
Deferred income tax asset valuation allowance (28,633,467) (5,994,304)
------------ -----------
Net deferred income tax assets $ -- $ --
============ ===========
</TABLE>
As of June 30, 2000 the Company had approximately $22,953,080 of net
operating loss carry forwards (NOL's) for federal income tax purposes, which
expire between 2019 through 2020. A deferred income tax asset valuation
allowance has been established against
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<PAGE> 24
all deferred income tax assets as management is not certain that the deferred
income tax assets will be realized. In addition, due to substantial limitations
placed on the utilization of net operating losses following a change in control,
utilization of such NOL's could be limited.
The Company's 1996 and one of its subsidiary's 1994 and 1995 tax
returns are currently under examination by the Internal Revenue Service, but no
reports have yet been issued.
NOTE 7. COMMON STOCK AND PAID IN CAPITAL
On January 18, 2000, the Company entered into Common Stock purchase
agreements (the "Purchase Agreements") with Acqua-Wellington Value Fund, Ltd.,
("AWVF") and Four Corners Capital, LLC, ("Four Corners") which provided for a
private placement of restricted Common Stock and warrants to purchase Common
Stock. On January 18, 2000, Four Corners purchased 165,070 shares of restricted
Common Stock for an aggregate purchase price of $1,000,000. In addition, the
Company issued to Four Corners warrants to purchase up to 1,238,030 and
1,485,228 shares of Common Stock at initial exercise prices of $9.77 and $6.06
per share, respectively, subject to adjustments.
Under the terms of the AWVF Purchase Agreement, AWVF agreed to purchase
from the Company for aggregate consideration of $10,000,000 (i) 1,650,709 shares
of restricted Common Stock and (ii) warrants to purchase up to 3,260,151 shares
of restricted Common Stock at a future date. The AWVF Purchase Agreement
required AWVF to complete the acquisition of the Common Stock and warrants in
two equal tranches. The first tranche for $5,000,000 closed simultaneously with
the execution of the AWVF Purchase Agreement. The second tranche was to have
closed no later than February 29, 2000. AWVF has failed to close the second
tranche as required by the AWVF Purchase Agreement. At the closing of the first
tranche, AWVF purchased from the Company, for an aggregate purchase price equal
to $5,000,000, 825,354 shares of restricted Common Stock and warrants to
purchase up to 1,052,327 and 577,748 shares of Common Stock at initial exercise
prices of $9.77 and $6.06 per share, respectively, subject to adjustment. The
Company is evaluating the options available to it in connection with AWVF's
breach of provisions of the Purchase Agreement.
In connection with the Purchase Agreements, the Company entered into
Registration Rights Agreements. As a result, of AWVF's breach of the AWVF
Purchase Agreement by failing to close the second tranche, no registration
statement has been filed.
In December 1999, the Company issued 188,976 shares of restricted
Common Stock in connection with the exercise of stock options.
In December 1999, the Company issued 400,000 shares of restricted
Common Stock from treasury stock to certain parties including a former director
and former officer of the Company. The shares were issued pursuant to an
agreement resolving outstanding issues related to certain prior transactions
involving the Company's discontinued real estate operations, which reduced the
related asset valuations by $193,000. In connection therewith, the Company
entered into a Registration Rights Agreement providing the holders of such
shares with certain registration rights.
In March 2000, the Company sold 50,000 shares of restricted Common Stock
from treasury for $312,500 cash in a private placement transaction to a third
party. In March 2000, FSW issued 947,019 shares of Common Stock in connection
with the exercise of warrants.
On or about January 1999, the Wendell M. Starke Trust (the "Starke
Trust") purchased 2,500,000 shares of restricted Common Stock for $1,000,000 and
on June 29, 1999 the Starke Trust purchased another 2,300,000 shares for
$1,725,000. In connection with the sale of the shares, the Company entered into
a Registration Rights Agreement with the Starke Trust.
On or about March 18, 1999, the Godley Morris Group, LLC (the "GMG")
purchased 2,500,000 shares of restricted Common Stock for $1,000,000 and on June
29, 1999 GMG purchased another 2,300,000 shares for $1,725,000. In connection
with the sale of the shares, the Company entered into a Registration Rights
Agreement with the GMG.
During fiscal 1999, the Company issued 2,853,778 shares of Common Stock
for services rendered and recognized $1,487,582 of compensation expense in
connection with these transactions.
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<PAGE> 25
NOTE 8. STOCK OPTIONS AND WARRANTS
In fiscal 1999, FSW issued nonqualified stock options to purchase
2,000,000 shares of its Common Stock at an exercise price of $0.44 per share to
directors and certain officers. During fiscal 2000, options to purchase 200,000
shares were exercised. In July 2000, 1,400,000 of these options were cancelled.
The 400,000 options outstanding are fully vested and exercisable.
In fiscal 2000 and 1999, the Company granted nonqualified stock options
to purchase 12,025,000 shares of its Common Stock. These options are not
exercisable without shareholder approval, which was not submitted for a
shareholder vote at the Annual Meeting held on July 11, 2000. Of these options -
8,850,000 have been cancelled. The remaining 3,175,000 options are not
exercisable, unless approved by the shareholders at a later date and are not
considered outstanding at June 30, 2000.
At the July 11, 2000 meeting, the shareholders approved the Company's
2000 Stock Option Plan (the "Option Plan"). The Option Plan provides for the
granting of incentive stock options and nonqualified stock options aggregating
10,000,000 shares.
