U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For year ended December 31, 2006 Commission File No. 0-28575
GLOBAL AIRCRAFT SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
| NEVADA | 84-1108499 | ||
|---|---|---|---|
| (State or other jurisdiction of | (I.R.S. Employer | ||
| Incorporation or organization) | Identification No.) | ||
6901 South Park Avenue | |||
| Tucson, Arizona 85706 | (520) 294-3481 | ||
| (Address of Principal Executive Offices) | (Issuer's Telephone No.) | ||
| Securities registered pursuant to | |||
| Section 12(b) of the Act: | None | ||
Securities registered pursuant to
Section 12(g) of the Act:
| Title of Each Class | Name of Exchange on Which Reported | ||
| Common stock, $.001 par value | Over the Counter Bulletin Board | ||
| (“OTCBB”) | |||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the securities Act.
[ ] Yes [ X ] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15 (d) of the Act.
[ ] Yes [ X ] No
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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
[ ] Yes [ X ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [ X ] No
Number of shares of common Stock outstanding as of March 23, 2007 was 39,636,301. The aggregate market value of Global stock held by non-affiliates Global as of June 30, 2006, the last day of business of our most recently completed second fiscal quarter was $21,994,126, which is based upon a closing share price of $1.25 per share as reported on the OTCBB.
Global Aircraft Solutions, Inc.
Form 10-K/A
Fiscal Year ended December 31, 2006
EXPLANATORY NOTE
We are filing this Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (this “Amendment No. 1”) to amend our Form 10-K for the same period initially filed with the Securities and Exchange Commission (the “SEC”) on April 23, 2007 (the “Initially Filed Form 10-K”). This Amendment No. 1 amends and restates the following Items of the Initially Filed Form 10-K: Part II, Item 8 — Financial Statements and Supplementary Data, and (ii) Part IV, Item 15 — Exhibits and Financial Statement Schedules. These items are being amended to reflect:
| (i) | the inclusion of an additional paragraph, which further describes the status of the settlement negotiations with Jetglobal, LLC, added to Note 1 of the Company’s financial statements |
| (ii) | a change in Note 3, under the subheading “Trade Accounts Receivable”, changing the second paragraph to reflect 2006 bad debt information |
| (iii) | an addition under Note 3 adding the subheading “Fair Value of Financial Instruments” and stating the Company’s significant accounting policies related to fair value |
| (iv) | additional information furnished under Note 9 including 2004 stock transaction descriptions |
| (v) | and the inclusion of an additional sentence, clarifying the recognition of revenue from aircraft leasing, added to the notes to the financial statements of Jetglobal, LLC under Note 2, subheading “Revenue and Cost Recognition”. |
In addition, we are filing herewith certain currently dated certifications pursuant to Rule 12b-15 of the Securities and Exchange Act of 1934, as amended (the “Securities Exchange Act”). No other information contained in the Initially Filed Form 10-K is being amended hereby and such information is not reproduced in this Amendment No. 1. All information in the Initially Filed Form 10-K, as amended by this Amendment No. 1, speaks as of the date of the original filing of the Initially Filed Form 10-K and does not reflect any subsequent information or events, except as presented in this Amendment No. 1 and except for Exhibits 31.1, 31.2, 31.3, 31.4 and 32.1.
All information contained in this Amendment No. 1 is subject to updating and supplementing as provided in our reports filed with the SEC subsequent to the date of the filing of the Initially Filed Form 10-K.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 is included following Part IV of this report.
Contractual obligations at December 31, 2006 are present in the following table:
| Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | |||||||
| Short-term debt | |||||||||||
| obligations | 5,109,848 | 5,109,848 | 0 | 0 | 0 | ||||||
| Capital lease | |||||||||||
| obligations | |||||||||||
| (present value) | 302,078 | 60,553 | 138,512 | 103,013 | 0 | ||||||
| Operating lease | |||||||||||
| obligations | 330,018 | 170,564 | 80,634 | 78,820 | 0 | ||||||
| Purchase | |||||||||||
| obligations | 395,345 | 395,345 | 0 | 0 | 0 | ||||||
| Totals | 6,125,013 | 5,732,657 | 210,523 | 181,833 | 0 | ||||||
PART 1V
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
| (a) | Exhibits. The following exhibits are filed with this report, except those indicated as having previously been filed with the Securities and Exchange Commission and incorporated by reference to another report, registration statement or form |
| (b) | As to any shareholder of record requesting a copy of this report, Global will furnish any exhibit indicated in the list below as filed with report upon payment to Global of its expenses in furnishing the information. |
2.1 Stock Exchange Agreement and Plan of Reorganization dated April 12, 2002, among the Company, JSC and the shareholders of JSC, incorporated by reference to Exhibit 2.1 to Form 8-K dated May 1, 2003 ........................................ 1
2.1 Stock Exchange Agreement and Plan of Reorganization dated April 30, 2002, among the Company, HAT and the shareholders of HAT, incorporated by reference to Exhibit 2.1 to Form 8-K dated May 3, 2003. ....................................... 1
3.1 Articles of Incorporation of Renegade Venture Corporation, incorporated by reference to Exhibit 3.1 to registration statement on Form S-18, file No. 33-30476 dated August 11, 1989 ............................ 1
3.2 Bylaws of Renegade Venture Corporation, incorporated by reference to Exhibit 3.2 to registration statement on form S-18, file No.33-30476 dated August 11, 1989 ................................ 1
3.5 Amendment to Articles of Incorporation of RenegadeVenture Corporation, incorporated by reference from Exhibit 3.5 to Form 8-K dated August 16, 1996 ........... 1
3.6 Articles and Certificate of Merger dated September 18, 1997, between Renegade Venture Corporation and Renegade Venture (Nev.) Corporation, a Nevada corporation, with Merger Agreement attached thereto as Exhibit A, incorporated by reference to Exhibit 2.1 to Form 8-K dated October 2, 1997. ............... 1
3.7 Certificate of Incorporation of Renegade Venture (Nev.) Corporation, incorporated by reference to Exhibit 3.1 to Form 8-K old-fashioned October 2, 1997................. 1
3.8 Bylaws of Renegade Venture (Nev.) Corporation, incorporated by reference to Exhibit 3.2 to Form 8-K dated October 2, 1997..................................... 1
3.9 Articles of Incorporation of Johnstone SoftMachine Corporation, incorporated by reference to Exhibit 3.1 to Form 8-K dated May 1, 2003 ............................ 1
3.9 SoftMachine Corporation, incorporated by reference to Exhibit 3.2 to Form 8-K dated May 1, 2003......................................... 1
3.11 Articles of Incorporation of Hamilton Aerospace Technologies, Inc., incorporated by reference to Exhibit 3.1 to Form 8-K dated May 3,2003…………................... 1
3.12 Bylaws of Hamilton Aerospace Technologies, Inc., incorporated by reference to Exhibit 3.2 to Form 8-K dated May 3, 2003......................................... 1
3.13 Amendment to Articles of Incorporation/By-Laws incorporated by reference to Form 8-K dated 12/16/04.....................1
3.14 Amended and Restated Articles of Incorporation of Global dated December 10, 2004 incorporated by reference to the SB-2 registration effective February 8, 2006
14.1 Code of Ethics, incorporated by reference to10-KSB dated December 31, 2004................................1
23.1 Consent of Independent Registered Public Accounting Firm..............................2
23.2 Consent of Independent Registered Public Accounting Firm..........................................2
23.3 Consent of Independent Registered Public Accounting Firm....................................2
31.1 Rule 13a –14/15d –14 (a) Certifications......................................2
32.1 Section 1350 Certifications.................................2
99.1 1997 Compensatory Stock Option Plan, incorporated by reference to Exhibit 10.1 to Form 8-K dated October 2, 1997............................................... 1
99.2 1997 Employee Stock Compensation Plan, incorporated by reference to Exhibit 10.2 to Form 8-K dated October 2, 1997..................................... 1
99.3 2002 Compensatory Stock Option Plan, incorporated by reference to Exhibit 99.1 to Form 8-K dated May 1, 2002....................................................... 1
1 - Incorporated by reference to another registration statement, report or document.
2 - Included as part of this Report.
Filed during 2005:
Item 1.01, Entry into a Material Definitive Agreement and Item 9.01 Financial Statements and Exhibits. The exhibit was a Press release of global aircraft solutions, Inc. issued January 20, 2005.........................1
Item 1.01 and Item 2.03, Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation of a Registrant, respectively and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Form of Loan Agreement among Global Aircraft Solutions, Inc., Hamilton Aerospace Technolgies, Inc. and World Jet Corporation as borrowers and Bank as lender; 99.2, Form of Promissory Note by Global Solutions, Inc., Hamilton Aeropsace Technologies, Inc. and World Jet Corporation in favor of Bank as Lender; 99.3, Form of Acknowledgement of Closing date of Line of Credit, issued July 14, 2005............1.
