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 October 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
incorporation or organization) Identification No.)
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 December 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
October 31, April 30,
2002 2002
---- ----
(Unaudited)
Current assets
Cash $ 465,152 $ 195,573
Accounts receivable, net 8,128,566 8,213,821
Inventories 3,327,340 2,967,050
Costs in excess of billings 423,417 812,408
Prepaid expenses and other 659,939 170,091
Deposits 462,978 462,978
Note receivable - 304,304
Assets held for sale 1,566,181 1,566,081
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Total current assets 15,033,573 14,692,306
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Property and equipment, net 9,772,157 9,822,459
- ----------------------------------------------------------------------------------------------------------------------------
Other long-term assets, net of amortization 625,608 651,665
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Total assets $25,431,338 $25,166,430
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- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
October 31, April 30,
2002 2002
---- ----
(Unaudited)
Current liabilities
Accounts payable $ 9,096,288 $ 7,777,745
Accrued fuel expense 673,203 362,603
Accrued expenses and other liabilities 3,721,594 3,261,226
Deferred revenue 415,369 878,285
Accrued compensation and benefits 1,038,454 771,417
Notes payable 5,937,177 5,829,158
Long-term debt due currently 2,219,574 1,737,649
Note payable stockholder 202,811 202,811
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 23,304,470 20,820,894
Accrued engine reserves 450,025 450,025
Long-term debt, less current maturities 4,329,248 5,693,334
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Total liabilities 28,083,743 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) (3,992,518) (3,137,936)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (2,652,405) (1,797,823)
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $25,431,338 $ 25,166,430
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See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
------------------------------- ------------------------------
October 31, October 31, October 31, October 31,
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $15,728,076 $12,072,628 $29,084,703 $23,369,015
- ----------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Costs of services 13,908,312 10,088,450 25,342,744 19,782,137
General, corporate and administrative 1,694,670 1,035,964 3,076,711 2,063,136
Depreciation and amortization 438,706 406,844 871,681 795,069
(Gain) loss on disposal of assets 75,288 (70,765) 75,288 (138,964)
- ----------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 16,116,976 11,460,493 29,366,424 22,501,378
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (388,900) 612,135 (281,721) 867,637
Interest expense 307,851 246,521 572,861 553,645
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (696,751) $ 365,614 $ (854,582) $ 313,992
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share data:
Basic and diluted loss per share $ (.63) $ .33 $ (.77) $ .28
Weighted average number of shares -
basic and diluted 1,109,588 1,109,588 1,109,588 1,109,588
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
-----------------------------------
October 31, October 31,
2002 2001
---- ----
(Unaudited) (Unaudited)
Operating activities
Net income (loss) $ (854,582) $ 313,992
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 871,681 795,069
(Gain) loss on disposal of assets 75,288 (138,964)
Net cash provided (absorbed) by
Accounts receivable 85,255 (412,542)
Inventories (270,374) (156,212)
Costs in excess of billings 388,991 48,024
Prepaid expenses and other assets (489,849) (144,909)
Accounts payable 1,318,543 756,261
Accrued expenses and other liabilities 1,038,005 759,709
Deferred revenue (462,916) -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,700,042 1,820,428
- ----------------------------------------------------------------------------------------------------------------------------
Investing activities
Investment in property and equipment (852,506) (588,559)
Proceeds from sale of property and equipment 171,630 -
Investment in assets held for sale (100) (1,438,924)
Investment in other assets - (65,000)
Proceeds from note receivable repayment 24,655 52,959
- ----------------------------------------------------------------------------------------------------------------------------
Net cash absorbed by investing activities (656,321) (2,039,524)
- ----------------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds/repayment on line of credit, net 108,019 (370,424)
Repayment of long-term debt (882,161) (660,160)
Proceeds from long-term debt - 1,300,000
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by financing activities (774,142) 269,416
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 269,579 50,320
Cash and cash equivalents, beginning of period 195,573 183,817
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 465,152 $ 234,137
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
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 October 31, 2002 and
the results of its operations and its cash flows for the respective three and
six month periods ended October 31, 2002 and 2001. Interim results for the three
and six months ended October 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 period. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications - Certain reclassifications have been made to the prior period
financial statements to conform to the October 31, 2002 presentation.
NOTE 3 - SALES OF ASSETS AND MANAGEMENT'S PLANS - On December 17, 2002, the
Company closed an Asset Purchase Agreement with VTF Corporation ("VTF"). Under
the terms of the agreement, VTF assumed substantially all of the Company's
assets and liabilities and those of the Company's wholly-owned subsidiaries for
approximately $6,500,000. The Company plans to offer the net proceeds from the
sale to its shareholders on a pro-rata basis through a tender offer.
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 Newport News, Virginia. The Company pays a
variable rate of interest, which was approximately 5.25% at October 31, 2002. As
of October 31, 2002, outstanding advances were approximately $5,937,000. The
line is secured by certain inventory, receivables, and equipment.
