U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2000
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-70437
Cardinal Airlines, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 59-3492127
(State of incorporation) (I.R.S. Employer Identification No.)
1380 Sarno Road, Suite B
Melbourne, FL 32935
(Address of principal executive offices)
Registrant's telephone number: 407-757-7388
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of December 31, 2000 was 2,033,900.
Cardinal Airlines, Inc.
Index to Form 10QSB
Part I - Financial Information Page
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet - December 31, 2000.................................1
Condensed Statements of Operations - Three Months and Six Months
Ended December 31, 2000 and 1999 and for the period February 10,
1997 (Date of Inception) through December 31, 2000.......................2
Condensed Statements of Cash Flows - Six Months Ended
December 31, 2000 and 1999 and for the period
February 10, 1997 (Date of Inception) through December 31, 2000.............3
Notes to Condensed Financial Statements.....................................5
Item 2. Management's Discussion and Analysis or Plan of Operations............9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.....................................11
Signatures....................................................................12
Exhibit Index.................................................................13
Part I Financial Information
Item 1. Financial Statements
CARDINAL AIRLINES, INC.
(A Development Stage Company)
BALANCE SHEETS
For the three months ended
December 31
2000 1999
------------ ------------
CURRENT ASSETS
Cash $ 94 $ 1,933
Interest Receivable 0 11,427
------------- -------------
TOTAL CURRENT ASSETS 94 13,360
PROPERTY AND EQUIPMENT, net 4,509 6,566
DEPOSITS 9,200 4,200
------------ -------------
TOTAL ASSETS $ 13,803 $ 24,126
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 62,321 $ 41,277
-
------------ -------------
TOTAL LIABILITIES $ 62,321 41,277
COMMITMENTS 52,500 0
------------ -------------
TOTAL LIABILITIES AND COMMITMENTS $ 114,821 $ 41,277
============ =============
TOTAL STOCKHOLDERS' EQUITY, (DEFICIT)
including deficit accumulated during the
development stage of $454,713 (101,018) (17,151)
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 13,803 $ 24,126
============ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 1 -
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FEBRUARY 10, 1997 (INCEPTION) TO DECEMBER 31, 2000
INCEPTION TO 3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, 2000 12/31/2000 12/31/1999
-------------- ---------------- ------------------
REVENUES $ - $ - $ -
-------------- ---------------- ------------------
EXPENSES
Consulting Fees 211,045 5,189 4,600
Professional Fees 249,984 19,469 16,401
Rent 56,445 4,770 4,770
Supplies 23,669 0 300
Utilities 26,400 3,481 3,750
Depreciation and amortization 7,156 514 512
Miscellaneous 11,031 823 833
Taxes 608 0 125
-------------- ---------------- -----------------
586,338 34,246 31,291
OTHER INCOME
Interest Income 11,870 0 1,331
-------------- ---------------- -----------------
NET (LOSS) before provision for
income taxes $ (574,468) $ (34,246) $ (29,960)
Provision for Income Taxes - - -
-------------- ---------------- -----------------
NET (LOSS) $ (574,468) $ (34,246) $ (29,960)
============== ================ =================
Net loss per share $ (0.26) $ (0.016) $ (0.01)
============== ================ =================
Shares used in computing net
loss per share 2,189,400 2,189,400 2,033,900
============== ================ =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 2 -
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
FEBRUARY 10, 1997 (INCEPTION) TO DECEMBER 31, 2000
INCEPTION TO 3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, 2000 12/31/2000 12/31/1999
----------------- --------------- ---------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Cash paid for operating expenses $ (564,313) $ (23,731) $ (29,960)
Increase in accounts payable 62,321 25,703
---------------- --------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES: (501,992) 1,972 (29,960)
---------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (11,664) 0 0
Increase in security deposits (9,200) 0 0
---------------- --------------- ----------------
NET CASH USED IN INVESTING
ACTIVITIES (20,864) 0 0
---------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 470,450 (3,000)
Increase in notes receivable - (3,500)
related parties
Increase in Notes Payable 52,500 500
Payments on notes receivable - 30,859
related parties ---------------- --------------- ----------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 522,950 (6,000) 30,859
---------------- --------------- ----------------
NET INCREASE (DECREASE) IN CASH 94 (4,028) 899
CASH AT BEGINNING OF PERIOD 0 4,122 1,034
--------------- --------------- ----------------
CASH AT END OF PERIOD $ 94 $ 94 $ 1,933
=============== =============== ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 3 -
CARDINAL AIRLINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
FEBRUARY 10, 1997 (INCEPTION) TO DECEMBER 31, 2000
INCEPTION TO 3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, 2000 12/31/2000 12/31/1999
-------------------- ---------------- ----------------
RECONCILIATION OF NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Net loss $ (633,790) $ (49,948) $ (30,799)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 7,156 514 512
Increase in payables 62,321 25,703
Increase in receivables (1,331)
--------------- ---------------- ----------------
NET CASH USED IN
OPERATING ACTIVITIES $ (564,313) $ (23,731) $ (29,960)
=============== ================ ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 4 -
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) NATURE OF OPERATIONS
The planned principal business activity of Cardinal Airlines,
Inc. , ("Company") is to provide commercial airline service to
and from major airports throughout the eastern United States with
operations based in Melbourne, Florida.
B) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash and/or cash
equivalents.
C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation computed
using the straight-line method over the assets' expected useful
lives. Leasehold improvements are amortized over the lessor of
the term of the lease or the assets' expected useful lives.
D) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported assets
and liabilities. Actual results could differ from these
estimates.
E) INCOME TAXES
Deferred income taxes arise from the expected tax consequence of
temporary differences between the carrying amounts and the tax
basis of certain assets and liabilities. The differences result
primarily from different depreciation methods on property and
equipment.
F) ORGANIZATION COSTS
Organization costs consist of expenses related to the start-up of
the Company. These costs are expensed as incurred in accordance
with Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5).
G) EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" (SFAS 128) effective
February 10, 1997 (Inception). As such, net loss per share is
computed using the weighted average number of common shares
outstanding during the period. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins and Staff Policy,
such computations include all common and equivalent shares issued
as if they were outstanding for all periods presented. Common
equivalent shares consist of the incremental common shares
issuable upon the conversion of the convertible preferred stock
(using the if converted method).
The Series A Preferred Stock issued has no preferences other than
voting rights over the common stock and no dividend payment
arrangements. The preferred stock has no effect in arriving at
income available to common shareholders in computing earnings per
share.
- 5 -
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
H) NEW ACCOUNTING STANDARDS
There have been no new significant accounting pronouncements
issued for the three month period ended Dec. 31, 2000 that would
have a direct material effect on the financial statements, except
for Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5) which is addressed in NOTE 1F.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company was formed February 10, 1997, and began operations
April 1, 1997. Through December 31, 2000, operations have been
devoted primarily to raising capital, negotiating leasing of
airplanes, related equipment, and related facilities as well as
the performance of general administrative functions. As of
December 31, 2000, the Company has Sixty Stockholders.
NOTE 3 - PROPERTY AND EQUIPMENT
February 10, 1997
(inception) to
December 31, 2000 December 31,1999
--------------- ---------------
Computers and equipment $ 9,955 $ 9,955
Furniture and fixtures 159 159
Leasehold Improvements 1,550 1,550
--------------- ---------------
11,664 11,664
Less accumulated depreciation
and amortization (7,156) (5,098)
--------------- ---------------
$ 4,508 $ 6,566
=============== ===============
Depreciation and amortization expense was $514 for the three
month period ended Dec. 31, 2000; and $7,156 for the period from
February 10, 1997 (Inception) to December 31, 2000.
NOTE 4 - RELATED PARTIES
The Company has made loans to four of its stockholders in
exchange for issuance of shares of common stock and preferred
stock (NOTE 7). As of June 30, 2000, these four stockholders own
56% of the outstanding common shares of stock.
The loans are unsecured, are due June 30, 2003 and bear interest
at 8% annually. Notes receivable due from related parties were
$0.00 as of June 30, 2000.
- 6 -
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company leases its facilities from an unrelated third party
under an operating lease expiring July, 2001. Rent expense was
$4,770 and $4,770 for the three month period ended December 31,
2000 and 1999 respectively.
NOTE 6 - INCOME TAXES
The Company's effective tax rate differs from the expected
federal income tax rate as follows:
Year Ended Year Ended
June 30, 1999 June 30, 1998
Income tax benefit at statutory Rate $ (113,460) $ (8,068)
Increase in valuation Allowance 113,460 8,068
Actual income taxes $ - $ -
The components of the deferred tax assets and liabilities are as
follows:
June 30, 1999 June 30, 1998
Deferred tax assets:
Net operating loss carry forwards $ 113,460 $ 8,068
Total deferred tax assets 113,460 8,068
Less valuation allowance (113,460) (8,068)
Deferred tax assets, net of
valuation allowance - -
Deferred tax liabilities - -
Net deferred tax asset (liability) $ - $ -
A summary of the net operating loss carry forwards is as follows:
Generated June 30, 1997 $ 3,168 Expires June 30, 2012
Generated June 30, 1998 $ 20,561 Expires June 30, 2013
Generated June 30, 1999 $309,976 Expires June 30, 2014
$333,705
As of December 31, 2000, the Company is still in development
stage. As such, all income and deductions for tax purposes are
deferred until the Company's planned principal operations have
commenced.
