<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8662
FLIGHTSERV.COM
(formerly Proactive Technologies, Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 23-2265039
(State of Incorporation) (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)
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 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
November 12, 1999: 30,543,235
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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FLIGHTSERV.COM
TABLE OF CONTENTS
<TABLE>
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Page No.
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PART I FINANCIAL INFORMATION
<S> <C> <C> <C>
ITEM 1. Consolidated Financial Statements-As
Restated (Unaudited)
Consolidated Balance Sheet
September 30, 1999 and June 30, 1999 3
Consolidated Statements of Income
For the Three Months
Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
For the Three Months Ended
September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-9
ITEM 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 9-13
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security
Holders 14
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(AS RESTATED SEE NOTE 6)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1999 1999
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<S> <C> <C>
Cash and cash equivalents $ 2,127 $ 3,486
Accounts and notes receivable 1,036 914
Net assets (liabilities) of discontinued operations (368) 123
Deferred costs and other assets 593 470
Predevelopment costs 1,090 1,085
Property and equipment, net 8,632 8,414
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Total assets $ 13,110 $ 14,492
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 7,801 $ 7,830
Accounts payable and accrued expenses 217 631
Accrued interest payable 771 862
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Total liabilities 8,789 9,323
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Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.04 par value, 60,000,000 shares authorized,
30,543,235 issued and outstanding 1,264 1,264
Additional paid-in capital 25,821 18,090
Retained (deficit) (22,432) (13,853)
Treasury stock - at cost (1,050,000 shares) (332) (332)
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Total shareholders' equity 4,321 5,169
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Total liabilities and shareholders' equity $ 13,110 $ 14,492
======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(AS RESTATED SEE NOTE 6)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998*
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<S> <C> <C>
Revenue and other income:
Sales $ -- $ --
Other income 273 --
------------ ------------
Total revenues 273 --
------------ ------------
General and administrative expenses 900 45
Expense related to issuance of stock options and warrants 7,731 --
Depreciation and amortization 142 --
Interest expense 79 --
------------ ------------
Loss before income taxes and discontinued operations (8,579) (45)
Income tax expense -- --
------------ ------------
Net loss before discontinued operations (8,579) (45)
Loss from discontinued operations -- (303)
------------ ------------
Net loss $ (8,579) $ (348)
============ ============
Basic and diluted loss per share:
Loss per share before discontinued operations $ (.28) $ --
Discontinued operations -- (.02)
------------ ------------
Net loss $ (.28) $ (.02)
============ ============
Weighted average shares outstanding 30,543,235 16,499,253
============ ============
</TABLE>
* Reclassified
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 5
FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AS RESTATED SEE NOTE 6)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998*
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<S> <C> <C>
Cash flows from operating activities:
Loss before discontinued operations $ (8,579) $ (45)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 142 --
Expense related to issuance of stock options and warrants 7,731 --
Changes in operating assets and liabilities:
Accounts and notes receivables (122)
Deferred costs and other assets (199) --
Accounts payable and accrued expenses (414)
Accrued interest payable (91) --
--------- ------
Cash used by operating activities before discontinued operations (1,532) (45)
Discontinued operations, net 490 811
--------- ------
Net cash provided (used) by operating activities (1,042) 766
--------- ------
Cash flows from investing activities:
Purchase of property and equipment (283) --
Predevelopment costs (5) --
Investing activities of discontinued operations, net -- (14)
--------- ------
Net cash used by investing activities (288) (14)
--------- ------
Cash flows from financing activities:
Principal debt payments (29) --
Financing activities of discontinued operations, net -- (754)
--------- ------
Net cash used by financing activities (29) (754)
--------- ------
Net decrease in cash and cash equivalents (1,359) (2)
Cash and cash equivalents at beginning of period 3,486 100
--------- ------
Cash and cash equivalents at end of period $ 2,127 $ 98
========= ======
</TABLE>
* Reclassified
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 6
FLIGHTSERV.COM AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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"). All significant
intercompany balances and transactions have been eliminated. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules of the Securities and Exchange Commission. Certain prior
period amounts have been reclassified to conform to the current fiscal period
presentation. In the opinion of management, all adjustments considered necessary
for a fair presentation of the financial position of the Company as of September
30, 1999 and of the results of operations for the periods presented have been
included. The financial data at June 30, 1999 is derived from audited financial
statements which are included in the Company's Form 10-KSB and should be read in
conjunction with the audited financial statements and notes thereto. Interim
results are not necessarily indicative of results for the full year.
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.