Item 1.01, Entry into a Material Definitive Agreement and Item 9.01 Financial Statements and Exhibits. The exhibit was Press Release of Global Aircraft Soluions, Inc. issued August 15, 2005....................1.
Item 1.01, Entry into a Material DefinitiveAgreement and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Operating agreement of Jetglobal, LLC and 99.2, Press Release of Global Aorcraft Solutions, Inc. issued September 1, 2005...................1.
Item 1.01, Entry into a Material DefinitiveAgreement and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Operating Agreement of Jetglogbal, LLC; 99.2, Press Release of Global Aircraft Solutions, Inc. issued September 1, 2005; 99.3, Aircraft Sale & Purchase Agreement between Jetglobal,LLC and Jetran, LLC, issued September 9, 2005..................................1
Item 1.01, Entry into a Material Definitive Agreement and Item 9.01 Financial statements and Exhibits. The exhibit was 99.1 Aircraft Sale and Purchase Agreement dated November 14, 2005..................1
Item 1.01, Entry into a Material Definitive Agreement, issued November 16, 2005...............1
Item 1.01 and Item 2.03, Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation of a Registrant, respectively and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Press Release of Global Aircraft Solutions, Inc. dated December 13, 2005 and 99.2, Form of Modificatin to Loan Agreement among Global Aircraft Solutions, Inc., Hamilton Aerospace Technologies, Inc. and World Jet Corporation as borrowers and Bank as lender issued December 14, 2005...................1
Item 2.02, Results of Operations and Financial Condition and Item 9.01 Financial Statements and Exhibits. The exhibit was 99.1, Transcript of November 16, 2005 Conference Call discussing financial performance and results of operations for fiscal quarter ended September 30, 2005, issued December 2, 2005...................1
Item 2.03 Creation of a direct FinancialObligation of a Registrant. And Item 9.01 Financial Statements and Exhibits. The exhibilts were 99.1, form of Loan Agreement between Hamilton Aerospace Technoloties, Inc. as Borrower and M&I Bank as Lender; 99.2, form of Promissory Note by Hamilton Aerospace Technologies, Inc. in favor M&I Bank as Lender; 99.3, Form of Security Agreement between Hamilton Aerospace Technologies, Inc., as grantors, in favor of M&I Bank as secured creditors; 99.4, form of Guaranty between Global Aircraft Solutions, Inc. (“Registrant”) and M&I Bank as Lender, issued February 8, 2005........................1
Item 3.02, Unregistered Sales of Equity Securities, issued August 2, 2005 ...................1.
Item 3.02, Unregistered Sales of Equity Securities, issued September 13, 2005.........................1
Item 7.01. Regulation FD Disclosure Agreement and Item 9.01 Financial Statements and Exhibits. The exhibit was 99.1, Press Release of Global Aircraft Solutions, Inc. issued November 17, 2005........................1
Item 7.01, Regulation FD Disclosure and Item 9.01 Financial Statements and Exhibits. The exhibit was 99.1, Global Aircraft Solutions, Inc. December 6, 2005 investor Presentation issued December 7, 2005………..1
1 - Incorporated by reference to another registration statement, report or document.
2 - Included as part of this Report.
(b) Reports on Form 8-K.
Filed during 4th Quarter of 2006:
Issued November 24, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01 Regulation FD Disclosure and Item 9.01, Financial Statements and Exhibits. The exhibit is the transcript of the November 17, 2006 Conference Call discussing financial performance and results of operation for fiscal quarter ended September 30, 2006.
Issued November 15, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01, regulation and Disclosure, and Item 99.1, Financial Statements and Exhibits. The exhibit was 99.1, Copy of November 15, 2006 Press Release.
Filed during 1st, 2nd and 3rd quarters of 2006:
Issued August 28, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01, Regulation and Disclosure, and Item 9.01 Financial Statements and Exhibits. The exhibit was 99.1, Transcript of Conference Call of August 15, 2006 discussing financial performance and results of operations for fiscal quarter ended June 30, 2006.
Issued May 22, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01, Regulation FD Disclosure, and Item 9.01 Financial Statements and Exhibits. The exhibit was the transcript of the May 18, 2006 Conference Call discussing financial performance for fiscal quarter ended March 31, 2006.
Issued May 19, 2006, Item 7.01 Regulation FD Disclosure and Item 9.01 Financial Statements and Exhibits. The exhibit was the Investor Presentation on May 18, 2006.
Issued May 16, 2006, Item 2.02, Results of Operations and Financial Condition and Item 9.01, Financial Statements and Exhibits. The exhibit was a copy of the May 16, 2006 Press Release.
Issued May 16, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01, Regulation FD Disclosure and Item 9.01, Financial Statements and Exhibits. The exhibits were copy of April 25, 2006 Press Release and copy of May 16, 2006 Press Release.
Issued May 4, 2006, Item 1.01, Entry into a Material Definitive Agreement, Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, Item 9.01, Financial statements and Exhibits. The exhibit was a Press Release issued May 3, 2006.
Issued April 25, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01, Regulation FD Disclosure and Item 9.01, Financial Statements and Exhibits. The exhibit was a copy of the April 25, 2006 Press Release.
Issued April 13, 2006, Item 2.02 Results of Operations and Financial Condition, Item 7.01, Regulation FD Disclosure and Item 9.01 Financial Statements and Exhibits. The exhibit was the transcript of April 10, 2006 Conference Call discussing financial performance and results of operations for fiscal year ended December 31, 2005.
Issued April 11, 2006, Item 2.02, Results of Operations and Financial Condition, Item 7.01, Regulation FD Disclosure and Item 9.01, Financial Statements and Exhibits. The exhibit was copy of April 10, 2006 Press Release.
Issued January 30, 2006, Item1.01, Entry into a Material Definitive Agreement, Item 2.03, Creation of a Direct Financial Obligation of a Registrant and Item 9.01, Financial Statements and Exhibits. The Exhibits were Press Release dated December 13, 2005 and a Form of Modification to Loan Agreement with M&I Bank as lender.
Issued January 25, 2006, Item 1.01, Entry into a Material Definitive Agreement and Item 9.01, Financial Statements and Exhibits. The exhibits were Operating Agreement for Jetglobal, LLC, Press Release issued September 1, 2005 and Aircraft Sale & Purchase Agreement between Jetglobal, LLC and Jetran, which is the subject of a request for confidential treatment.
Issued January 11, 2006, Item 4.01, Changes in Registrant’s Certifying Accountant, Item, 5.02, Departure of Directors or Principal Officers; Election of Directors; appointment of Principal Officers, Item 9.01, Financial Statements and Exhibits. The exhibits are Letter from Larry O’Donnell CPA, PC to the SEC and January 9, 2006 Press Release announcing the Change in Registrant’s Certifying Accountant and the addition of a member to the Board of Directors.
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 30, 2007
GLOBAL AIRCRAFT SOLUTIONS, INC. |
By: /s/ Ian Herman |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | |||
|---|---|---|---|---|---|
| /s/ Ian Herman | Chairman of the Board of Directors, Chief Executive | April 30 2007 | |||
| Ian Herman | Officer and Director | ||||
| /s/ John B. Sawyer | President, Chief Operating Officer and Director | April 30, 2007 | |||
| John B. Sawyer | |||||
| /s/ Lawrence Mulcahy | Director | April 30, 2007 | |||
| Lawrence Mulcahy | |||||
| /s/ Govindrajan Sankar | Chief Financial Officer | April 30, 2007 | |||
| Govindarajan Sankar | |||||
| /s/ Patricia Graham | Principal Accounting Officer | April 30, 2007 | |||
| Patricia Graham | |||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Global Aircraft Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Global Aircraft Solutions, Inc. and subsidiaries (the “Company”) as of December 31, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Global Aircraft Solutions, Inc. and subsidiaries at December 31, 2006, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements the Company intends to divest its 30% ownership interest in Jetglobal, LLC.
As described in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for share-based payments in accordance with Financial Accounting Standards Board Statement No. 123R,Share-Based Payment.