- 7 -
CARDINAL AIRLINES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 7 - STOCKHOLDERS' EQUITY
A summary of issuance of common stock involving non-cash
consideration is as follows:
On April 1, 1997, the Company issued 449,200 shares of stock in
consideration for notes receivable due from related parties (NOTE
4) of $4,492. The shares were sold at $.01 par value per share.
On July 1, 1997, the Company issued 184,358 shares of stock in
consideration for notes receivable due from related parties (NOTE
4) of $92,179. The shares were sold at $.01 par value per share,
with $.50 per share consideration.
As of June 30, 1997, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 940,000
shares issued and outstanding.
As of Dec 31, 1998, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 1,712,400
shares issued and outstanding.
As of Dec 31, 1999, the Company's common stock had a par value
$.01 per share with 50,000,000 shares authorized and 2,033,900
shares issued and outstanding.
A summary of issuance of preferred stock involving non-cash
consideration is as follows:
On October 16, 1998, the Company issued 100,000 shares of $.01
par value "Series A" preferred stock in consideration for notes
receivable due from related parties (NOTE 4) of $1,000.
As of Dec 31, 1999, the Company's preferred stock had a par value
$.01 per share with 1,000,000 shares authorized. There are
100,000 shares issued and outstanding as "Series A" preferred
stock. The 900,000 unissued shares have not been designated.
The shares of "Series A" preferred stock have super voting rights
at the multiple of 100 votes per share. In the event of
liquidation, the preferred stock has preference over the common
stock. The shares are not convertible into common stock and do
not have any other rights or preferences.
NOTE 8 - OFFERING
On July 21, 1999, the Company issued its initial S-1 filing with
the Securities and Exchanges Commission. This is an initial
public offering of 2,000,000 shares of common stock for $10 per
share.
- 8 -
Item 2. Management's Discussion and Analysis or Plan of Operations.
Results of Operations
Cardinal is a development stage, airline company. Cardinal is
considered to be in the development stage because we have devoted
substantially all of our efforts to establishing the business
plan, organization and raising capital.
Since inception in February 1997 our efforts have principally
been devoted to organization, development and raising capital.
Cardinal has not received any revenues from flight services, and
does not expect any of its flights to be commercially available
until substantial additional is obtained. From inception through
December 31, 2000, we have sustained cumulative losses of
$574,468 of which $249,984 was for consulting fees, $230,515 was
for professional fees, $56,445 for rent, $23,669 for supplies,
$26,400 for utilities, $7,156 in depreciation, $11,031 for
miscellaneous expenses, and $608 in taxes. For the three months
ended December 31, 2000, we sustained a cumulative loss of
$34,246 of which $5,189 was for consulting fees, $19,469 was for
professional fees, $4,770 for rent, $0 for supplies, $3,481 for
utilities, $514 in depreciation, $823 for miscellaneous expenses,
and $0 in taxes. These losses have resulted primarily from
expenditures incurred in connection with general and
administrative activities, organization and development,
trademark registration and offering costs.
Between June 10, 1998, and March 23, 1999, Cardinal sold 506,200
common shares for $0.50 per share to 34 purchasers in a private
placement. We received a total of $253,100 in the private
placement.
We expect to incur substantial costs in the future resulting from
the acquisition of aircraft, equipment, agreements with airport
service providers such as baggage handling, and fuel service.
Additional expenses will include airport facilities, maintenance
costs, and marketing. There can be no assurance that Cardinal
will ever achieve profitable operations.
To date, Cardinal has not marketed or generated revenues from the
commercialization of any service.
Cardinal has only a limited operating history upon which an
evaluation of its prospects can be based. The risks, expenses and
difficulties encountered by companies at an early stage of
development must be considered when evaluating Cardinal's
prospects. To address these risks, Cardinal must, among other
things, successfully develop and commercialize its services,
secure all necessary proprietary rights, respond to competitive
developments and continued government regulation, and continue to
attract, retain and motivate qualified persons. There can be no
assurance that we will be successful in addressing these risks.
Our operating expenses will depend on several factors, including
the level of aircraft maintenance and repair expenses.