Real Estate Investments
Real estate investments are recorded at the lower of cost or estimated
fair value. Development costs and real estate taxes are capitalized while
development is in progress. Depreciation commences at the time the Company
begins collecting rental income.
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.
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 8,635,000 shares of Common Stock were outstanding at September 30,
1999. Outstanding option and warrants could potentially dilute basic earnings
per share in the future but have not been included in the computation of diluted
net loss per share in the September 1999 quarter as the impact would have been
antidilutive.
There were no options or warrants outstanding at September 30, 1998.
Income Taxes
The Company's income taxes are accounted for in accordance with the
liability method as provided under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Accordingly, deferred income taxes are
recognized for the tax
<PAGE> 7
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.
The Company has incurred significant net operating losses ("NOL's")
from both its continuing and discontinued operations. Due to the substantial
limitations placed on the utilization of such NOL's following a change in
control and the uncertainties related to the Company's ability to generate
taxable income from its continuing operations, no related deferred tax benefit
for future periods has been recorded.
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. BUSINESS SEGMENTS
Private Aviation Travel Services Business
Since April 1999 FSW has been developing an Internet-based, private
aviation travel services business including an Internet Web site. In the quarter
ended September 30, 1999, FSW incurred approximately $842,000 of general and
administrative expense in connection with development of this new business. The
expense includes consulting fees in the aviation industry, Internet operations,
Web site development, marketing, and business plan areas and other professional
services. In addition, FSW has issued warrants to purchase its Common Stock for
consulting services and strategic vendor alliances related to the private
aviation travel services business.
At September 30 and June 30, 1999, FSW had capitalized $336,816 and
$88,500, respectively, in Internet Web site development costs.
Commercial Real Estate Investments
In fiscal 1999, the Company purchased an entity that owns two shopping
center properties in the Atlanta, Georgia area. The mortgage financing on the
shopping center properties includes an additional interest agreement which
provides that the lender receive 50% of the cash flow and of the excess of
appraised value over the mortgage loan balance at the time of any sale of the
property. The Company has recorded deferred debt discount cost and a
corresponding accrued interest liability to reflect the lenders allocation of
the excess appraisal value provided in the additional interest agreement. The
deferred debt discount is being amortized over the 36 month term of the mortgage
loans.
Stratos Inns Concept
In fiscal 1999, the Company purchased PDK Properties, Inc. ("PDK")
which holds a long-term ground lease at Dekalb-Peachtree 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
September 30 and June 30, 1999, the Company's investment in predevelopment costs
of PDK was $1,090,000 and $1,085,000 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,
<PAGE> 8
partnerships, and joint ventures. The September 1998 financial statement amounts
have been reclassified to reflect the discontinued operations. The Company has
made certain estimates regarding the fair asset values and costs to dispose of
the remaining assets of the discontinued operations.
In July 1999, the Company sold certain assets of discontinued
operations with a net carrying value of approximately $1,100,000 for cash. In
September 1999, the Company sold certain assets of discontinued operations for
approximately $3.2 million consisting of the assumption of $2.2 million of
mortgage indebtedness and $1.0 million in notes receivable.
Following is a summary of the Net Assets of Discontinued Operations (in
thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
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<S> <C> <C>
Real estate inventories $ 132 $ 4,596
Accounts and notes receivable 1,000 --
Investments in real estate equity -- 677
securities
Notes and accrued interest payable (763) (4,450)
Estimated expenses and other
liabilities (737) (700)
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$ (368) $ 123
====== ========
</TABLE>
NOTE 4. 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 rate of $0.44 per share to
directors and certain officers. No options were exercised in the quarter ended
September 30, 1999. All of the options have a 10-year term and were fully vested
at September 30, 1999.
In connection with its new private aviation travel 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. The following table summarizes the outstanding warrants issued to
outside third parties:
<TABLE>
<CAPTION>
9/30/99 6/30/99
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Option Option
Shares Price Shares Price
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<S> <C> <C> <C>
200,000 $ .42 200,000 $ .42
200,000 .44 200,000 .44
1,450,000 .50 1,450,000 .50
400,000 .75 400,000 .75
2,985,000 1.75 100,000 1.75
400,000 2.50 -- 2.50
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5,635,000 2,350,000
========= ==========
</TABLE>
All of the warrants issued to date by FSW are exercisable, except for 50,000
warrants at an exercise price of $.50 that vest over two years.
