<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIESEXCHANGE ACT OF 1934
For the transition period from _____________to_________________
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 February
11, 2000: 31,297,281
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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FLIGHTSERV.COM
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE NO.
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet
December 31, 1999 and June 30, 1999 3
Consolidated Statements of Operations
For the Three and Six Months
Ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
For the Six Months Ended
December 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-11
ITEM 2 Management's Discussion and Analysis Of
Financial Condition and Results of Operations 11-15
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 15
ITEM 2 Changes in Securities 16
ITEM 3 Defaults Upon Senior Securities 16
ITEM 4 Submission of Matters to a Voice of Security Holders 16
ITEM 5 Other Information 16
ITEM 6 Exhibits and Reports on Form 8-K 16
</TABLE>
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FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1999 1999
------------ ----------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 1,240 $ 3,486
Accounts and notes receivable 1,059 914
Net assets (liabilities) of discontinued operations (203) 123
Deferred costs and other assets 748 470
Predevelopment costs 1,100 1,085
Property and equipment, etc 8,871 8,414
-------- --------
Total assets $ 12,815 $ 14,492
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 7,772 $ 7,830
Accounts payable and accrued expenses 245 631
Accrued interest payable 711 862
-------- --------
Total liabilities 8,728 9,323
-------- --------
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.04 par value, 60,000,000 share authorized,
31,297,281 and 30,543,235 issued and outstanding, respectively 1,271 1,264
Additional paid-in capital 44,534 18,090
Accumulated deficit (41,565) (13,853)
Treasury stock - at cost (484,930 and 1,050,000 shares, respectively) (153) (332)
-------- --------
Total shareholders' equity 4,087 5,169
-------- --------
Total liabilities and shareholders' equity $ 12,815 $ 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 AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Six Months
------------------------------ -------------------------------
1999 1998* 1999 1998*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue and other income:
Sales $ -- $ -- $ -- $ --
Other income 253 -- 526 --
------------ ------------ ------------ ------------
Total revenues 253 -- 526 --
------------ ------------ ------------ ------------
General and administrative expenses 1,311 72 2,211 117
Expenses related to issuance of stock options and warrants 15,298 -- 25,497 --
Depreciation and amortization 147 -- 289 --
Interest expense 162 -- 241 --
------------ ------------ ------------ ------------
Net loss before discontinued operations (16,665) (72) (27,712) (117)
Loss from discontinued operations -- (5,227) -- (5,530)
------------ ------------ ------------ ------------
Net loss $ (16,665) $ (5,299) $ (27,712) $ (5,647)
============ ============ ============ ============
Basic and diluted net loss per share:
Loss per share before discontinued operations $ (.55) -- $ (.91) --
Discontinued operations -- $ (.33) -- $ (.35)
------------ ------------ ------------ ------------
Net loss $ (.55) $ (.33) $ (.91) $ (.35)
============ ============ ============ ============
Weighted average shares outstanding 30,551,431 15,970,474 30,547,333 15,970,474
============ ============ ============ ============
</TABLE>
* Reclassified
The accompany notes are an integral part of these consolidated financial
statements.
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FLIGHTSERV.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998*
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Loss before discontinued operations $(27,712) $ (117)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 289 --
Expense related to issuance of stock options and warrants 25,497 --
Changes in operating assets and liabilities:
Accounts and notes receivables (145) --
Deferred costs and other assets (429) --
Accounts payable and accrued expenses (447) --
Accrued interest payable (151) --
-------- -------
Cash used in operating activities before discontinued operations (3,098) (117)
Discontinued operations, net 519 6,098
-------- -------
Net cash (used in) provided by operating activities (2,579) 5,981
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (594) --
Predevelopment costs (15) --
Investing activities of discontinued operations, net -- (22)
-------- -------
Net cash used in investing activities (609) (22)
-------- -------
Cash flows from financing activities:
Principal debt payments (58) --
Sale of common stock 1,000 --
Financing activities of discontinued operations, net -- (5,647)
-------- -------
Net cash provided by (used in) financing activities 942 (5,647)
-------- -------
Net (decrease) increase in cash and cash equivalents (2,246) 312
Cash and cash equivalents at beginning of period 3,486 100
-------- -------
Cash and cash equivalents at end of period $ 1,240 $ 412
======== =======
</TABLE>
* Reclassified
The accompany notes are an integral part of these consolidated
financial statements.
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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 the "Company"). Since discontinuing
its residential real estate operations in fiscal 1999, the Company has been in
the development stage of a new Internet-based, private jet aviation services
business. All significant inter-company balances and transactions have been
climinated. 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 December 31, 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 EPS is computed using the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of common shares outstanding and potentially dilutive shares
outstanding during the period. Options and warrants to purchase 19,960,000
shares of Common stock were outstanding at December 31, 1999. Outstanding
options and warrants could potentially dilute EPS in the future but have not
been included in the computation of diluted net loss per share in the December
1999 periods as the impact would have been
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antidilutive.
There were no options or warrants outstanding at December 31, 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 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
it's 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 Jet Aviation Travel Services Business
Since April 1999 FSW has been developing an Internet-based, private jet aviation
travel services business including an Internet Web site. In the three and six
months ended December 31, 1999, FSW incurred approximately $1,175,000 and
$2,017,000, respectively, 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, operating
expenses reflect warrants that FSW has issued to purchase its common stock in
return for consulting services and in connection with strategic vendor alliances
related to the private jet aviation travel services business.
At December 31, and June 30, 1999, FSW had capitalized $575,000 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.