In connection with its new private aviation services business FSW
issued warrants to purchase its Common Stock in exchange for consulting and
legal services and for strategic vendor alliances provided by outside third
parties. In addition, the Company issued warrants in connections with Common
Stock private placement transactions. Certain of the warrants issued contain
registration rights provisions.
The following table summarizes the outstanding warrants and related
exercise prices at June 30:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- -----------------------------------------
Exercise Exercise
Shares Price Term Shares Price Term
---------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5,556,377 $ 0.04 54 months -- $ -- --
200,000 0.42 120 200,000 0.42 120 months
200,000 0.44 120 200,000 0.44 120
450,000 0.50 120 1,450,000 0.50 120
400,000 0.75 120 400,000 0.75 120
2,985,000 1.75 120 100,000 1.75 120
1,000,000 2.00 120 -- -- --
400,000 2.50 120 -- -- --
5,100,000 4.00 120 -- -- --
2,063,386 6.06 18 -- -- --
742,817 9.77 18 -- -- --
1,547,540 9.77 60 -- --
---------- ---------
20,645,120 2,350,000
========== =========
</TABLE>
The above warrants with an exercise price of $9.77 per share contain a
variable pricing clause that permits the price to be reduced at the time of
exercise based on the market price of the stock.
All of the warrants issued by FSW are exercisable, except for 25,000
with an exercise price of $0.50 that vest over one year and 5,556,377 with an
exercise price of $0.04 that vest in stages over periods ranging from 6 to 30
months.
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<PAGE> 26
Following is a summary of certain information regarding the Company's options
and warrants:
<TABLE>
<CAPTION>
Weighted
Weighted Weighted Average
Average Average Remaining
Exercise Grant-date Contractual
Number Price Fair Value Life
---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Grants during the year:
Exercise price greater than market 400,000 $0.50 $0.33 --
Exercise price equal to market 3,700,000 $0.52 $0.40 --
Exercise price below market 250,000 $0.43 $0.45 --
Outstanding at June 30, 1999 4,350,000 $0.52 $0.40 --
----------
Grants during the year:
Exercise price greater than market 2,290,357 $9.77 $6.00 --
Exercise price equal to market 400,000 $2.50 $1.82 --
Exercise price below market 16,604,763 $2.42 $4.07 --
----------
Total granted 19,295,120 $3.29 $4.25 --
----------
Exercised during the year 1,200,000 $0.49 $0.38 --
----------
Outstanding at June 30, 2000
Exercisable at $.04 5,556,377 $0.04 -- 4.5 years
Exercisable at $.42 to $1.00 3,050,000 $0.49 -- 8.7 years
Exercisable at $1.44 to $2.50 4,385,000 $1.88 -- 9.2 years
Exercisable at $4.00 to $6.06 7,163,386 $4.59 -- 7.1 years
Exercisable at $9.77 2,290,357 $9.77 -- 2.2 years
----------
Total outstanding 22,445,120 $2.91 -- --
----------
Exercisable at June 30, 2000
Exercisable at $.42 to $1.00 3,025,000 $0.49 -- --
Exercisable to $1.75 to $2.50 4,385,000 $1.88 -- --
Exercisable at $4.00 to $6.06 7,163,386 $4.59 -- --
Exercisable at $9.77 2,290,357 $9.77 -- --
----------
Total exercisable 16,863,743 $3.85 -- --
----------
</TABLE>
The Company accounts for options issued to employees under APB No. 25
and options and warrants issued to nonemployees under FASB No. 123. Pro-forma
information regarding FASB No. 123 is not presented because the stock options
granted during the year ended June 30, 1999 were fully vested and there were no
stock options issued during the year ended June 30, 2000. For the options and
warrants issued to non-employees, the fair value of each award has been
estimated using the same assumptions. The total compensation cost recognized
during fiscal 2000 and 1999 for these awards was $48,996,238 and $1,736,048,
respectively. At the July 11, 2000 Annual Meeting, the Company did not obtain
shareholder approval of 12,025,000 options to purchase its Common Stock
previously proposed to be issued. Accordingly, no compensation expense was
recorded related to these option grants.
As a result of shareholder approval not being obtained related to such
stock option and warrants the Company will restate its previously filed Form
10-Q's in fiscal 2000. The table below presents quarterly unaudited financial
data as previously reported and as restated for compensation expense which
should not have been recorded in connection with granting of certain stock
options and warrants which did not receive shareholder approval.
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<PAGE> 27
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1999 March 31, 2000
------------------------- ------------------------- -----------------------
As Previously As As Previously As As Previously As
Reported Restated Reported Restated Reported Restated
------------- -------- ------------- -------- ------------- --------
(Amounts in thousands, except per share data)
Unaudited
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 273 $ 273 $ 253 $ 253 $ 306 $ 306
Expenses related to the issuance
of stock options and warrants (10,199) (7,731) (15,298) (3,296) (37,453) (37,034)
Loss from continuing operations (11,047) (8,579) (16,665) (4,663) (39,673) (39,254)
Net loss (11,047) (8,579) (16,665) (4,663) (39,673) (39,254)
Basic and diluted net loss per share:
Loss per share before discontinued operations (0.36) (0.28) (0.55) (0.15) (1.23) (1.22)
Net loss per share (0.36) (0.28) (0.55) (0.15) (1.23) (1.22)
</TABLE>
Note 9. RELATED PARTY TRANSACTIONS
During 1998 the Company entered into certain transactions with a
corporation of which an officer was the father of the Company's then President.