Following is a summary of certain information regarding the Company's options
and warrants for the quarter ended September 30, 1999:
<TABLE>
<CAPTION>
Weighted
Weighted Weighted Average
Average Average Remaining
Exercise Grant-date Contractual
Number Price Fair Value Life
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 4,350,000 $ 0.52 -- --
Grants during the year:
Exercise price equal to market 400,000 $ 2.50 $ 1.82 --
Exercise price below market 2,885,000 $ 1.75 $ 2.34 --
---------
Total granted during the period 3,285,000 $ 1.84 -- --
---------
Outstanding at end of period:
Exercisable at $.43 to $1.00 4,250,000 $ 0.47 -- 9.0 years
Exercisable at $1.75 to $2.50 3,385,000 $ 1.84 -- 9.9 years
---------
Outstanding at end of period 7,635,000 $ 1.01 -- --
---------
</TABLE>
<PAGE> 9
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 three months ended September 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 the quarter ended September 1999 for these awards was
$7,731,000.
NOTE 5. RELATED PARTY TRANSACTIONS
In September 1999, the Company purchased a note receivable in the
amount of $587,000 due from an entity affiliated with a former officer of the
Company. The note is secured by residential real estate.
At September 30 and June 30, 1999 Stonebridge has an account receivable
of $438,982 from an entity which is owned by the Company Chairman and his
children.
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 1999 granted warrants to purchase 400,000 shares of its Common
Stock to the Bert Lance Grantor Trust. In September 1999, the Company granted an
additional 600,000 warrants to the Bert Lance Grantor Trust. Of these warrants,
400,000 have an exercise price of $.50 per share and 600,000 a $1.75 per share
exercise price.
NOTE 6. RESTATEMENT
The Company has revised previously reported financial statements to reflect
compensation expense which should not have been recorded in connection with
granting certain stock options and warrants. At the July 11, 2000 Annual
Meeting, the Company did not obtain shareholder approval related to 12,025,000
options to purchase its Common Stock previously proposed to be issued. As a
result of shareholder approval not being obtained related to such stock options
and warrants the Company has restated its previously filed Form 10-Q. The
following summarizes the revisions to the Consolidated Statements of Operations
(in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
------------------------
As Previously As
Reported Restated
------------- --------
(Unaudited)
<S> <C> <C>
Revenues $ 273 $ 273
Expenses related to the issuance
of stock options and warrants (10,199) (7,731)
Loss from continuing operations (11,047) (8,579)
Net loss (11,047) (8,579)
Basic and diluted net loss per share:
Loss per share before discontinued (0.36) (0.28)
operations
Net loss per share (0.36) (0.28)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Effective January 1, 1999 the Company discontinued its residential real
estate development business. As a result, the statement of operations for the
quarter ended September 30, 1998 reflects the operating loss of that business as
discontinued operations. The continuing operations include development of an
Internet-based private aviation travel services business, limited commercial
real estate operations, and other investments.
<PAGE> 10
Results of Continuing Operations
The Company's revenues in the current quarter were $273,000 which
represent lease income generated from the Company's shopping centers acquired in
fiscal 1999. All of the Company's revenues in the quarter ended September 30,
1998 were generated by the residential real estate development operations and
have been reclassified to discontinued operations.
General and administrative expenses increased by $855,000 from $45,000
in the quarter ended September 30, 1998 to $900,000 in the current quarter. This
increase is due to increased compensation costs, consulting and legal fees, and
other costs associated with the development of the new Internet-based, private
aviation travel services business.
In the quarter ended September 30, 1999, the Company issued stock
options to officers and directors and warrants to outside third parties and
recognized $7,731,000 of related non-cash expense.
The Company's depreciation and amortization expense of $142,000 and
interest expense of $79,000 in the quarter ended September 30, 1999 reflect the
costs of the shopping center operations acquired in January 1999.
Management expects revenues to increase significantly upon the
implementation of the Company's Internet-based, private aviation travel services
business. However, management expects to continue to incur losses in connection
with the development of its private aviation travel services business prior to
implementing the Web site and cannot be certain as to when the private aviation
travel services business will generate income.
Discontinued Operations
In the quarter ended September 30, 1998, the Company incurred a
$303,000 loss from its discontinued residential real estate development
operations.
Liquidity and Capital Resources
The net operating loss in the quarter ended September 30, 1999 of
$8,579,000 was partially offset by a $7,731,000 increase in paid-in capital
related to the issuance of stock options and warrants. As a result,
stockholders' equity decreased $848,000 in the quarter ended September 30, 1999.
In the quarter ended September 30, 1999, continuing operations used
$1,532,000 of cash and the liquidation of certain assets of discontinued
operations generated $490,000 of cash. In addition, the Company expended
$283,000 on capitalized Web site software, furniture, and equipment.