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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
December 31 and June 30, 1999, the Company's investment in predevelopment costs
of PDK was $1,100,000 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, partnerships, and joint ventures. The December 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 to an outside third
party. 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 (liabilities) of discontinued
operations (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ---------
<S> <C> <C>
Real estate inventories $ 132 $ 4,596
Accounts and notes receivable 1,000 --
Investments in real estate equity securities -- 677
Notes and accrued interest payable (783) (4,450)
Estimated expenses and other liabilities (552) (700)
------- -------
$ (203) $ 123
======= =======
</TABLE>
NOTE 4. ISSUANCE OF COMMON STOCK
As of 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" and, together with
AWVF, the "Investors"), which provide for an equity financing package consisting
of the sale of restricted common stock and warrants with total proceeds of up to
$59.7 million, assuming the Investors exercise all warrants.
Under the terms of the Purchase Agreements, the Investors agreed to purchase
from the Company, for an aggregate purchase price of $11 million, (i) 1,815,779
shares of common stock; (ii) warrants (the "Fixed Warrants") to purchase up to
2,641,135 shares of common stock at the purchase price of $6.058 per share; and
(iii) warrants (the "Variable Warrants") to purchase up to 3,342,684 shares of
common stock at a purchase price equal to the lesser of $9.772 per share or 90%
of the volume weighted average price of the common stock for the five trading
days prior to the exercise of the warrants. The Fixed Warrants and 1,980,851 of
the Variable Warrants expire 18 months after the date of issuance. The remaining
Variable Warrants expire five years after the date of issuance. The exercise of
660,976 of the Fixed Warrants and 495,732 of the Variable Warrants is subject to
prior stockholder approval. Pursuant to the Purchase Agreements, Four Corners
purchased 165,070 shares of restricted common stock for $1,000,000. The
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AWVF transaction is to be completed in two equal tranches. In the first tranche,
AWVF purchased for $5,000,000 825,354 shares of restricted common stock and
warrants to purchase up to 1,630,075 shares of common stock. The second tranche
for $5,000,000 is expected to close no later than February 29, 2000.
In addition, the Company, AWVF and Four Corners entered into a Registration
Rights Agreement pursuant to which the Company provided certain registration
rights to AWVF and Four Corners with respect to both the restricted common stock
and the shares underlying the warrants issued to the Investors under the
Purchase Agreements as well as shares and shares underlying certain options and
warrants previously issued to Four Corners. In the event that a registration
statement does not become effective within 120 days of January 18, 2000, the
exercise price for the Variable Warrants will be reduced by 10% and by an
additional 10% for each 30 day period thereafter until the registration
statement is declared effective.
The proceeds to the Company from the sales of common stock pursuant to the
Purchase Agreements will be reduced by investment banking fees, legal costs and
other related expenses.
In December 1999, the Company issued 400,000 shares of restricted common stock
from treasury to certain parties including a former director and a 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 December, 1999, the Company issued 188,976 shares of common stock in
connection with the cashless exercise of 200,000 stock options with an exercise
price of $0.44.
NOTE 5. STOCK OPTIONS AND WARRANTS
In fiscal 1999 and the six months ended December 31, 1999, FSW issued
nonqualified stock options to purchase its common stock to directors, officers
and employees. The following table summarizes the stock options outstanding:
<TABLE>
<CAPTION>
12/31/99 6/30/99
--------------------- --------------------
Option Option
Shares Price Shares Price
---------- ------ --------- ------
<S> <C> <C> <C>
2,000,000 $0.44 2,000,000 $0.44
2,800,000 0.42 2,600,000 0.42
50,000 0.50 50,000 0.50
200,000 1.00 200,000 1.00
100,000 1.75 -- --
5,000,000 2.50 -- --
2,975,000 4.00 -- --
---------- ---------
13,125,000 4,850,000
========== =========
</TABLE>
All of the outstanding options have a 10-year term and were fully vested at
December 31, 1999, except for 200,000 options with an exercise price of $1.00
and 50,000 with an exercise price of $1.75 that vest over a two year period. Of
the 13,125,000 options outstanding, 11,325,000 require stockholder approval.
In connection with its new private jet aviation travel services business, FSW
issued in fiscal 1999 and the six months ended December 31, 1999 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:
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<TABLE>
<CAPTION>
12/31/99 6/30/99
--------------------- ---------------------
Option Option
Shares Price Shares Price
--------- ------ --------- ------
<S> <C> <C> <C>
200,000 $0.42 200,000 $0.42
200,000 0.44 200,000 0.44
1,450,000 0.50 1,450,000 0.50
400,000 0.75 400,000 0.75
2,985,000 1.75 100,000 1.75
400,000 2.50 -- --
1,200,000 4.00 -- --
--------- ---------
6,835,000 2,350,000
========= =========
</TABLE>
All of the warrants issued to date by FSW are vested, except for 50,000 warrants
at an exercise price of $.50 that vest over two years.
In January 2000, FSW issued 8,353,743 warrants to purchase its common stock at
per share exercise prices ranging from $2.00 to $9.77, including the warrants
issued in connection with the Purchase Agreements described in Note 4.
Following is a summary of certain information regarding the Company's
outstanding options and warrants:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average Remaining
Exercise Grant-date Contractual
Number Price Fair Value Life
---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Outstanding at 6/30/99 7,200,000 $0.37 -- --
----------
Grants during the period:
Exercise price equal to market 5,000,000 $2.50 $1.93 --
Exercise price below market 7,960,000 $2.85 $4.73 --
----------
Total granted 12,960,000 $2.71 -- --
----------
Exercised during the period 200,000 $ .44 -- --
----------
Outstanding at 12/31/99:
Exercisable at $.42 to $1.00 7,300,000 $0.47 -- 9.4 years
Exercisable at $1.75 to $2.50 8,485,000 $2.23 -- 9.6 years
Exercisable at $4.00 4,175,000 $4.00 -- 9.9 years
----------
Outstanding at 12/31/99 19,960,000 $1.94 -- --
----------
Exercisable at 12/31/99:
Exercisable at $.42 to $1.00 7,050,000 $0.46 -- --
Exercisable at $1.75 to $2.50 8,435,000 $2.23 -- --
Exercisable at $4.00 4,175,000 $4.00
----------
Exercisable at 12/31/99 19,660,000 $1.95 -- --
==========
</TABLE>
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The Company accounts for options issued to employees under APB No. 25 and
options and warrants issued to non-employees under FASB No. 123. The following
information is based on estimating the fair value of grants under the above
plans based on the provisions of FASB No. 123. For the stock options issued to
employees, the fair value of each option has been estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 5%, expected life for the options of
five years, no expected dividend yield and expected volatility of 100%. 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 three and six months periods ended December 31, 1999 for
these awards was $15,298,000 and $25,497,000, respectively.