As of October 31, 2002, long-term debt was approximately $6,500,000. As of
October 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.
Under the terms of the asset purchase agreement, VTF assumed virtually all of
the Company's outstanding notes payable and long-term debt.
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 which will expire
primarily during years ended 2011, 2019, 2021 and 2022.
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 Proxy Statement filed December
6, 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 was approved and consummated by the Company's shareholders on
December 17, 2002.
Results of Operations
Revenue
For the three months and six months ended October 31, 2002, revenues totaled
$15,728,076 and $29,084,703 respectively. This represents an increase of 30.3%
and 24.5% over the same periods last year. In the three months ended October 31,
2002, the Company's revenues were generated from three sources. Fleet Operations
of owned or leased aircraft accounted for 82.2% of total revenue, while the MRO
Center produced 12.3% of sales and the FBO provided 5.5% of total revenues. In
the six months ended October 31, 2002, Fleet Operations of owned or leased
aircraft accounted for 82.7% of total revenue, while the MRO Center produced
11.2% of sales and the FBO provided 6.1% of total revenues.
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 Mo Ended 3 Mo Ended 6 Mo Ended 6 Mo Ended
Oct 31, 2002 Oct 31, 2001 % Change Oct 31, 2002 Oct 31, 2001 % Change
------------ ------------- -------- ------------ ------------- ------------
Fleet Operations 12,925 10,813 19.5% 24,070 21,291 13.1%
MRO Center 1,931 782 146.9% 3,253 1,179 175.9%
Newport News FBO 872 478 82.4% 1,761 899 95.9%
FII's Fleet Operations revenue increased by $2,112,735 or 19.3% compared to the
second 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. Based on the hours flown
through September 30, 2002 the Company has filed a claim for "un-flown
guaranteed hours" in the amount of $513,000 associated with the CAS-MED
contract. In addition, changes associated with the timing of billing, fixed and
variable cost streams on the follow-on CAS-MOS contract had no material impact
during the current quarter when compared to the billing methodology allowed by
the CAS-MOS contract in effect during the previous year. FII's Fleet Operations
revenues were $18,000 higher in the second quarter of 2003 than they would have
been if calculated in the manner used during the same period a year earlier.
During the first half of fiscal year 2003, FII's Fleet Operations revenues
increased by $2,775,960 or 13.1% compared to the same period of fiscal 2002. As
it was for the current quarter, this increase for the six months was due to the
aerial refueling contract with the DOD. For the first six months of 2003 changes
associated with the billing of fixed and variable cost streams on the CAS-MOS
contract resulted in the recognition of $195,000 less revenue for the first half
of fiscal 2003 than had revenues been billed in the identical manner as the
method used during the same period a year earlier.
Also impacting Fleet Operations was a decrease in revenues for Flight Alaska of
$984,403 to $1,613,814, or -37.9% in the second quarter of fiscal year 2003
compared to the prior year, as charter revenues have remained depressed since
the events of September 11, 2001.
MRO Center revenues were up $1,148,818 and 2,074,019 for the three month and six
month periods, or 146.9% and 175.9% respectively when compared to the same
periods a year earlier due primarily to an aircraft modification contract with
Raytheon Australia, which added approximately $1,259,142 of revenue in the
current quarter and $1,915,187 for the six month period compared with the same
periods a year earlier.
FBO revenues increased by $393,701 for the second quarter and $861,671 for the
first six months of fiscal 2003 or an increase of 82.4% and 95.9% over the same
periods in the prior year. These increases were 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.
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, 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 October 31, 2002, cost of services increased to
$13,908,312 from $10,088,450 for the same period in the prior year, a 37.9%
increase. For the six month period, cost of services increased to $25,342,744
from $19,782,137 for the same period in the prior year, a 28.1% increase. The
overall gross margin decreased to 11.6% from 16.4% for the second quarter year
over year. The overall gross margin decreased to 12.9% from 15.3% for the
six-month period year over 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 second quarter of fiscal year 2003 to $807,456 from
$881,346 in the same period a year earlier; a decrease of 8.4%. Fuel expense for
Fleet Operations dropped by over $380,951 while the FBO's cost of fuel sold
increased by $307,061. Fuel costs decreased in the first half of fiscal year
2003 to $1,823,768 from $2,053,048 in the same period a year earlier; a decrease
of 11.2%. Fuel expense for Fleet Operations dropped by over $877,000 while the
FBO's cost of fuel sold increased by $648,000. During the second quarter of
2003, the Company recognized approximately $350,000 of fuel expense associated
with prior years CAS-MOS contract operations.
