-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N7khbpJjiuc1Wit5nLb1gDvG76KUDJIGbHbBH2+1Y9UmXtpFQX+jiinNCk3U6CPW Pn2GAG+nTUf/ikF0u+YRSw== 0000928385-96-000538.txt : 19960515 0000928385-96-000538.hdr.sgml : 19960515 ACCESSION NUMBER: 0000928385-96-000538 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDCORP INC CENTRAL INDEX KEY: 0000811664 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 943040585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09591 FILM NUMBER: 96563537 BUSINESS ADDRESS: STREET 1: 13873 PARK CTR RD STE 490 CITY: HERNDON STATE: VA ZIP: 22071 BUSINESS PHONE: 7038349200 MAIL ADDRESS: STREET 1: 13873 PARK CENTER ROAD CITY: HERNDON STATE: VA ZIP: 22071 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------------------------ For the Quarter ended: MARCH 31, 1996 Commission File Number 1-5351 WORLDCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-3040585 (State of incorporation) (I.R.S. Employer Identification Number) 13873 Park Center Road, Suite 490, Herndon, VA 22071 (Address of Principal Executive Offices) (703) 834-9200 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- --------- The number of shares of the registrant's Common Stock outstanding on May 1, 1996 was 16,442,388. ================================================================================ 1 WORLDCORP, INC. MARCH 1996, QUARTERLY REPORT ON FORM 10Q TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets, March 31, 1996 and December 31, 1995................................ 3 Condensed Consolidated Statements of Operations, Three Months Ended March 31, 1996 and 1995................ 5 Condensed Consolidated Statement of Changes in Common Stockholders' Deficit, Three months ended March 31, 1996.. 7 Condensed Consolidated Statements of Cash Flows, Three months ended March 31, 1996 and 1995................ 8 Notes to Condensed Consolidated Financial Statements...... 9 Exhibit 11, Calculations of Earnings Per Common Share..... 10 Item 2. Management's Discussion and Analysis of Financial Conditio and Results of Operations ................................ 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ......................... 24
2 ITEM 1. FINANCIAL STATEMENTS - ----------------------------- WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (IN THOUSANDS)
(unaudited) March 31, December 31, 1996 1995 --------- ------------- CURRENT ASSETS Cash and cash equivalents, including restricted cash of $925 at March 31, 1996 and $625 at December 31, 1995 $ 58,414 $ 74,443 Restricted short-term investments 4,218 4,218 Trade accounts receivable, less allowance for doubtful accounts of $441 at March 31, 1996 and $322 at December 31, 1995 13,365 15,457 Other receivables 4,854 4,438 Prepaid expenses and other current assets 9,569 11,668 Assets held for sale 700 700 -------- -------- Total current assets 91,120 110,924 -------- -------- ASSETS HELD FOR SALE 2,226 2,383 EQUIPMENT AND PROPERTY Flight and other equipment 75,192 60,794 Equipment under capital leases 11,686 11,734 -------- -------- 86,878 72,528 Less accumulated depreciation and amortization 19,297 17,878 -------- -------- Net equipment and property 67,581 54,650 -------- -------- LONG-TERM OPERATING DEPOSITS 16,188 16,157 OTHER ASSETS AND DEFERRED CHARGES, NET 14,071 15,384 INTANGIBLE ASSETS, NET 2,461 2,591 -------- -------- TOTAL ASSETS $193,647 $202,089 ======== ========
(Continued) 3 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT (IN THOUSANDS EXCEPT SHARE DATA)
(unaudited) March 31, December 31, 1996 1995 ----------- ------------- CURRENT LIABILITIES Notes payable $ 5,134 $ 6,764 Current maturities of long-term obligations 10,038 10,822 Deferred aircraft rent 350 533 Accounts payable 20,415 17,363 Unearned revenue 3,965 10,421 Air traffic liability 2,517 2,332 Accrued maintenance in excess of reserves paid 11,569 8,919 Accrued salaries and wages 11,610 10,804 Accrued interest 2,298 2,061 Accrued taxes 2,151 1,283 -------- -------- Total current liabilities 70,047 71,302 -------- -------- LONG-TERM OBLIGATIONS, NET Subordinated convertible debt 65,000 65,000 Subordinated notes, net 24,967 24,961 Deferred aircraft rent, net of current portion 1,087 1,143 Equipment financing and other long-term obligations 24,433 20,241 -------- -------- Total long-term obligations, net 115,487 111,345 -------- -------- OTHER LIABILITIES Deferred gain from sale leaseback transactions, net of accumulated amortization of $18,307 as of March 31, 1996 and $18,041 as of December 31, 1995 7,045 7,310 Accrued postretirement benefits 2,612 2,596 Accrued maintenance in excess of reserves paid 3,628 3,579 Other 2,459 380 -------- -------- Total other liabilities 15,744 15,520 -------- -------- TOTAL LIABILITIES 201,278 198,167 -------- -------- MINORITY INTEREST 23,854 27,219 COMMON STOCKHOLDERS' DEFICIT Common stock, $1 par value, (60,000,000 shares authorized, 16,461,005 shares issued and 16,398,420 shares outstanding at March 31, 1996 and 16,416,134 shares issued and 16,353,549 shares outstanding at December 31, 1995) 16,461 16,354 Additional paid-in capital 42,778 42,210 Deferred compensation (509) (553) Accumulated deficit (88,685) (79,598) ESOP guaranteed bank loan (1,190) (1,370) Treasury stock, at cost (340) (340) -------- -------- TOTAL COMMON STOCKHOLDERS' DEFICIT (31,485) (23,297) -------- -------- COMMITMENTS AND CONTINGENCIES TOTAL LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT $193,647 $202,089 ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements 4 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
1996 1995 -------- -------- OPERATING REVENUES World Airways $ 71,538 $40,537 US Order 1,326 745 -------- ------- Total operating revenues 72,864 41,282 -------- ------- OPERATING EXPENSES World Airways: Flight 24,294 12,896 Maintenance 15,624 8,013 Aircraft costs 19,928 13,522 Fuel 6,915 3,070 Flight operations subcontracted to other carriers 1,061 667 Promotions, sales and commissions 2,444 19 Depreciation and amortization 1,983 986 General and administrative 6,801 4,438 -------- ------- Total operating expenses - World Airways 79,050 43,611 -------- ------- US Order: Cost of revenue 930 603 Research and development 559 309 General and administrative 1,868 1,184 Advertising and promotion 28 5 -------- ------- Total operating expenses - US Order 3,385 2,101 -------- ------- WorldCorp: General and administrative 1,289 1,218 -------- ------- Total operating expenses 83,724 46,930 -------- ------- OPERATING LOSS (10,860) (5,648) -------- ------- OTHER INCOME (EXPENSE) Interest expense (2,841) (3,171) Interest income 1,006 163 Loss on sales of equity by subsidiaries, net (225) -- Other, net (241) 202 -------- ------- Total other income (expense) (2,301) (2,806) -------- ------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (13,161) (8,454) INCOME TAX EXPENSE -- -- MINORITY INTEREST 4,088 -- -------- ------- NET LOSS $ (9,073) $(8,454) ======== ======= (Continued)
5 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, (CONTINUED) (UNAUDITED)
1996 1995 ---------- ------------ NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Primary $ (0.56) $ (0.55) ========== ========== Fully diluted $ * $ * ========== ========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary 16,328,186 15,477,596 ========== ========== Fully diluted * * ========== ==========
* Fully diluted earnings per share are anti-dilutive. See accompanying Notes to Condensed Consolidated Financial Statements 6 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995 (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
Employee Stock Owner- Total Additional ship Plan Treasury Common Common Paid-in Deferred Accumulated Guaranteed Stock, Stockholders' Stock Capital Compensation Deficit Bank Loan at cost Deficit ------- ---------- ------------- ------------ ----------- --------- -------------- BALANCE AT DECEMBER 31, 1995 $16,354 $42,210 $(553) $(79,598) $(1,370) $(340) $(23,297) Exercise of 107,456 options and warrants 107 529 -- -- -- -- 636 Employee Stock Ownership Plan guaranteed bank loan -- -- -- -- 180 -- (180) Amortization of deferred compensation -- 39 44 -- -- -- 83 Other -- -- -- (14) -- -- (14) Net loss -- -- -- (9,073) -- -- (9,073) ------- ---------- ------------ ----------- ---------- -------- -------- BALANCE AT MARCH 31, 1996 $16,461 $42,778 $(509) $(88,685) $(1,190) $(340) $(31,485) ======= ========== ============ =========== ========== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements 7 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) (UNAUDITED)
1996 1995 --------- -------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 74,443 $ 8,160 CASH FLOWS FROM OPERATING ACTIVITIES Net loss (9,073) (8,454) Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: Depreciation and amortization 2,078 1,530 Deferred gain recognition (266) (266) Deferred aircraft rent payments, net -- 153 Loss on sales of equity by subsidiaries, net 225 -- Minority interest in earnings (loss) of subsidiaries (4,088) -- Gain on sale of equipment and property (167) (20) Deferred compensation expense 44 283 Equity income in subsidiary 426 -- Other 31 166 Changes in certain assets and liabilities net of effects of non-cash transactions: Decrease in accounts receivable 2,008 2,581 Decrease in restricted short-term investments -- 6 Decrease (increase) in deposits, prepaid expenses and other assets 1,002 (532) Increase (decrease) in accounts payable, accrued expenses and other liabilities 6,002 (1,289) (Decrease) increase in unearned revenue (6,456) 11,034 Increase in air traffic liability 185 -- -------- ------- Net cash (used) provided by operating activities (8,049) 5,192 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to equipment and property (4,588) (3,743) Proceeds from disposal of equipment and property 313 415 Purchase of investments -- (282) -------- ------- Net cash used by investing activities (4,275) (3,610) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in line of credit borrowing arrangement, net (473) (2,260) Issuance of debt 197 4,800 Repayment of debt (4,569) (4,795) Proceeds from stock transactions 636 435 Proceeds from sales of equity by subsidiaries 504 -- -------- ------- Net cash used by financing activities (3,705) (1,820) -------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (16,029) (238) -------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 58,414 $ 7,922 ======== =======
See accompanying Notes to Condensed Consolidated Financial Statements 8 WORLDCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The condensed consolidated balance sheet of WorldCorp, Inc. ("WorldCorp" or the "Company") as of March 31, 1996, the related condensed consolidated statements of operations for the three month periods ended March 31, 1996 and 1995, the condensed consolidated statement of changes in common stockholders' deficit for the three months ended March 31, 1996 and the condensed consolidated statements of cash flows for the three months ended March 31, 1996 and 1995 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. All significant intercompany balances have been eliminated. Interim results are not necessarily indicative of results for a full year. The condensed financial statements and notes are presented as required by Form 10-Q, and do not contain certain information included in the Company's annual financial statements and notes. These financial statements should be read in conjunction with the financial statements and the notes included in the Company's Form 10-K for the year ended December 31, 1995. 2. In November 1995, World Airways signed a letter of intent with the manufacturer to lease two MD-11ER aircraft to be delivered in the first quarter of 1996. The agreement was completed in March 1996. Under the agreement, World Airways leased each aircraft for a term of 24 years with an option to return the aircraft after a seven year period with certain fixed termination fees. As part of the agreement, $1.2 million in deposits previously paid to the manufacturer in 1992 was applied towards these two aircraft. In addition, World Airways received spare parts financing from the lessor of $9.0 million of which $3.0 million was made available with the delivery of each aircraft, and the remaining $3.0 million will be made available in December 1996. As of May 10, 1996, none of these amounts had been received. Finally, World Airways agreed to assume an existing lease of two additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the event that the other lessee terminates its lease with the manufacturer at that time. 3. World Airways purchased a spare engine which was delivered in March 1996 for approximately $8.0 million. World Airways entered into an agreement with the engine's manufacturer to finance 80% of the purchase price over a seven- year term. World Airways made payments of $1.2 million and $0.4 million towards this purchase in September 1995 and January 1996, respectively. 4. For a discussion of commitments and contingencies see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters". 5. On January 1, 1996, the Company adopted Financial Accounting Standards Board Statements of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of ("Statement 121") and No. 123, Accounting for Stock-based Compensation ("Statement 123"). Statement 121 requires that the Company review its long- lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent that the future undiscounted net cash flows expected to be generated from an asset are less than the carrying amount of the asset, an impairment loss will be recognized based on the difference between the asset's carrying amount and its fair market value. The adoption of Statement 121 had no impact on the accompanying financial statements. Statement 123 recommends, but does not require, the adoption of a fair value based method of accounting for stock-based compensation to employees, including common stock options. The Company has elected to continue recording stock-based compensation to employees under the intrinsic value method of accounting for stock-based compensation to employees as permitted by Statement 123. Certain pro forma disclosures will be included in the Company's Form 10- K for the year ending December 31, 1996 as if the fair value based method had been adopted. 9 EXHIBIT 11 WORLDCORP, INC. AND SUBSIDIARIES CALCULATIONS OF EARNINGS PER COMMON SHARE FOR THE THREE MONTHS ENDED MARCH 31, (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