The Company's pro forma net loss and net loss per share for the six months ended
December 31 1999, assuming compensation cost was determined under FASB No. 123
for all options and warrants, would have been the following:
Net loss before discontinued operations $ (45,526,000)
Net loss from discontinued operations $ -
Net loss $ (45,526,000)
Net loss per share before discontinued operations $ (1.49)
Net loss per share from discontinued operations --
Net loss per share $ (1.49)
NOTE 6. RELATED PARTY TRANSACTIONS
At December 31, 1999, the Company holds a note receivable in the amount of
$587,000 due from an entity owned by a former officer of the Company. The note
is secured by residential real estate.
In connection with consulting services related to the Company's Internet-based,
private jet aviation travel service business provided by Mr. Bert Lance, the
father of the Company's President and Chief Executive Officer, the Company
granted in January 2000 warrants to purchase 1,000,000 shares of its common
stock to the Bert Lance Grantor Trust. The warrants have an exercise price of
$4.00 per share. In November 1999, the Company paid Mr. Bert Lance $50,000 in
consulting fees.
ITEM 2. MANAGEMENT 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 three and
six months ended December 31, 1999, 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.
Results of Continuing Operations
The Company's revenues in the three and six months ended December 31, 1999 were
$253,000 and $526,000, respectively, represent lease income generated from the
Company's shopping centers acquired in fiscal 1999. All of the
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Company's revenues in the December 31, 1998 periods were generated by the
residential real estate development operations and have been reclassified to
discontinued operations.
General and administrative expenses in the three and six months ended December
31, 1999 were $1,311,000 and $2,211,000 respectively compared to $72,000 and
$117,000, respectively, in the comparable 1998 periods. These increases are due
to increased compensation costs, consulting and legal fees, travel, and other
costs associated with the development of the new Internet-based private aviation
travel services business.
In the three and six months ended December 31, 1999, the Company issued stock
options to officers and directors and warrants to outside third parties and
recognized $15,298,000 and $24,497,000, respectively of related non-cash
expense.
The Company's depreciation and amortization expense of $289,000 and interest
expense of $241,000 in the six months ended December 31, 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 jet aviation travel services business.
However, management expects to continue to incur losses in connection with the
development of its private jet aviation travel services business prior to
implementing the Web site and cannot be certain as to when this new business
will generate income.
Discontinued Operations
In the three and six months ended December 31, 1998, the Company incurred a loss
of $5,227,000 and $5,530,000, respectively, from its discontinued residential
real estate development operations.
Liquidity and Capital Resources
The net operating loss in the six months ended December 31, 1999 of $27,712,000
was partially offset by a $25,497,000 increase in paid-in capital related to the
issuance of stock options and warrants. Also, the Company sold common stock
($940,000, net) and issued treasury stock ($193,000) resulting in a $1,082,000
net decrease in stockholders' equity.
In the six months ended December 31, 1999, continuing operations used $3,098,000
of cash and the liquidation of certain assets of discontinued operations
generated $519,000 of cash. In addition, the Company expended $594,000 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 December 31, 1999 is
$1,240,000 compared to $3,486,000 at June 30, 1999. In January 2000, the Company
entered common stock Purchase Agreements providing for the sale of common stock
and warrants for initial consideration of $11 million and the possibility of
total consideration of up to $59.7 million, if all warrants are exercised. Of
the initial consideration, $6,000,000 has been funded to-date, including
$1,000,000 as of December 31, 1999. The cash balance and funding from the
Purchase Agreements is adequate, in management's opinion, to complete the
implementation of the private jet aviation travel services business on the
Internet Web site and to meet working capital requirements to commence marketing
of the flightserv.com (TM) brand and begin to build market share. The Company's
need to raise additional capital to implement and maintain the private jet
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.
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
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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 jet 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 through its Web site, www.flightserv.com, to distribute, as agent,
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
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<PAGE> 14
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 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 or 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 incurred losses in fiscal 1999 and the first six months 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. The Company believes that its Web site will be the first time both
charter flight reservations and other travel related services are offered
through one Web site and, therefore, 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
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<PAGE> 15
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 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.
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, including shares of restricted common stock underlying
options and warrants that have been issued by the Company. Approximately
22,000,000 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 shares that have been held for at least two years without volume
limitations. In addition, the Company has issued warrants and options which, if
exercised, could result in up to an additional 28,313,743 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
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<PAGE> 16
proceedings, the adverse outcome of which, would have any material adverse
effect on its business, its assets, or results of operations.
ITEM 2. CHANGES IN SECURITIES
The information in Notes 4 and 5 to the financial statements set forth
in Part I Item 1 hereof and in the Company's Current Report on Form 8-K
filed on January 28, 2000 is incorporated herein by reference.
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
2.1 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)
2.2 Common Stock Purchase Agreement dated as of January 18, 2000
between flightserv.com and Four Corners Capital, LLC
(incorporated herein by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed January 28, 2000)
4.1 Registration Rights Agreement dated as of January 18, 2000
between flightserv.com and Acqua Wellington Value Fund, Ltd.
and Four Corners Capital, LLC (incorporated herein by
reference to the Company's Current Report on Form 8-K filed
January 28, 2000)
4.2 Registration Rights Agreement between the Company and Langdon
Flowers, Jr., Langdon Flowers, Sr., and George McIntosh dated
December 31, 1999.
