SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-22310
LAS VEGAS AIRLINES, INC.
(Exact name of small business issuer in its charter)
DELAWARE 33-0564327
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
24901 Dana Point Harbor Drive, Suite 200
Dana Point, California 92629
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 488-8494
-------------------
Securities registered pursuant to Section 12(b) of the Act: None
----------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001
------------------
Indicate by check mark 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 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
State issuer's revenues for its most recent fiscal year: None
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of September 30, 1998 was not determinable since the Common
Stock was not traded on an established trading market.
The number of shares outstanding of the issuer's classes of Common
Stock as of September 30, 1998:
Common Stock, $.001 Par Value - 3,937,000 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
Las Vegas Airlines, Inc., a Delaware corporation (the "Company") was
incorporated as Hermaton Company on May 4, 1992. The Company was formed for the
purpose of either merging with or acquiring an operating company with operating
history and assets.
The Company acquired 51% of the common stock of Las Vegas Airlines, Inc., a
non-affiliated Nevada corporation ("LVA-Nevada") on April 28, 1998. Under the
Acquisition the Company paid $500,000 to acquire 51% of LVA-Nevada and the
rights to use the LVA-Nevada operating permit. The remaining 49% was acquired by
merger with another subsidiary, Acquisition Corp. 2500, on September 30, 1998.
LVA Nevada had been in business for over 24 years, primarily operating Navajo
aircraft in a commuter service between Las Vegas, Nevada and the Grand Canyon
and in charter operations in the area. The Company intended to continue the
Grand Canyon business, but its primary business focus is the expansion of routes
in niche markets. The first market is the U.S. Virgin Islands to be followed by
routes in Northern California and other locations to be determined. Due to a
changing regulatory climate under FAA Part 121, and the failure of an aircraft
lessee to timely deliver aircraft, the Virgin Islands expansion was indefinitely
postponed. At the same time, subsequent to year end, the Company evaluated its
Las Vegas business and determined that it was not profitable and was not likely
to become profitable in the foreseeable future. In the belief of management, the
prior owner of LVA-Nevada made several material misrepresentations to the
Company. The Company sued Donald J. Donohue, Sr. ("Donohue"), the former owner,
in Nevada state court for these misrepresentations and for embezzling cash from
LVA-Nevada. In response, on December 11, 1998, the former owner of LVA-Nevada,
and 4 other persons filed an involuntary petition for relief under Chapter 7 of
the Federal Bankruptcy Code against LVA. The petition was filed in bankruptcy
court in Las Vegas, Nevada. As a result of this filing and its effect on the
Company, it was obligated to cease operations in December 1998. The Company has
evaluated the situation and has determined that Donohue is likely judgment
proof, and has determined that collectibility of any claim against Donohue is
unlikely. In addition, the Company has determined that the value of LVA-Nevada
is nominal and any recovery from it is unlikely, and has decided not to waste
additional funds on recovery efforts. The Company is seeking another acquisition
at this time.
2
<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The Company receives the use of office space from an officer at no charge.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1998.
3
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has traded only infrequently and it is not
considered to have an established trading market. As of September 30, 1998,
there were approximately 310 stockholders of record.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company has minimal cash on hand and does not intend to continue
operations.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required to be included in
Item 7 are set forth in the Financial Statements Index.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable. The Company has retained Thurman Shaw & Co. LC as its
principal auditors for its next
fiscal year. As reported in a Form 8-K dated November 6, 1998, the Company
has changed its fiscal year
to September 30.
4
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
The members of the Board of Directors of the Company serve until the next
annual meeting of
stockholders, or until their successors have been elected. The officers serve at
the pleasure of the Board of Directors. The following are the directors,
executive officers and significant employees of the Company.