1996 1995 ------------ ------------ Net loss applicable to common stock $ (9,073) $ (8,454) =========== =========== Weighted average common shares outstanding 16,328,186 15,477,596 Weighted average options and warrants treated as common stock equivalents -- -- ----------- ----------- Primary and fully diluted number of shares 16,328,186 15,477,596 =========== =========== Net loss per share of common stock $ (0.56) $ (0.55) =========== ===========
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- Management's Discussion and Analysis of Financial Condition and Results of Operations presented below relates to the operations of WorldCorp, Inc. ("WorldCorp" or "the Company") as reflected in its condensed consolidated financial statements. These statements primarily include the accounts of the flight operations of World Airways, Inc. ("World Airways"). On February 28, 1994, pursuant to an October 1993 agreement, the Company sold 24.9% of its ownership in World Airways to MHS Berhad ("MHS"), a Malaysian aviation company. Effective December 31, 1994, WorldCorp repurchased 5% of World Airways' common stock from MHS. In October 1995, World Airways completed an initial public offering in which 2,000,000 shares were issued and sold by World Airways and 900,000 shares were sold by WorldCorp. As of March 31, 1996, WorldCorp and MHS owned approximately 59.3% and 16.6%, respectively, of World Airways' outstanding common stock. The remaining balance was publicly traded. The managements of WorldCorp and World Airways are currently exploring ways to maximize value for the shareholders of each company, including actively exploring the feasibility of employee initiatives to purchase a substantial portion of WorldCorp's ownership position in World Airways. In addition to employee initiatives, WorldCorp is evaluating the feasibility of a spinoff of its interest in World Airways or a disposition to a third party. There can be no assurances, however, that any such transactions will ultimately be consummated. WorldCorp also has an ownership interest in US Order, Inc. ("US Order"), a company which provides products and services for two markets: home banking and smart telephones. In December 1993, US Order completed a $12.0 million private equity placement. In August 1994, US Order sold its electronic banking and bill payment operations to VISA International Services Association, Inc. ("Visa"). In February 1995, WorldCorp exercised an option to purchase additional shares of the voting stock of US Order for consideration equal to $3.9 million. In June 1995, US Order completed an initial public offering whereby 3,062,500 shares were issued and sold by US Order, and 1,365,000 shares were sold by WorldCorp. As of March 31, 1996, WorldCorp owned approximately 55.7% of the outstanding common stock of US Order. The Private Securities Litigation Reform Act of 1995 (the "Act") was recently passed by Congress. The Company desires to take advantage of the new "safe harbor" provisions in the Act. Therefore, this report contains forward looking statements that are subject to risks and uncertainties, including, but not limited to, the impact of competitive products, product demand and market acceptance risks, reliance on key strategic alliances, fluctuations in operating results and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including risk factors disclosed in the Company's Form 10-K for the fiscal year ended December 31, 1995. These risks could cause the Company's actual results for 1996 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company. OVERVIEW WorldCorp owns majority positions in companies that operate in two distinct business areas. World Airways (Nasdaq:WLDA) provides worldwide passenger and cargo air transportation to major international airlines, the U.S. Air Force, and international tour operators as well as limited scheduled services, with a fleet of MD-11 and DC10-30 aircraft. US Order (Nasdaq:USOR) develops and markets products and services for the financial services and telecommunications industries. US Order's financial service products include bank-branded customer services, voice response systems and data translation systems. Its telecommunications products include the Telesmart 4000/TM/ smart telephone and a complete package of interactive applications. Over 50 banks currently use US Order's products and services. WORLD AIRWAYS - ------------- World Airways earns revenue primarily from four distinct markets within the air transportation industry: passenger and cargo services to major international air carriers; passenger and cargo services, on a scheduled and ad hoc basis, to the U.S. Government; international tour operators in leisure passenger markets; and scheduled passenger/cargo service (which, beginning in May 1996, will include scheduled charters to leisure passenger markets on a seasonal basis). 11 With the exception of scheduled passenger/cargo service, World Airways generally charges customers on a block hour basis rather than a per seat or per pound basis. "Block hours" are defined as the elapsed time computed from the moment the aircraft first moves under its own power at the point of origin to the time it comes to rest at its final destination. World Airways provides most services under two types of contracts: basic contracts and full service contracts. Under basic contracts, World Airways provides the aircraft, cockpit crew, maintenance and insurance and the customer provides all other operating services and bears all other operating expenses, including fuel and fuel servicing, marketing costs associated with obtaining passengers and/or cargo, airport passenger and cargo handling fees, landing fees, cabin crews, catering, ground handling and aircraft push-back and de-icing services. Under full service contracts, World Airways provides fuel, catering, ground handling, cabin crew and all related support services as well. Accordingly, World Airways generally charges a lower rate per block hour for basic contracts than full service contracts, although it does not necessarily earn a lower profit. Because of shifts in the mix between full service contracts and basic contracts, fluctuations in revenues are not necessarily indicative of volume trends or profitability. It is important, therefore, to measure World Airways' business volume by block hours flown and to measure profitability by operating income per block hour. As is common in the air transportation industry, World Airways has relatively high fixed aircraft costs. While World Airways believes that the lease rates on its MD-11 aircraft are favorable relative to lease rates of other MD-11 operators, its MD-11 aircraft have higher lease costs (although lower operating costs) than its DC10-30 aircraft. Therefore, achieving high average daily utilization of its aircraft (particularly its MD-11 aircraft) at attractive yields are two of the most critical factors to its financial results. In addition to fixed aircraft costs, a portion of its labor costs are fixed due to monthly minimum guarantees to cockpit crewmembers and flight attendants. CUSTOMERS World Airways' business relies heavily on its contracts with Malaysian Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda") and the U.S. Air Force's Air Mobility Command ("AMC"). These customers provided approximately 39%, 10%, and 20%, respectively, of World Airways' revenues and 46%, 10%, and 13%, respectively, of the total block hours during 1995. The Malaysian Airlines and AMC contracts provided approximately 39% and 24%, respectively, of World Airways' revenues and 47% and 15%, respectively, of total block hours in the first quarter of 1996. Operations under the Garuda Hadj contract coincided with the commencement of Hadj operations late in the first quarter. World Airways has provided service to Malaysian Airlines since 1981, providing wet lease services for Malaysian Airlines' scheduled passenger and cargo operations as well as transporting passengers for the annual Hadj pilgrimage. In 1995, World Airways provided three aircraft for Hadj operations and will provide three aircraft in 1996. The current five-year Hadj contract with Malaysian Airlines expires after the 1996 Hadj. World Airways is currently in negotiations with Malaysian Airlines regarding future Hadj operations. As a means of improving aircraft utilization, World Airways has entered into a series of multi-year contracts, with expiration dates running from 1997 through 2000, to provide basic services to Malaysian Airlines. One contract provides for World Airways' operation of three MD-11 freighter aircraft for a five-year period for a combined guaranteed minimum of 1,200 hours per month (except when an aircraft is in scheduled maintenance). The lease for one of the aircraft commenced in June 1994, and the leases for the other two aircraft commenced in June and July 1995. A second contract provides for each of two of its MD-11 passenger aircraft to operate a guaranteed minimum of 320 hours per month from October 1994 through March 1997. For 1995 and the first quarter of 1996, 29% and 34%, respectively, of World Airways' revenues and 37% and 42%, respectively, of World Airways' block hours flown resulted from these multi-year contracts with Malaysian Airlines. As a result of these contracts, World Airways expects that the percentage of its total revenue generated from Malaysian Airlines in 1996 will continue to increase over historical levels. World Airways has provided international air transportation to the U.S. Air Force since 1956. As compensation for pledges of aircraft to the Civil Reserve Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force awards contracts to CRAF participants for peacetime transportation of personnel and cargo. The U.S. Air Force awards points to air carriers acting alone or through teaming arrangements in proportion to the number and type of aircraft that the carriers make available to CRAF. As a result of its increasingly effective use of teaming arrangements, World Airways' fixed awards have grown in recent years and it has the largest U.S. Air Force fixed award under the CRAF program for the U.S. Government's 1995-96 fiscal year. The current annual 12 contract commenced on October 1, 1995 and expires on September 30, 1996. These contracts provide for a fixed level of scheduled business from the U.S. Air Force with opportunities for additional short-term expansion business on an ad hoc basis as needs arise. World Airways' fixed award for the current contract is $55.4 million compared to the $33.9 million fixed award for the prior contract. Due to the utilization of a significant number of its aircraft under multi-year contracts with Malaysian Airlines and other contractual commitments, it is unlikely