10.1 Form of Officer/Director Non-Qualified Option Agreement dated
December 2, 1999.
10.2 Schedule of Option Agreements.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
1) During the quarter ended December 31, 1999 - None
2) The Company filed the following report on Form 8-K
with the Securities and Exchange Commission on
January 28, 2000
(i) The Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission reporting the
sales of common stock and warrants pursuant to
certain purchase agreements effective January 18,
2000.
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: February 14, 2000 By: /s/ William L. Wortman
---------------------------
William L. Wortman
Vice President and
Chief Financial Officer
16
<PAGE> 1
EXHIBIT 4.2
FLIGHTSERV.COM
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of December 31, 1999 by and among Flightserv.com, a Delaware corporation (the
"Company"), and holders of the Company's common stock listed on Exhibit A hereto
as the "Holders". The Company and the Holders are sometimes referred to herein
collectively as the "Parties" or individually as a "Party."
RECITAL
WHEREAS, in connection with settlement of certain claims between the
Company and the Holders, the parties hereto desire to enter into this Agreement
to extend registration rights to the Holders.
AGREEMENT
In consideration of the foregoing and of the mutual promises and
covenants contained herein, the Parties agree as follows:
1. Registration Rights.
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings.
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time
administering the Securities Act.
(b) "Holder" means any person or persons to whom
Registrable Securities were originally issued or
qualifying transferees under Section 1.9 hereof who
hold Registrable Securities.
(c) "Initiating Holders" shall mean any Holder or Holders
of at least fifty percent (50%) of the Registrable
Securities.
(d) "Registrable Securities" means (i) the common stock
of the Company held by the Holders on the date of
this Agreement; and (ii) stock issued in respect of
the stock referred to in (i) as a result of a stock
split, stock dividend, recapitalization or the like,
which have not been sold to the public.
<PAGE> 2
(e) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and
filing a registration statement in compliance with
the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
(f) "Registration Expenses" shall mean all expenses,
except "Selling Expenses" defined below, incurred by
the Company in complying with Sections 1.2, 1.3 and
1.4 hereof, including, without limitation, all
registration, qualification and filing fees, printing
expenses, escrow fees, fees, fees and disbursements
of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident
to or required by any such registration.
(g) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute and
the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the
time.
(h) "Selling Expenses" shall mean all underwriting
discounts, selling commissions and stock transfer
taxes applicable to the securities registered by the
Holders and all reasonable fees and disbursements of
counsel for the selling Holders.
1.2 Requested Registration.
(a) Request for Registration. If the Company receives from
Initiating Holders a written request that the Company effect a
registration covering not less than thirty percent (30%) of
the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all
other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance
(including, without limitation, appropriate
compliance with applicable regulations issued under
applicable blue sky or other state securities laws
and appropriate compliance with applicable
regulations issued under the Securities Act and any
other governmental requirements or regulations) as
may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of
such Registrable Securities as are specified in such
request, together with all or such portion of the
Registrable Securities as are specified in such
request, together with all or such portion of the
2
<PAGE> 3
Registrable Securities of any Holder or Holders
joining in such request as are specified in a written
request received by the Company within twenty days
after receipt of such written notice from the
Company; provided, however, that the Company shall
not be obligated to take any action to effect any
such registrations, qualification or compliance
pursuant to this Section 1.2:
(A) Before the effective date of the
registration statement to be filed
in connection with the common stock
financing currently being arranged
on behalf of the Company by Four
Corners Capitol, LLC (the "Four
Corners Registration Statement");
(B) In any particular jurisdiction in
which the Company would be required
to execute a general consent to
service of process in effecting
such registration, qualification or
compliance unless the Company is
already subject to service in such
jurisdiction and except as may be
required by the Securities Act;
(C) After the Company has effected one
such registration pursuant to this
Section 1.2(a), and such
registrations has been declared or
ordered effective; and has remained
effective for at least 120 days or
such shorter period during which
the distribution described in the
registration statement has been
completed; and
(D) If the Company shall furnish to
such Holders a certificate signed
by the President of the Company
stating that in the good faith
judgment of the Board of Directors
it would be seriously detrimental
to the Company or its shareholders
for a registration statement to be
filed in the near future on the
grounds that such a registration
statement would force premature
disclosure of a material pending
transaction or event of the
Company, then the Company's
obligation to use its best efforts
to register, qualify or comply
under this Section 1.2 shall be
deferred for a period not to exceed
ninety
3
<PAGE> 4
days from the date of receipt of
written request from the Initiating
Holders, provided that the Company
may not use this right more than
once in any twelve month period.
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders. The Company agrees that the Holders, by signing this
Agreement, shall be deemed to have made a written request pursuant to Section
1.2(a) that the Company effect a registration covering 400,000 shares of the
Registrable Securities, and the Company agrees to use it best efforts to file a
registration statement covering such 400,000 shares within 20 business days
after the effective date of the Four Corners Registration Statement.
The Company will use its best efforts to consummate the initial
financing being arranged by Four Corners and to promptly file the Four Corners
Registration Statement thereafter and will make commercially reasonable efforts
to prosecute the Four Corners Registration Statement to effectiveness.
(b) Underwriting. In the event that a registration
pursuant to Section 1.2 is for a registered public
offering involving an underwriting, the Company shall
so advise the Holders as part of the notice given
pursuant to Section 1.2(a)(i). In such event, the
right of any Holder to participate in such
registration shall be conditioned upon such Holder's
participation in the underwriting arrangements
required by this Section 1.2, and the inclusion of
such Holder's Registrable Securities in the
underwriting to the extent requested shall be limited
to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company, but subject to the reasonable approval of a majority in interest
of the Initiating Holders. Notwithstanding any other provision of this Section
1.2, if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all participating Holders and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocable among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If the underwriter has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account (or for the
account of other shareholders) in such
4
<PAGE> 5
registration if the underwriter so agrees and if the number of Registrable
Securities that would otherwise have been included in such registration and
underwriting will not thereby be limited.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.