Name Position
Jehu Hand President, Chief Financial Officer and Director
William H. Prince Executive Vice President
Marvin Winograde Vice President-Industry Affairs
Jehu Hand has been President and Secretary of the Company since its
inception and Chief Financial Officer since January 1, 1995. Mr. Hand has been
engaged in corporate and securities law practice and has been a partner of the
law firm of Hand & Hand since 1992. Hand & Hand incorporated as a law
corporation in May 1994. Mr. Hand has been a registered principal of SoCal
Securities, an NASD registered broker dealer, since 1992. From January 1992 to
December 1992 he was the Vice President-Corporate Counsel and Secretary of Laser
Medical Technology, Inc., which designs, manufactures and markets dental lasers
and endodontics equipment. He was a director of Laser Medical from February 1992
to February 1993. From January to October, 1992 Mr. Hand was Of Counsel to the
Law Firm of Lewis, D'Amato, Brisbois & Bisgaard. From January 1991 to January
1992 he was a shareholder of McKittrick, Jackson, DeMarco & Peckenpaugh, a law
corporation. Jehu Hand received a J.D. from New York University School of Law in
1984 and a B.A. from Brigham Young University in 1981.
William H. Prince has served as managing director of Prince Capital
Corporation since 1989. Prince Capital is an investment banking firm which
provides corporation financing services to emerging and middle market companies.
From 1985 to 1989, Mr. Prince was Director of Corporate Finance for P.B. Jameson
& Company, Inc. From 1978 to 1985 he was an institutional broker for three
national New York Stock Exchange firms: Smith Barney, Dain Bosworth and
Prudential Bache. From 1966 to 1978 he was a retail broker for an NYSE member
firm and conducted wholesale activities for a national mutual fund with assets
in excess of $1 billion. He graduated in 1966 with a BA in Business
Communications from Brigham Young University. Mr. Prince is a registered
representative of SoCal Securities.
Mr. Marvin Winograde is a graduate of the University of Southern
California with a Bachelor of Science Degree in Finance and Economics. Mr.
Winograde has had a diverse career with other regional airlines including
assignments in corporate finance, commercial aircraft financing, as well as
being an officer and director for two air carriers. Since 1987, Mr. Winograde
has served as Vice President of Las Vegas Airlines with responsibilities
including organizational and fiscal management, preparation of corporate budgets
and forecasts, and industry affairs. Further, Mr. Winograde has been responsible
for development and implementation of the Company's interline agreements,
marketing objectives of the Company, and implementation of the marketing and
development strategies.
He has also provided decision-making support to the President.
5
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The Company currently does not pay any compensation to its executive
officers and director. No compensation is expected to be paid for the forseeable
future.
Directors currently receive no compensation for their duties as
directors.
The Company, by resolution of its Board of Directors and stockholders,
adopted a 1992 Stock Option Plan (the "Plan") on May 4, 1992. The Plan enables
the Company to offer an incentive based compensation system to employees,
officers and directors and to employees of companies who do business with the
Company.
In the discretion of a committee comprised of non-employee directors
(the "Committee"), directors, officers, and key employees of the Company and its
subsidiaries or employees of companies with which the Company does business
become participants in the Plan upon receiving grants in the form of stock
options or restricted stock. A total of 2,000,000 shares are authorized for
issuance under the Plan, of which 780,000 shares are issuable under the Plan as
of June 30, 1998 at an exercise price of $2.50 per share. The Company may
increase the number of shares authorized for issuance under the Plan or may make
other material modifications to the Plan without shareholder approval. However,
no amendment may change the existing rights of any option holder.
Any shares which are subject to an award but are not used because the
terms and conditions of the award are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option may again be
used for awards under the Plan. However, shares with respect to which a stock
appreciation right has been exercised may not again be made subject to an award.
Stock options may be granted as non-qualified stock options or
incentive stock options, but incentive stock options may not be granted at a
price less than 100% of the fair market value of the stock as of the date of
grant (110% as to any 10% shareholder at the time of grant); non-qualified stock
options may not be granted at a price less than 85% of fair market value of the
stock as of the date of grant. Restricted stock may not be granted under the
Plan in connection with incentive stock options.
Stock options may be exercised during a period of time fixed by the
Committee except that no stock option may be exercised more than ten years after
the date of grant or three years after death or disability, whichever is later.
In the discretion of the Committee, payment of the purchase price for the shares
of stock acquired through the exercise of a stock option may be made in cash,
shares of the Company's Common Stock or by delivery or recourse promissory notes
or a combination of notes, cash and shares of the Company's common stock or a
combination thereof. Incentive stock options may only be issued to directors,
officers and employees of the Company.