The corporation owed the Company $636,395 under a note receivable created upon
the sale of residential real estate. All sales to the corporation were made at
prices equivalent to third party transactions. During 1999 the remaining balance
of $619,395 on the note was written off.
In connection with consulting services related to the Company's
Internet-based, private aviation travel service business provided by Mr. Bert
Lance, the father of the Company's former President and Chief Executive Officer,
the Company in fiscal 2000 and 1999 granted warrants to purchase 1,600,000 and
400,000 shares, respectively, of its Common Stock to the Bert Lance Grantor
Trust. Of these warrants, 400,000 have an exercise price of $.50 per share,
600,000 a $1.75 per share price and 1,000,000 a $4.00 per share price.
Subsequent to June 30, 2000, the Bert Lance Grantor Trust assigned, with the
Company's consent, 250,000 of these warrants to third parties. In addition, the
Company paid consulting fees of $183,000 to Mr. Bert Lance in fiscal 2000.
In December 1999, the Company settled certain matters regarding
residential real estate transactions in prior fiscal years with a former
officer, a former director, and the latter's father. In connection with this
settlement the Company issued 400,000 shares of common stock to these parties.
NOTE 10. CONTINGENCIES
Legal Proceedings
During the normal course of business, the Company is subject to various
lawsuits which may or may not have merit. Management intends to defend such
suits vigorously and believes that they will not result in any material loss to
the Company.
Operating Leases
During fiscal 1999 the Company leased office space in Tallahassee,
Florida and Atlanta, Georgia to conduct its business. The Tallahassee lease
terminated on September 30, 1999 in connection with the discontinuation of the
Company's residential real estate business. Currently the Company leases space
in Atlanta, Georgia. The future minimum payments under the non cancelable leases
having an initial or remaining term of more than one year are $111,912, and
$52,491 for fiscal 2001 and 2002, respectively.
NOTE 11. SUBSEQUENT EVENTS
In August 2000, the Company's Board approved a series of strategic
transactions that provided new capital, new management and two related
businesses to strengthen FSW's operations and permit the continued development
of FSW's existing business.
On August 25, 2000, the Company acquired the common stock of Internet
Aviation Services, Ltd. ("IASL) for 1,750,000 shares of Common Stock (with a
then market value of $1,203,125). IASL is a new, leisure and business travel
services company which has products and services that compliment those of FSW.
IASL has one contract for $9,000,000 to provide air charter services beginning
in December 2000. In the IASL acquisition, the Company also received $50,000
cash and experienced executive management. The acquisition will be accounted for
using the purchase method of accounting.
On September 7, 2000, the Company acquired DM Marketing, Inc. ("DMM")
for 8,450,000 shares of Common Stock (with a then market value of $12,146,875).
DMM operates a telecommunications call center providing telemarketing; help desk
and other
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<PAGE> 28
services for Internet related companies. DMM's call center operations can
provide back office support for FSW's private jet travel services business. In
the DMM acquisition the Company also received $450,000 in cash. The acquisition
will be accounted for using the purchase method of accounting.
In connection with the IASL and DMM acquisitions, the Company issued
5,000,000 options to purchase its Common Stock to certain executives of IASL and
two consultants who provided services in connection with the acquisitions. Of
the options issued 3,000,000 have an exercise price of $0.25 per share and
2,000,000 an exercise price of $0.04 per share. These options contain certain
registration rights.
In connection with the acquisition of IASL and DMM, the Company in
August 2000, issued 7,070,000 common shares at $0.375 in a private placement
transaction. The proceeds of $2,400,000 were net of a 7.5% placement fee and
legal expenses.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Ernst & Young LLP replaced Jones and Kolb as the Company's independent
auditors on February 14, 2000. Jones and Kolb served as independent auditors of
the Company for the fiscal years ended June 30, 1997, 1998, and 1999. The
Company's principal accountants' report on the financial statements for the year
preceding the dismissal of Jones and Kolb did not contain an adverse opinion or
disclaimer opinion, nor was it modified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was approved by the
Company's Board of Directors. There were no disagreements with the former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure. The Company had no
discussions with the new accountants as to specific accounting matters or type
of opinion that might be rendered, other than those related to the normal
engagement of certified accountants.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages (at September 28, 2000), positions
and offices held and a brief description of the business experience during the
past five years of each person.
TODD BOTTORFF (age 32) has served as President of the Company since May
5, 2000 and interim Chief Executive Officer since July 2000. From May 1999
through May 14, 2000, Mr. Bottorff was Vice President of Operations at Helios
Health.com, a leading Internet-based resource for health care information in
health care settings, which Mr. Bottorff co-founded. From August 1995 to May
1999, Mr. Bottorff was a Manager at McKinsey & Company, an international
consulting firm.
SYLVIA A. de LEON (age 50) has served as a director of the Company
since December 12, 1999 when she was appointed by the Board to fill the vacancy
created by the resignation of Joel A. Goldberg as a director of the Company. Ms.
de Leon is a Senior Partner with the law firm of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., where she has been employed since 1977. Ms. de Leon also serves on
the Board of Directors of the National Railroad Passenger Corporation (Amtrak).
During the last five years, Ms. de Leon has also served on the National Civil
Aviation Review Commission, the National Commission to Ensure a Strong
Competitive Airline Industry and the White House Conference on Travel and
Tourism, where she co-chaired the infrastructure and investment committee.