1.3 Company Registration.
(a) Notice of Registration. If, at any time prior to the
second anniversary of the effective date of the Four
Corners Registration Statement, the Company shall
determine to register any of its securities, either
for its own account or the account of a security
holder or holders, other than (i) a registration
relating solely to employee benefit plans, (ii) a
registration relating solely to a transaction under
Rule 145 under the Securities Act, (iii) a
registration effected pursuant to Sections 1.2 or 1.4
hereof, or (iv) the Four Corners Registration
Statement or any subsequent registration statement
filed with respect to shares owned by the selling
shareholders in the Four Corners Registration
Statement, the Company will:
(i) Promptly give to each Holder written notice
thereof; and
(ii) Include in such registration (and any
related qualification under blue sky laws or
other compliance), and in any underwriting
involved therein, all the Registrable
Securities specified in a written request or
requests, made within twenty days after
receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public
offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice
given pursuant to Section 1.3(a)(i). In such event
the right of any Holder to registration pursuant to
Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting to the extent
provided herein. All Holders proposing to distribute
their securities through such underwriting shall
(together with the Company and the other Holders
distributing their securities through such
underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected
for such underwriting by the Company, but subject to
the reasonable approval of Holders holding a majority
of the Registrable Securities to be included in such
registration. Notwithstanding any other provision of
this Section 1.3, if the managing underwriter
determines that marketing factors require limitation
of the number of shares to be underwritten, the
5
<PAGE> 6
managing underwriter may limit the Registrable
Securities to be included in such registration. The
Company shall so advise all Holders and the number of
shares of securities that may be included in the
registration and underwriting (other than on behalf
of the Company) shall first be allocated on a pro
rata basis among all other Holders in proportion, as
nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders. No
securities of the Company held by the Holders shall
be included in any registration and underwriting to
which this section applies if the number of shares
held by parties who have exercised a right to demand
the registration of such shares that would otherwise
have been included in such registration and
underwriting will thereby be limited. If any Holder
disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to
the Company and the managing underwriter.
1.4 Selling Expenses. All Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the
Holders of such securities pro rata on the basis of the number
of shares so registered.
1.5 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant
to this Section 1, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to
the completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its
best efforts to cause such registration statement to
become and remain effective for at least one hundred
twenty days or such shorter period during which the
distribution described in the Registration Statement
has been completed.
(b) Furnish to the Holders participating in such
registration and to the underwriters of the
securities being registered such reasonable number of
copies of the registration statement, preliminary
prospectus, final prospectus and such other documents
as such underwriters may reasonably request in order
to facilitate the public offering of such securities.
(c) Prepare and file with the Commission such amendments
and supplements to such registration statement and
the prospectus used in connection with such
registration statement as may be necessary to comply
with the provisions of the Securities Act with
respect to the disposition of all securities covered
by such registration statement.
6
<PAGE> 7
(d) Use its best efforts to register and qualify the
securities covered by such registration statement
under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be
required in connection therewith or as a condition
thereto to qualify to do business or to file a
general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an
underwriting agreement, in usual and customary form,
with the managing underwriter of such offering. (Each
Holder participating in such underwriting shall also
enter into and perform its obligations under such an
agreement.)
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a
prospectus relating thereto is required to be
delivered under the Securities Act of the happening
of any event as a result of which the prospectus
included in such registration statement, as then in
effect, includes an untrue statement of a material
fact or omits to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading in the light of the
circumstances then existing.
(g) Use its best efforts to furnish, at the request of
any Holder requesting registration of Registrable
Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the
underwriters for sale in connection with a
registration pursuant to this Section 1, if such
securities are being sold through underwriters, or,
if such securities are not being sold through
underwriters, on the date that the registration
statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of
such registration, in form and substance as is
customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if
any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such
date, from the independent certified public
accountants of the Company, in form and substance as
is customarily given by independent certified public
accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and
to the Holders requesting registration of Registrable
Securities.
7
<PAGE> 8
1.6 Indemnification.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and each person
controlling such person within the meaning of Section
15 of the Securities Act, with respect to which
registration, qualification or compliance has been
effected pursuant to this Section 1, and each
underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses,
damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or
threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material
fact contained in any registration statement,
prospectus, offering circular or other document, or
any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or
based on any omission (or alleged omission) to state
therein a material fact required to be stated therein
or necessary to make the statements therein, in light
of the circumstances in which they were made, not
misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated
under the Securities Act applicable to the Company in
connection with any such registration, qualification
or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and
each person controlling such Holder, each such
underwriter and each person who controls any such
underwriter, for any legal or any other expenses
reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage,
liability or action, provided that the Company will
not be liable to any such person in any such case to
the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any
untrue statements or omission (or alleged untrue
statement or omission), made in reliance upon and in
conformity with written information furnished to the
Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated
to be specifically for use therein or the preparation
thereby.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to
which such registration, qualification or compliance
is being effected, indemnify the Company, each of its
directors and officers, each underwriter, if any, of
the Company's securities covered by such a
registration statement, each person who controls the
Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such
Holder, each of its
8
<PAGE> 9
officers and directors and each person controlling
such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses,
damages and liabilities (or actions in respect
thereof) arising out of any untrue statement (or
alleged untrue statement) of a material fact
contained in any such registration statement,
prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a
material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances in which they were made, not
misleading, and will reimburse the Company, such
Holders, such directors, officers, persons,
underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim,
loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration
statement, prospectus, offering circular or other
document in reliance upon and in conformity with
written information furnished to the Company by an
instrument duly executed by such Holder and stated to
be specifically for use therein or the preparation
thereby. Notwithstanding the foregoing, the liability
of each Holder under this subsection (b) shall be
limited to an amount equal to the aggregate proceeds
received by such Holder from the sale of Registrable
Securities in such registration.