Stock options may be granted under the Plan may include the right to
acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option
grant contains the AO feature and if a participant pays all or part of the
purchase price of the option with shares of the Company's common stock, then
upon exercise of the option the participant is granted an AO to purchase, at the
fair market value as of the date of the AO grant, the number of shares of common
stock the Company equal to the sum of the number of whole shares used by the
participant in payment of the purchase price and the number of whole shares, if
any, withheld by the Company as payment for withholding taxes. An AO may be
exercised between the date of grant and the date of expiration, which will be
the same as the date of expiration of the option to which the AO is related.
Stock appreciation rights and/or restricted stock may be granted in
conjunction with, or may be unrelated to stock options. A stock appreciation
right entitles a participant to receive a payment, in cash or common stock or a
combination thereof, in an amount equal to the excess of the fair market value
of the stock at the time of exercise over the fair market value as of the date
of grant. Stock appreciation rights may be exercised during a period of time
fixed by the Committee not to exceed ten years after the date of grant or three
years after death or disability, whichever is later. Restricted stock requires
the recipient to continue in service as an officer, director, employee or
consultant for a fixed period of time for ownership of the shares to vest. If
restricted shares or stock appreciation
6
<PAGE>
rights are issued in tandem with options, the restricted stock or stock
appreciation right is canceled upon exercise of the option and the option will
likewise terminate upon vesting of the restricted shares.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial
ownership of Company common stock by those persons beneficially holding more
than 5% of the Company capital stock, by the Company's directors, executive
officers and significant employees and by all of the Company's directors and
executive officers as a group, as of September 30, 1998.
<TABLE>
<CAPTION>
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned Common Stock
<S> <C> <C> <C>
Jehu Hand(2) 1,410,000 34.1%
24901 Dana Point Harbor Drive, #200
Dana Point, CA 92629
William H. Prince(3) 620,000 16.4%
Marvin Winograde 330,000 8.4%
All officers and directors as
a group (3 persons)(2)(3) 2,360,000 51.0%
</TABLE>
(1) Unless otherwise noted below, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. For purposes hereof, a
person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options or the conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that any such warrants, options or convertible securities that are
held by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof, have been exercised.
(2 Includes 500,000 shares issuable upon exercise of options at $2.50 per share.
--
(3)Includes 150,000 shares issuable upon exercise of options at $2.50 per share.
--
7
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
An officer of the Corporation has advanced certain expenses on behalf
of the Company. As of March 31, 1995, 1996, 1997 and September 1998 such
expenses totalled $1,877, $2,411, $2,604 and $15,188. Subsequent to year end
this officer advanced $26,329.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits of the Company are included
herein.
Exhibit No. Document Description
2. Plan of acquisition, reorganization,
arrangement, liquidation or succession.
8
<PAGE>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
WITH ACCOMPANYING INFORMATION
YEAR ENDED SEPTEMBER 30, 1998
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Consolidated Financial Statements
Table of Contents
<S> <C>
Independent Auditors' Report 1
Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Operations and Retained Earnings 4
Consolidated Statement of Changes in Stockholders' Equity 5
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8
Supplementary Information
Detail of Consolidated Balance Sheet 15
Detail of Consolidated Statement of Operations and
Retained Earnings 16
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Las Vegas Airlines, Inc.
(Formerly Hermaton Corporation)
We have audited the accompanying consolidated balance sheet of Las Vegas
Airlines, Inc. (formerly Hermaton Corporation) as of September 30, 1998 and the
related consolidated statements of operations and retained earnings (deficit),
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Las Vegas Airlines, Inc.