DR. JAMES A. VERBRUGGE (age 59) has served as a director of the Company
since January 11, 1999 when he was appointed by the Board to fill the vacancy
created by the resignation of a director of the Company. Dr. Verbrugge was
elected to the Board at the April 21, 1999 Shareholders Meeting. Dr. Verbrugge
is a Professor of Finance and Chairman, Department of Banking and Finance of the
University of Georgia, where he has been employed since 1968. Dr. Verbrugge is
also actively involved in executive education programs at the University of
Georgia and teaches executive education programs at the University of
Washington, University of Florida and University of Colorado.
ARTHUR G. WEISS (age 61) has served as Chairman of the Board of the
Company since January 21, 1999 and has served as a director since January 11,
1999 when he was appointed to fill the vacancy created by the resignation of a
director of the Company. Mr. Weiss was elected to the Board at the April 21,
1999 Shareholders Meeting. From January 21, 1999 to February 10, 1999, Mr. Weiss
also served as President and Chief Executive Officer of the Company. Prior to
assuming his positions at the Company, Mr. Weiss was the President and a
shareholder of West Side Investors, Inc., which was acquired by the Company in
January 1999. Mr. Weiss is a
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<PAGE> 29
private real estate investor. From March 1993 through April 1994, Mr. Weiss
served as Chairman of the board of directors of Medical Resources Companies of
America. In addition, Mr. Weiss manages private real estate investments.
WILLIAM L. WORTMAN (age 53) has served as Vice President and Chief
Financial Officer of the Company since June 24, 1999. For the year prior to
joining the Company, Mr. Wortman was a partner and general manager of a new car
automobile dealership. From prior to 1995 through 1998, Mr. Wortman was Vice
President and Chief Financial Officer of A.F.A. Services Corporation, a
marketing services company.
In July 2000 Mr. C. Beverly Lance resigned his positions as Chief
Executive Officer and Director. In August 2000 Mr. William B. Astrop resigned
from the Board. To date the Company has not filled the vacancies on the Board
resulting from the resignations of Mssrs. Lance and Astrop.
There are no family relationships among any of the executive officers
or directors of the Company. No arrangement or understanding exists between any
executive officer or any other person pursuant to which any executive officer
was selected as an executive officer of the Company. Executive officers of the
Company are elected or appointed by the Board and hold office until their
successors are elected or until their death, resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors, executive officers, and persons who own
beneficially more than 10% of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of such securities of the Company. Directors, executive
officers and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and representations that no other reports were
required, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than 10% beneficial owners were complied with
during the fiscal year ended June 30, 2000.
ITEM 10. EXECUTIVE AND DIRECTOR COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended 1998, 1999
and 2000 the cash and non-cash compensation awarded, earned or paid by the
Company to all individuals serving as Chief Executive Officer of the Company at
any time during fiscal year 2000 and all executive officers of the Company or
any of its subsidiaries who received salary and bonuses in excess of $100,000
during fiscal year 2000 (collectively, the "Named Executives").
<TABLE>
<CAPTION>
Long-Term
Fiscal Compensation Other Annual
Name and Principal Position Year Salary Bonus Stock Options(8) Compensation
--------------------------- ------ -------- --------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Arthur G. Weiss, Chairman (1) 2000 $195,000 -- -- $ 83,963(2)
1999 $ 90,000 -- -- $ 9,600
C. Beverly Lance, Chief Executive Officer (3) 2000 $198,333 -- -- $ 57,530(4)
1999 $ 85,000 -- -- $ 9,638
William L. Wortman, Chief Financial Officer (5) 2000 $133,750 $10,000 -- $ 1,125
Mark A. Connor, Chief Executive Officer (6) 1999 $ 35,308 -- -- $ 52,148
1998 $ 61,200 -- -- $ 109,360(7)
</TABLE>
(1) Mr. Weiss has been Chairman of the Company since January 21, 1999. Mr.
Weiss's annual base salary was $180,000. The Salary amount above
includes Mr. Weiss's base salary and $15,000 of paid vacation.
(2) Includes $54,738 of life and long-term disability insurance premiums.
(3) Mr. Lance was President and Chief Executive Officer from February 10,
1999 thru May, 2000 and CEO from February 10, 1999 until his
resignation in July 2000. Mr. Lance's annual base salary was $170,000.
The Salary amount above includes Mr. Lance's base salary and $28,333 of
paid vacation.
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<PAGE> 30
(4) Includes $29,452 of life and long-term disability insurance premiums.
(5) Mr. Wortman has been Vice President and Chief Financial Officer of the
Company since June 24, 1999. Mr. Wortman's annual base salary is
$150,000.
(6) Mr. Conner was President and Chairman of the Board from February 12,
1996 until January 21, 1999 and was Chief Executive Officer from March
9, 1998 until January 21, 1999. Mr. Conner resigned his positions with
the Company on January 21, 1999.
(7) Includes personal expenses paid by the Company on behalf of Mr. Conner.
(8) In fiscal 2000, the Company's Board approved nonqualified options to
purchase Common Stock for Mssrs. Weiss, Lance and Wortman subject to
shareholder approval, which approval was not submitted for a
shareholders vote at the Annual Meeting held on July 11, 2000. The
options of Mssrs. Weiss and Lance were cancelled. The options to
purchase 300,000 shares of Common Stock approved by the Board for
Mr. Wortman could be approved by stockholders at a later date.