(c) Each party entitled to indemnification under this
Section 1.7 (the "Indemnified Party") shall give
notice to the party required to provide
indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this
Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's
ability to defend such action and provided further,
that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict
of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment
or enter into any
9
<PAGE> 10
settlement which does not include as an unconditional
term thereof the giving by claimant or plaintiff to
such Indemnified Party of a release from all
liability in respect to such claim or litigation.
1.7 Information by Holder. The Holders of securities included in
any registration shall furnish to the Company such information
regarding such Holders, the Registrable Securities held by
them and the distribution proposed by such Holders as the
Company may request in writing and as shall be required in
connection with any registration, qualification or compliance
referred to in this Section 1.
1.8 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission
which may at any time permit the sale of the Registrable
Securities to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under
the Securities Act, at all times.
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents
required of Company under the Securities Act and the
Securities Exchange Act of 1934 (the "Exchange Act").
(c) So long as a Holder owns any Registrable Securities
to furnish to Holder forthwith upon request a written
statement by the Company as to its compliance with
the reporting requirements of said Rule 144 and of
the Securities Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the
Company, and such other reports and documents of the
Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may
reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to
sell any such securities without registration.
1.9 Transfer of Registration Rights. The rights to cause the
Company to register securities granted to the Holders under
this Agreement may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable
Securities by a Holder provided that: (i) such assignment or
transfer may otherwise be effected in accordance with
applicable securities laws, (ii) such assignee or transferee
agrees to be bound by the terms and conditions of this
Agreement, (iii) either (A) such assignee or transferee
acquires at least 100,000 shares of Registrable Securities
(appropriately adjusted for stock splits, combinations,
dividends, distributions and recapitalizations) not sold to
the
10
<PAGE> 11
public, or (B) such assignee or transferee is a partner,
shareholder, subsidiary, affiliate, family member, family
trust or the estate of the Holder, and (iv) such assignment
does not increase the number of registration statements the
Company must file.
2. Miscellaneous.
2.1 Governing Law. This Agreement shall be governed in
all respects by the laws of the State of Georgia.
2.2 Survival. The covenants and agreements made herein
shall survive any investigation made by any Holder
and the closing of the settlement contemplated
hereby.
2.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the
parties hereto.
2.4 Entire Agreement. This Agreement constitutes the full
and entire understanding and agreement between the
parties with regard to the subjects hereof, and no
party shall be liable or bound to any other party in
any manner by any covenants or agreements except as
specifically set forth herein.
2.5 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing
and shall be mailed by first class mail, postage
prepaid, certified or registered mail, return receipt
requested, addressed (a) if to any Holder, at such
Holder's address as set forth in the Company's
records, or at such other address as such Holder
shall have furnished to the Company in writing, or
(b) if to the Company, at the Company's address at
3343 Peachtree Road, Suite 530, Atlanta, Georgia
30326, or at such other address as the Company shall
have furnished to such Holders in writing.
2.6 Delays or Omissions. Except as expressly provided
herein, no delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any
breach or default of the Company under this
Agreement, shall impair any such right, power or
remedy of such Holder nor shall it be construed to be
a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach
or default under this Agreement thereafter occurring;
nor shall any waiver of any single breach or default
be deemed a waiver of any other
11
<PAGE> 12
breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Holder of
any breach or default under this Agreement, or any
waiver on the part of any Holder of any provisions or
conditions of this Agreement, must be in writing and
shall be effective only to the extent specially set
forth in such writing. All remedies either under this
Agreement or by law or otherwise afforded to any
Holder shall be cumulative and not alternative.
2.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an
original, but all of which together shall constitute
one instrument.
2.8 Severability. If any provision of this Agreement, or
the application thereof, shall for any reason and to
any extent be invalid or unenforceable, the remainder
of this Agreement and application of such provision
to persons or circumstances shall be interpreted so
as best to reasonably effect the intent of the
parties hereto. The parties further agree to replace
such void or unenforceable provision of this
Agreement with a valid and enforceable provision
which will achieve, to the extent possible, the
economic, business and other purposes of the void or
unenforceable provision.
This Agreement is hereby executed as of the date first above written.
FLIGHTSERV.COM, a Delaware corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
THE HOLDERS
--------------------------------------------
Langdon S. Flowers, Jr.
--------------------------------------------
Langdon S. Flowers, Sr.
--------------------------------------------
George McIntosh
12
<PAGE> 13
Exhibit A to
Registration Rights Agreement
Name of Holder Number of Shares Owned
-------------- ----------------------
1. Langdon Flowers, Jr. 196,520 PLUS 781,776*
2. Langdon Flowers, Sr. 56,640 PLUS 344,792
3. George McIntosh 146,840 PLUS 95,215
* Simultaneously with the execution hereof, 127,100 shares have been transferred
to The Community Foundation of Southwest Georgia, Inc. and 69,420 shares have
been transferred to The Community Foundation of Southwest Georgia, Inc. as
Trustee for the Langdon S. Flowers, Jr. and Amanda T. Flowers Charitable
Remainder Unitrust. Upon receipt by the Company of an undertaking that such
transferees agree to be bound by the terms and conditions of this Agreement,
such transferees shall become Holders hereunder.
13
<PAGE> 1
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made as
of the 2nd day of December, 1999, by and between FLIGHTSERV.COM, a Delaware
corporation (the "Company") and ________________, an individual resident of the
State of Georgia ("Optionee").
W I T N E S S E T H:
1. The Company hereby grants to Optionee as of the date hereof
stock options to purchase ______________________________ shares of the common
stock, $.04 par value, of the Company (the "Common Stock") exercisable at any
time prior to 11:59 p.m., Atlanta time, on December 2, 2009 (the "Expiration
Date") at a price of $4.00 per Option Share. "Option Share(s)" shall mean the
share(s) of Common Stock which shall be purchased or shall be available for
purchase upon exercise of the stock option granted hereby and any security which
shall be issued in lieu of or in addition to any other Option Share by reason of
any recapitalization, special dividend transaction or other such event as
provided in Section 5 below.