(formerly Hermaton Corporation) as of September 30, 1998, and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of ($720,950) during the
year ended September 30, 1998, and, as of that date, had a working capital
deficiency of ($1,367,235) and net worth of ($780,914). Those conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
THURMAN SHAW & CO. LC
Bountiful, Utah
December 31, 1998
1
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Consolidated Balance Sheet
September 30, 1998
ASSETS
Current assets
<S> <C>
Cash $ 141,599
Accounts receivable 58,709
Expendable parts, at cost 126,313
Refundable taxes based on income 90,416
Refundable excise taxes 2,463
Prepaid insurance 231,363
--------------
Total current assets 650,863
Furniture, vehicles and equipment, at cost
Furniture and equipment 28,749
Transportation 66,158
Engines 122,608
--------------
217,515
Less accumulated depreciation (180,510)
37,005
Other assets
Deposits 542,000
Other 14,737
556,737
$ 1,244,605
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
<S> <C>
Accounts payable $ 210,331
Insurance payable 228,033
Accrued payroll and payroll taxes 235,733
Other accrued liabilities 59,415
Current portion of long-term debt 408,486
Loan from shareholder 966,100
--------------
Total current liabilities 2,108,098
Long-term debt, net of current portion 7,421
--------------
Total liabilities 2,115,519
Commitments
Stockholder's equity (deficit):
Preferred stock, $0.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding -
Common stock, $0.001 par value; 20,000,000 shares
authorized; 3,937,000 shares issued and outstanding 3,937
Paid in capital 166,550
Retained earnings (deficit) (1,041,401)
(870,914)
$ 1,244,605
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Consolidated Statement of Operations and Retained Earnings (Deficit)
Year Ended September 30, 1998
<S> <C>
Revenues 1,816,307
Cost of revenues 1,845,444
Gross profit (29,137)
Selling, general and administrative expenses 861,073
Operating loss (890,210)
Other income (expense)
Interest income 256
Interest expense (113,419)
Gain on sale of aircraft 145,200
--------------
32,037
Loss before income taxes (858,173)
Income tax benefit 47,223
Net loss (810,950)
Retained earnings (deficit), beginning (230,451)
Retained earnings (deficit), ending $ (1,041,401)
==============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Consolidated Statement of Changes in Stockholders' Equity
May 4, 1992 Through September 30, 1998
Common StockAdditional Retained
Paid-In Earnings/
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash 400,000 $ 400 $ 100 $ - $ 500
Net (loss) - - - (269) (269)
------------- -------------- ------------- -------------- -------------
Balance, March 31, 1993 400,000 400 100 (269) 231
Contribution to capital - - 500 - 500
Sale of shares in private placement
on September 30, 1993 24,600 25 221 - 246
Net (loss) - - - (1,661) (1,661)
------------- -------------- ------------- -------------- -------------
Balance, March 31, 1994 424,600 425 821 (1,930) (684)
Issuance of shares - Failed
acquisition, June 1, 1994 3,200,000 3,200 - - 3,200
Net (loss) - - - (4,280) (4,280)
------------- -------------- ------------- -------------- -------------
Balance, March 31, 1995 3,624,600 3,625 821 (6,210) (1,764)
Net (loss) - - - (588) (585)
------------- -------------- ------------- -------------- -------------
Balance, March 31, 1996 3,624,600 3,625 821 (6,798) (2,352)
Net (loss) - - - (247) (247)
------------- -------------- ------------- -------------- -------------
Balance, March 31, 1997 3,624,600 3,625 821 (7,045) (2,599)
Net (loss) - - - (35) (35)
------------- -------------- ------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Consolidated Statement of Changes in Stockholders' Equity (Continued)
May 4, 1992 Through September 30, 1998
Common StockAdditional Retained
Paid-In Earnings/
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1997 3,624,600 3,625 821 (7,080) (2,634)
Issuance of stock for cash 312,400 312 630,688 - 631,000
Acquisition of Las Vegas Airlines, Inc.
for cash - - (464,959) (223,371) (688,330)
Net loss - - - (810,950) (810,950)
------------- -------------- ------------- -------------- -------------
Balance, September 30, 1998 3,937,000 $ 3,937 $ 166,550 $ (1,041,401) $ (870,914)
============= ============== ============= ============== =============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Consolidated Statement of Cash Flows
Year Ended September 30, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss $ (810,950)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 50,089
Changes in assets and liabilities
Decrease in accounts receivable 25,130
Decrease in expendable parts 27,993
Increase in refundable income taxes (47,223)
Decrease in refundable excise taxes 5,000
Increase in prepaid insurance (55,263)
Increase in other assets (9,807)
Increase in deposits (542,000)
Decrease in checks written in excess of cash in bank (33,791)
Decrease in accounts payable (3,303)
Increase in insurance payable 25,932
Increase in accrued payroll and payroll taxes 172,134
Increase in other accrued liabilities 43,471
-------------
Net cash used in operating activities (1,152,588)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of aircraft - net 3,306
Net cash provided by investing activities 3,306
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 285,967
Proceeds from issuance of stock 131,000
Proceeds from advances from shareholder 966,100
Principal payments on long-term debt (105,617)
-------------
Net cash provided by financing activities 1,277,450
-------------
Net increase in cash 128,168
Cash, beginning 13,431
Cash, ending $ 141,599
=============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 113,419
=============
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
LAS VEGAS AIRLINES, INC.
