UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECRITIES EXCHANGE ACT OF 1934
For the transition period from ____to______
Commission File Number 2-87778A
THE FLIGHT INTERNATIONAL GROUP, INC.
(exact name of registrant as specified in the charter)
Georgia 58-1476225
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Newport News/Williamsburg International Airport 23602
(Address of principal executive offices) (Zip Code)
(757) 886-5500
(Registrants telephone number, including area code)
Indicate by a 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 1, 2002 there were 1,109,588 shares of the issuer's New Common
Stock, par value $.01 per share, issued and outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, April 30,
2002 2002
---- ----
(Unaudited)
Current assets
Cash $ 12,633 $ 195,573
Accounts receivable, net 8,575,952 8,213,821
Inventories 3,232,793 2,967,050
Costs in excess of billings 827,210 812,408
Prepaid expenses and other 750,855 170,091
Deposits 462,978 462,978
Note receivable - 304,304
Assets held for sale 1,566,181 1,566,081
- ------------------------------------------------------------------------------
Total current assets 15,428,602 14,692,306
- ------------------------------------------------------------------------------
Property and equipment, net 10,231,162 9,822,459
- ------------------------------------------------------------------------------
Other long-term assets, net of amortization 638,637 651,665
- ------------------------------------------------------------------------------
Total assets $26,298,401 $25,166,430
==============================================================================
1
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
July 31, April 30,
2002 2002
---- ----
(Unaudited)
Current liabilities
Accounts payable $ 7,700,219 $ 7,777,745
Accrued fuel expense 406,248 362,603
Accrued expenses and other liabilities 4,013,025 3,261,226
Deferred revenue 919,589 878,285
Accrued compensation and benefits 777,384 771,417
Notes payable 6,778,483 5,829,158
Long-term debt due currently 2,097,650 1,737,649
Note payable stockholder 202,811 202,811
- -----------------------------------------------------------------------------------------
Total current liabilities 22,895,409 20,820,894
Accrued engine reserves 450,025 450,025
Long-term debt, less current maturities 4,908,621 5,693,334
- -----------------------------------------------------------------------------------------
Total liabilities 28,254,055 26,964,253
- -----------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $.01 par value, 10,000,000 shares
authorized; 1,109,588 issued and outstanding 11,097 11,097
Additional paid-in capital 1,329,016 1,329,016
Retained earnings (deficit) (3,295,767) (3,137,936)
- -----------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (1,955,654) (1,797,823)
- -----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 26,298,401 $ 25,166,430
=========================================================================================
See accompanying notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
------------------------------
July 31, 2002 July 31, 2001
------------- -------------
(Unaudited) (Unaudited)
Revenues $13,356,627 $11,296,387
- -----------------------------------------------------------------------------------------
Operating costs and expenses
Costs of services 11,434,432 9,693,687
Gain on disposal of assets -- (68,199)
Depreciation and amortization 432,975 388,225
General, corporate and administrative 1,382,041 1,027,172
- -----------------------------------------------------------------------------------------
Total operating costs and expenses 13,249,448 11,040,885
Operating income 107,179 255,502
Interest expense 265,010 307,124
- -----------------------------------------------------------------------------------------
Net loss $ (157,831) $ (51,622)
=========================================================================================
Earnings (loss) per share data:
Basic and diluted loss per share $ (.14) $ (.05)
Weighted average number of shares - basic and diluted 1,109,588 1,109,588
=========================================================================================
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
------------------------------
July 31, 2002 July 31, 2001
------------- -------------
(Unaudited) (Unaudited)
Operating activities
Net loss $ (157,831) $ (51,622)
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation and amortization 432,975 388,225
Gain on disposal of assets -- (68,199)
Net cash provided (absorbed) by
Accounts receivable (362,131) (591,749)
Inventories (175,827) (67,125)
Costs in excess of billings (14,802) 58,270
Prepaid expenses and other assets (580,768) (87,543)
Accounts payable (77,526) 1,010,819
Accrued expenses and other liabilities 801,411 (164,384)
Deferred revenue 41,304 --
- -----------------------------------------------------------------------------------
Net cash provided (absorbed) by operating
activities (93,195) 426,692
- -----------------------------------------------------------------------------------
Investing activities
Investment in property and equipment (638,913) (364,859)
Investment in assets held for sale (100) (1,438,924)
Proceeds from note receivable repayment 24,655 --
- -----------------------------------------------------------------------------------
Net cash absorbed by investing activities (614,358) (1,803,783)
- -----------------------------------------------------------------------------------
Financing activities
Proceeds from line of credit, net 949,325 547,538
Repayment of long-term debt (424,712) (313,567)
Proceeds from long-term debt -- 1,300,000
- -----------------------------------------------------------------------------------
Net cash provided by financing activities 524,613 1,533,971
- -----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (182,940) 156,880
Cash and cash equivalents, beginning of period 195,573 183,817
- -----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,633 $ 340,697
===================================================================================
See accompanying notes to consolidated financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION - The accompanying unaudited financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements should be
read in conjunction with the Company's annual financial statements for the year
ended April 30, 2002 included in the Company's Form 10-K filed with the
Securities and Exchange Commission on August 19, 2002.