/s/ Moss Adams LLP
Scottsdale, Arizona
April 16, 2007
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Global Aircraft Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Global Aircraft Solutions, Inc. and subsidiaries as of December 31, 2005 and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion of these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Aircraft Solutions, Inc. and subsidiaries as of December 31, 2005 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ EPSTEIN, WEBER & CONOVER, PLC
Scottsdale, Arizona
April 3, 2006
| Larry O’Donnell, CPA, P.C. | |||||
| Telephone (303-745-4545 | 2828 South Fraser Street | ||||
| Unit 1 | |||||
| Aurora, Colorado 80014 | |||||
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Global Aircraft Solutions, Inc.
Tucson, Arizona
I have audited the accompanying balance sheet of Global Aircraft Solutions, Inc. (formerly Renegade Venture (Nev.) Corporation ,as of December 31, 2004, and the related statements of loss, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Aircraft Solutions, Inc. (formerly Renegade Venture (Nev.) Corporation as of December 31, 2004, and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Larry O’Donnell, CPA, P.C.
March 25, 2005
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Balance Sheets
December 31, 2006 and 2005
ASSETS
| 2006 | 2005 | ||||||
|---|---|---|---|---|---|---|---|
| CURRENT ASSETS | |||||||
| Cash and cash equivalents | $ 104,440 | $ 368,013 | |||||
| Accounts receivable | 7,870,799 | 4,751,546 | |||||
| Note receivable | 455,859 | 1,997,868 | |||||
| Due from equity investee partner | 3,946,414 | 2,888,006 | |||||
| Inventory | 7,852,691 | 8,767,435 | |||||
| Restricted funds | 65,500 | 98,500 | |||||
| Deferred income taxes | 299,508 | 130,000 | |||||
| Other current assets | 191,114 | 304,987 | |||||
| TOTAL CURRENT ASSETS | 20,786,325 | 19,306,355 | |||||
| Property, plant and equipment | 1,521,037 | 1,642,141 | |||||
| Investments | 25,000 | ||||||
| Equity in net assets of and advances to affiliates | 6,063,067 | 3,687,276 | |||||
| Customer list, net | 133,886 | ||||||
| Agreement with vendor, net | 28,490 | ||||||
| Goodwill | 38,992 | 38,992 | |||||
| Other assets | 64,855 | 192,481 | |||||
| TOTAL ASSETS | $ 28,474,276 | $ 25,054,621 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Balances Sheet
December 31, 2006 and 2005
LIABILITIES AND STOCKHOLDERS’ EQUITY
| 2006 | 2005 | ||||||
|---|---|---|---|---|---|---|---|
| CURRENT LIABILITIES | |||||||
| Notes payable | $ 5,101,568 | $ 2,564,739 | |||||
| Accounts payable – trade | 5,001,567 | 7,181,397 | |||||
| Customer deposits | 541,878 | ||||||
| Billings in excess of costs and estimated | |||||||
| earnings on contracts in progress | 224,046 | 23,458 | |||||
| Accrued liabilities | 493,404 | 570,724 | |||||
| Income taxes payable | 735,466 | 685,904 | |||||
| Current maturities – LT Capital leases | 53,247 | ||||||
| Commitments & contingencies | |||||||
| TOTAL CURRENT LIABILITIES | 12,151,176 | 11,026,222 | |||||
| LONG-TERM LIABILITIES | |||||||
| Capitalized lease obligations | 224,867 | ||||||
| Deferred Tax Liability | 344,027 | ||||||
| TOTAL LONG-TERM LIABILITIES | 568,894 | ||||||
| TOTAL LIABILITIES | 12,720,070 | 11,026,222 | |||||
| STOCKHOLDERS' EQUITY | |||||||
| Common stock, $.001 par value, 100,000,000 | |||||||
| Shares authorized in 2006 and 2005; shares | |||||||
| issued 39,967,807 and 38,998,215 in 2006 | |||||||
| and 2005; shares outstanding 39,587,807 and | |||||||
| 38,618,215 2006 and 2005 | 39,967 | 38,998 | |||||
| Additional paid-in capital | 12,723,213 | 11,904,683 | |||||
| Deferred compensation | (80,000 | ) | |||||
| Contributed capital | 620,289 | 620,289 | |||||
| Retained earnings | 2,370,737 | 1,544,429 | |||||
| TOTAL STOCKHOLDERS' EQUITY | 15,754,206 | 14,028,399 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 28,474,276 | $ 25,054,621 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Statements of Operations
Years ended December 31, 2006, 2005 and 2004
| 2006 | 2005 | 2004 | |||||
|---|---|---|---|---|---|---|---|
| Net sales | |||||||
| $ 34,542,195 | $ 41,228,648 | $ 30,851,118 | |||||
| Cost of sales | (25,748,049 | ) | (30,842,461 | ) | (24,195,426 | ) | |
| Inventory write down | (192,775 | ) | (215,500 | ) | (212,500 | ) | |
| Gross profit | 8,601,371 | 10,170,687 | 6,443,192 | ||||
| Selling, general and administrative expenses | (8,591,738 | ) | (7,780,332 | ) | (4,826,519 | ) | |
| Penalties | (11,742 | ) | (1,061 | ) | (295,903 | ) | |
| Gain (loss) from operations | (2,109 | ) | 2,389,294 | 1,320,770 | |||
| Other income (expense): | |||||||
| Interest income | 76,414 | 245,610 | 87,521 | ||||
| Interest expense | (587,183 | ) | (386,927 | ) | (329,023 | ) | |
| Gain on renegotiation of contract | 1,144,502 | ||||||
| Miscellaneous expense | (197,932 | ) | (110 | ) | (9,084 | ) | |
| Miscellaneous income | 114,874 | 130,571 | 76,600 | ||||
| Gain on sale of interest in aircraft | 1,268,970 | ||||||
| Equity in income and transactions with unconsolidated affiliate | 1,808,744 | (157,874 | ) | ||||
| Net profit (loss), before income taxes | |||||||
| 1,212,808 | 3,489,534 | 2,291,286 | |||||
| Provision for Income Taxes | (386,500 | ) | (366,178 | ) | |||
| Net profit (loss), after taxes | $ 826,308 | $ 3,123,356 | $ 2,291,286 | ||||
| Net profit (loss) per share, Basic (2006 39,118,400 shares; 2005 | |||||||
| 33,848,722 shares; 2004 24,443,256 shares) | $ 0.02 | $ 0.09 | $ 0.09 | ||||
| Net profit (loss) per share, Fully diluted (2006 40,375,173 shares; | |||||||
| 2005 35,260,671 shares; 2004 24,986,985 shares) | $ 0.02 | $ 0.09 | $ 0.09 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Years Ended December 31, 2006, 2005 and 2004
| Shares | Common Stock | Additional Paid in capital | Contributed capital | Accumulated earnings | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | |||||||||
| Balance on December 31, 2003 | 17,480,000 | 17,860 | 2,090,373 | 620,289 | (3,870,213 | ) | (1,151,691 | ) | |||||
| Shares sold | 11,715,386 | 11,715 | 3,956,432 | 3,968,147 | |||||||||
| Shares issued for purchase | |||||||||||||
| of World Jet | 1,000,000 | 1,000 | 499,000 | 500,000 | |||||||||
| Shares issued on Options | |||||||||||||
| exercised | 55,000 | 55 | 17,545 | 17,600 | |||||||||
| Options issued | 57,000 | 57,000 | |||||||||||
| Shares issued | 400,000 | 400 | 91,600 | 92,000 | |||||||||
| Compensation expensed | 12,000 | 12,000 | |||||||||||
| Shares vested on | |||||||||||||
| employment agreements | 320,000 | 320,000 | |||||||||||
| Net income | 2,291,286 | 2,291,286 | |||||||||||
| Balance December 31, 2004 | 30,650,386 | 31,030 | 7,033,950 | 620,289 | (1,578,927 | ) | 6,106,342 | ||||||
| Shares sold | 7,200,000 | 7,200 | 4,644,000 | 4,651,200 | |||||||||
| Shares issued under | |||||||||||||
| non-cash warrant provisions | 442,829 | 443 | (443 | ) | 0 | ||||||||
| Options exercised | 50,000 | 50 | 14,950 | 15,000 | |||||||||
| Shares issued,directors | 200,000 | 200 | 76,800 | 77,000 | |||||||||
| Shares vested on | |||||||||||||
| employment agreements | 75,000 | 75 | 55,425 | 55,500 | |||||||||
| Net income | 3,123,356 | 3,123,356 | |||||||||||
| Balance December 31, 2005 | 38,618,215 | 38,998 | 11,824,683 | 620,289 | 1,544,429 | 14,028,399 | |||||||
| Exercise of warrants | 387,092 | 387 | 95,767 | 96,154 | |||||||||
| Share-based payments to | |||||||||||||
| directors | 30,000 | 30 | 73,470 | 73,500 | |||||||||
| Stock issued to employees | |||||||||||||
| for compensation | 552,500 | 552 | 581,214 | 581,766 | |||||||||
| Tax effects of share-based | |||||||||||||
| payments | 148,079 | 148,079 | |||||||||||
| Net income | 826,308 | 826,308 | |||||||||||