that World Airways will be able to accept all of the available expansion business. Although overall Defense Department spending is being reduced, the level of U.S. Air Force contract awards has remained relatively constant in recent years. World Airways, however, cannot determine how future cuts in military spending may affect future operations with the U.S. Air Force. World Airways has provided wet lease services to Garuda since 1973 (operating under an annual Hadj contract since 1988). World Airways operated five aircraft in the 1995 Garuda Hadj and will operate seven aircraft in the 1996 Hadj. As a result of these and other contracts, World Airways had an overall contract backlog at March 31, 1996 of $430.4 million. World Airways' backlog for each contract is determined by multiplying the minimum number of block hours guaranteed under the applicable contract by the specified hourly rate under such contract. Approximately 76% of the backlog (including substantially all of the backlog beginning in 1997) relates to the multi-year contracts with Malaysian Airlines. The loss of any of these contracts or a substantial reduction in business from any of these key customers, if not replaced, would have a material adverse effect on World Airways' financial condition and results of operations. SEASONALITY Historically, World Airways' business has been significantly affected by seasonal factors. During the first quarter, World Airways typically experiences lower levels of utilization and yields as demand for passenger and cargo services is lower relative to other times of the year. World Airways experiences higher levels of utilization in the second quarter, principally due to peak demand for commercial passenger services associated with the annual Hadj pilgrimage. During 1995, World Airways' flight operations associated with the Hadj pilgrimage occurred from April 1 to June 8. Because the Hadj occurs approximately 10 to 12 days earlier each year, revenues resulting from future Hadj contracts will begin to shift from the second quarter to the first quarter over the next several years. In recent years, soft demand and weakening yields in worldwide passenger markets adversely affected World Airways' results in the third quarter. Fourth quarter utilization depends primarily on the demand for air cargo services in connection with the shipment of merchandise in advance of the U.S. holiday season. World Airways believes that its multi-year contracts with Malaysian Airlines and an increase in peak European summer tourist travel occurring in the third quarter should lessen the effect of these seasonal factors. AVIATION FUEL World Airways' source of aviation fuel is primarily from major oil companies, under annual delivery contracts, at often frequented commercial locations, and from United States military organizations at military bases. World Airways' current fuel purchasing policy consists of the purchase of fuel within seven days in advance of all flights based on current prices set by individual suppliers. More than one supplier is under contract at several locations. World Airways purchases no fuel under long-term contracts nor does World Airways enter into futures or fuel swap contracts. The air transportation industry in general is affected by the price and availability of aviation fuel. Both the cost and availability of aviation fuel are subject to many economic and political factors and events occurring throughout the world and remain subject to the various unpredictable economic and market factors that affect the supply of all petroleum products. Fluctuations in the price of fuel has not had a significant impact on World Airways' operations in recent years. World Airways' exposure to fuel risk is limited because (i) under the terms of its basic contracts, the customer is responsible for providing fuel, (ii) under the terms of its full service contracts with the U.S. Government, World Airways is reimbursed for the cost of fuel it provides, and (iii) under its charter contracts, World Airways is reimbursed for fuel price increases in excess of 5% of the price agreed upon in the contract, subject to a 10% cap. However, a substantial increase in the price or the unavailability of aviation fuel could have a material adverse effect on the air transportation industry in general and the financial condition and results of operations of World Airways, primarily within its scheduled passenger/cargo service operations. 13 US ORDER - -------- US Order develops and markets products and services for the financial services and telecommunications industries. US Order's financial service products include bank-branded customer services, voice response systems and data translation systems. Its telecommunications products include the Telesmart 4000/TM/ smart telephone and a complete package of interactive applications. Over 50 banks currently use US Order's products and services. In August 1994, US Order sold its electronic banking and bill pay operations to Visa for approximately $15.0 million, the assumption of certain liabilities and the right to receive certain royalties during a 72 month period commencing January 1, 1995. In addition, Visa designated US Order as a "preferred provider" through the 72-month royalty period and, as such, will make its member banks aware that US Order can provide certain of its interactive applications, customer support services and smart telephones to Visa member banks. In January 1995, US Order entered into a strategic alliance with a leading manufacturer of Caller ID units, Colonial Data, to jointly develop and distribute US Order's next generation of smart telephones to the telecommunications industry. US Order's next generation smart telephone, the Telesmart 4000/TM/ smart phone, is currently available for sale. On October 19, 1995, US Order completed a transaction to acquire a 40% equity interest in Home Financial Network, Inc. ("HomeNet"), a newly formed, development stage personal computer company that plans to develop and deliver electronic financial products and services for consumers. At closing, US Order exchanged 296,746 shares of its common stock, valued at approximately $5 million, for 40% of HomeNet. US Order believes that its investment in HomeNet will complement its home banking strategy by adding a personal computer based application to the current smart telephone and touch-tone applications that it offers. US Order expects HomeNet to incur operating losses at least through 1996 of which US Order will record its proportionate share. To date, US Order has generated limited revenue. As a result of its new strategic relationships in the home banking and smart telephone markets, US Order will generate revenue by selling its home banking products and smart telephones, as well as by generating monthly fees for providing ongoing services, including interactive applications and customer support services. Revenue from product sales will be dependent on the success of US Order's two largest strategic partners, Visa InterActive and Colonial Data, in marketing and selling the products in the banking and smart telephone channels. In addition, US Order has the right to receive on a quarterly basis from Visa $0.666 per month per active bill pay customer that uses the Visa Bill-Pay System through December 31, 2000. This payment from Visa is subject to certain limitations, including a reduction in the royalty payment for each quarter beginning January 1, 1995 through December 31, 1997 by an offset amount (the "Visa Offset"). The Visa Offset, initially set at $0.07 million per quarter, accumulates quarterly up to an aggregate of $0.9 million. US Order has not received any revenue from these Visa royalty payments through March 31, 1996 and does not expect to receive any revenue from these payments, after application of the Visa Offset, through at least the first half of 1996. RESULTS OF OPERATIONS WORLD AIRWAYS - ------------- THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 Total block hours increased 3,721 hours, or 54%, to 10,634 hours in the first quarter of 1996 from 6,913 hours in the comparable 1995 period, with an average of 11.6 available aircraft per day in 1996 compared to 8.4 in 1995. Average daily utilization (block hours flown per day per aircraft) increased to 10.1 hours in 1996 from 9.2 hours in 1995. In the first quarter of 1996, basic contracts accounted for 66% of total block hours, down from 74% in 1995. Total operating revenues increased $31.0 million, or 77%, to $71.5 million in the first quarter of 1996 from $40.5 million in 1995. World Airways recognized a net loss of $7.9 million in the first quarter of 1996 compared to a net loss of $3.8 million in the comparable 1995 period. Factors impacting 1996 results included operating losses of approximately $4.4 million on its New York - Tel Aviv scheduled service route as well as planned up-front non-recurring crew training expenses of approximately $2.5 million primarily related to the introduction of four aircraft in March. In response to the substantial operating losses generated from its Tel Aviv route since commencing service in July 1995, World Airways has taken steps to improve its yield and load factor performance including the reduction of its weekly frequencies to Tel Aviv from three to two until this summer's peak tourist season and, more 14 importantly, the formation of a strategic alliance with Continental Airlines (see "Recent Trends and Development -Growth Opportunities"). Operating Revenues. Revenues from flight operations increased $31.3 million, ------------------ or 79%, to $70.7 million in the first quarter of 1996 from $39.4 million in 1995. This increase was primarily attributable to an increase in military flying and an increase in revenues generated from the multi-year contracts with Malaysian Airlines. In addition, World Airways realized an increase in revenues associated with services to certain international carriers and from scheduled service operations to Tel Aviv which commenced in July 1995. Operating Expenses. Total operating expenses increased $35.5 million, or ------------------ 81%, in the first quarter of 1996 to $79.1 million from $43.6 million in 1995. Flight operations expenses include all expenses related directly to the operation of the aircraft other than aircraft cost, fuel and maintenance. Also included are expenses related to flight dispatch and flight operations administration. Flight operations expenses increased $11.4 million, or 88%, in 1996 to $24.3 million from $12.9 million in 1995. This increase resulted primarily from an increase in block hours flown, higher costs associated with scheduled service operations to Tel Aviv, and higher crew costs and up-front training expenses in connection with the integration of additional aircraft into the fleet in 1995 and 1996. Maintenance expenses increased $7.6 million, or 95%, in 1996 to $15.6 million from $8.0 million in 1995. This increase resulted primarily from the integration of additional aircraft into the fleet and a corresponding increase in block hours flown. Aircraft costs increased $6.4 million, or 47%, in 1996 to $19.9 million from $13.5 million in 1995. This increase was primarily due to the lease of two MD- 11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30 aircraft which began in the second and fourth quarters of 1995, partially offset by the return of two DC10-30 aircraft to the lessor in the third quarter of 1995. Fuel expenses increased $3.8 million, or 123%, in 1996 to $6.9 million from $3.1 million in 1995. This increase is due primarily from an increase in fuel uplifted for military and scheduled service operations. Although World Airways' exposure to fuel risk is limited (see "Overview - Aviation Fuel"), recent increases in aircraft fuel costs could have an affect on the future financial condition and results of operations of World Airways, primarily within its scheduled passenger/cargo service operations. Promotions, sales and commissions were $2.4 million in 1996 compared to a relatively insignificant amount in the first quarter of 1995. This increase resulted primarily from commissions paid in connection with scheduled service operations to Tel Aviv which commenced in 1995 and an increase in teaming arrangement commissions associated with the larger fixed-award contract received from the U.S. Air Force beginning October 1995. Depreciation and amortization increased $1.0 million, or 100%, in 1996 to $2.0 million from $1.0 million in 1995. This increase resulted primarily from an increase in spare parts required to support the additional