(Formerly Hermaton Corporation)
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Las Vegas Airlines (formerly Hermaton Corporation) was incorporated
under the laws of Delaware on May 4, 1992, for the purpose of seeking
out business opportunities, including acquisitions.
On January 23, 1998 and September 30, 1998, Hermaton Corporation
acquired all of the outstanding stock of Las Vegas Airlines, Inc. for
$500,000. Subsequent to the purchase, Hermaton Corporation changed its
name to Las Vegas Airlines and also changed its fiscal year-end to
September 30.
The Las Vegas Airlines, Inc. (subsidiary) was incorporated in October,
1973, under the laws of the State of Nevada to operate air taxis
services under Federal Aviation Regulation 135. The primary services
include scheduled commuter, air tours and charters to the Grand Canyon
and surrounding areas.
Basis of Presentation
The accompanying financial statements include the accounts of Las Vegas
Airlines (formerly Hermaton Corporation) and its wholly-owned
subsidiary Las Vegas Airlines, Inc.
At September 30, 1998, the Company's current obligations exceed its
current assets by approximately $1,457,235. Management believes the
Company will be able to continue in business as a going concern;
however, that is dependent upon its ability to continue profitable
operations and/or obtain additional working capital to finance
continuance of operations.
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 amount reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Inventories
Inventories consist of airplane parts and are stated at the cost.
Revenue Recognition
Income is recognized after air transportation is provided
8
<PAGE>
Notes (continued)
Concentration of Credit Risk
The Company sells its tours primarily through independent travel
industry organizations located throughout the United States and
overseas. Ongoing credit evaluations of customers' financial condition
is performed by the Company and generally collateral is not required.
Management believes that an allowance for doubtful accounts is not
necessary.
Income taxes
The Company's tax provision is calculated in accordance with Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Depreciation
Depreciation is generally computed over a range of three to seven years
of estimated useful lives of the assets using the straight-line and
double-declining balance methods for financial and tax reporting
purposes. Depreciation expense for the year ended September 30, 1998
was $50,089.
Advertising
The Company expenses the cost of advertising and promotions as
incurred. Advertising expense for the year ended September 30, 1998 was
$86,801.
2. INCOME TAXES
Deferred taxes are determined based on the difference between the
financial statement basis and tax basis of assets and liabilities, and
measured at the enacted tax rates that will be in effect when those
differences reverse. Deferred tax expense is determined by the change
in the net deferred tax asset or liability.
The provision (credit) for income taxes for the year ended September
30, 1998 is comprised of the following:
<TABLE>
<CAPTION>
1998
Federal:
<S> <C>
Current $ (47,223)
Deferred (205,407)
Valuation allowance 205,407
-------------
$ (47,223)
</TABLE>
9
<PAGE>
Notes (continued)
At September 30, 1998, the Company has a federal net operating loss
carryforward of approximately $604,140. The credit for income taxes for
the year ended September 30, 1998, reflect the utilization of the net
operating losses that will be carried back to prior years.
The tax effect of temporary differences resulted in deferred income tax
assets (liabilities) as follows:
<TABLE>
<CAPTION>
1998
Current Noncurrent
Deferred tax asset (liability):
<S> <C> <C>
Net operating loss carry forwards $ - $ 205,407
------------- -------------
- 205,407
Valuation allowance - (205,407)
------------- -------------
$ - $ -
============= ========
</TABLE>
As of September 30, 1998, the Company had net deferred tax assets of
approximately $205,407. The net deferred tax asset has been fully
offset by a valuation allowance. The net valuation allowance increased
by $203,207 during the current year. Deferred tax assets relate
primarily to net operating loss to be carried forward.
3. LONG TERM DEBT
Long-term debt consisted of the following at September 30, 1998:
<TABLE>
<CAPTION>
Note payable to a bank in monthly installments of
$331 including interest at 10.25%; final payment is
<S> <C>
due October 28, 2001; secured by a vehicle 10,277
Note payable to a shareholder, the notes are non-
interest bearing and are unsecured 232,118
* Note payable to a bank in monthly installments of
interest only of $300 at 6.25%; secured by a second
trust deed on an officer/stockholder's personal residence 55,288
* Credit cards payable 2,675
Note payable to a shareholder; the note is a demand
note, bears interest at 8.00% and is unsecured 115,549
-------------
415,907
Less current portion (408,486)
$ 7,421
</TABLE>
10
<PAGE>
Notes (continued)
* These loans were granted to an officer/stockholder, who assigned them
to Las Vegas Airlines, Inc.