In the opinion of management, the financial statements include all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly the financial position of the Company as of July 31, 2002 and the
results of its operations and its cash flows for the respective three month
periods ended July 31, 2002 and 2001. Interim results for the three months ended
July 31, 2002 are not necessarily indicative of results that may be expected for
the fiscal year ending April 30, 2003.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Flight International Group, Inc. and Subsidiaries (the
"Company") is an aviation services company that performs military training
services using specially modified commercial aircraft, principally under
contracts with the United States Department of Defense, other government
agencies and foreign countries. In addition, the Company has established a
market for training and testing in the aerospace industry. The Company operates
a fixed base operation ("FBO") at the Newport News/Williamsburg International
Airport. The Company also provides flight services through its subsidiary in
Alaska, Flight Alaska, Inc. ("FAI"), which includes mail service for the United
States Postal Service and corporate and private charter services.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Revenue Recognition - Contract Revenue - The Company recognizes contract revenue
as hours are flown, at the average rate per flight hour, over the term of each
contract. Certain contracts provide for compensation of fixed costs evenly over
the contract. In addition, certain contracts provide for a guaranteed minimum
number of flight hours per contract year. Contract revenue for such guaranteed
but unflown hours, if any, is recognized at the end of the contract year.
The Company has a major airplane modification job in progress for a customer.
The contract began during the year ended April 30, 2002 and is expected to be
complete near the end of the year ended April 30, 2003. Due to the length of the
contract it is being accounted for on the percentage of completion method based
on milestones set forth in the contract.
Maintenance Revenue - The Company recognizes maintenance revenue at the time of
completion.
Earnings Per Share - Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilutive effect of stock options that could share in earnings of the Company.
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 and
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.
Reclassifications - Certain reclassifications have been made to the prior period
financial statements to conform to the July 31, 2002 presentation.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 - MANAGEMENT'S PLANS - On May 9, 2002, the Company entered into an Asset
Purchase Agreement with VTF Corporation ("VTF"). As detailed in the Preliminary
Proxy Statement filed August 19, 2002, VTF will assume substantially all of the
Company's assets and liabilities and those of the Company's wholly-owned
subsidiaries for $6,500,000 (subject to adjustment based on the amount of
indebtedness assumed by VTF). The transaction is subject to approval of the
Company's shareholders and other closing conditions. There can be no assurance
that the transaction will be consummated.
Should the sale not be consummated, management has implemented significant
operating changes to ensure the success of the Company. The following is a
summary of the major changes:
The Company's primary government services contract was renewed April 1, 2002.
This contract's structure changed, resulting in an increase in the incremental
cash flow realized from the fixed monthly billing change. Additionally, the
combined billing value per flight hour has increased.
The Company is restructuring its fleet and is currently in process of
reassigning several assets from the Alaska subsidiary to anticipated new
contracts. A realignment of resources will increase fleet utilization and
provide the basis for an increased revenue stream.
Operating policies and procedures are being revised and overhead cost structures
are being adjusted to ensure an efficient and compliant operating
infrastructure.
The customer base has been expanded due to a recent contract award from the US
Air Force. This contract has a five-year performance period with annual
estimated revenue of $700,000.