In May, 2002, the Company's hull and liability insurance expenses increased
significantly over the prior year's due to the effects of the World Trade Center
attacks on the aircraft and air carrier insurance markets. Insurance expenses
increased by $45,185 in the second quarter and $257,096 over the quarter and six
months ended October 31st a year earlier.
The remainder of the increases were generally tied to increased wage rates,
additional lease costs associated with new aircraft operating on the CAS-MOS
contracts, additional Casa 212 aircraft deployed in Alaska, and labor and cost
expenses associated with the MRO Aircraft Modification contract with Raytheon
Australia.
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 $438,706 and $871,681 for the three and six
months ended October 31, 2002, respectively, reflects an increase of 7.9% and
9.6% compared to the same period last year. The $31,862 increase for the second
quarter is due primarily to increases in depreciable assets from the prior year,
while the $76,612 for the six month period 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 corporate headquarters, and wages associated
with the corporate accounting, administrative, marketing and sales staff.
General, corporate and administrative expenses aggregated $1,694,670 and
$3,076,711 for the three and six months ended October 31, 2002, up from
$1,035,964 and $2,063,136 for the same periods in the prior year, an increase of
63.6% and 49.1% respectively. These changes are attributable to wage and
personnel changes required in general management, accounting and finance
functions as well as approximately $143,000 and $255,000 in costs in the second
quarter and first half of fiscal 2003, respectively associated with the pending
sale to VTF Corporation.
Bad debt expense increased by $ 95,000 and $170,000 for the quarter and
six-months compared to the same periods a year earlier. In addition, fines and
penalties increased by 10,000 and $90,000 for the quarter and six-months
compared to the same periods a year earlier
Interest Expense
Net interest expense increased to $307,851 for the second quarter of 2003 to
$572,861 for the and six months ended October 31, 2002 from $246,521 and
$553,645 for the same periods last year, an increase of 24.9% and a decrease of
3.5%, respectively. The increase is attributable to increased advances
outstanding under the company's short-term line of credit.
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 October 31, 2002 was
($696,751), a loss of ($.63) per share compared to a net income of $365,614 or
$.33 per share, for the three months ended October 31, 2001. The consolidated
net loss for the six months ended October 31, 2002 was ($854,582), a loss of
($.77) per share compared to a net income of $313,992 or $.28 per share, for the
six months ended October 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 more 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 lower by $18,000
for the second quarter and higher by $194,000 for the first half 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.
Liquidity and Capital Resources
Continued growth in the second quarter of fiscal 2003 once again necessitated
the need to increase short-term borrowings.
Cash from Operations
Cash provided from operations was $1,700,042 in the current period versus cash
generated from operations of $1,820,428 in the last year's first six months. The
decrease was attributed primarily to the net loss in the current period and
changes in working capital accounts absorbed $1,607,655 in the first half of
fiscal 2003 while providing $850,331 for that same period in the prior year.
Cash used in Investing Activities
Net cash used in investing activities decreased from $2,039,524 for the six
months ending October 2001 to $656,321 in the current period. 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
prior period.
Cash from Financing Activities
In the six month period ended October 31, 2002, financing activities absorbed
$774,142 versus providing $269,416 for the same period in the prior year.
Proceeds in both years were utilized to fund property and equipment acquisitions
and operations, while the prior period included funds borrowed for the
acquisition of the two planes acquired from Maritime Sales and Leasing.
Increased long term debt obligations absorbed additional cash for the six months
ending October 31,2002.
For the six months ending October 31, 2002, the Company realized a net increase
of $269,579 versus an increase in cash and cash equivalents of $50,320 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.
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. In our view and the Company's counsel view, the motion is
frivolous. 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. Our counsel has advised us 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.
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.
On December 17, 2002, at a special meeting of the shareholders of the
Company, the shareholders of the Company approved the Asset Purchase Agreement,
dated as of May 9, 2002, as amended, between Flight, its subsidiaries and VTF
Corporation, and the transactions contemplated thereby, pursuant to which Flight
agreed to sell substantially all of its and its subsidiaries assets to VTF.
912,601 shares of the Company's common stock were present at the meeting, in
person or by proxy. 810,952 shares voted in favor of the approval of the Asset
Purchase Agreement and 101,624 voted against approval of the Asset Purchase
Agreement. On December 17, 2002, the transactions contemplated by the Asset
Purchase Agreement closed were consummated with gross proceeds of approximately
$6,500,000 to the Company, of which $1,000,000 is being held in escrow for nine
months to secure any indemnity claims against the Company. The Company plans to
offer the net proceeds from the sale to its shareholders on a pro-rata basis
through a tender offer. The Company will file plans to file a joint Schedule
13E-3/Schedule TO with respect to the tender offer as soon as the terms of the
proposed tender offer are known and finalized.
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: December 19, 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
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.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 19, 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.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: December 19, 2002
/s/ Matthew J. Nowicki
------------------------------
Matthew J. Nowicki
Chief Financial Officer