<TABLE>
<CAPTION>
Principal payments are due as follows:
Years ending September 30,
<S> <C> <C>
1999 $ 408,486
2000 3,367
2001 3,729
2002 325
2003 -
--------
$ 415,907
</TABLE>
4. COMMITMENTS
The Company leases five airplanes under operating lease arrangements
expiring January 31, 2004, at a total annual rent of $178,752. The
lease agreements include the option to terminate the lease after August
5, 1999 upon payment of 4% of the remaining payments. Each year this
payment will decline by 1% per year. After the expiration of the
leases, the Company has the option to acquire each airplane by paying
from $62,000 to $106,000 per airplane. Future minimum rental payments
under these leases will be as follows:
<TABLE>
<CAPTION>
Years ending September 30,
<S> <C> <C>
1999 $ 178,752
2000 178,752
2001 178,752
2002 178,752
2003 154,351
-------------
$ 869,359
</TABLE>
The Company leases its plant facilities under a month to month
renewable lease. The rent expense included in the statements of
operations (including equipment rental) amounted to $176,579 as of
September 30, 1998.
5. CONTINGENCIES
Excise Taxes
The Internal Revenue Service has assessed additional excise taxes on
airline tickets as follows:
<TABLE>
<CAPTION>
Tax period ended
<S> <C> <C> <C>
December 31, 1990 $ 24,460
December 31, 1991 151,854
December 31, 1992 151,216
-------------
Total $ 327,530
=============
</TABLE>
11
<PAGE>
Notes (continued)
The company denies responsibility for these taxes since the airline
tickets which cover these additional taxes were issued overseas by
unrelated agencies and the Company is not responsible for collection
and payment. The Internal Revenue Service appeals officer made a verbal
offer to settle this dispute for 20% of the total amount at issue. The
Company filed a complaint with the U.S. Court of Federal Claims on
April 21, 1995. On July 24, 1995, the Company received the answer to
the complaint. The case is currently pending in the U.S. Court of
Federal Claims. Outside counsel believes the Company has a very good
chance to prevail in this litigation. Management believes the final
outcome of this litigation will not have a significant effect on the
Company's financial statements.
Payroll Taxes
The Company is currently disputing certain payroll taxes that the
Internal Revenue Service says are past due in the amount of $34,000.
The Company believes the Internal Revenue Service has applied certain
credits and refunds to periods already closed by a Bankruptcy Court
Order dated January 4, 1994. Negotiations are ongoing and the company
believes it will prevail.
6. GOING CONCERN
As shown in the accompanying financial statements, the Company incurred
a net loss of $810,950 during the year ended September 30, 1998, and as
of that date, the Company's current liabilities exceeded its current
assets by $1,457,235. The ability of the Company to continue as a going
concern is dependent on increasing sales and obtaining additional
capital and financing. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized July 13, 1998.
LAS VEGAS AIRLINES, INC.
By: /s/ Jehu Hand
Jehu Hand
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities on July 13, 1998.
By: /s/ Jehu Hand President, Secretary, Chief Financial Officer and Director
Jehu Hand
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND AS OF
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000911317
<NAME> LAS VEGAS AIRLINES, INC.
<MULTIPLIER> 1
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-START> Oct-01-1997
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 141,599
<SECURITIES> 0
<RECEIVABLES> 58,709
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 650,863
<PP&E> 37,005
<DEPRECIATION> 180,510
<TOTAL-ASSETS> 1,244,605
<CURRENT-LIABILITIES> 2,108,098
<BONDS> 0
0
0
<COMMON> 3,937
<OTHER-SE> (874,851)
<TOTAL-LIABILITY-AND-EQUITY> 1,255,605
<SALES> 1,816,307
<TOTAL-REVENUES> 0
<CGS> 1,845,444
<TOTAL-COSTS> 861,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,419
<INCOME-PRETAX> (858,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (858,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (858,173)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