| Balance December 31, 2006 | 39,587,807 | 39,967 | 12,723,213 | 620,289 | 2,370,737 | 15,754,206 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2006 and 2005
| 2006 | 2005 | 2004 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) in Cash and Cash Equivalents: | |||||||||
| Cash flows from operating activities: | |||||||||
| Net Profit | $ 826,308 | $ 3,123,356 | $ 2,291,286 | ||||||
| Adjustments to reconcile net income to net | |||||||||
| cash provided by operating activities: | |||||||||
| Equity in income of unconsolidated affiliate | (1,808,745 | ) | 157,874 | ||||||
| Gain on sale of interest in aircraft | (1,268,970 | ) | |||||||
| Depreciation | 582,710 | 489,818 | 325,966 | ||||||
| Amortization | 162,377 | 162,376 | 162,376 | ||||||
| Write down of inventory | 192,775 | 212,500 | 212,500 | ||||||
| Deferred income taxes | 175,118 | 6,400 | |||||||
| Allowance for Doubtful Accounts | 337,508 | 473,208 | 14,944 | ||||||
| Loss on disposal of fixed | 50,874 | ||||||||
| assets/investments | |||||||||
| Gain from Renegotiation of Contract | (1,144,502 | ) | |||||||
| Expenses paid with stock | 617,459 | 326,594 | 476,613 | ||||||
| Net adjustments to reconcile net Profit to | 310,076 | 559,800 | 47,897 | ||||||
| net cash | |||||||||
| Changes in Assets and Liabilities: | |||||||||
| Accounts receivable | (4,003,930 | ) | (2,775,131 | ) | (3,584,402 | ) | |||
| Prepaid expenses | 190,625 | (115,149 | ) | (75,157 | ) | ||||
| Inventory | 721,969 | (5,260,186 | ) | (1,631,494 | ) | ||||
| Investments | (25,000 | ) | |||||||
| Restricted funds | 33,000 | (98,500 | ) | (409 | ) | ||||
| Other current assets | 56,384 | 83,906 | |||||||
| Other non-current assets | 127,027 | (177,788 | ) | (212,500 | ) | ||||
| Accounts payable – trade | (2,235,466 | ) | 4,535,546 | 2,269,999 | |||||
| Accounts payable - related parties | (6,219 | ) | 16,173 | ||||||
| Customer deposits | 541,878 | (280,537 | ) | 252,737 | |||||
| Billings in excess of cost and estimated | |||||||||
| earnings on contracts in progress | 200,588 | (942,780 | ) | 642,552 | |||||
| Income Taxes Payable | 49,563 | 374,722 | 208,989 | ||||||
| Accrued liabilities | (77,320 | ) | (272,908 | ) | (414,735 | ) | |||
| Net cash used by operating activities | (3,315,682 | ) | (1,279,390 | ) | (130,158 | ) | |||
| Cash flows from investing activities: | |||||||||
| Purchase of property, plant and equipment | (187,261 | ) | (499,827 | ) | (1,388,070 | ) | |||
| Purchase of World Jet, net of cash acquired | (959,644 | ) | |||||||
| Payments received on notes receivable | 1,547,010 | 196,390 | |||||||
| Distributions from Jetglobal, LLC | 300,000 | ||||||||
| Investment in Jetglobal, LLC | (867,046 | ) | (5,222,594 | ) | |||||
| Net cash provided/(used) by investing activities | 792,703 | (5,526,031 | ) | (2,347,714 | ) | ||||
| Cash flows from financing activities: | |||||||
| Proceeds from issuance of common stock | 96,154 | 4,911,000 | 4,381,600 | ||||
| Payments related to common stock issued | (244,800 | ) | (395,853 | ) | |||
| Proceeds from bank loans | 5,746,247 | 7,511,373 | 1,723,686 | ||||
| Repayments of bank loans | (3,419,839 | ) | (4,949,634 | ) | (1,851,400 | ) | |
| Due to factor | (604,409 | ) | (394,391 | ) | |||
| Redemption of shares | (400,535 | ) | |||||
| Payments on notes payable | (280,496 | ) | |||||
| Payments on capital lease obligations | (25,846 | ) | |||||
| Excess tax benefits from stock options exercised | 148,188 | ||||||
| Other financing activities, net | (5,002 | ) | (44,011 | ) | |||
| Net cash provided by financing activities | 2,259,406 | 6,623,530 | 3,019,096 | ||||
| Net increase (decrease) in cash and cash equivalents | (263,573 | ) | (181,891 | ) | 541,224 | ||
| Cash and cash equivalents at beginning of period | 368,013 | 549,904 | 8,680 | ||||
| Cash and cash equivalents at end of period | 104,440 | 368,013 | 549,904 | ||||
| 1. | Interest paid in 2006 was $558,644, in 2005 was $375,745 and in 2004 $329,023. |
| 2. | No taxes were paid in 2004, $121,473 was paid in 2005, and $14,351 was paid in 2006. |
Schedule of non-cash investing and financing activities:
| o | During the 4th quarter of 2005 $1,475,000 in accounts receivable was transferred to a Note receivable. The Note stipulated weekly payments of $52,993.76, had an interest rate of 8 % per annum, and was all due and payable on or before June 9, 2006. The Note was paid. |
| o | During the 4th quarter of 2005, a note receivable in the amount of $600,000 was issued to Avolar Aero Lineas SA de CV. The due date of the note has been extended and the principal balance at December 31, 2006 was $300,000. The note bears interest at 6.5% per annum. |
Property, plant and equipment increased $305,219 as a result of Capital Lease agreements. The actual cash payouts for capital lease obligations are reflected in cash flow statement. |
The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2006, December 31, 2005 and December 31, 2004
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of Global Aircraft Solutions, Inc., formerly Renegade Venture (NEV.) Corporation and its wholly owned subsidiaries, Hamilton Aerospace Technologies, Inc. (“HAT”) and Johnstone Softmachine Corporation (“Johnstone”), and World Jet Corporation (“World Jet”), collectively, the “Company”. HAT and Johnstone were acquired by Global on May 2, 2002. For accounting purposes, the transaction has been treated as an acquisition of Global, formerly Renegade Venture (NEV.) Corporation by HAT and as a recapitalization of Global, formerly Renegade Venture (NEV.) Corporation. The acquisition of 100% of World Jet, Inc. was finalized on July 15, 2003, with an effective date of January 1, 2003. As such, the financial statements reflect the accounting activity of HAT since its inception date of April 5, 2002 and of World Jet since January 1, 2004. Johnstone is currently inactive.
All material transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements.
Management has decided to transfer its ownership interest in Jetglobal, LLC, an entity in which the Company has a 30% ownership interest, to the other partner in Jetglobal, LLC, BCI Aircraft Leasing, in consideration for cash and aircraft inventory. The parties are now drafting an agreement wherein it is anticipated that BCI will pay the Company cash plus transfer, free and clear, ownership to the Company, aircraft from Jetglobal inventory to settle, in full, all amounts due to the Company for services provided to BCI and return the carrying value of the Company’s ownership in Jetglobal, LLC. A final agreement and settlement has not been reached between the parties at this time.
2. ORGANIZATIONS AND NATURE OF OPERATIONS
Global Aircraft Solutions, Inc., formerly Renegade Venture (Nev.) Corporation, formerly Renegade Venture Corporation, was incorporated on February 13, 1989, as a Delaware corporation. In 1997, the Company was re-domiciled as a Nevada Corporation through a merger with a newly formed Nevada Corporation, Renegade Venture (NEV.) Corporation, a wholly owned subsidiary of Renegade Venture Corporation.
On May 2, 2002, the Company acquired 100% of the common stock of Hamilton Aerospace Technologies Inc. ("HAT") pursuant to a Stock Exchange Agreement whereby the former shareholders of HAT received 12,500,000 common shares of Renegade Venture (NEV.) Corporation, now Global Aircraft Solutions, Inc. Subsequent to this reverse merger there were 16,200,000 total common shares outstanding. HAT was formed on April 5, 2002 and commenced operations on April 15, 2002. HAT provides large aircraft maintenance, repair and modification services to owners and operators of large transport-category commercial jet aircraft. Services of this nature are required and needed by passenger and cargo air carriers, aircraft lessors, and governmental entities. HAT provides services to both domestic and foreign customers.