Long-term Compensation - Stock Options
Messrs. Weiss and Lance were issued stock options in 2000. On July 2,
1999 each received options to purchase 1,700,000 shares of Common Stock at an
exercise price of $2.00 per share and on November 26, 1999 each received options
to purchase 1,000,000 shares at an exercise price of $4.00 per share. These
options vested immediately, but were subject to stockholder approval.
The following table sets forth information regarding the grant of stock
options to the Named Executives during the fiscal year ended June 30, 2000:
OPTION GRANTS IN LAST FISCAL YEAR: NONE
The following table sets forth information concerning the value of
unexercised options held by the Named Executives as of June 30, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES ACQUIRED VALUE AT 6/30/00 OPTIONS AT 6/30/00
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- --------------------- -------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
C. Beverly Lance 0 0 700,000/3,700,000 0/0
Arthur G. Weiss 0 0 700,000/3,700,000 0/0
William L. Wortman 0 0 -0-/300,000 0/0
</TABLE>
Subsequent to June 30, 2000, Mssrs. Weiss and Lance agreed to the
cancellation of their outstanding options.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company receive
compensation of $1,000 per month plus $1,000 for each quarterly Board meeting.
Directors are also entitled to reimbursement of reasonable out-of-pocket
expenses incurred by them in attending Board meetings. In fiscal 2000, the
Company expensed $62,000 for Director Fees.
In July 1999, the Company approved non-qualified stock options to
purchase an aggregate of 1,200,000 shares of Common Stock at an exercise price
of $2.50 per share, in connection with Mr. Astrop's, Mr. Goldberg's and Dr.
Verbrugge's services as directors of the Company. The options were granted as
follows: options for 400,000 shares to each Mr. Verbrugge and Mr. Astrop and
options for 400,000 shares to Four Corners Capital, LLC. (in which Mr. Goldberg
has a 25% interest).
Also in this connection, the Company, in November 1999, approved
options to purchase 600,000 shares of Common Stock at an exercise price of $4.00
per share. These options were granted as follows: (i) options for 200,000 shares
to Dr. Verbrugge, (ii) options for 200,000 shares to Four Corners Capital, LLC,
(iii) options for 100,000 shares to Mr. Astrop, and (iv) options for 50,000
shares to each of Mr. Astrop's adult children.
Also in November 1999, the Company granted options to purchase
1,000,000 shares of Common Stock for Ms. deLeon. Of these options, 200,000 have
a per share exercise price of $0.4177, 200,000 a per share price of $0.4375,
400,000 a per share price of $2.50, and 200,000 a per share price of $4.00 per
share.
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<PAGE> 31
The stock options approved by the Board in fiscal 2000 for the
Company's Directors are subject to stockholder approval, which was not obtained
at the Annual Meeting held on July 11, 2000. As a result, the options granted to
directors in fiscal 2000 are not currently exercisable but could be approved by
the stockholders at a later date.
EMPLOYMENT CONTRACTS
On May 2, 2000 the Company entered an employment agreement ("the
Agreement") with Mr. Bottorff. The Agreement provides for an annual base salary
of $160,000, an option to purchase 500,000 shares of the Company's Common Stock
at $1.4375 per share, and a term of one year. The Agreement renews automatically
unless 90 day written notice is given by either party. Also, the Agreement
provides for separation pay up to 12 months depending upon the reason for
termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 28, 2000 by:
(i) each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's directors; (iii)
each of the Company's executive officers included in the Summary Compensation
Table included elsewhere herein; and (iv) all of the Company's directors and
executive officers as a group. Except as otherwise noted, the person or entity
named has sole voting and investment power over the shares indicated.
<TABLE>
<CAPTION>
Name Shares of Common Stock Beneficially Owned (1)
-------------------------------- ----------------------------------------------
Number Percent
--------- -------
<S> <C> <C>
Wendell M. Starke Trust (2) 4,800,000 9.4%
Michael Pruitt (3) 4,225,000 8.3
Darek Childress (4) 4,225,000 8.3
Four Corners Capital, LLC (5) 3,814,842 7.1
Johnny C. Godley (6) 2,550,000 5.0
William C. Morris (7) 2,550,000 5.0
Sylvia A. deLeon ++(8) -0- -0-
Dr. James A. Verbrugge ++ (9) 200,000 *
Arthur G. Weiss ++(10) 1,550,000 3.0
William L. Wortman (11) -0- -0-
All Current Executive Officers and Directors as a Group 1,750,000 3.4
(7 Persons) (12)
</TABLE>
---------------
++ Director of the Company
* Less than 1%
(1) Information as to beneficial ownership of Common Stock has either been
furnished to the Company by or on behalf of the indicated person or is
taken from reports on file with the Securities and Exchange Commission
("SEC").
(2) Based upon its Schedule 13D/A filed on July 2, 1999, Wendell M. Starke
is the trustee of the Wendell M. Starke Trust, which owns 4,800,000
shares. The trust's address is 4300 Paces Ferry Road, Suite 500,
Atlanta, Georgia, 30339.
(3) Represents shares issued in connection with the Company's acquisition
of DMM. Mr. Pruitt's address is 5935 Carnegie Boulevard, Suite 101,
Charlotte, North Carolina, 28209.
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<PAGE> 32
(4) Represents shares issued in connection with the Company's acquisition
of DMM. Mr. Childress' address is 9530 Nims Lane, Pensacola, Florida,
32534.
(5) Includes warrants to purchase 3,799,866 shares. Excludes 800,000 shares
issuable upon exercise of options that are subject stockholders
approval and are not exercisable on or within 60 days of September 28,
2000. The address of Four Corners Capital, LLC is 10 Burton Hills
Boulevard, Suite 120, Nashville, Tennessee, 37215.