MD-11 aircraft and incremental DC10-30 aircraft described above as well as the amortization of certain aircraft integration costs and other deferred costs. General and administrative expenses increased $2.4 million, or 55%, in 1996 to $6.8 million from $4.4 million in 1995. This increase was primarily due to personnel necessary for scheduled service operations, additional marketing personnel, and an increase in certain legal and professional fees. US ORDER - -------- THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995 Operating Revenue. US Order's first quarter revenues increased by $0.6 ----------------- million from $0.7 million in 1995 to $1.3 million in 1996. This increase is primarily related to the sale of its smart telephones and home banking products, which increased $0.5 million between periods. Service fees revenue for the first quarter of 1996, totaling $0.5 million, was generated primarily from two sources: customer support services and monthly service fees. US Order's customer support services revenue totaled $0.4 million for the first quarter of 1996, an increase of $0.2 15 million over the same period in 1995. These customer support services were remarketed by Visa InterActive to Visa member banks under US Order's reseller agreement with Visa InterActive. Monthly service fees totaled $0.2 million for the first three months of 1996 as compared to $0.3 million for the same period in 1995. These service fee revenues are from customers who use US Order's smart telephones and interactive applications, and the decrease of $0.1 million was primarily due to US Order's continuing efforts to convert these customers to Visa member banks and over time expects to be offering these services strictly on a wholesale basis. Cost of Revenue. US Order's first quarter cost of revenue increased by $0.3 --------------- million as compared to the same period in 1995. The increase is primarily due to increased cost of product revenues resulting from the increase in product sales between periods. Service cost of revenues remained relatively unchanged between periods. Costs related to generating monthly service fee revenues decreased by $0.2 million, offsetting a $0.2 million increase in costs related to providing customer support services to Visa, Visa member banks and other third parties. The service cost of revenues related to monthly service fees decreased between periods due to the smart telephones, utilized to generate monthly fee revenues, being fully depreciated in the fourth quarter of 1995 and, due to the continued conversion of customers utilizing smart telephones to Visa member banks. The increase in cost of revenue related to customer service was a direct result of increased customer volume and revenue from this source. US Order expects that cost of services related to customer support will continue to increase throughout 1996 and in the future to develop the infrastructure to handle anticipated growth in business related to providing customer service to Visa, Visa member banks and other third parties. Furthermore, US Order expects its gross margin percentages to vary in future periods based upon the revenue mix between product sales and service revenues and based upon the composition of service fee revenues earned during the period. Operating Expenses. Research and development costs were $0.6 million in the ------------------ first quarter of 1996 as compared to $0.3 million for the same period in 1995. The $0.3 million increase was largely attributable to developing, designing and testing both US Order's fourth generation smart telephone, the Telesmart 4000/TM/, and its home banking connectivity products. US Order has been actively engaged in research and development since its inception and expects that these activities will be essential to the operations of US Order in the future. General and administrative expenses were $1.9 million for the first quarter of 1996 as compared to $1.2 million in the first quarter of 1995. The increase of $0.7 million was a result of US Order's hiring of additional staff and an increase in costs associated with upgrading systems and operations in anticipation of the potential of increased business later in 1996 resulting from its alliances with its strategic partners, particularly the March 1996 Microsoft and Visa InterActive bill pay agreement, as well as from other markets for its smart telephone and home banking products and services. US Order expects that general and administrative expenses will continue to increase throughout 1996 and in the future to develop the infrastructure to handle increased business. Furthermore, US Order expects that aggregate general and administrative expenses will increase in future periods as the company grows. Advertising and promotion expenses had a nominal increase between 1996 and 1995. During the second half of 1996, US Order expects to begin selling its Telesmart 4000/TM/ smart telephone directly to retail stores and outlets and to paging companies. US Order expects its advertising and promotion expenses to increase substantially from the minimal expenditures incurred during the first quarter of 1996 and the fiscal year ending December 31, 1995 with the entrance of the Telesmart 4000/TM/ smart phone into these channels. US Order, however, does not expect its advertising and promotion expenses to increase, on a per customer basis, to the levels experienced during 1993 or 1994. OTHER INCOME (EXPENSE) - ---------------------- Interest income increased $0.8 million for the quarter ended March 31, 1996 from the comparable period in 1995. This increase resulted primarily from an increase in cash and investments balances. LIQUIDITY AND CAPITAL RESOURCES The Company is highly leveraged, primarily due to debt restructurings in 1987 and 1992, substantial debt and operating lease commitments during 1993 in connection with acquiring MD-11 aircraft and related spare parts, and losses the Company incurred in the past several years. The Company has historically financed its working capital and capital expenditure requirements out of public and private sales of stock of its subsidiaries, secured borrowings, and other financings from banks and other lenders. 16 While World Airways was profitable each year from 1987 through 1992 and in 1995, it sustained operating losses in 1993 and 1994 of $7.3 million and $5.2 million, respectively, and net losses of $9.0 million in each of these two years. During the first three months of 1996, World Airways sustained an operating loss of $7.5 million and a net loss of $7.9 million during its traditionally weakest quarter. While World Airways expects to be profitable for the full year, there can be no assurance that World Airways will be able to maintain profitability for 1996 and future years. US Order has generated operating losses since its inception. US Order's products and services are subject to the risks inherent in the marketing and development of new products. To date, US Order has generated limited revenue through the sale if its products and services and there can be no assurance as to what level of future sales or royalties, if any, US Order will receive from Visa or its member banks. CASH FLOWS FROM OPERATING ACTIVITIES Operating activities used $8.0 million in cash for the quarter ended March 31, 1996 compared to providing $5.2 million of cash in the comparable period in 1995. This decrease in cash in 1996 resulted primarily from an increase in operating loss over 1995 and a decrease in unearned revenue, partially offset by an increase in accounts payable during 1996 over 1995. CASH FLOWS FROM INVESTING ACTIVITIES Investing activities used $4.3 million in cash for the quarter ended March 31, 1996 compared to using $3.6 million in the comparable period in 1995. This increase in cash used resulted primarily from the purchase of rotable spare parts required for the integration of two MD-11 aircraft and incremental DC-10 aircraft. CASH FLOWS FROM FINANCING ACTIVITIES Financing activities used $3.7 million in cash for the quarter ended March 31, 1996 compared to using $1.8 million in the comparable period in 1995. This decrease in cash resulted primarily from a decrease in the Company's net borrowings in 1996 over 1995. CAPITAL COMMITMENTS World Airways - ------------- In October 1992 and January 1993, World Airways signed a series of agreements to lease seven new MD-11 aircraft for initial lease terms of two to five years, renewable for up to 10 years (and in the case of one aircraft, for 13 years) by World Airways with increasing rent costs. As of March 1995, World Airways had taken delivery of all seven aircraft, consisting of four passenger MD-11 aircraft, one freighter MD-11, and two passenger/cargo convertible MD-11s. As part of the lease agreements, World Airways was assigned purchase options for four additional MD-11 aircraft. In 1992, World Airways made non-refundable deposits of $1.2 million toward the option aircraft. In March 1996, World Airways signed an agreement with the manufacturer to lease two MD-11ER aircraft. Under the agreement, World Airways leased each aircraft for a term of 24 years with an option to return the aircraft after a seven year period with certain fixed termination fees. As part of the agreement, the above-mentioned deposits were applied towards the deposits required on these two aircraft. In addition, World Airways agreed to assume an existing lease of two additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the event that the existing lessee terminates its lease with the manufacturer at that time. World Airways maintains six long-term DC10-30 aircraft leases with terms expiring in 1998, 2003, and two each in 1997 and 1999. As of March 31, 1996, annual minimum payments required under World Airways' aircraft and lease obligations totaled $70.2 million for the remainder of 1996, including the two MD-11ER aircraft and the two DC10-30 aircraft leased in March 1996. 17 In August 1995, World Airways amended its aircraft spare parts facility under the Credit Agreement to provide for a variable rate borrowing of $10.5 million. Approximately $2.5 million of this facility was used to pay off the previously outstanding balance of the spare parts loan facility and $0.8 million was used to purchase additional spare parts for MD-11s required during the remainder of 1995. The balance of this loan facility was used to increase cash balances which were drawn down during the first half of 1995 to purchase MD-11 spare parts. In September 1995, World Airways agreed to purchase a spare engine which was delivered in March 1996. The engine cost approximately $8.0 million. World Airways entered into an agreement with the engine's manufacturer to finance 80% of the purchase price over a seven-year term. World Airways made payments of $1.2 million and $0.4 million towards this purchase in September 1995 and January 1996, respectively. As discussed above, World Airways signed an agreement for the lease of two MD-11ER aircraft beginning in the first quarter of 1996 to provide additional capacity for growth opportunities. As part of the agreement for the MD-11 aircraft, World Airways received spare parts financing from the lessor of $9.0 million of which $3.0 million was made available with the delivery of each aircraft, and the remaining $3.0 million will be made available in December 1996. As of May 10, 1996, none of these amounts had been received. In January 1996, World Airways agreed to purchase an additional engine and received a commitment from the engine manufacturer to finance 85% of its purchase price over a seven-year term with an interest rate to be fixed at the time of delivery. World Airways' fixed assets increased approximately $14.1 million during the first quarter of 1996. The majority of this amount relates to assets which were financed in the first quarter or will be financed subsequent to March 31, 1996. In addition, World Airways incurred approximately $2.1 million in leasehold improvements on certain aircraft for which the cash will be expended in the second quarter of 1996. World Airways anticipates that its total capital expenditures in 1996, which include the two spare engines will approximate $28.0 million. As discussed above, World Airways will receive approximately $22.6 million in financing, of which $6.5 million was received during the first quarter of 1996. The remaining balance will be funded from its operating cash flow and available cash balances. In March 1996, the Credit Agreement was amended to increase the limit on capital expenditures by World Airways to no more than $35.0 