The Company will continue to incur start up costs and operating
expenses prior to implementing its Web site. The Company's cash balance at
September 30, 1999 is $2,127,000 compared to $3,486,000 at June 30, 1999. This
cash reserve is adequate, in management's opinion, to complete the
implementation of the private aviation travel services business on the Internet
Web site. The Company's need to raise additional capital to implement and
maintain the private aviation travel services business will depend upon, among
other things, the initial level of customer interest in the services offered on
the Company's Web site and the Company's ability to market the flightserv.com
(TM) brand.
The Company is presently reviewing the potential impact of Year 2000
compliance issues with regard to its information and accounting systems and
business operations. The preliminary determination made by management is that
any costs, problems, or uncertainties associated with the potential consequences
of Year 2000 issues are not expected to have a material impact on its future
operations or financial condition, but the Company's Web site business could be
materially adversely effected if Year 2000 issues cause disruptions in the
systems of the Company's third party vendors or suppliers of private aviation
travel services.
<PAGE> 11
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 quarterly report relating
to matters that are not historical facts are forward-looking statements based on
management's belief and assumptions using currently available information.
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.
General
FSW is in the process of developing an internet Web site to provide, as
agent, travel services to the private aviation marketplace. Based on information
published by the National Business Aviation Association, an industry group,
private aviation generates more than $51 billion in annual economic activity.
Private aviation aircraft are reported to carry over 145 million passengers per
year.
FSW intends for its Web site, www.flightserv.com, to distribute private
charter services, lodging, personal and aircraft protection services, ground
transportation, concierge and other services. FSW will be compensated by a
commission or fee for its services from the service provider.
Supplier Agreements
Simultaneously with the development of the Web site, FSW has been
negotiating preferred partner agreements with suppliers of services to the
private aviation marketplace. Its 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., a leading provider of personal and
asset protection services. Under the agreement with Ritz-Carlton, member-users
of the FSW Web site will be able to reserve hotel accommodations with
Ritz-Carlton through the Web site and will be accorded Ritz-Carlton's "last room
account" status, providing added assurance of being able to obtain a confirmed
reservation. Under the agreement with Vance International, FSW is designated the
exclusive private aviation Internet distributor of Vance's worldwide personal
and aircraft protection services.
FSW is in the process of negotiating agreements with other service
providers including certified charter flight operators. Authority to operate
charter aircrafts is granted by the Federal Aviation Administration (the "FAA")
and the Department of Transportation of which the FAA is a part. FSW will serve
as agent for operators having certificates from the FAA under Part 135 of Title
14 of the Code of Federal Regulations to provide such services. FSW will be
dependent upon certified charter operators to provide all flight services.
Web Site Development
FSW has a working model of its Web site which it is testing and
refining as it negotiates agreements with preferred suppliers. In addition to
retaining Web site developers, 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. It is also seeking strategic
partners who can help publicize the Web site and attract customer traffic to it.
Availability of Services
FSW will not provide private aviation travel services directly but,
instead, will offer, as agent, services provided by independent vendors through
its Web site. As a result, the ability of FSW to enter into agreements, such as
the preferred provider agreements with Ritz-Carlton and Vance, and to otherwise
arrange for services to be available through its Web site is critical for the
success of its business. While multiple sources exist for the services to be
offered through the Web site, FSW will act only as an agent and have limited or
no control of the availability, actual delivery, or quality of the services
offered to its member-users or the price offered for such services. In addition,
there is no guarantee that FSW will be able to enter into additional preferred
partnership agreements with
<PAGE> 12
other service providers. At this time, FSW is negotiating contracts with
certified charter providers and management believes that certified charter
operators will want to provide charter services through the Web site. Failure to
contract with certified charter operators would have a material adverse effect
on FSW.
Competition
The services to be offered by FSW are available directly from the providers and
through other channels including the Internet. Many of FSW's competitors have
financial resources substantially greater than FSW. FSW has contracted exclusive
or preferred Internet distribution rights with certain of service providers and
intends to seek such rights from other service providers, but there can be no
assurance that FSW will be able to obtain exclusive or preferred rights in the
future.
Lack of Operating History/Expectation of Operating Losses
The Company has discontinued its residential real estate development
business and has not yet implemented its Web site. As a result, there is no
meaningful operating history upon which to base an evaluation of the Company's
Internet-based private aviation travel services business and prospects. The
Company has incurred losses in fiscal 1999 and the first quarter of fiscal 2000
and may continue to incur losses in the remainder of fiscal 2000 as the result
of the need to incur substantial marketing and promotion costs and systems and
development costs.