(6) Includes 300,000 shares owned by Godley Morris Group, LLC of which Mr.
Godley is a Managing Member, and, in such capacity, shares voting and
investment power over such shares. Includes shares owned by each of the
following entities in which Mr. Godley is the Managing Member, and, in
such capacity, has sole voting and investment power over such shares.
Johnny Godley's Kids, LLC - 750,000 shares, Frankie Godley's Kids, LLC
- 750,000 shares, and Jimmy Godley's Kids, LLC - 750,000 shares. Mr.
Godley's address, and the address of each such entity is 4918 Rozzell
Ferry Road, Charlotte, North Carolina, 28216.
(7) Includes 300,000 shares owned by the Godley Morris Group, LLC of which
Mr. Godley is a Managing Member, and, in such capacity, shares voting
and investment power over such shares. Mr. Morris' address is 307
Scotland Road, Lake City, South Carolina, 29560.
(8) Excludes 1,000,000 shares issuable upon exercise of options that are
subject to stockholder approval and are not exercisable on or within 60
days of September 28, 2000.
(9) Represents 200,00 shares issuable upon the exercise of options that are
exercisable on or within 60 days of September 28, 2000. Excludes
800,000 shares issuable upon exercise of options that are subject to
stockholder approval and are not exercisable on or within 60 days of
September 28, 2000.
(10) Excludes 2,350,000 shares owned by Mr. Weiss' adult children of which
shares Mr. Weiss disclaims beneficial ownership.
(11) Excludes 300,000 shares issuable upon exercise of options that are
subject to stockholders approval and are not exercisable on or within
60 days of September 28, 2000.
(12) Excludes 2,600,000 shares issuable upon exercise of options that are
subject to stockholder approval and are not exercisable on or within 60
days of September 28, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, Mr. Preiss, the Company's former Chief Executive Officer,
terminated his employment with the Company and entered into a termination
agreement pursuant to which the Company paid the remaining $387,000 due under a
deferred compensation arrangement and transferred to him cash and additional
property with a total book value of $183,055.
From time to time during his terms as President, the Company made
advances and repayments of loans to and from Mr. Mark Conner which were repaid
either through cash payments or increases in compensation expense. During the
fiscal year ended June 30, 1998, the Company borrowed approximately $172,000
from Mr. Conner from funds acquired through his sale of Common Stock owned by
him. All advances and loans have been repaid.
In November 1998, the Company sold (i) approximately 100 acres to an
entity in which Mr. Langdon Flowers, a former director, held a controlling
interest for $610,000, which purchase price was the highest bona fide price
offered for such property and (ii) sold approximately 230 acres in Albany,
Georgia to Mr. Flowers and a Company stockholder in exchange for the return of
1,000,000 shares of Common Stock.
In January 1999, the Company acquired 100 percent (100%) of the issued
and outstanding shares of West Side Investors, Inc., a Georgia corporation which
owns P & W Stonebridge, LLC and P & W Headland, LLC, which own respectively, the
Stonebridge Village Shopping Center located in Dekalb County, Georgia and the
Headland-DeLowe Shopping Center located in Atlanta, Georgia. Arthur G. Weiss was
the President of West Side Investors, Inc. and, together with his adult
children, owned one hundred percent (100%) of the issued and outstanding Common
stock of West Side Investors, Inc. (the "West Side Stock") prior to the
transaction. The purchase price for the West Side Stock was the issuance of
3,100,000 shares of the Company's Common Stock as follows: Arthur G. Weiss,
1,550,000 shares; Charles G. Weiss, 775,000 shares and Caroline Weiss
Kyriopolous, 775,000 shares. The two shopping centers have an appraised value of
$9,130,000 and are subject to a $7,886,000 non-recourse participating mortgage
entitling the lender to 50% of the profits realized from shopping centers. The
consideration paid was determined as a result of arms-length negotiations prior
to Mr. Weiss becoming a stockholder, director or officer of the Company.
In connection with consulting services related to the Company's
Internet-based, private aviation travel service business provided by Mr. Bert
Lance, the father of the Company's President and Chief Executive Officer, the
Company in fiscal 2000 and 1999 granted warrants to purchase 1,600,000 and
400,000 shares, respectively, of its Common Stock to the Bert Lance Grantor
Trust. In addition, the Company paid consulting fees of $183,000 to Mr. Bert
Lance in fiscal 2000. In August 2000, the Bert Lance Grantor Trust
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<PAGE> 33
assigned 250,000 of such warrants to an unrelated third party, with the
Company's consent, and such warrants were exercised for cash proceeds of
$125,000 to the Company.
In January 1999, the Company acquired 100 percent (100%) of the total
issued and outstanding common stock of PDK Properties, Inc., a Georgia
corporation (the "PDK Stock") which owns 100 percent (100%) of Stratos Inns,
LLC, a Georgia limited liability company, located in Atlanta, Georgia. The
purchase price for the PDK Stock was the issuance of 3,600,000 shares of the
Company's Common Stock to the Lance Children's Trust, of which Mr. C. Beverly
Lance is trustee. The consideration paid was determined as a result of
arms-length negotiations prior to Mr. C. Beverly Lance becoming a stockholder,
officer or director of the Company.
In January 1999, the Company closed the sale of its wholly-owned
subsidiary, Henry Holdings, Inc., a Florida corporation (the "Subsidiary") to
Mr. Conner, in exchange for 5,000,000 shares of Common Stock that were held by
Mr. Conner. In accordance with the terms of the acquisition agreement, Mr.