million and $25.0 million in 1996 and 1997, respectively. In March 1996, World Airways received regulatory authority to provide scheduled passenger and cargo service between Newark and South Africa beginning in the second quarter of 1996. In addition, World Airways is currently seeking authority to provide scheduled passenger and cargo service between the U.S. and West Africa (as a traffic stop on its South Africa route). World Airways anticipates that it will incur approximately $1.0 million in start-up costs in connection with this operation and will fund such start-up costs from its operating cash flow. As of March 31, 1996, World Airways held approximately $2.9 million (at book value) of aircraft spare parts currently available for sale. US Order - -------- In October 1995, US Order entered into a facilities operating lease for 30,000 additional square feet of office space which will be used in addition to its current office space. The lease covers a fifty-three month period commencing July 1, 1996 with aggregate minimum lease payments equal to approximately $2.7 million. In November 1995, US Order committed to purchase from Standard Telecommunication Ltd. 30,000 Telesmart 4000/TM/ smart telephones for a total of approximately $3.3 million, for delivery during 1996. US Order took delivery of the first Telesmart 4000/TM/ smart telephones in the first quarter of 1996, and the remaining commitment was approximately $3.1 million as of March 31, 1996. The entire obligation is secured by a cash collateralized letter of credit. US Order had no other material commitments for capital expenditures nor does it anticipate a significant change in the current level of its capital expenditures. In March 1996, US Order and Colonial Data entered into an agreement, whereby Colonial Data has the option to purchase any or all of the above mentioned 30,000 Telesmart 4000/TM/ smart telephones at US Order's fully landed cost. Colonial Data then may sell or lease these smart telephones to customers at a sale or lease price determined by Colonial Data. For all of these smart telephones sold or leased by Colonial Data, Colonial Data will pay US Order a product royalty equal to 50% of the margin on the sale or lease of the smart telephone. If US Order sells or leases any of these 30,000 Telesmart 4000/TM/ smart telephones to a party other than Colonial Data, it has agreed 18 to pay Colonial Data a product royalty equal to 50% of the margin on the sale or lease of the smart telephone. US Order did not receive any royalties from, or pay any royalties to, Colonial Data for Telesmart 4000/TM/ smart telephone sales to other parties during the three months ended March 31, 1996. US Order's primary needs for cash in the future are for investments in product development, working capital, the financing of operating losses, strategic ventures, potential acquisitions, capital expenditures and the upgrade of its systems and operations in order to support the Visa InterActive and Microsoft bill payment alliance. In order to meet its needs for cash over the next twelve months, US Order will utilize proceeds from its 1995 initial public offering and, to the extent available, gross margins generated from the sale of its products and services. Additionally, US Order may utilize funds it expects to generate from asset sales, including approximately $0.4 million of earlier generation smart telephones (which it sells to third parties for use as point of sale terminals) and from its approximately $2.5 million advertising credit, which was received as partial consideration for certain shares of Series C convertible preferred stock in 1993, subject to certain restrictions regarding its usage. WorldCorp - --------- WorldCorp is highly leveraged, and therefore requires substantial funds to cover debt service. As a holding Company, all of WorldCorp's funds are generated through its subsidiaries, neither of which has paid dividends since 1992. Additionally, WorldCorp, which owns a majority position in World Airways' and US Order's common stock, is subject to the provisions of two indentures expiring in 1997 and 2004, respectively, under which it is obligated to cause the companies not to pay dividends under certain circumstances. Of the $58.4 million in cash and cash equivalents at March 31, 1996, approximately $36.3 million is held by World Airways and US Order and, therefore, is not available to satisfy WorldCorp's obligations. As of March 31, 1996, WorldCorp had parent company repayment obligations, including principal and interest, of approximately $7.7 million and $32.7 million for the remainder of 1996 and 1997, respectively. The Company believes that the combination of the financings consummated to date and the operating and additional financing plans previously discussed will be sufficient to allow the Company to meet its operating and capital requirements for the next twelve months. FINANCING DEVELOPMENTS In June 1995, US Order completed an initial public offering pursuant to which US Order and WorldCorp received $41.6 million and $18.7 million in net proceeds, respectively. US Order used part of its proceeds to satisfy debt obligations (including those to WorldCorp). The remaining balance was added to US Order's cash reserves. WorldCorp used its proceeds to fund its debt service requirements and increase its cash position. In October 1995, World Airways completed an initial public offering pursuant to which World Airways and WorldCorp received approximately $22.8 million and $10.2 million in net proceeds, respectively. Each company used its proceeds to increase cash reserves. In 1993, World Airways entered into the Credit Agreement, which included a $12.0 million spare parts loan and an $8.0 million revolving line of credit collateralized by certain receivables, inventory, equipment, and general intangibles. World Airways is prohibited from granting a security interest in such collateral to anyone other than BNY Financial Corporation. Approximately $10.8 million of the proceeds from this borrowing was used to retire existing obligations. This agreement contains certain covenants related to World Airways' financial condition and operating results. During 1995, World Airways extended the credit facility's term to 1998. In March 1996, World Airways amended this agreement to adjust certain covenants beginning in the first quarter of 1996. Under the terms of the amended Credit Agreement, World Airways is not permitted to (i) incur indebtedness in excess of $25.0 million (excluding capital leases), (ii) declare, pay, or make any dividend or distribution in any six month period which aggregate in excess of the lesser of $4.5 million or 50% of net income for the previous six months, (iii) declare or pay dividends if after giving effect to such dividends its cash or cash equivalents would be less than $7.5 million or (iv) make capital expenditures in 1996 and 1997 of more than $35.0 million and $25.0 million, respectively, or in any subsequent year of more than $15.0 million. World Airways must also maintain a certain quarterly net worth and net income (loss) requirements. No assurances can be given that World Airways will continue to meet these revised covenants or, if necessary, obtain the required waivers. In addition, World Airways amended the aircraft spare parts facility under the Credit Agreement to provide for a variable rate spare parts loan 19 of $10.5 million. As of March 31, 1996, $1.3 million of the $8.0 million portion of the credit facility collateralized by receivables was utilized, with $2.9 million capacity currently available, and $7.0 million of the $10.5 million spare parts loan was outstanding. As discussed above, on September 29, 1995 World Airways entered into an agreement with a lessor to purchase a spare engine, previously under lease, for $5.5 million. World Airways paid $0.5 million upon closing and signed a note for the $5.0 million balance. The note bears interest at a rate of 7.25% and is payable over a 40-month period at $69,000 a month, with the balance of $3.3 million due on January 29, 1999. In addition, World Airways purchased an additional spare engine which was delivered in March 1996. The engine cost approximately $8.0 million. World Airways entered into an agreement with the engine's manufacturer to finance 80% of the purchase price over a seven-year term. World Airways made payments of $1.2 million and $0.4 million towards this purchase in September 1995 and January 1996, respectively. RECENT TRENDS AND DEVELOPMENTS WORLD AIRWAYS - ------------- Growth Opportunities. In the scheduled charter market, World Airways has -------------------- identified what it believes is a significant opportunity to increase revenues and profits by serving potentially profitable leisure passenger markets between the U.S. and Europe. In the scheduled charter business, World Airways sells less-than-planeload blocks of seats to international tour operators and markets the remaining seats through computer reservations systems. Based on the successful experience of European carriers, World Airways will assume some load factor risk with the objective of capturing improved yields. In addition, because World Airways will set the schedule instead of a tour operator, World Airways will be able to schedule its aircraft more efficiently and increase the hourly utilization of its fleet. This strategy gives World Airways more control within the charter distribution channel and a stronger commercial position in this market than it would have in the full plane-load charter business. For the 1996 leisure market season, World Airways has developed schedules and is marketing capacity to tour operators with particular emphasis on the markets between the U.S. and Germany, Switzerland, Ireland, and the United Kingdom. Although World Airways believes that scheduled charters may improve utilization and yields in the leisure passenger market for the reasons described above, scheduled charters do increase World Airways' load factor and yield risks and it has no prior experience operating scheduled charters. World Airways, therefore, can provide no assurances that it will be able to operate scheduled charters profitably. In the scheduled passenger business, World Airways will consider entering only those markets that it believes (i) are well suited to the competitive advantages of its long-range, wide-body aircraft, (ii) have prospects for rapid growth, and (iii) have barriers to entry. After determining that the market between New York and Tel Aviv met these criteria, World Airways commenced scheduled passenger service in this market in July 1995 with three weekly round trips. In March 1996, World Airways reduced its weekly frequencies from three to two until the summer peak tourist season. In addition, World Airways recently received regulatory authority to provide scheduled passenger and cargo service between the United States and South Africa beginning in the second quarter of 1996. World Airways is currently seeking to provide scheduled passenger and cargo service between the United States and West Africa (as a traffic stop on its South Africa route). No assurances can be given that the Company will receive this authority. While World Airways has achieved a 71% cumulative load factor on the Tel Aviv route as of April 1996, yields have been significantly lower than expected due to price sensitive, high commission traffic originating in the New York area and the lack of a marketing relationship with a major U.S. carrier to feed its New York departures. As a result of these factors, World Airways has sustained substantial operating losses on this route since commencing scheduled service to Tel Aviv in July 1995. In response to these issues, World Airways has taken steps to improve its yield and load factor performance. First, as discussed above, World Airways has reduced its weekly frequencies to Tel Aviv from three to two until this summer's peak tourist season. Second, and more importantly, World Airways has formed a strategic alliance with Continental Airlines ("Continental"). This agreement with Continental includes codesharing, joint marketing, and participation in Continental's computer reservation system and OnePass frequent flyer program. World Airways' international passengers will connect through Continental's Newark International Airport ("Newark") hub to major U.S. cities as well as Canada and Mexico. Continental's passengers will connect directly on World Airways' international destinations including Israel, Ireland, and South Africa. In conjunction with this alliance, World Airways