Dependence on the Internet and Development of Brand Name
The Company's future success depends upon the continued growth in the
use of the Internet generally and the active use of its Web site by private
aviation passengers to make flight reservations and arrange for other travel
related services. Due to the lack of operating history of the Company's private
aviation travel services business, it is impossible to predict the number of
existing private aviation passengers and the number of new private aviation
passengers that will use the Web site. The Company believes that broad
recognition and favorable consumer perception of the flightserv.com(TM) brand
name will be essential to attract existing and new private aviation passengers
to the Web site and that successful development of the flightserv.com (TM) brand
will depend on the success of the Company's marketing efforts, the breadth and
quality of the services available on the Web site, the successful completion of
transactions through the Web site and the ability of the Company to provide
adequate support and customer service. There is no assurance that the Company
will be able to adequately develop its brand name or otherwise attract a
sufficient number of Web site users.
Risk of System Failure/Lack of Capacity
The successful implementation and continued operation of the Web site
will depend upon communications hardware and computer hardware and software made
available by a third party and any interruptions in service caused by the
failure of these systems will be outside of the control of the Company. 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 FSW's 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
in connection with the Web site resulting in slower response times or system
failures which could adversely affect sales and services.
Internet Security Issues
The secure transmission of confidential information over the Internet
will be important in maintaining user and vendor confidence in the Web site. 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 the Web site exposing the Company to potential losses.
Management of Potential Growth
The Company is expected to expand its business after the implementation
of the Web site. This growth is expected to place significant demands on the
Company's management, operational, and financial resources. In order to manage
expected growth, the Company will be required to expand existing operations and
to train, manage and expand its employee base. Further, the Company's management
will be required to maintain relationships with various service providers and to
maintain control over the strategic
<PAGE> 13
direction of the Company. If the Company is unable to manage growth effectively,
the Company's business, results of operations, and financial condition will be
adversely affected.
Intellectual Property
The Company regards its copyrights, service marks, trademarks, trade
dress, trade secrets, domain names and similar intellectual property as critical
to its success and relies on trademark and copyright law, trade secret
protection and confidentiality agreements to protect its intellectual property
rights. Nonetheless, there can be no assurance that the Company will be able to
secure significant protection for its intellectual property rights.
Government Regulation
Certain segments of the travel industry are regulated by the United
States Government and certain services offered by the Company are affected by
such regulations. The operators of charter flights upon whom the Company's
service depend are subject to rigorous and continuous certification requirements
of the FAA. The Company is also subject to regulations applicable to businesses
generally and laws or regulations directly applicable to the Internet.
While currently there are few laws directly applicable to the Internet,
the increase in Internet commerce may result in new laws or regulations relating
to Internet commerce including regulations regarding privacy, pricing and state
and local taxation which could affect the Company.
Year 2000
The Year 2000 issue relates to the risk that computer systems may not
properly recognize the Year 2000. While the Company believes, after consulting
with its Web site developer, that the systems being developed for its Web site
will be Year 2000 compliant, the Company relies on, and the Web site after it is
operational will rely on, information technology supplied by third parties. In
addition, the providers of private aviation travel services sold through the Web
site are dependent on their own information technology systems and their third
party vendors' systems. The Company will seek assurance from such suppliers that
their systems are Year 2000 compliant but there is no guarantee that the
Company, its third party vendors or the suppliers of the private aviation
services available on the Web site will not experience significant Year 2000
issues. It is also possible that member-users' access to the Web site might be
disrupted as the result of Year 2000 issues. Any of these potential Year 2000
issues could adversely affect the Company
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, the limited number of freely tradable shares in
public hands, and the timing and successful implementation of the Web site.
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 20,000,000 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, the Company has
issued warrants and options which, if exercised, could result in up to an
additional 8,635,000 shares of the Company's Common Stock.
PART II - OTHER INFORMATION
ITEM 1. 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 and its subsidiaries are not party to any
legal proceedings, the adverse outcome of which, would have any material adverse
effect on its business, its assets, or results of operations.
<PAGE> 14
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Index of Exhibits
27 Financial Data Schedule (for SEC use only)*
* Previously filed
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K with the
Securities and Exchange Commission during the quarter ended
September 30, 1999.
(i) The Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on July 15,
1999 reporting the disposition of certain residential
real estate assets of the Company on June 30, 1999.
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
flightserv.com
(Registrant)
Date: October 11, 2000 By: /s/ William L. Wortman
--------------------------
William L. Wortman
Vice President and
Chief Financial Officer