2. Except as otherwise provided below, the option granted hereby
may be exercised at any time, or from time to time, in whole or in part, until
the Expiration Date. The exercise of all or any portion of the stock option
granted hereby will be contingent upon stockholder approval of the Agreement and
upon receipt by the Company of the advice of counsel to the Company that such
Option Shares have been duly listed on the principal exchange on which the
Company's securities are traded, and duly registered or are exempt from
registration under the applicable securities laws and, in the absence of
registration of the Option Shares and to the extent required by such counsel,
the receipt from the Optionee of a representation that the Optionee intends at
the time of such exercise to acquire the Option Shares for investment only and
not for distribution or resale.
3. The Optionee may exercise all or any part of the stock option
(in whole Option Shares) by delivering written notice to the Company of the
number of Option Shares to be purchased together with cash or check, in payment
of the full purchase price of the Option Shares to be acquired. Notice shall be
sent to the Company at flightserv.com, 3343 Peachtree Road, N.E., Suite 530,
Atlanta, Georgia 30326. The stock option shall be deemed to have been exercised
on the date the Company receives the written notice and the required cash or
check in full payment for the purchased Option Shares, or shares of Common Stock
if the payment is to be made in such manner. A form of notice which will be
deemed satisfactory by the Company is attached to this Agreement as Exhibit A.
Upon any exercise of the stock option the Company shall cause to be delivered to
the Optionee a certificate or certificates registered in the name or the
Optionee for the number of Option Shares purchased. The Optionee shall not have
any of the rights of a Stockholder with respect to the Option Shares except to
the extent that the Optionee duly exercises the stock option granted hereby with
respect to such Option Shares. As a condition of exercise of this option, the
Company may, in its sole discretion, withhold or require
<PAGE> 2
the Optionee to pay or reimburse the Company for any taxes which the Company
determines are required to be withheld in connection with the grant or any
exercise of this option.
4. Notwithstanding the foregoing provisions requiring payment by
cash or check, if stock of the class then subject to this option is then
"publicly traded" (as hereafter defined), then payment of the purchase price or
any portion thereof may also be made in whole or in part with shares of the same
class of stock as that then subject to this option, surrendered in lieu of the
payment of cash concurrently with such exercise, the shares so surrendered to be
valued on the basis of the Fair Market Value of the stock (as hereinafter
provided) on the date of exercise, in which event the stock certificates
evidencing the shares so to be used shall accompany the notice of exercise and
shall be duly endorsed or accompanied by duly executed stock powers to transfer
the same to the Company; provided, however, that such payment in stock instead
of cash shall not be effected and shall be rejected by the Company if (a) the
Company is then prohibited from purchasing or acquiring shares of the class of
its stock thus tendered to it or (b) the right or power of the person exercising
the option to deliver such shares in payment of the purchase price is subject to
the prior interest of any person (other than the Company) as indicated by
legends upon the certificate(s) or known to the Company. If the Company rejects
the payment in stock, the tendered notice of exercise shall not be effected
hereunder unless promptly after being notified of such rejection the person
exercising the option pays the purchase price in acceptable form. If and while
payment with stock is permitted in accordance with the foregoing provision, then
the person then entitled to exercise this option may, in lieu of using
previously outstanding stock therefor, use a portion of the shares as to which
this option is then being exercised, in which case the notice of exercise need
not be accompanied by any stock certificates but shall include a statement
directing the Company to retain so many shares that would otherwise have been
delivered by the Company upon that exercise of this option as equals the number
of shares that would have been surrendered to the Company if the purchase price
had been paid with previously issued stock. If the Company is required to
withhold on account of any federal, state or local tax imposed as a result of
any exercise of this option with previously issued stock or by retention of a
portion of Option Shares under this section, then the stock surrendered or
retained shall include an additional number of shares whose Fair Market Value
equals the amount thus required to be withheld. For purposes hereof, "publicly
traded" shall mean that a class of the capital stock of the Company is listed or
admitted to unlisted trading privileges on a national securities exchange or
designated as a national market systems security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") or if
sales or bid and offer quotations are reported for that class of stock in the
automated quotation system ("NASDAQ") operated by the NASD. Further, "Fair
Market Value" shall mean the closing price of such stock as of the day in
question or, if such day is not a trading day in the principal securities market
or markets for such stock, on the nearest preceding trading day, as reported
with respect to the market (or the composite of markets, if more than one) in
which shares of such stock are then traded, or, if no such closing prices are
reported, on the basis of the mean between the high bid and low asked prices
that day on the principal market or quotation system on which shares of such
stock are then quoted, or, if not so quoted, as furnished by a professional
securities dealer making a market in such stock selected by the Board of
Directors of the Company.
2
<PAGE> 3
5. In the event of changes in the outstanding shares of Common
Stock by reason of stock dividends, stock splits, subdivisions or combinations
of shares, the number of Option Shares shall be correspondingly and fairly
adjusted by the Board of Directors of the Company, the decision of which shall
be final and conclusive. A corresponding adjustment shall be made without change
in the total exercise price applicable to the unexercised portion of the Option
Shares with a corresponding adjustment in the exercise price per share.