will begin flying from Newark in June 1996. Although World Airways hopes that its strategic alliance with Continental will improve financial results on its scheduled passenger routes, 20 including but not limited to its Tel Aviv route, no assurances can be given that World Airways will be able to operate its scheduled passenger routes profitably even with the Continental alliance. Maintenance. World Airways outsources major airframe maintenance and power ----------- plant work to several suppliers. World Airways has a 10-year contract ending in August 2003 with United Technologies Corporation's Pratt & Whitney Group ("Pratt and Whitney") for all off-wing maintenance on the PW 4462 engines that power its MD-11 aircraft. Under this contract, the manufacturer agreed to provide such maintenance services at a cost not to exceed a specified rate per hour during the term of the contract. The specified rate per hour is subject to annual escalation, and increases substantially in 1998. Accordingly, while World Airways believes the terms of this agreement will result in lower engine maintenance costs than it otherwise would incur during the first five years of the agreement, these costs will increase substantially during the last seven years of the agreement. World Airways' maintenance costs associated with the MD-11 aircraft and PW 4462 engines have been significantly reduced due in part to manufacturer guarantees and warranties, which guarantees and warranties began to expire in 1995 and will fully expire by 1998. Therefore, World Airways expects that maintenance expenses will increase as these guarantees and warranties expire. OTHER MATTERS LEGAL AND ADMINISTRATIVE PROCEEDINGS The Company and World Airways (the "World Defendants") are defendants in litigation brought by the Committee of Unsecured Creditors of Washington Bancorporation (the "Committee") in August 1992, captioned Washington Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the "Boster Litigation"). The complaint asserts that the World Defendants received preferential transfers or fraudulent conveyances from Washington Bancorporation when the World Defendants received payment at maturity on May 4, 1990 of Washington Bancorporation commercial paper purchased on May 3, 1990. Washington Bancorporation filed for relief under the Federal Bankruptcy Code on August 1, 1990. The Committee seeks recovery of approximately $4.8 million from World Airways and approximately $2.0 million from WorldCorp, which are alleged to be the amounts paid to each of World Airways and WorldCorp by Washington Bancorporation. On the motion of the World Defendants, among others, the Boster Litigation was removed from the Bankruptcy Court to the District Court for the District of Columbia on May 10, 1993. The World Defendants filed a motion to dismiss the Boster Litigation as it pertains to them on June 9, 1993, and intend to vigorously contest liability. On September 20, 1995, the District Court for the District of Columbia granted the motion to dismiss filed by the World Defendants with respect to three of the four counts alleged in the litigation, but declined to grant a motion to dismiss the remaining claim regarding fraudulent transfers. The District Court's ruling is subject to appeal in certain cases. The World Defendants filed a summary motion with respect to the remaining claim on October 19, 1995, which remains pending. In any event, the Company believes it has substantial defenses to this action, although no assurance can be given of the eventual outcome of this litigation. Depending upon the timing of the resolution of this claim, if the Committee were successful in recovering the full amount claimed, the resolution could have a material adverse effect on the Company's financial condition and results of operations. In addition, the Company is party to routine litigation and administrative proceedings incidental to its business, none of which is believed by the Company to be likely to have a material adverse effect on the financial condition of the Company. EMPLOYEES World Airways cockpit crew members, who are represented by the International Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year collective bargaining agreement that will become amendable in June 1998. World Airways' flight attendants are also represented by the Teamsters under a collective bargaining agreement that became amendable in 1992. The parties exchanged their opening contract proposals in 1992 and have had numerous contract negotiation sessions. In December 1994, World Airways and the Teamsters jointly requested the assistance of a federal mediator to facilitate negotiations. After several mediated sessions, the National Mediation Board (the "NMB") mediator recommended that the NMB release the parties to pursue "direct" (i.e., 21 non-mediated) negotiations with the flight attendants. World Airways and the Teamsters agreed and direct negotiations continue. The outcome of the negotiations with the flight attendants cannot be determined at this time. The inability to reach an agreement upon terms favorable to World Airways could have a material adverse effect on World Airways. World Airways' flight attendants continue to challenge the use of foreign flight attendant crews on its flights for Malaysian Airlines and Garuda Indonesia which has historically been World Airways' operating procedure. World Airways is contractually obligated to permit its Southeast Asian customers to deploy their own flight attendants. While it intends to contest this matter vigorously in an upcoming arbitration, an unfavorable ruling for World Airways could have a material adverse effect on World Airways. World Airways' aircraft dispatchers are represented by the Transport Workers Union (the "TWU"). This contract became amendable on June 30, 1993. In May 1995, the parties reached agreement with respect to a new four-year contract. This contract was ratified on February 7, 1996. Fewer than 12 Company employees are covered by this collective bargaining agreement. World Airways' is unable to predict whether any of its employees not currently represented by a labor union, such as its maintenance personnel, will elect to be represented by a labor union or collective bargaining unit. The election by such employees of representation in such an organization could result in employee compensation and working condition demands that could have a material adverse effect on the financial results of the Company. DIVIDEND POLICY WorldCorp has never paid any cash dividends and does not plan to do so in the foreseeable future. WorldCorp, which owns a majority position in World Airways' and US Order's common stock, is subject to the provisions of two indentures expiring in 1997 and 2004, respectively, under which it is obligated to cause the companies not to pay dividends under certain circumstances. Under the indenture terminating in 2004, WorldCorp has agreed to cause the companies not to pay dividends if at the time WorldCorp is in default under such indenture. Further, under the indenture terminating in 1997, WorldCorp has agreed to cause the companies not to pay dividends unless WorldCorp has a positive adjusted net worth (as defined therein). As of March 31, 1996, WorldCorp's adjusted net worth was negative and under the indenture terminating in 1997 WorldCorp is therefore obligated to cause the companies not to pay dividends. Additionally, the $20 million credit facility contains restrictions on World Airways' ability to pay dividends. Under this agreement, World Airways cannot declare, pay, or make any dividend or distribution in any six-month period which aggregate in excess of the lesser of $4.5 million or 50% of net income for the previous six months. In addition, World Airways must have a cash balance of at least $7.5 million immediately after giving effect to such dividend or distribution. All of the funds from operations are generated by the Company's subsidiaries. The ability of the Company and its subsidiaries to pay principal and interest on their respective short and long-term obligations is substantially dependent upon funds generated by the operations of the subsidiaries, the payment to the Company of dividends, and its ability to sell additional shares of its subsidiaries' stock. INCOME TAXES At December 31 1995, WorldCorp had approximately $30.7 million in net operating loss carryforwards ("NOLs") that are available to offset future federal taxable income. There can be no assurance that the Company will generate taxable income in future years so as to allow the Company to realize a tax benefit from its NOLs. The NOLs are subject to examination by the IRS and, thus, are subject to adjustment or disallowance resulting from any such IRS examination. In addition, ownership changes of the Company, pursuant to the Internal Revenue Code, may occur in the future and may result in the imposition of an annual limitation on the Company's NOLs existing at the time of any such ownership change. In addition, World Airways, which does not file a consolidated income tax return with the Company, had a valuation allowance for deferred tax assets as of December 31, 1995 of $39.5 million. World Airways' estimate of the required valuation allowance is based on a number of factors, including historical operating results. World Airways generated net earnings for the year ended 1995 as compared to losses in both 1994 and 1993. If World 22 Airways generates net earnings in 1996, it is possible that a change in the estimate of the required valuation allowance will occur in the near term, and could differ materially from the amount recorded at December 31, 1995. A portion of World Airways' NOLs are subject to an annual limitation as a result of a previous ownership change, for tax purposes, which occurred in 1991. INFLATION The Company believes that inflation has not had a material effect on the Company's revenues during the past three years. 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits --------
Exhibit No. Exhibit - ------- ------- 3.1 Certificate of Incorporation of WorldCorp, Inc. dated March 16, 1987. Incorporated [Filed as Exhibit 3.1 to WorldCorp, Inc.'s Registration Statement on by reference Form S-4 (Commission File No. 33012735) filed on March 19, 1987 and incorporated herein by reference.] 3.2 Amended and Restated Bylaws of WorldCorp, Inc. dated November 13, Incorporated 1987. (Filed as Exhibit 3.1 to WorldCorp, Inc.'s Annual Report on by reference Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference.) 4.1 Indenture dated as of August 1, 1987 between WorldCorp, Inc. and Incorporated Norwest Bank of Minneapolis, N.A. (Filed as Exhibit 4.1 to Amendment No. 2 by reference to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed August 13, 1987 and incorporated herein by reference.] 4.2 First Supplemental Indenture dated as of March 1, 1988 between Incorporated WorldCorp, Inc. and Norwest Bank of Minneapolis, N.A. (Filed as by reference Exhibit 4.2 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference.) 4.3 Second Supplemental Indenture dated as of February 22, 1994 between Incorporated WorldCorp, Inc. and Norwest Bank Minnesota, National Association. (Filed by reference as Exhibit 4.3 to WorldCorp, Inc's Form S-3 Registration Statement (Commission file No. 33-60247) filed on June 15, 1995 and incorporated herein by reference.) 4.4 Third Supplemental Indenture dated as of March 15, 1995 between Incorporated WorldCorp, Inc. and Norwest Bank Minnesota, National Association. by reference (Filed as Exhibit 4.4 to WorldCorp, Inc's Form S-3 Registration Statement (Commission file No. 33-60247) filed on June 15, 1995 and incorporated herein by reference.) 4.6 First Supplemental Indenture dated as of February 22, 1994 between Incorporated WorldCorp, Inc. and The First National Bank of Boston, as Trustee. by reference (Filed as Exhibit 4.6 to WorldCorp, Inc's Form S-3 Registration Statement (Commission file No. 33-60247) filed on June 15, 1995 and incorporated herein by reference.) 4.8 Stock Option Agreement dated as of April 1, 1995 between WorldCorp, Incorporated Inc. and Patrick F. Graham. (Filed as Exhibit 4.8 to WorldCorp Inc's by reference Form S-3 Registration Statement (Commission file No. 33-60247) filed on June 15, 1995 and incorporated herein by reference.) 10.1 Warrant Agreement between WorldCorp, Inc. and Drexel Burnham Incorporated Lambert, Incorporated ("Drexel") dated as of June 30, 1988. (Filed by reference as Exhibit 10.1 to WorldCorp, Inc.'s Form 10-Q for the quarter ended March 31, 1989 and incorporated herein by reference.)