The Company is aggressively seeking new business opportunities and has several
potential contract awards outstanding. These proposals include six new customers
from both the commercial and governmental market.
The Company is very confident that implementing the newly established operating
budget, utilizing an efficient corporate infrastructure, and expanding its
customer base will achieve its business plan.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the possible inability
of the Company to continue as a going concern.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT - The Company has a $7,250,000 line of
credit agreement with a bank in North Carolina. The Company pays a variable rate
of interest, which was approximately 5.25% at July 31, 2002. As of July 31,
2002, outstanding advances were approximately $6,800,000. The line is secured by
certain inventory, receivables, and equipment. The agreement was to expire
August 31, 2002, however, it has been extended to October 31, 2002.
As of July 31, 2002, long-term debt was approximately $7,006,000. As of July 31,
2002 as well as April 30, 2002, long-term debt consists primarily of aircraft
and engine debt on assets used in the Company's flight operations with the
majority of the remaining debt related to leasehold improvements at the Newport
News airport and in Alaska.
The Company believes it will be able to satisfy its short and long-term debt
commitments, including refinancing debt as it becomes due, if necessary.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 - INCOME TAXES - No provision has been made for income taxes because of
the substantial net operating loss carryforwards. The Company has recorded a
valuation allowance for the deferred tax asset due to uncertainty of its
realization.
As of April 30, 2002, the cumulative net operating loss available for federal
income tax purposes was estimated at approximately $13,000,000 and will expire
primarily during years ended 2011, 2019, 2021 and 2022.
NOTE 6 - SALE OF ASSETS - On May 9, 2002, the Company entered into an Asset
Purchase Agreement with VTF Corporation ("VTF"). As detailed in the Preliminary
Proxy Statement filed August 19, 2002, VTF will assume substantially all of the
Company's assets and liabilities and those of the Company's wholly-owned
subsidiaries for $6,500,000 (subject to adjustment based on the amount of
indebtedness assumed by VTF). The transaction is subject to approval of the
Company's shareholders and other closing conditions. There can be no assurance
that the transaction will be consummated.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Background and General Information
Introduction
The Flight International Group, Inc. (the "Company") was incorporated in
Georgia on May 7, 1982. The Company is an aviation services company that
performs military training services using specially modified commercial
aircraft, principally under contract with the United States Department of
Defense ("DOD"), other government agencies and foreign countries, operating
through its direct and indirect subsidiaries. In addition, with the use of these
aircraft, the Company has established a market for training and testing in the
aerospace industry. The Company also operates a fixed base operation ("FBO") at
the Newport News/Williamsburg International Airport ("NN/W Airport"), a
scheduled cargo and charter passenger airline throughout Alaska, and an Aircraft
Modification, Repair and Overhaul ("MRO") Center at the NN/W Airport.
Flight International, Inc., a Georgia corporation ("FII");
Flight International Aviation, Inc., a Georgia corporation ("FIA");
Flight International Sales and Leasing, Inc., a Delaware corporation
("FSL"); Flight Alaska, Inc., a Delaware Corporation ("FAI"); and,
until April 2001, Flight International Services, Inc., a Delaware
corporation ("FIS"), are each wholly-owned subsidiaries of the
Company. Flight International of Florida Inc., a Florida
corporation ("FIF"), is a wholly-owned subsidiary of FII.
On May 9, 2002, the Company entered into an Asset Purchase Agreement with
VTF Corporation ("VTF"). As detailed in the Preliminary Proxy Statement filed
August 19, 2002, VTF will assume substantially all of the Company's assets and
liabilities and those of the Company's wholly-owned subsidiaries for $6,500,000
(subject to adjustment based on the amount of indebtedness assumed by VTF). The
transaction is subject to approval of the Company's shareholders and other
closing conditions. There can be no assurance that the transaction will be
consummated.
Results of Operations
Three Months Ended July 31, 2002 Compared to the Three Months Ended
July 31, 2001
Revenue
For the three months ended July 31, 2002, revenues totaled $13,357,000. This
represents an increase of 18.2% over the same period last year. In the first
quarter of fiscal year 2003, the Company's revenues were generated from three
sources. Fleet Operations of owned or leased aircraft accounted for 83.4% of
total revenue, while the MRO Center produced 9.9% of sales and the FBO provided
6.7% of total revenues.