Conner received cash and property with value of $1,928,292.
On or about January 29, 1999, the Wendell M. Starke Trust (the "Starke
Trust") purchased 2,500,000 shares of restricted Common Stock for $1,000,000 and
on June 29, 1999 another 2,300,000 shares for $1,725,000. In connection with the
sale of the shares, the Company entered into a Registration Rights Agreement
with the trust.
On or about March 18, 1999, the Godley Morris Group, LLC (the "GMG")
purchased 2,500,000 shares of restricted Common Stock for $1,000,000 and on June
29, 1999 another 2,300,000 shares for $1,725,000. In connection with the sale of
the shares, the Company entered into a Registration Rights Agreement with the
GMG.
In January 2000, the Company entered into a common stock purchase
agreement (the "Four Corners Purchase Agreement") with Four Corners which
provides for an equity financing package consisting of the sale of restricted
Common Stock and warrants. Under the terms of the Four Corners Purchase
Agreement, Four Corners purchased from the Company, for an aggregate purchase
price of $1 million, 165,070 shares of restricted Common Stock, and warrants to
purchase up to 2,723,668 shares of Common Stock. In connection with the Four
Corners Purchase Agreement, the Company entered into a Registration Rights
Agreement with respect to the Common Stock purchased by Four Corners and the
Common Stock underlying all options or warrants held by Four Corners. The terms
of the Purchase Agreement were the result of arms' length negotiations between
the parties. Mr. Goldberg, a former director of the Company, owns a 25% interest
in Four Corners.
In connection with the equity financing provided by the Four Corners
Purchase Agreement and the Company's $5,000,000 private placement of Common
Stock in January 2000, the Company agreed to pay Four Corners a fee or services
provided to the Company equal to 6% of the proceeds actually received by the
Company and to reimburse Four Corners for expenses relating to the financing. In
fiscal 2000, the Company paid fees to Four Corners in the amount of $360,000 and
has reimbursed Four Corners for approximately $58,000 in expenses.
In a series of transactions consummated during the 1999 fiscal year,
Mark Conner (a former chief executive officer of the Company) and a former
officer of the Company purchased real property assets used in connection with
certain discontinued operations of the Company with an aggregate book value of
$16 million and assumed all related mortgage indebtedness. The Company received
cash, notes receivable or Common Stock in these transactions. As of June 30,
1999, the Company held notes receivable for $465,000 with respect to these
transactions, and received payment in full subsequent thereto. In fiscal 2000,
the Company sold additional assets of discontinued operations with a carrying
value of $400,000 for cash and other assets of discontinued operations for $1
million in notes receivable plus assumption of approximately $2.2 million in
mortgage indebtedness. At June 30, 2000, the aggregate note balance was $900,000
which amount was fully reserved as uncollectible by the Company due to Mr.
Conner's inability to obtain financing to complete the plan development of
property. These transactions were entered into with entities in which the former
chief executive officer and former officer are investors. All such transactions
were the result of arms' length negotiations.
In December 1999 the Company issued 400,000 shares of restricted Common
Stock from treasury to certain parties including Langdon Flowers, Jr. (a former
director of the Company), Mr. Flower's father and a former officer of the
Company. The shares were issued pursuant to an agreement that resolved
outstanding issues related to certain transactions involving the Company's
discontinued real estate operations, which reduced the related asset valuations,
by $193,000. The transaction was the result of arms' length negotiations. In
connection therewith, the Company entered into a Registration Rights Agreement
providing the holders of such shares with certain registration rights.
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<PAGE> 34
During fiscal year 1999, the Company wrote off the $619,395 balance
remaining on a note owned by a corporation, and officer of which is Mr.
Conner's father. The note was given in connection with the sale during the 1998
fiscal year of certain real property owned by the Company, the terms of which
were at prevailing market prices.
In fiscal 2000, the Company advanced $275,100 in anticipation of an
equity investment in a newly formed entity that would acquire private jets for
use in connection with flights arranged thru the Company's Private Seats(TM)
program. The entity was formed and managed by Four Corners. Due to the Company's
inability to raise adequate capital to complete the planned acquisition of
aircraft, these advances were written off as of June 30, 2000.
PART IV
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- --------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of December 28,
1998 among the Company, Arthur Weiss and Kay Weiss and West
Side Investors, Inc. (incorporated herein by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
January 19, 1999).
2.2 Agreement and Plan of Reorganization by and among the Company,
the Lance Children's Trust and PDK Properties, Inc.
(incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed January 25, 1999).
2.3 Common Stock Purchase Agreement dated as of January 18, 2000
between flightserv.com and Acqua Wellington Value Fund, Ltd.
(incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed January 28, 2000).
2.4 Common Stock Purchase Agreement dated as of January 18, 2000
between flightserv.com and Four Corners Capital, LLC
(incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed January 28, 2000).
2.5 Stock Purchase Agreement dated as of August 16, 2000 between
the Company, DM Marketing, Inc., Michael Pruitt and Darek
Childress (incorporated herein by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed September 22,
2000).
2.6 Stock Purchase Agreement dated as of August 11, 2000 between
the Company, Internet Aviation Services, Ltd. And Caliente
Consulting (incorporated herein by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed September 22,
2000).
3.1 Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3(i) to the Company's
Quarterly Report on Form 10-QSB for the period ended December
31, 1998).