On April 12, 2002, Renegade Venture (NEV.) Corporation, now Global aircraft solutions, Inc., acquired 100% of the common stock of Johnstone Softmachine Corporation (Johnstone) pursuant to the Stock Purchase Agreement and Plan of Reorganization by and between LogiCapital Corporation (the principal shareholder of Johnstone), an entity controlled by John Brasher, who, at that time, was a director of Renegade Venture (NEV.) Corporation (he has since resigned) and Renegade Venture (NEV.) Corporation. Mr. Brasher was also a principal stockholder of Renegade Venture (NEV.) Corporation prior to the merger. As such, this transaction represented a transfer between control groups and is reported on a historical cost basis. Johnstone was formed on May 8, 1996 has had no substantial operations, and is in the development stage. Johnstone currently lacks the funding necessary to commence operations.
On July 15, 2004, the Company finalized an agreement to buy 100% of the common stock of World Jet Corporation, a privately held aircraft parts and brokerage company for $2.05 million payable as follows: $1,250,000 in cash at closing, $300,000 in the form of a note maturing January 27, 2005, and 1,000,000 shares of restricted common stock valued at $0.50 per share for the purposes of this transaction ($500,000). The effective date of this agreement is January 1, 2004. The shares were issued in July 2004. As a result of the acquisition, the Company expects to increase its sales to existing customers as well as those serviced by World Jet by combining the products and services of the two companies. It also expects to lower its parts costs through World Jet’s purchasing abilities.
During 2006, the Company formed Mexican corporation, Hamilton Aerospace Mexico, S.A. de C.V. The purpose of the new corporation was to satisfy Mexican governmental requirements related to the flight line servicing of Mexican airline, Avolar Aerolineas, S.A. de C.V.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider cash and investments in securities with maturities at the date of purchase of three months or less to be cash and cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Trade Accounts Receivable
Trade accounts receivable represent amounts billed but uncollected on both completed and in-progress aircraft repair and maintenance contracts as well as amounts billed but uncollected on parts shipped to customers.
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. The allowance is estimated as a percentage of accounts receivable based on a review of accounts receivable outstanding and the Company's prior history of uncollectible accounts receivable. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. Changes in the valuation allowance were material to the financial statements in 2006 and 2005. During 2006, the Company had bad debt expense of $338,000. During 2005, the Company had bad debt expense of $473,000. The Company believes its allowance at December 31, 2006 is adequate based upon review of our outstanding accounts receivable at December 31, 2006.
At December 31, 2006, the Company had a receivable of $590,000, for which the Company has reserved $285,000, from a customer that has filed for reorganization under Chapter 11 of the Bankruptcy Code. Management believes that it has a substantial position in the bankruptcy proceeding and that the Company has adequate collateral, which it will take as payment for this receivable.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories include new, used parts and parts stripped from aircraft. These inventory items are initially carried at original cost basis determined on the pro-rata fair value of the individual parts based on market or catalog pricing. Inventory items held for over one year are no longer classified as “inventory, non-current”. All aircraft parts inventory are grouped as “Inventory, net of allowance for slow moving and obsolete inventory” and accounted under ‘Current Assets’ category. This is based on standard aviation industry practice of showing all aircraft parts under single line item of inventory. Aircraft parts typically have more than one year of life. Rotable parts have the same life as the aircraft. Repairable parts can be repaired several times over the life of the aircraft and installed on the aircraft. This is a reclassification to conform with what we now believe is more appropriate. This change will not impact the current quarter results or past results of the company. However in the future when the allowance for slow moving and obsolete inventory is provided for, the allowance will be a considered as an expense for the company.
The Company reviews the market value of inventories whenever events and circumstances indicate that the carrying value of inventories may not be recoverable from the estimated future sales price less cost of disposal and normal gross profit. In cases where the market values are less than the carrying value, a write down is recognized equal to an amount by which the carrying value exceeds the market value of inventories.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided for on the straight-line on the straight-line method over the estimated useful lives of the assets. The estimated useful life of computer equipment and software is three years at both our HAT and World Jet subsidiaries; the estimated useful life of all other categories of assets at our HAT subsidiary is five years. World Jet uses estimated useful lives of 3, 5, and 7 years for its other assets. Amortization of leasehold improvements is computed using the shorter of the lease term or the expected useful life of the assets. Maintenance and repairs that neither materially adds to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.
The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result form its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolesce, demand, competition, and other economic factors.
Revenue and Cost Recognition
Revenues from fixed-fee contracts or portions of contracts for MRO sales are recognized by employing the percentage-of-completion method, measured by the cost-to-cost method, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. The cumulative catch-up method is used to account for changes in estimates of total revenues, total costs or extent of progress. Each project is considered complete when the subject aircraft departs, or is cleared to depart, our facility. Revision in cost and labor hour estimates and recognition of losses, if any, on these contracts are reflected in the accounting period in which the facts become known. During the periods covered by these financial statements, no material prior period revisions were necessary. As of December 31, 2006 there are no material amounts in excess of the agreed contract price that the Company seeks to collect from customers or others for customer-caused delays, errors in specifications or designs, contract termination, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs.
Revenue from part sales is recognized when parts are shipped. Revenues from time and material contracts and all other ancillary services are recognized as the services are performed. Revenue from aircraft sales is recognized when the customer accepts delivery of the aircraft and/or when title is transferred.
Earnings per share
Basic earnings per share includes no dilution and is computed by dividing net earnings available to stockholders by the weighted number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the Company’s earnings. Reconciliation of EPS for 2006, 2005 and 2004 are as follows:
| For the Year Ended 2006 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Income (Numerator) | Shares (Denominator) | Per-Share Amount | ||||||||
Net Income | $ 826,308 | |||||||||
| Basic EPS | ||||||||||
| Income available to common stockholders | $ 826,308 | 39,118,400 | $ 0.02 | |||||||
| Warrants | 414,022 | |||||||||
| Options | 780,491 | |||||||||
| Unvested employment agreement shares | 62,260 | |||||||||
| Diluted EPS | ||||||||||
| Income available to common stockholders + assumed | $ 826,308 | 40,375,173 | $ 0.02 | |||||||
| conversions | ||||||||||
| For the Year Ended 2005 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Income (Numerator) | Shares (Denominator) | Per-Share Amount | ||||||||
Net Income | $ 3,123,356 | |||||||||
| Basic EPS | ||||||||||
| Income available to common stockholders | $ 3,123,356 | 33,848,722 | $ 0.09 | |||||||
| Warrants | 639,449 | |||||||||
| Options | 772,500 | |||||||||
| Diluted EPS | ||||||||||
| Income available to common stockholders + assumed | $ 3,123,356 | 35,260,671 | $ 0.09 | |||||||
| conversions | ||||||||||
| For the Year Ended 2004 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Income (Numerator) | Shares (Denominator) | Per-Share Amount | ||||||||
Net Income | $ 2,291,286 | |||||||||
| Basic EPS | ||||||||||
| Income available to common stockholders | $ 2,291,286 | 24,443,256 | $ 0 | .09 | ||||||
| Warrants | 125,656 | |||||||||
| Options | 418,073 | |||||||||
| Diluted EPS | ||||||||||
| Income available to common stockholders + assumed | $ 2,291,286 | 24,986,985 | $ 0 | .09 | ||||||
| conversions | ||||||||||
The total weighted average shares outstanding for the diluted earning per share calculation for the year ended December 31, 2006 was 40,375,173. Total weighted average shares outstanding for the diluted earning per share calculation for the year ended December 31, 2005 was 35,260,671. . Total weighted average shares outstanding for the diluted earning per share calculation for the year ended December 31, 2004 was 24,986,985.
Equity in Net Assets and Advances to Affiliates
The investment in a 30% interest in JetGobal, LLC is accounted for using the equity method since the Company does not control JetGlobal, LLC, but over which it does exert significant influence. Under the equity method, the investment is recorded at cost plus advances and the Company’s share of earning less distributions and the Company’s share of losses. The Company considers whether future fair value of it investments has declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary, a write-down would be recorded to estimated fair value.
All significant intercompany profits and balances have been eliminated.
Intangible Assets
The amounts assigned to Customer List and Agreement with Vendor are recorded at the value assigned when they were acquired in a business purchase. The amounts were being amortized over three years using the straight-line method. The Company assesses the ongoing recoverability of intangible assets subject to amortization by determining whether the intangible asset balance can be recovered over the remaining amortization period through projected a undiscounted future cash flows. If projected future cash flows indicate that the unamortized intangible asset balances will not be recovered, an adjustment is made to reduce the net intangible asset to an amount consistent with projected future cash flows discounted at the Company’s incremental borrowing rate.