8
A period over period revenue comparison for each source is outlined in the
following table. Fleet Operations, MRO and FBO revenues showed increases over
the same period in the prior year (dollars in thousands):
3 Months Ended 3 Months Ended %
July 31, 2002 July 31, 2001 Increase (Decrease)
-------------- -------------- -------------------
Fleet Operations $11,145 $10,463 6.5%
MRO Center $ 1,322 $ 397 233.0%
Newport News FBO $ 890 $ 436 103.9%
FII's Fleet Operations revenue increased by $1,229,000 or 14.9% compared to the
first quarter of fiscal year 2002. This increase is primarily due to aerial
refueling services provided to the DOD whereby, the Company supported its
military customers by providing in-flight tanker services to several branches of
the military, including the Navy and Marine Corps. A slight offset of the
aforementioned increase is the negative impact to revenues received under the
Company's governmental CAS-MED contract, which was adversely impacted by the
Government's response to terrorism. Based on the hours flown through July 31,
2002 the Company anticipates it will be able to file a claim for "un-flown
guaranteed hours" in the second quarter of fiscal year 2003. In addition,
changes associated with the timing of billing, fixed and variable cost streams
on the follow-on CAS-MOS contract resulted in the recognition of less revenue
during the current quarter than the billing methodology allowed by the CAS-MOS
contract in effect during the previous year. FII's Fleet Operations revenues
would have been $381,000 higher in the first quarter of 2003 had revenues been
billed in an identical manner as in prior years under the previous CAS-MOS
contract.
Also impacting Fleet Operations was a decrease in revenues for Flight Alaska of
$561,000 to $2,165,000, or 20.6% in the first quarter of fiscal year 2003, as
charter revenues have remained depressed since the events of September 11, 2001.
MRO Center revenues were up substantially over the prior period due primarily to
an aircraft modification contract with Raytheon Australia, which added
approximately $650,000 of revenue in the current quarter. Landing Gear Service
Life Extension Program revenues also increased versus the prior quarter, while
sales of targets and associated repair parts inventories to the DOD also
contributed to the increase.
FBO revenues increased as a direct result of the award of the defense fuel
suppliers contract at the NN/W Airport. The Company is now compensated by the
DOD for fueling FII and other DOD customers that transit the NN/W Airport.
9
Cost of Services
Cost of services includes the direct operating expenses of aircraft utilized and
maintained by the Company and costs of goods sold for the MRO Center. Types of
expenses incurred include the following: aircraft and engine leases and
depreciation, fuel, insurance, maintenance, pilots and equipment. Also included
are the costs of operating the FBO at the NN/W Airport, the repair parts,
outside services and direct labor for the MRO Center.
For the three-month period ended July 31, 2002, cost of services from continuing
operations increased to $11,434,000 from $9,694,000 for the same period in the
prior year, a 17.9% increase. The major factors contributing to the increase in
cost of services were expenses related to the cost of aircraft leases with
additional aircraft, sub-contracted flight services, and cost of goods sold
associated with the Raytheon Australia modification program. The overall gross
margin increased to 14.4% from 14.2% for the same period last year.
Since April 2002, the Company's CAS-MOS contract operations have been conducted
on a "Government Supplied Fuel" basis. Simultaneously, the Company was awarded
the Defense Fuels Contract for the NN/W Airport and is now compensated by the
DOD to fuel the Company's aircraft in conjunction with the CAS-MOS contract.
Fuel costs decreased in the first quarter of fiscal year 2003 to $993,000 from
$1,196,000 in the same period a year earlier; a decrease of 16.9%. Fuel expense
for Fleet Operations dropped by over $450,000 while the FBO's cost of fuel sold
increased by $323,000.
Contracted operations expense rose in the three-month period ended July 31, 2002
due principally to increases in tanker flight activity. During the period, the
Company supported an additional product line for its DOD customers by providing
for aerial refueling services to several branches of the military, including the
Navy and Marine Corps. These services are primarily provided through a
subcontractor. Costs associated with the additional services were responsible
for a $1,665,000 increase, while decreased activity levels associated with other
subcontractors during the quarter resulted in a cost reduction. On a net basis,
sub-contracted operations increased by $1,073,000 for the first quarter of
fiscal 2003 compared with the same period a year earlier.