3.2 Certificate of Ownership and Merger merging PT Merger Corp.
into Proactive Technologies, Inc. amending the Restated
Certificate of Incorporation to change Registrant's name to
</TABLE>
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<PAGE> 35
<TABLE>
<S> <C>
flightserv.com (incorporated herein by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-KSB filed
September 28, 1999).
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation, of the Company.
3.4 Amended and Restated Bylaws of the Company.
4.1 Registration Rights Agreement between the Company and the
Wendell M. Starke Trust (incorporated by reference to Exhibit
99 to the Schedule 13D filed by the Wendell M. Starke Trust on
January 29, 1999).
4.2 Registration Rights Agreement between the Company and the
Godley-Morris Group, LLC (incorporated by reference herein to
Exhibit 4.1 hereof the terms of which are substantially
similar).
4.3 Registration Rights Agreement dated January 18, 2000 between
flightserv.com and Acqua Wellington Value Fund, Ltd. and Four
Corners Capital, LLC (incorporated herein by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
January 28, 2000).
4.4 Registration Rights Agreement between the Company and Langdon
Flowers, Jr., Langdon Flowers, Sr., and George McIntosh dated
December 31, 1999 (incorporated herein by reference to Exhibit
4.2 to the Company's Quarterly Report on Form 10-QSB filed
February 14, 2000).
4.5 Registration Rights Agreement between the Company and
Worldspan, L.P. dated June 26, 2000.
4.6 flightserv.com 2000 Stock Option Plan (incorporated herein by
reference to the Company's Definitive Proxy Statement on
Schedule 14A filed June 19, 2000.
10.1 Stock Exchange Agreement between the Company and Mark A.
Conner dated January, 1999 (incorporated herein by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed February 5, 1999).
10.2 Stock Purchase Agreement dated June, 1999 between the Company,
Inland Communities, Inc. and Regional Developers of Albany,
Inc. (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed July 15, 1999).
10.3 Stock Purchase Agreement dated June, 1999 between the Company,
Inland Communities, Inc. and Barrier Dunes Development
Corporation (incorporated herein by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K filed July 15,
1999).
10.4 Deposit Receipt and Contract for Sale and Purchase dated June,
1999 between Regional Developers, Inc. and Inland Communities,
Inc. (incorporated herein by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K filed July 15, 1999).
10.5 Master Executive Protection Agreement between the Company and
Vance Protection, Inc. dated June 23, 1999 (incorporated
herein by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-KSB filed September 28, 1999).
10.6 Preferred Hospitality Partners agreement between the Company
and the Ritz-Carlton Hotel Company, LLC dated September, 1999
(incorporated herein by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-KSB filed September 28,
1999).
</TABLE>
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<PAGE> 36
<TABLE>
<S> <C>
10.7 Form of Officer/Director Non-Qualified Option Agreement
dated February 10, 1999 (incorporated herein by reference to
Exhibit 10.7 10.7 to the Company's Annual Report on Form
10-KSB filed September 28, 1999).
10.8 Form of Officer/Director Non-Qualified Option Agreement dated
April 16, 1999 (incorporated herein by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-KSB filed
September 28, 1999).
10.9 Form of Officer/Director Non-Qualified Option Agreement dated
July 2, 1999 (incorporated herein by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-KSB filed September
28, 1999).
10.10 Schedule of Option Agreements granted in February, April and
July, 1999 (incorporated herein by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-KSB filed September
28, 1999.
10.11 Form of Officer/Director Non-Qualified Option Agreement dated
December 2, 1999 (incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB filed
February 14, 2000).
10.12 Schedule of Option Agreements granted December 2, 1999
(incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB filed February 14,
2000).
10.13 Employment Agreement between the Company and Mr. Todd
Bottorff (represents a compensatory plan or arrangement).
10.14 Agreement between the Company and Arthur G. Weiss dated July
27, 2000 (represents a compensatory plan or arrangement).
10.15 Agreement between the Company and C. Beverly Lance dated July
27, 2000 (represents a compensatory plan or arrangement).
16.1 Change in Accountants - Letter from Jones and Kolb dated
February 17, 2000 (incorporated herein by reference to Exhibit
16.1 to the Company's Current Report on Form 8-K filed
February 17, 2000.)
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K and 8-K/A
(i) The Company filed the following reports on Form 8-K with the
Securities and Exchange Commission during the quarter ended June 30,
2000: NONE
(ii) The Company filed a Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 22, 2000
reporting the acquisition of DM Marketing, Inc.
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<PAGE> 37
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
flightserv.com
Date: September 28, 2000 By: /s/ Arthur G. Weiss
-------------------------------
Arthur G. Weiss
Chairman of the Board
In accordance with the requirements of the Exchange Act, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Date: September 28, 2000 By: /s/ Arthur G. Weiss
-------------------------------
Arthur G. Weiss
Chairman of the Board
Date: September 28, 2000 By: /s/ C. Todd Bottorff
-------------------------------
C. Todd Bottorff
President/CEO
(principal executive officer)
Date: September 28, 2000 By: /s/ William L. Wortman
-------------------------------
William L. Wortman
Vice President and Chief
Financial Officer
(principal financial and
accounting officer)
Date: September 27, 2000 By: /s/ Sylvia A. de Leon
-------------------------------
Sylvia A. de Leon
Director
Date: September 27, 2000 By: /s/ Dr. James A. Verbrugge
-------------------------------
Dr. James A. Verbrugge
Director
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