6. If the Company is merged, consolidated or effects a share
exchange with another corporation (whether or not the Company is the surviving
corporation), or if substantially all of the assets or all of the Common Stock
is acquired by another corporation, or in the event of a separation,
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall make appropriate provision for the protection of
the option granted hereby by the substitution on an equitable basis of
appropriate stock of the Company, or of the merged, consolidated or otherwise
reorganized corporation which will be issuable in respect to the shares of
Common Stock, provided only that the excess of the aggregate fair market value
of the Option Shares immediately after such substitution over the exercise price
thereof is not more than the excess of the aggregate fair market value of the
Option Shares immediately before such substitution over the exercise price
thereof. Notwithstanding the preceding sentence, if the Company is merged,
consolidated or effects a share exchange with another corporation or if
substantially all of the assets or all of the Common Stock is acquired by
another corporation, or in the event of a separation, reorganization or
liquidation of the Company, then the Board of Directors of the Company or the
board of directors of any corporation assuming the obligations of the Company
hereunder may, on or before the thirtieth (30th) day following such event and
upon written notice to the Optionee, provide that the option granted hereby must
be exercised within sixty (60) days of the date of such notice or it will be
terminated.
7. This Agreement shall not be assignable or transferable by
Optionee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order and the stock option hereby
granted shall not be exercised by any person other than Optionee during
Optionee's lifetime. After the death of Optionee, the person to whom Optionee's
rights hereunder pass under Optionee's will or under the laws of descent and
distribution shall be deemed the holder of the stock option granted hereby.
8. To the extent not superseded by federal law, the laws of
Delaware shall control in all matters relating to this Agreement.
9. Optionee understands that the Option Shares are not registered
under the Securities Act of 1933 (the "1933 Act") or any state securities act
and will be issued to Optionee pursuant to exemptions from registration
thereunder. Optionee also understands that applicable securities laws may
restrict the right of Optionee to exercise the stock option or to dispose of any
shares which Optionee may acquire upon any such exercise and may govern the
manner in which such shares must be sold. Optionee shall not offer, sell or
otherwise dispose of any of the Option Shares acquired by reason of the exercise
of the stock option in any manner which would violate the 1933 Act or any other
state or federal law or cause the Company to have to make any filing or take any
action to avoid such a violation.
3
<PAGE> 4
10. Optionee hereby represents that all Option Shares purchased by
him pursuant to his exercise of all or any portion of the stock option will be
acquired only for investment and not with a view to distribution or resale.
11. All pronouns, defined nouns and any variations thereof in this
Agreement shall be deemed to refer to the masculine, feminine or neuter gender
and to either singular or plural, whenever the context of this Agreement so
requires.
IN WITNESS WHEREOF, Optionee has executed and delivered this Agreement
and the Company has caused this Agreement to be executed and delivered on its
behalf by its duly authorized representative, as of the day and year above
written.
FLIGHTSERV.COM
By:
----------------------------------
Its:
---------------------------------
OPTIONEE
-------------------------------------
4
<PAGE> 5
EXHIBIT A
TO: flightserv.com
3343 Peachtree Road, N.E.
Suite 530
Atlanta, Georgia 30326
Pursuant to the Non-Qualified Stock Option Agreement (herein called the
"Agreement"), dated as of December 2, 1999, by and between flightserv.com (the
"Company") and me, I hereby give notice that I elect to exercise the stock
option granted under the Agreement with respect to ______ shares of the common
stock of the Company as of the date on which this notice is delivered to the
Company, and accordingly I hereby agree to purchase such shares at the price and
on the terms established under the Agreement. Full payment for such shares is
enclosed. Such payment consists of:
__________ Cash
__________ Check
__________ shares of the Company's common stock, _____ of which are
previously owned.
I hereby represent and warrant that I am purchasing such shares for
investment purposes only and not with a view to distribution or resale.
I hereby agree that the stock option granted under the Agreement shall
be deemed to have been exercised to the extent specified in this notice on the
exercise date below my signature, and I hereby warrant that on such date this
notice was delivered to the Company.
Sincerely,
----------------------------------
(Sign Name)
----------------------------------
(Print Name)
DATED:
------------------------
<PAGE> 1
EXHIBIT 10.2
SCHEDULE OF OPTION AGREEMENTS
The following documents are substantially similar to the Form of Option
Agreement included as Exhibit 10.1 herewith, except as otherwise noted:
Option Agreement between the Company and C. Beverly Lance dated as of
December 2, 1999 for 1,000,000 shares.
Option Agreement between the Company and Arthur G. Weiss dated as of
December 2, 1999 for 1,000,000 shares.
Option Agreement between the Company and Dr. James Verbrugge dated as of
December 2, 1999 for 200,000 shares.
Option Agreement between the Company and Four Corners Capital, LLC dated as
of December 2, 1999 for 200,000 shares.
Option Agreement between the Company and William B. Astrop, Jr. dated as of
December 2, 1999 for 50,000 shares.
Option Agreement between the Company and Douglas D. Astrop dated as of
December 2, 1999 for 50,000 shares.
Option Agreement between the Company and William B. Astrop dated as of
December 2, 1999 for 100,000 shares.
Option Agreement between the Company and Sylvia A. de Leon dated as of
December 2, 1999 for 200,000 shares.
Option Agreement between the Company and Sylvia A. de Leon dated as of
December 2, 1999 for 200,000 shares with an exercise price of $0.4375
per share.
Option Agreement between the Company and Sylvia A. de Leon dated as of
December 2, 1999 for 200,000 shares with an exercise price of $0.4177
per share.
Option Agreement between the Company and Sylvia A. de Leon dated as of
December 2, 1999 for 400,000 shares with an exercise price of $2.50
per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FLIGHTSERV.COM FOR THE SIX MONTHS PERIOD ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,240,000
<SECURITIES> 0
<RECEIVABLES> 1,059,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,815,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,271,000
<OTHER-SE> 2,816,000
<TOTAL-LIABILITY-AND-EQUITY> 12,815,000
<SALES> 0
<TOTAL-REVENUES> 526,000
<CGS> 0
<TOTAL-COSTS> 28,238,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241,000
<INCOME-PRETAX> (27,712,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,712,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,712,000)
<EPS-BASIC> (.91)
<EPS-DILUTED> (.91)
</TABLE>