The Company’s amortizable intangibles consisted of customer lists and vendor agreements. Amortization expense on these totaled $162,376 and $162,376 for the year ended December 31, 2006 and 2005, respectively. Amortizable intangibles had been fully expensed at December 31, 2006.
Goodwill
The Company evaluates the carrying value of goodwill annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its goodwill-carrying amount. Such circumstances could include but are not limited to:
| 1. | a significant adverse change in legal factors or in business climate |
| 2. | unanticipated competition |
| 3. | an adverse action or assessment by a regulator |
When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to that unit’s carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The total of the implied fair value of all of the other assets and liabilities of the unit, based on their fair value, less the total amount assigned to those assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value.
Income Taxes
Deferred taxes are provided on temporary differences between the tax basis of assets and liabilities for financial reporting purposes and income tax purposes. The valuation allowance reduces deferred tax assets to an amount that represents the Company’s best estimate of the amount of such deferred tax assets that, more likely than not, will be realized.
Recently Issued Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of SFAS No. 133 and 140.” This Statement simplifies accounting for certain hybrid financial instruments, eliminates the interim guidance in Statement 33 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interest in Securitized Financial Assets,” and eliminates a restriction of the passive derivative instruments that a qualifying special-purpose entity may hold. The Statement is effective for fiscal years beginning after September 15, 2006. The adoption of this Statement is not anticipated to have a material impact on the Company’s consolidated financial statements.
In June 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This interpretation clarifies the accounting for uncertainty in income taxes recognized by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Interpretation is effective for fiscal years beginning after December 15, 2006. Any effect of adopting FIN48 will be recognized as an adjustment to retained earnings on the date of adoption. The Company is in the process of evaluating its uncertain tax positions. The impact, if any cannot currently be estimated.
In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements but could change the current practice in measuring current fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007. The Company does not anticipate that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132 (R).” This pronouncement requires an employer to make certain recognitions, measurements, and disclosures regarding defined benefit postretirement plans. The Company does not have any defined benefit postretirement plans, and SFAS No. 158 will not have any impact on its financial condition and results of operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No 108, “Considering the Effects of Prior Year Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have an impact on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 will be effective for us on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 159 on the Company’s financial position, cash flows, and results of operations.
Stock-Based Compensation
During 2006, there were options for 30,000 shares, at an option price of $1.03, granted. The options are good for a term of five years and were immediately vested. Using the Black Scholes Model with the monthly stock-prices as variable from April 2002, the call option value of these options were calculated to be $1.09. $32,600 was expensed during 2006 relative to these options. In connection with the adoption of SFAS123R we assessed our valuation technique and related assumptions. Consistent with the provisions of SFAS 123R, Staff Accounting Bulletin #107 (SAB 107), we estimated the fair value of stock option on the date of grant using the Black Scholes Options Valuation Model and the following assumptions: Risk free interest rate of 4.76%, Expected life of 2.5 years, Dividend rate of 0% and expected volatility of 91.98%.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which requires the Company to measure the cost of employee services received in exchange for all equity awards granted including stock options based on the fair market value of the award as of the grant date. SFAS 123R supersedes Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) and Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). The Company has adopted SFAS 123R using the modified prospective method. Accordingly, prior period amounts have not been restated. Under the modified prospective method, stock options awards that are granted, modified or settled after December 31, 2005 will be valued at fair value in accordance with provisions of SFAS 123R and recognized on a straight line basis over the service period of the entire award. At December 31, 2005, all outstanding stock options were fully vested.
Prior to January 1, 2006, the Company accounted for stock based compensation under the recognition and measurement provisions of APB 25 and related interpretations, as allowed by SFAS 123. The Company had adopted the disclosure-only provisions of SFAS 123 as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. Prior to 2006, the Company accounted for stock-based compensation in accordance with APB 25 using the intrinsic value method, which did not require compensation cost to be recognized for the Company’s stock options as all options previously granted had an exercise price equal to the market value of the underlying common stock on the date of the grant. There were no options granted in the year ended December 31, 2005 nor was there vesting of prior year option grants. Therefore, there is no pro-forma effect for the year ended December 31, 2005.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, notes receivable and accounts payable and notes payable approximate fair values due to the short-term maturities of these instruments. The fair value of notes payable approximates the carrying value because of the current market value interest rates applied to those obligations. The fair value of capital leases approximates the carrying value of these instruments because the terms are similar to those in the marketplace under which they could be replaced.
4. SEGMENT INFORMATION
The company has divided its operations into the following reportable segments: Aircraft maintenance, repair, and overhaul; Aircraft Brokerage; and Part sales. Each segment represents distinct product lines, marketing, and management of its business. Limited other services for each company, which represent a small percentage of income, have been shown in the aggregate. The reporting segments follow the same accounting policies used for the Company’s consolidated financial statements and described in the summary of significant accounting policies.
Selected information by business segment is presented in the following tables for the years ended December 31, 2006 and December 31, 2005.
| 2006 ($millions) | 2005 ($millions) | 2004 ($millions) | |||||
|---|---|---|---|---|---|---|---|
| Segment sales: | |||||||
| Aircraft maintenance | 24.331 | 19.135 | 17.220 | ||||
| Aircraft trading | 3.223 | 13.551 | 7.941 | ||||
| Part sales | 11.216 | 10.684 | 6.546 | ||||
| Other | 2.354 | 2.153 | 1.002 | ||||
| Sub Total | 41.124 | 45.223 | 32.709 | ||||
| Elimination of intersegment sales | -6.582 | -4.294 | -1.858 | ||||
| Total consolidated sales | 34.542 | 41.229 | 30.851 | ||||
| Operating income: | |||||||
| Aircraft maintenance | 4.554 | 2.232 | 3.270 | ||||
| Aircraft trading | .033 | 3.531 | .936 | ||||
| Part sales | 2.429 | 2.783 | 1.703 | ||||
| Other | 1.585 | 1.625 | .534 | ||||
| Sub total | 8.601 | 10.171 | 6.443 | ||||
| Selling, general, administrative expense | -8.547 | -7.834 | -4.827 | ||||
| Penalties | -.012 | -.001 | -.296 | ||||
| Other, net | -.465 | -.004 | .971 | ||||
| Share of Jetglobal net income (aircraft trading) | 1.809 | 1.111 | |||||
| Consolidated earnings before taxes | 1.213 | 3.489 | 2.291 | ||||
| Interest income by segment | |||||||
| Aircraft maintenance | .029 | ||||||
| Aircraft trading | .011 | ||||||
| Part sales | |||||||
| Corporate | .036 | .246 | .085 | ||||
| Total interest income | .076 | .246 | .085 | ||||
| Interest expense by segment | |||||||
| Aircraft maintenance | .059 | ||||||
| Aircraft trading | .083 | ||||||
| Part sales | .005 | ||||||
| Corporate | .440 | .387 | .329 | ||||
| Total interest expense | .587 | .387 | .329 | ||||
| 2006 ($) | 2005 ($) | 2004 ($) | |||||
|---|---|---|---|---|---|---|---|