24 10.4 Aircraft Lease Agreement dated as of March 30, 1987 between World Incorporated Airways, Inc. and The Connecticut National Bank, not in its by reference individual capacity, but solely as Owner Trustee. (Filed as Exhibit 10.34 to World Airways, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1986 and incorporated herein by reference.) 10.5 Merger Agreement and Plan of Reorganization dated as of April 28, Incorporated 1987 by and among World Airways, Inc., World Merger Corporation by reference and WorldCorp, Inc. [Filed as Exhibit 10.50 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed on July 31, 1987 and incorporated herein by reference.] 10.6 Assumption Agreement dated as of June 23, 1987 among WorldCorp, Incorporated Inc., World Airways, Inc. and T. Coleman Andrews, III. [Filed as by reference Exhibit 10.51 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed on July 31, 1987 and incorporated herein by reference.] 10.7 Assumption Agreement dated as of June 23, 1987 among WorldCorp, Incorporated Inc., World Airways, Inc. and D. Fraser Bullock. [Filed as Exhibit by reference 10.52 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed on July 31, 1987 and incorporated herein by reference.] 10.8 Guaranty and Amendment Agreement dated as of June 23, 1987 Incorporated between WorldCorp, Inc. and The Connecticut National Bank, a by reference national banking association, as Owner Trustee, with Burnham Leasing Corporation, as Owner Participant. [Filed as Exhibit 10.55 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed July 31, 1987 and incorporated herein by reference.] 10.9 Form of Assumption Agreement dated as of June 23, 1987 among Incorporated WorldCorp, Inc., World Airways, Inc. and each Indemnified Party. by reference [Filed as Exhibit 10.60 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed on July 31, 1987 and incorporated herein by reference.] 10.11 Agreement between World Airways, Inc. and Flight Attendants Incorporated represented by International Brotherhood of Teamsters. [Filed by reference reference as Exhibit 10.67 to WorldCorp, Inc.'s Form S-3 Registration Statement (Commission File No. 2-91998) filed on December 10, 1987 and incorporated herein by reference.] 10.12 Agreement between World Airways, Inc. and Mechanics represented by Incorporated the International Brotherhood of Teamsters. (Filed as Exhibit 10.41 by reference to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference.) 10.13 Agreement between World Airways, Inc. and Stock Clerks and Store Incorporated Room Employees represented by the International Brotherhood of by reference Teamsters. (Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference.)
25 10.14 Office Lease - The Hallmark Building dated Incorporated as of May 16, Incorporated 1987 between WorldCorp, Inc. and GT Renaissance by reference Centre Limited by reference Partnership. (Filed as Exhibit 10.36 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.15 Lease Amendment dated as of June 27, 1989 Incorporated between Incorporated WorldCorp, Inc. and GT Renaissance Centre Limited by reference by reference Partnership. (Filed as Exhibit 10.37 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.16 Office Lease - The Hallmark Building dated as of September 20, 1989 between Incorporated World Airways, Inc. and GT Renaissance Centre Limited Partnership. by reference (Filed as Exhibit 10.38 to WorldCorp, Inc's Annual Report on form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.17 Warrant Agreement dated as of July 22, 1989 between WorldCorp, Inc. and Incorporated Charles W. Pollard. (Filed as Exhibit 10.45 to WorldCorp, Inc.'s Annual by reference Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.20 WorldCorp, Inc. Employee Savings and Stock Ownership Plan. (Filed as Exhibit Incorporated 10.49 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year by reference ended December 31, 1989 and incorporated herein by reference.) 10.21 Amendment No. 1 to WorldCorp Inc. Employee Savings and Stock Ownership Plan. Incorporated (Filed as Exhibit 10.50 to WorldCorp, Inc.'s Annual Report on Form 10-K by reference for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.27 Aircraft Warranty Bill of Sale dated as of January 15, 1991 between Incorporated World Airways, Inc. and First Security Bank of Utah, N.A., not in its by reference individual capacity, but solely as Owner Trustee. (Filed as Exhibit 10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.) 10.28 Aircraft Lease Agreement dated as of January 15, 1991 between World Incorporated Airways, Inc. and First Security Bank of Utah, N.A., not in its by reference individual capacity, but solely as Owner Trustee. (Filed as Exhibit 10.47 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.) 10.29 Loan and Security Agreement dated as of February 26, 1992 between Incorporated WorldCorp, Inc. and US Order Incorporated. (Filed as Exhibit 10.38 by reference to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.30 Aircraft Lease Agreement I dated as of Incorporated February 12, 1992 Incorporated between McDonnell Douglas Finance Corporation and World Airways, by reference Inc. by reference (Filed as Exhibit 10.39 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.)
26 10.31 Aircraft Lease Agreement II dated as of February 12, 1992 between Incorporated McDonnell Douglas Finance Corporation and World Airways, Inc. by reference (Filed as Exhibit 10.40 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.32 Aircraft Engine Purchase Agreement dated as of April 26, 1991 between Incorporated Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference Exhibit 10.41 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.33 Aircraft Engine Lease Agreement dated as of April 26, 1991 between Incorporated Incorporated Terandon Leasing Corporation and World Airways, Inc. by reference (Filed as by reference Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.34 Guaranty Agreement I dated as of February 12, 1992 between McDonnell Incorporated Incorporated Douglas Finance Corporation and World Airways, Inc. (Filed by reference as Exhibit by reference 10.43 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.35 Guaranty Agreement II dated as of February 12, 1992 between McDonnell Incorporated Incorporated Douglas Finance Corporation and World Airways, Inc. (Filed by reference as Exhibit by reference 10.44 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.36 Series A Preferred Stock Purchase Agreement dated as of September 14, Incorporated Incorporated 1990 between US Order, Inc. and WorldCorp, Inc. (Filed as by reference Exhibit 10.45 by reference to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.37 Stock Restriction Agreement dated as of September 14, 1990 between Incorporated Incorporated WorldCorp, Inc., William F. Gorog, Jonathan M. Gorog, by reference Peter M. Gorog, by reference Henry R. Nichols, William N. Melton and John Porter. (Filed as Exhibit 10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.38 Aircraft Lease Agreement for Aircraft Serial Number 48518 dated as Incorporated Incorporated of September 30, 1992 between World Airways, Inc. and by reference International by reference Lease Finance Corporation. 10.39 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as Incorporated Incorporated of September 30, 1992 between World Airways, Inc. and by reference International by reference Lease Finance Corporation. 10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated Incorporated of September 30, 1992 between World Airways, Inc. and by reference International by reference Lease Finance Corporation. 10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated Incorporated of September 30, 1992 between World Airways, Inc. and by reference International by reference Lease Finance Corporation.
27 10.42 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.43 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.45 MD-11 Aircraft Charter Agreement dated as of March 18, 1993 Incorporated between World Airways, Inc. and PT. Garuda Indonesia. by reference 10.45 DC10-30 Aircraft Charter Agreement dated as of March 18, 1993 Incorporated between World Airways, Inc. and PT. Garuda Indonesia. by reference 10.46 Accounts Receivable Management and Security Agreement dated as Incorporated of December 7, 1993 between World Airways, Inc. and BNY by reference Financial Corporation. 10.47 Aircraft Parts Security Agreement dated as of December 7, 1993 Incorporated between World Airways, Inc. and BNY Financial Corporation. by reference 10.48 Warrant Certificate dated as of December 7, 1993 between WorldCorp, Incorporated Inc. and BNY Financial Corporation. by reference 10.50 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated December 20, 1993 between US Order, Inc. and Knight-Ridder, Inc. by reference 10.51 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated December 21, 1993 between US Order, Inc. and WorldCorp, Inc. by reference 10.52 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated December 20, 1993 between US Order, Inc. and Jerome Kohlberg, Jr. by reference 10.53 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated December 21, 1993 between US Order, Inc. and Hoechst Celanese by reference Corporation Employee Benefit Master Trust 10.54 Series C Preferred Stock Purchase Agreement dated as of December Incorporated 21, 1993 between US Order, Inc. and VeriFone, Inc. by reference 10.55 Registration Rights Agreement dated as of December 21, 1993 Incorporated between US Order, Inc. and VeriFone, Inc. by reference 10.57 Investment Agreement dated as of December 21, 1993 by and among Incorporated US Order, Inc., WorldCorp, Inc., and VeriFone, Inc. by reference 10.58 Settlement Agreement dated as of February 8, 1994 between World Incorporated Airways, Inc, WorldCorp, Inc., Concord Asset Management, Inc., by reference Concord Leasing, Inc., and The CIT Group. 10.59 Lease Agreement dated as of June 1, 1993 between World Airways, Incorporated Inc. and Mattei Corporation. by reference 10.60 Lease Agreement dated as of March 30, 1993 between World Airways, Incorporated Inc. and Tinicum Properties Associates Limited Partnership, as by reference amended by First Amendment to Lease dated July 9, 1993.