Development of Cardinal's planned flights will depend upon
economic factors which we cannot predict. Management may, in some
cases, be able to control the timing of developmental expenses,
in part, by controlling growth. As a result of these factors, we
believe that period-to-period comparisons are not necessarily
meaningful and should not be relied upon as an indicator of
future performance. Due to all of the foregoing factors, it is
possible that our operating results will be below the
expectations of market analysts, if any, and investors. In such
event, the prevailing market price, if any, of the common stock
would likely be materially adversely affected.
Cardinal entered into negotiations with Castle Securities, Inc.
for investment banking services. Cardinal has signed an agreement
with Castle which will provide for the formation of a selling
group and will solicit subscriptions on a best efforts bases.
Under that Agreement, Castle shall receive 10% compensation equal
to 10% commissions on sales.
- 9 -
Liquidity and Capital Resources
Until such time that Cardinal receives substantial additional
funding, it will continue to operate on a limited basis. Our
approximate monthly expenditures during this interim development
period are approximately $7,000 per month. Without additional
funding, Cardinal can maintain its present operating level
through the end of July 1, 2001.
Cardinal can delay the majority of the expenditures which are
necessary to carry out its business plan until adequate funds are
on hand or appear to be available. Put another way, Cardinal will
delay incurring significantly greater costs than its present
expenditures of $7,000 per month, such as additional personnel
and the purchase or lease of aircraft, until funds are available
from its public offering. The bulk of FAA certification expenses
will be incurred when sufficient funds are available.
Cardinal has incurred negative cash flows from operations since
its inception. We have expended and expect to continue to expend
in the future, substantial funds to complete our planned service
development efforts. Our future capital requirements and the
adequacy of available funds will depend on numerous factors
including:
o the successful commercialization of planned flights
o obtaining sufficient funding to acquire aircraft and equipment
o fuel price and availability
o hiring qualified personnel
o keeping pace with government regulation
o obtaining adequate insurance
o the development of contractual agreements with airports
o the use of airport service providers
At such time as Cardinal obtains substantial additional funding,
the funds would be used to commence operations by purchasing one
DC-9 Aircraft. $540,000 would be used for aircraft deposit. Over
a period of three to nine months from the date of commencement,
$1,037,902 would be used to staff operations at both Melbourne
International Airport and Baltimore Washington International
Airport. Approximately $1,140,459 would be used to finance flight
operations beginning in the fifth month of operations. Fuel and
maintenance expense totaling approximately $846,204 for the six
month period would begin in the fifth month of operations.
Beginning in the third month of operations, Cardinal would expend
a total of $702,417 for advertising and initial promotions.
During this period, Cardinal anticipates expending approximately
$659,018 on general and administrative expenses, $50,000 for
computer leases and software and $24,000 for key man insurance.
FAA and DOT certification expenses are expected to be
approximately $350,000 during the period of three to six months
following commencement of operations.
In the event our plans change or our assumptions change or prove
to be inaccurate or the proceeds of our public offering prove to
be insufficient to fund operations, we could be required to seek
additional financing. The terms and prices of any additional
financing may be significantly more favorable than those of the
units sold in our public offering. Cardinal does not have any
material committed sources of additional financing, and there can
be no assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. If adequate funds are
not available, we may be required to delay, scale back, or
eliminate certain aspects of our operations. If adequate
additional funds are not available, Cardinal's business,
financial condition, and results of operations will be materially
and adversely affected
Currently, we have no plans to sell or issue any additional
preferred stock.
- 10 -
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3) Articles and By-Laws None
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(11)* Statement re: Computation of Per Share Earnings
Note 1(G)
to Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(22) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
- 11 -
SIGNATURES
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.
CARDINAL AIRLINES, INC.
SIGNATURE TITLE DATE
/S/ Lawrence A. Watson
_________________________ President, Chairman of the Board February 14, 2001
LAWRENCE A. WATSON Chief Executive Officer
/S/ H. Lawrence Mason
________________________ Secretary Treasurer, February 14, 2001
H. LAWRENCE MASON Chief Financial Officer
- 12 -
EXHIBIT INDEX
Exhibit Description Page
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession None
(3.5) Articles and By-Laws
(4) Instruments defining the Rights of Security Holders None
(10) Material Contracts None
(11)* Statement re: Computation of Per Share Earnings
Note 1(G)
to Financial
Statements
(15) Letter re: Unaudited Interim Financial Information None
(18) Letter re: Change in Accounting Principles None
(19) Report Furnished to Security Holders None
(23) Published Report re: Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(27)* Financial Data Schedule
(99) Additional Exhibits None
*Filed herewith
This schedule contains summary financial information extracted
from Financial Statements for the three (3) months ended December
31, 2000, and is qualified in its entirety by reference to such
form 10-QSB for quarterly period ended December 31, 2000.
-13-