| Depreciation and amortization by segment | |||||||
| Aircraft maintenance | 409,779 | 330,334 | 411,286 | ||||
| Aircraft brokerage | |||||||
| Part sales | |||||||
| Corporate | 335,308 | 321,900 | 77,056 | ||||
| Total | 745,087 | 652,194 | 488,342 | ||||
| Net asset values: | |||||||
| Aircraft maintenance | 9,658,216 | 7,154,108 | 6,633,504 | ||||
| Aircraft trading | 2,129,816 | 1,224,600 | |||||
| Part sales | 6,541,517 | 8,649,250 | 2,099,485 | ||||
| Corporate | 10,908,506 | 7,918,367 | 3,025,023 | ||||
| Total | 29,238,055 | 24,946,325 | 11,758,012 | ||||
| Capital expenditures: | |||||||
| Aircraft maintenance | 320,495 | 344,824 | 1,080,173 | ||||
| Aircraft brokerage | |||||||
| Part sales | |||||||
| Corporate | 160,236 | 155,003 | 307,897 | ||||
| Total | 480,731 | 499,827 | 1,388,070 | ||||
The Company’s facilities and assets are primarily located in the United States. During 2006, the Company formed a Mexican corporation, Hamilton SA de C.V. Minimal supplies are secured from local dealers using the foreign currency but all major revenue and expense transactions are transacted in U.S. dollars. The Company sells and ships to several foreign countries. All foreign revenues are collected and recorded in U.S. dollars. Geographic information regarding sales to foreign countries is presented in the following table:
| Year Ended December 31, 2006 Dollars | Year Ended December 31, 2005 Dollars | Year Ended December 31, 2004 Dollars | |||||||
|---|---|---|---|---|---|---|---|---|---|
Angola | 54,232 | 62,028 | |||||||
| Australia | 1,700 | 97,741 | |||||||
| Brazil | 5,100 | ||||||||
| Canada | 75 | 688 | 577 | ||||||
| Cambodia | 73,041 | ||||||||
| Columbia | 24,904 | 3,946 | |||||||
| Ecuador | 2,207,564 | ||||||||
| Germany | 1,220 | 28,025 | 51,520 | ||||||
| Guam | 2,170,778 | ||||||||
| Hong Kong | 890 | ||||||||
| Indonesia | 835 | ||||||||
| Ireland | 224,141 | ||||||||
| Israel | 25 | ||||||||
| Italy | 955 | 62,357 | 72,883 | ||||||
| Jordan | 2,032,460 | 2,468,915 | 4,063,944 | ||||||
| Korea | 154,010 | ||||||||
| Lebanon | 290,088 | 264,681 | |||||||
| Malawi | 111,000 | 868,943 | |||||||
| Mexico | 6,942,499 | 2,810,753 | 1,443,626 | ||||||
| Year Ended December 31, 2006 Dollars | Year Ended December 31, 2005 Dollars | Year Ended December 31, 2004 Dollars | |||||
|---|---|---|---|---|---|---|---|
Nigeria | 308,755 | ||||||
| Pakistan | 68,000 | 382,795 | 6,510,001 | ||||
| Peru | 19,600 | ||||||
| Philippines | 230,916 | ||||||
| Romania | 27,000 | ||||||
| Scotland | 30,969 | ||||||
| South Africa | 17,345 | ||||||
| Spain | 32,600 | 2,200 | |||||
| Tunisia | 4,130 | ||||||
| UAE | 111,848 | 9,191,462 | 18,600 | ||||
| United Kingdom | 98,383 | 61,654 | 55,888 | ||||
| Venezuela | 39,704 | 31,532 | |||||
| TOTALS | 10,201,352 | 16,845,250 | 16,753,220 | ||||
5. EQUITY IN NET ASSETS AND ADVANCES TO AFFILIATES
On August 26, 2005, the Company together with BCI Aircraft Leasing, (“BCI”), formed a joint venture, Jetglobal, LLC, a Delaware limited liability company. This is a special purpose LLC formed to acquire and remarket commercial jet aircraft. BCI will be primarily responsible for the marketing aspects of Jetglobal while the Company will be responsible for the technical,repair and maintenance aspects associated with remarketing purchased aircraft. The Company invested an initial amount of $1,125,000 for a 30% membership interest and BCI invested an initial amount of $2,625,000 for a 70% membership interest in Jetglobal. Pursuant to the terms of JetGlobal’s Operating Agreement, although the Company has a 30% membership and profit interest, it is only responsible for 25% of the costs and expenses associated with Jetglobal including any business transactions.
As of December 31, 2006, Equity in net assets and advances to affiliates consisted of the following:
| Initial investment in Jetglobal | $1,125,000 | ||
| Payment of 25% share of purchase of | 4,627,404 | ||
| aircraft | |||
| Reimbursement payments for 25% share of | |||
| aircraft | -688,722 | ||
| Expenses paid on behalf of Jetglobal | 510,053 | ||
| Share of 2005 net loss | -157,874 | ||
| Payment of earnings share to Global | -300,000 | ||
| Distribution of Aircraft | -861,539 | ||
| Share of 2006 income | 1,808,745 | ||
| Balance at December 31, 2006 | 6,063,067 | ||
Consolidated retained earnings at December 31, 2006, include $1,350,871 of undistributed earnings of Jetglobal.
The December 31, 2006 balance sheet of Jetglobal has assets of $17,319,00 and liabilities of $3,118,939.
The December 31, 2005 balance sheet of Jetglobal had assets of $15,067,310 and $76,055 liabilities.
During 2005, Jetglobal had a sale rescinded due to a customer canceling a sales agreement. This sale was guaranteed by Jetglobal’s other partner, BCI. This other partner and the Company entered into an agreement in 2005 wherein Global sold its interest in the four aircraft that were part of the 2005 rescinded transaction to its Jetglobal partner, BCI, at a price of $1,957,692 and a profit of $1,268,970. The cost for the aircraft was the original JetGlobal acquisition cost. Global transferred all of its rights in the four aircraft from JetGlobal to BCI. Because the aircraft were sold to the controlling owner, BCI, the sale was effectively accounted for by Jetglobal as a distribution of the aircraft to the controlling owner. In 2005, this transaction was classified as a component of the Company’s equity in the net income of Jetglobal. However, it was a transaction between the two joint venture partners and is now classified as such in the 2005 financial statements.
Management has decided to transfer the ownership interest in the LLC to BCI in consideration for cash and assets towards settlement. The parties are now drafting language wherein BCI will pay the Company cash plus transfer, free and clear, ownership to the Company of enough aircraft out of the Jetglobal assets to settle in full all amounts due the Company for services provided to BCI and from the Company’s ownership in Jetglobal. A final agreement and settlement has not been reached between the companies at this time.
6. INVENTORY
Inventories consisted of the following:
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
| Maintenance Hardware | $1,030,465 | $ 604,983 | |||
| Parts for Resale | $6,554,455 | 5,525,109 | |||
| Aircraft & Engine | 267,771 | 450,000 | |||
| $7,852,691 | $6,580,092 | ||||
Management reviews listed inventory items to determine whether there are slow moving or obsolete items. At December 31, 2006, it was management’s determination that the carrying value of the inventory items is appropriate and that there were no items requiring an allowance because the carrying value exceeds net realizable value.
7. PROPERTIES AND EQUIPMENT
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
| Gross Asset Values | |||||
| Land and improvements | $ 25,094 | $ 25,094 | |||
| Buildings and improvements | 201,080 | 190,479 | |||
| Vehicles | 78,161 | 79,028 | |||
| Machinery and equipment | 2,058,291 | 2,018,995 | |||
| Computers and Software | 332,755 | 306,164 | |||
| Other Office Equipment | 112,638 | 59,568 | |||
| Capital Lease | 305,219 | 4,999 | |||
| Subtotal | 3,113,238 | 2,684,327 | |||
| Less accumulated depreciation | 1,592,201 | 1,042,186 | |||
| Property and equipment, Net | $1,521,037 | $1,642,141 | |||
During 2006 and 2005, depreciation expense was $582,710 and $489,818 respectively.
Property, plant and equipment include gross assets acquired under capital leases of $4,999 and $305,219 at December 31, 2005 and September 30, 2006, respectively. Related amortization, which is included in accumulated depreciation, was $500 and $24,385 at December 31, 2005 and December 31, 2006, respectively. Capital leases to acquire machinery and equipment totaled ($235,670) and to acquire other office equipment totaled ($69,549) at December 31, 2006. Amortization of assets under capital leases is included in depreciation expense.
8. LEASES AND CAPITAL LEASES
Global’s wholly owned subsidiary, Hamilton Aerospace Technologies, Inc. (“HAT”), currently conducts operations on leased property at the Tucson International Airport, (“TIA”). Currently, World Jet is occupying space under this same lease. The lease is a one-year lease commencing March 1, 2005 and permits HAT to apply for two additional one-year options. TIA is implementing a Master Plan for airport development, which precludes issuing a long-term lease to HAT, but will not affect HAT’s facilities for at least five years. There is also executive office space leased at 6451 South Country Club under a five-year lease. Mexican operations require the use of operational and office facilities. These properties are covered by a use agreement and that agreement can be terminated at any time with 60 days notice. Below is a table showing the total of lease commitments at December 31, 2006.