Hull, liability, and passenger insurance costs increased to $457,000 for the
first quarter of fiscal 2003 versus $246,000 for the same period a year earlier,
or an 85.8% increase. The increase was due primarily to a general premium rate
increase that followed the events of September 11, 2001, and the cost of
insuring additional aircraft. A policy year-end premium adjustment received in
the first quarter of fiscal 2002 also contributed to the increase.
Aircraft lease expense increased to $1,632,000 in the first 3 months of fiscal
2003 from $1,372,000 a year earlier, or 18.9%, reflecting an increase in Lear 30
Series aircraft required for the follow-on CAS-MOS contract and CASA 212
aircraft deployed in Alaska.
10
Depreciation and Amortization
Owned aircraft and engines are depreciated on a straight-line basis over 12
years, while engine overhauls are depreciated based on hours flown down to a
core value. Electronic warfare equipment is depreciated on a straight-line basis
over five years. All other property and equipment is depreciated over its
estimated useful life or lease term, if applicable.
Depreciation and amortization of $433,000 for the three months ended July 31,
2002 reflects an increase of 11.5% compared to the same period last year. The
$45,000 increase is due primarily to increases in depreciable assets from the
prior year.
General, Corporate and Administrative
General, corporate and administrative expenses consist principally of facility
costs associated with the Company's hangars and corporate headquarters, and
wages associated with the administrative and sales staff. General, corporate and
administrative expenses aggregated $1,382,000 for the three months ended July
31, 2002, up from $1,027,000 in the prior year, or an increase of 34.7%. The
increase is attributable to additional wages and personnel required in its
general management, accounting and finance functions as well as over $100,000 in
costs in the first quarter of fiscal 2003 associated with the pending sale to
VTF Corporation.
Interest Expense
Net interest expense decreased to $265,000 from $307,000 for the same
three-month period last year, or 13.7%. The decrease is due to the pay-down of
the Company's long-term debt from the prior year.
Income Tax Expense
No income tax benefit has been recorded for the net loss due to the uncertainty
of the realization of such benefit. For further discussion see Note 5 to the
Consolidated Financial Statements included herein.
Net Income
The consolidated net loss for the three months ended July 31, 2002 was $158,000,
a loss of $.14 per share compared to a net loss of $52,000 or $.05 per share,
for the three months ended July 31, 2001. Changes associated with the timing of
recognizing fixed and variable revenue streams based on the terms of the
follow-on CAS-MOS contract resulted in the recognition of less revenue during
the current quarter than the billing methodology allowed by the CAS-MOS contract
in effect during the previous year. Net Income would have been higher by
$381,000 in the first quarter of 2003 had revenues been recognized in an
identical manner (see Revenue section above). The weighted average number of
shares was 1,109,588 in both periods.
11
Liquidity and Capital Resources
THREE MONTHS ENDED JULY 31, 2002
Continued growth in the first three months of fiscal 2003 once again
necessitated the need to increase short-term borrowings.
Cash from Operations
Cash absorbed from operations was $93,000 in the current period versus cash
generated from operations of $427,000 in the last year's first quarter. The
decrease was attributed primarily to the increased net loss and the changes in
working capital accounts absorbed $368,000 in the first three months of fiscal
2003 while providing $158,000 for that same period in the prior year.
Cash used in Investing Activities
Net cash used in investing activities decreased from $1,804,000 for the July
2001 quarter to $614,000 in the current quarter. The primary reason for the
decrease was that the Company purchased two J-31 aircraft from Maritime Sales
and Leasing and made subsequent improvements to these aircraft during the July
2001 quarter.
Cash from Financing Activities
In the three month period ended July 31, 2002, financing activities generated an
additional $525,000 versus $1,534,000 for the same period in the prior year.
Proceeds in both years were utilized to fund property and equipment acquisitions
and operations, while July 2001 also included funds borrowed for the acquisition
of the two planes acquired from Maritime Sales and Leasing.