28 10.61 Lease Agreement dated as of January 25, 1993 between World Flight Incorporated Crew Services, Inc. and Sakioka Farms. by reference 10.62 Consignment Agreement dated as of September 30, 1993 between World Incorporated Airways Inc. and The Memphis Group. by reference 10.63 Assignment and Assumption and Consent and Release for Aircraft Incorporated Serial Number 47818 dated as of July 20, 1993 among World by reference Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and McDonnell Douglas Finance Corporation. 10.64 Assignment and Assumption and Consent and Release for Aircraft Incorporated Serial Number 46999 dated as of July 9, 1993 among World by reference Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and McDonnell Douglas Finance Corporation. 10.65 Aircraft Lease Agreement for Aircraft Serial Number 48458 dated as Incorporated of January 15, 1993 between World Airways, Inc. and Wilmington by reference Trust Company/GATX Capital Corporation. 10.66 Aircraft Lease Supplement for Aircraft Serial Number 48458 dated as Incorporated of April 23, 1993 between World Airways, Inc. and Wilmington Trust by reference Company/GATX Capital Corporation. 10.67 Aircraft Spare Parts Lease Agreement dated as of April 15, 1993 Incorporated between World Airways, Inc. and GATX Capital Corporation. by reference 10.68 Amendment No. 1 To Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48518 dated as of November 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.69 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48518 dated as of March 8, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.70 Assignment of Rights for Aircraft Serial Number 48518 dated as of Incorporated March 8, 1993 between World Airways, Inc. and International Lease by reference Finance Corporation. 10.71 Assignment of Rights for Aircraft Engines Serial Numbers P723942, Incorporated P723945, and P723943 dated as of March 1, 1993 between World by reference Airways, Inc. and International Lease Finance Corporation. 10.72 Agency Agreement for Aircraft Serial Number 48518 dated as of Incorporated January 15, 1993 between World Airways, Inc. and International by reference Lease Finance Corporation. 10.73 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48437 dated as of March 31, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.74 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48437 dated as of April 15, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation.
29 10.75 Agency Agreement for Aircraft Serial Number 48437 dated as of Incorporated January 15, 1993 between World Airways, Inc. and International by reference Lease Finance Corporation. 10.76 Assignment of Rights for Aircraft Serial Number 48437 dated as of Incorporated April 15, 1993 between World Airways, Inc. and International Lease by reference Finance Corporation. 10.77 Assignment of Rights for Aircraft Engines Serial Numbers P723913, Incorporated P723912, and P723914 dated as of April 15, 1993 between World by reference Airways, Inc. and International Lease Finance Corporation. 10.78 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48520 dated as of April 22, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.79 Agency Agreement for Aircraft Serial Number 48520 dated as of Incorporated January 15, 1993 between World Airways, Inc. and International by reference Lease Finance Corporation. 10.80 Assignment of Rights for Aircraft Serial Number 48520 dated as of Incorporated April 22, 1993 between World Airways, Inc. and International Lease by reference Finance Corporation. 10.81 Assignment of Rights for Aircraft Engines Serial Numbers P723957, Incorporated P723958, and P723956 dated as of March 1, 1993 between World by reference Airways, Inc. and International Lease Finance Corporation. 10.82 Aircraft Charter Agreement dated as of July 24, 1993 between World Incorporated Airways, Inc. and Malaysian Airline System Berhad. by reference 10.83 Amendment No. 1 to Aircraft Lease Agreement for Aircraft Serial Incorporated Numbers 46835, 46837, and 46820 dated as of May 14, 1993 between by reference World Airways, Inc. and The Connecticut National Bank (assigned to Federal Express Corporation). 10.84 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Numbers 46835, 46837, and 47820 dated as of May 14, 1993 between by reference World Airways, Inc. and The Connecticut National Bank (assigned to Federal Express Corporation). 10.85 Return Agreement for Aircraft Serial Numbers 47818 and 46999 dated Incorporated as of July 9, 1993 among World Airways, Inc., WorldCorp, Inc., by reference International Lease Finance Corporation, McDonnell Douglas Corporation, and McDonnell Douglas Finance Corporation. 10.86/1/ Acquisition Agreement Among VISA International Service Association, Incorporated US Order, Inc, and WorldCorp, Inc, dated as of July 15, 1994. by reference 10.87 Stock Purchase Agreement by and among World Airways, Inc., Incorporated WorldCorp, Inc., and Malaysian Helicopter Services Berhad dated as by reference of October 30, 1993. 10.88 Stock Registration Rights Agreement between World Airways, Inc. Incorporated and Malaysian Helicopter Services Berhad dated as of October 30, by reference 1993.
30 10.89 Shareholders Agreement between Malaysian Helicopter Services Incorporated Berhad and WorldCorp, Inc., and World Airways, Inc. dated as of by reference February 3, 1994. 10.90 Amendment No. 1 to Shareholders Agreement dated as of February 28, Incorporated 1994, among WorldCorp, World Airways, and MHS. by reference 10.91 Right of First Refusal Agreement dated as of February 28, 1994, Incorporated between US Order, Inc. ("US Order") and Technology Resources, Inc. by reference Berhad ("TRI") 10.92 Amendment No. 1 dated as of August 29, 1991 to the US Order, Inc. Incorporated Stock Restriction Agreement dated as of September 14, 1990 among by reference WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William N. Melton and John Porter (collectively, the "Founders" and each a "Founder"), and the Employees. 10.93 Amendment No. 2 dated as of March 31, 1993 to the US Order, Inc. Incorporated Stock Restriction Agreement dated as of September 14, 1990 among by reference WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William N. Melton and John Porter (collectively, the "Founders" and each a "Founder"), and the Employees. 10.94 Stock Option Agreement dated as of August 1, 1994 ("Grant Date") Incorporated between WorldCorp, Inc. and William F. Gorog. by reference 10.95 Employment Agreement dated as of August 1, 1994 between US Incorporated Order, Inc. and John C. Backus, Jr. by reference 10.96 Employment Agreement dated as of August 19, 1994 between Incorporated WorldCorp, Inc. and T. Coleman Andrews, III. by reference 10.97 Stock Option Agreement dated as of August 19, 1994 ("Grant Date") Incorporated by and between WorldCorp, Inc. and T. Coleman Andrews, III. by reference 10.98 Agreement between World Airways, Inc. and the International Incorporated Brotherhood of Teamsters representing the Cockpit Crewmembers by reference employed by World Airways, Inc. dated August 15, 1994-June 30, 1998. 10.99 Letter Employment Agreement of William F. Gorog dated August Incorporated 25, 1994. by reference 10.100 Amendment No. 3 dated as of September 1, 1994 to the US Order, Inc. Incorporated Stock Restriction Agreement dated as of September 14, 1990 among by reference WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William N. Melton and John Porter (collectively, the "Founders" and each a "Founder"), and the Employees. 10.101 Aircraft Services Agreement dated September 26, 1994 by and between Incorporated World Airways, Inc. ("World") and Malaysian Airlines. by reference 10.102 Freighter Services Agreement dated October 1, 1994 by and between Incorporated World Airways, Inc. and Malaysian Airline System Berhad. by reference
31 10.103 World Airways, Inc. 1995 AMC Contract F11626-94-D0027 dated Incorporated October 1, 1994 between World Airways, Inc. and Air by reference Mobility Command. 10.104 Amendment No. 4 dated as of December 1, 1994 to the US Order, Inc. Incorporated Stock Restriction Agreement dated as of September 14, 1990 among by reference WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William N. Melton and John Porter (collectively, the "Founders" and each a "Founder"), and the Employees. 10.105 Stock Purchase Agreement (the "Agreement") dated as of December Incorporated 31, 1994 by and between MHS Berhad, a Malaysian corporation (the by reference "Shareholder") and WorldCorp, Inc., a Delaware corporation (the "Purchaser"). 10.106 Promissory Note dated December 31, 1994 for $8,500,000 between Incorporated WorldCorp, Inc., a Delaware corporation ("Borrower") and by reference Malaysian Helicopter Services Berhad, a Malaysian corporation ("Lender"). 10.107 Amendment No. 1 to Passenger Aircraft Services and Freighter Incorporated Services Agreement dated December 31, 1994 by and between by reference World Airways, Inc. and Malaysian Airline System Berhad. 10.108 Amendment No. 5 dated January 2, 1995 to the US Order, Inc. Stock Incorporated Restriction Agreement dated as of September 14, 1990 among by reference WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William N. Melton and John Porter (collectively, the "Founders" and each a "Founder"), and the Employees. 10.109 Customer Agreement between WorldCorp ESSOP and Scott & Incorporated Stringfellow, Inc. dated January 11, 1995 for a margin loan. by reference 10.110 Side Letter dated January 11, 1995 from Scott & Stringfellow, Inc. Incorporated to William F. Gorog, Trustee of WorldCorp Employee Savings and by reference Stock Ownership Plan for a margin loan to the WorldCorp ESSOP. 10.111 Guarantee Agreement dated January 11, 1995 by WorldCorp, Inc. Incorporated ("Guarantor") for the benefit of Scott & Stringfellow, Inc. (the by reference "Lender"). 10.112 Registration Rights Agreement dated as of January 11, 1995 by and Incorporated between WorldCorp, Inc. and Scott & Stringfellow, Inc. by reference 10.113 Side Letter dated January 11, 1995 from WorldCorp, Inc. to Scott & Incorporated Stringfellow, Inc. regarding commitment to make contributions to the by reference WorldCorp Employee Savings and Stock Ownership Plan (the "ESSOP"), for the duration of the Scott & Stringfellow loan to the ESSOP. 10.114 Strategic Alliance Agreement dated January 16, 1995 by and between Incorporated Colonial Data Technologies Corp. and US Order. by reference 10.115 Amendment No. 2 to Passenger Aircraft Services and Freighter Incorporated Aircraft Service Agreement dated February 9, 1995 by and between by reference World Airways, Inc. and Malaysian Airline System Berhad.
32 11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith 27 Financial Data Schedule for quarter ended March 31, 1996 Filed Herewith
/1/ Confidential treatment of portions of the Agreement has been granted by the Commission. The copy filed as an exhibit omits the information subject to confidentiality request. Confidential portions so omitted have been filed separately with the Commission. (b) Reports on Form 8-K None. * * * * * * * * * * 33 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WORLDCORP, INC. By: /s/ T. Coleman Andrews, III --------------------------- (T. Coleman Andrews, III) Chief Executive Officer, President, and Principal Accounting Officer Date: May 14, 1996 34 EX-27 2 FINANCIAL DATA SCHEDULE
5 This Schedule contains summary financial information extracted from WorldCorp and is qualified in its entirety by reference to such Financial Statements. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 58,414 0 13,806 441 0 91,120 86,878 19,297 193,647 70,047 0 0 0 16,461 (47,946) 193,647 0 72,864 0 83,724 2,301 0 2,841 (13,161) 0 (13,161) 0 0 0 (9,073) (0.56) 0
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