For the three months ended July 31, 2002, the Company realized a net decrease
of $183,000 versus an increase in cash and cash equivalents of $157,000 in the
prior period.
The Company's contractual obligations and commercial commitments have not
materially changed, other than normal contractual payments, since April 30,
2002.
The Company believes that it will be able to refinance debt as necessary as it
becomes due. In addition, the Company believes that current levels of cash
together with cash from operations and funds available under its borrowing
arrangements will be sufficient to meet its capital requirements for the next
twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to the impact of interest rate changes on its variable
rate debt instruments. If interest rates increased by 10%, the expected impact
on net income would be immaterial.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, there are no material legal proceedings to which the
Company is a party or to which any of its assets or properties are subject. The
Company is subject to normal litigations in the ordinary course of business.
Charles T. Myers, Flight Systems, Inc., Aviation Technologies, Inc. and George
Kosko v. Flight International Group, Inc. The plaintiffs alleged that the
Company breached an asset purchase agreement by failing to pay various
liabilities incurred by Aviation Technologies Group, Inc. following the
Company's acquisition of Flight Systems, Inc. It is also alleged that the
Company failed to pay loans made to it by Flight Systems, Inc. The Plaintiffs
have also asserted an unjust enrichment claim based on the same facts. The
co-plaintiff in that case, George Kosko, is an attorney who represented Charles
Myers in the asset purchase process. Mr. Kosko is suing to recover attorneys
fees that he contends the Company owes him for work he did representing Mr.
Myers and his companies in negotiating the asset purchase agreement. The Company
has answered the Complaint, discovery is ongoing and the Company is defending
the case vigorously. The Company believes that an unfavorable outcome is
unlikely. The Company believes it has paid all that it owed to the Plaintiffs
and it has pending viable counterclaims. Management believes that the value of
the counterclaims could well outweigh the collective value of all claims made in
the Complaint, but there can be no assurance thereof.
There has been a recent development in the Charles Myers, et al v Flight
International Group, Inc. litigation as previously reported pending in United
States District Court in South Carolina. Mr. Myers, a shareholder of the
Company, filed a motion to enjoin the sale of the Company's assets. His theory
is that the Company would no longer be able to respond to a judgment favorable
to the plaintiffs. The Company has filed its response, which details the
deficiencies of the motion for a preliminary injunction and, as of the date of
this filing, no date has been set to hear this motion. Counsel has advised that
they do not believe the motion poses any serious threat to the transaction,
however, we can provide no assurances thereof. Mr. Myers has not scheduled the
matter for hearing, leaving the motion to be decided on the written record. The
Company believes the motion has no merit and will vigorously defend it.
The claim by Mr. Kosko for attorney fees is $84,917. The Company has offered the
amount that was asserted to be due Mr. Kosko at the time of closing, which was
approximately $50,000. The Company has continued to offer that amount to Kosko.
The demand made by Mr. Myers and his related companies is $220,733. Counsel does
not believe that Mr. Myers and his related companies will be able to recover
that amount based upon the facts as known at this juncture in the litigation.
BB&T of South Carolina v. Aviation Technologies, Inc. and Charles T. Myers v.
Flight International Group, Inc. This is a case brought against Myers and his
related companies relating to $26,838 of indebtedness they admittedly owe BB&T.
13
Mr. Myers and his related company, Aviation Technologies Group, filed a third
party complaint against The Flight International Group arguing that it is
responsible for this debt due to the sale. Counsel does not believe that Mr.
Myers and his related companies will be able to recover that amount based upon
the facts as known at this juncture in the litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
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
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
None.
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
Dated: September 17, 2002 THE FLIGHT INTERNATIONAL GROUP, INC.
By: /s/ David E. Sandlin
David E. Sandlin
Principal Executive Officer
By: /s/ Mathew J. Nowicki
Mathew J. Nowicki
Chief Financial Officer
14
CERTIFICATIONS
I, David E. Sandlin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Flight
International Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 17, 2002
/s/ David E. Sandlin
------------------------------
David E. Sandlin
Principal Executive Officer
I, Matthew J. Nowicki, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Flight
International Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 17, 2002
/s/ Matthew J. Nowicki
------------------------------
Matthew J. Nowicki
Chief Financial Officer