Operating Leases
| Min Lease Payments 2006 $ | Min Lease Payments 2007 $ | Min Lease Payments 2008 $ | Min Lease Payments 2009 $ | Min Lease Payments 2010 $ | Min Lease Payments 2011 $ | TOTALS $ | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Premises 6901 | |||||||||||||||
| S. Park | 315,621.27 | 79,557.10 | 392,178.37 | ||||||||||||
| A/C storage | |||||||||||||||
| area adjacent | |||||||||||||||
| to 6901 S Park | 43,030.000 | 43,030.00 | |||||||||||||
| Office space | |||||||||||||||
| 6451 S. Country | |||||||||||||||
| Club | 9,071.61 | 38,279.10 | 39,627.94 | 41,006.42 | 42,435.56 | 36,384.85 | 206,805.48 | ||||||||
| Premises 6900 | |||||||||||||||
| S. Park | 87,903.70 | 87,903.70 | |||||||||||||
| Inventory | |||||||||||||||
| storage 7001 S | |||||||||||||||
| Park | 209,184.00 | 52,728.00 | 261,912.00 | ||||||||||||
| Premises | |||||||||||||||
| Tijuana Mexico | 172,245.98 | 172,245.98 | |||||||||||||
| Offices Tijuana | |||||||||||||||
| Mexico | 27,250.01 | 27,250.01 | |||||||||||||
| Total Operating | |||||||||||||||
| Lease | |||||||||||||||
| Commitments | 864,306 | 170,564 | 39,627 | 41,006 | 42,435 | 36,384 | 1,191,325 | ||||||||
The Company has entered into capital lease agreements to facilitate the purchase of various types of equipment. Below is a table showing the total lease commitments under those agreements and the present value of those lease commitments.
Capital Leases
| Min Lease Payments 2006 $ | Min Lease Payments 2007 $ | Min Lease Payments 2008 $ | Min Lease Payments 2009 $ | Min Lease Payments 2010 $ | Min Lease Payments 2011 $ | TOTALS $ | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Telephone | 6,331.64 | 15,699.48 | 15,699.48 | 15,699.48 | 15,699.48 | 9,367.84 | 78,497.40 | ||||||||
| systems | |||||||||||||||
| Office equipment | 1,845.24 | 2,817.24 | 2,817.24 | 1,732.62 | 9,212.34 | ||||||||||
| A/C maintenance | |||||||||||||||
| equipment | 24,362.30 | 58,469.52 | 58,469.52 | 58,469.52 | 58,469.52 | 34,107.22 | 292,347.60 | ||||||||
| Total Capital | |||||||||||||||
| Lease | |||||||||||||||
| Commitments | 32,539.18 | 76,986.24 | 76,986.24 | 75,901.62 | 74,169.00 | 43,475.06 | 380,057.34 | ||||||||
| Present Value | |||||||||||||||
| of Capital | |||||||||||||||
| Lease | |||||||||||||||
| Commitments | 27,698 | 53,247 | 58,337 | 62,922 | 66,970 | 36,042 | 305,218 | ||||||||
9. SHAREHOLDERS’ EQUITY
On May 13, 2004, the Company’s Board of Directors granted 900,000 compensatory stock options under the 2002 Compensatory Stock Option Plan at an option price of $0.17 per share. The value at measurement date for theses shares was $.23 and an expense for the $.06 increment, ($54,000), has been included basis in selling, general and administrative expense on the accompanying statement of operation.
On July 29, 2004, the Company’s board of Directors awarded options to purchase 50,000 shares each to 2 new Directors as incentive compensation under the 2003 Employee Stock Compensation Plan. The option price is $0.20 per share, as the Company valued these services at $100,000. The value at measurement date for theses shares was $.23 and an expense for the $.03 increment, ($3,000), has been included basis in selling, general and administrative expense on the accompanying statement of operation.
During the third quarter of 2004, the Company finalized an agreement to award 400,000 shares of common stock under the 2003 Employee Stock Compensation Plan of the Company for professional services to be provided over a two-year period. The effective date of this transaction was May 13, 2004. The Board of Directors determined that the fair value of these shares on the date of grant was $92,000. The resulting prepaid expense is being expensed on a monthly basis during the two-year term of the contract and is included in selling, general and administrative expense on the accompanying statement of operation.
On July 12, 2004 the Company’s Board of Directors approved granting of 330,000 shares of stock to key employees under the 2002 Compensatory Stock Option Plan in conjunction with various employment agreements. The shares will vest after two years according to the terms of the employee agreements. A monthly expense is being charged to selling, general and administrative expense over the two-year period at the rate of 1/24 of $198,000 and is included in selling, general and administrative expense on the accompanying statement of operation.
In January 2005, 50,000 options, issued as compensation for outside consultancy services, were exercised at the option price of $.30 per share.
On August 3, 2005, warrants were converted to 7,200,000 shares of common stock at $.68 per share.
On August 30, 2005, warrants were converted to 399,000 shares of common stock under the non-cash conversion terms of the original agreement of issue.
On September 14, 2005, outstanding warrants were converted to 22,812 shares of common stock under the non-cash conversion terms of the original agreement of issue.
On November 23, 2005, 60,000 shares were issued to employees pursuant to 2004 employment agreements.
In the year ended December 31, 2005 the Company granted 200,000 shares under restricted stock awards to two directors. The price at measurement date was $.80 per share 100,000 shares were vested in 2005, $80,000 was expensed in 2005 and 100,000 shares will vest in 2006 and $80,000 will be expensed at a rate of 1/12 per month during 2006.
On November 23, 2005 15,000 share of common stock were issued to an employee as a bonus. The price per share at measurement date was $1.30 and the Company has recorded a $19,500 expense in connection with the transaction.
On December 27, 2005, outstanding warrants were converted to 21,017 shares of common stock under the non-cash conversion terms of the original agreement of issue.
During the first quarter of 2006, 10,000 shares of common stock were issued to a new director as a signing bonus. The price of the stock at measurement date was $1.39.
On March 9th of 2006, 100,000 shares of common stock were issued pursuant to the completion of services contracted for under two separate agreements. The expense under the agreement was $70,000.00.
On April 4, 2006, 96,154 shares of common stock were issued for a consideration of $96,154. These shares were relative to warrants that had been outstanding at $1.00 per share.
On April 7, 2006, 100,000 shares of common stock were issued as compensation for outside consultancy services. The services are to be performed during 2006 and 1/12 of the related expense will be taken monthly during 2006. The value of the shares at measurement date was $153,000.
On May 9, 2006, 165,814 shares of common stock were issued under the non-cash provisions of warrants @$.34 per share. The non-cash calculation eliminated all of the availability of 219,000 shares under the warrants.
Under the terms of a new three-year employment contract, which begins June 1, 2006, 75,000 shares of common stock will vest on May 31, 2007, 100,000 shares of common stock will vest on May 31, 2008 and 125,000 shares of common stock will vest on May 31, 2009. The measurement date for this transaction is May 3, 2006.
On August 8, 2006, 125,124 shares of common stock were issued under the non-cash provisions of warrants @ $0.68 per share. The non-cash calculation eliminated all of the availability of 240,000 shares under the warrants.
On August 28, 2006, 270,000 shares of common stock were issued pursuant to the vesting of shares granted under employment contracts entered into in 2004. The price of the shares at measurement date was $0.60 pre share. The appropriate expense has been entered into the Company’s financial statements, on a monthly basis, during the two-year vesting period.
Under the terms of a new employment contract, which began July 1, 2006, 20,000 shares of common stock were issued to an employee on August 28, 2006 The agreement calls for 20,000 shares to be earned during the second year and issued July 1, 2007 and 20,000 shares to be earned during the third year and issued July 1, 2008. The price of the stock at measurement date was $1.20 per share. Expenses for the stock will be entered into the financial statements on a monthly basis during the three-year term of the agreement.
On September 1, 2006, 20,000 shares of common stock were issued to two directors, 10,000 shares each, under the terms of the director compensation plan approved by the shareholders in the annual meeting held May of 2006. The price of these shares at measurement date was $1.35 per share. Appropriate expenses have been recorded in the Company’s financial statements for the third quarter of 2006
On December 29, 2006, 62,500 shares of common stock were issued under an employment agreement. The price at measurement date was $.95. The terms of the employment contract, originally dated June 1, 2006 were amended at this time and 62,500 shares will vest and subsequently be issued each six months during the contract term for a total of $375,000 shares.
| Share value on Measurement Date | Vesting Date | ||||||
|---|---|---|---|---|---|---|---|
| Common Shares | 39,587,807 | ||||||
| Issued and | |||||||
| Outstanding at | |||||||
| December 31, 2005 | |||||||
| Unconverted | |||||||
| Warrants Issued: | |||||||
| @ $0.68 | .50 | 300,000 | |||||
| @ $1.36 | .50 | 7,740,000 | |||||
| @ $0.52 | .65 | 104,111 | |||||
| @ $1.00 | .65 | 1,040,866 | |||||
| @ $1.36 | .65 | 1,137,020 | |||||
| Subtotal | 10,321,997 | ||||||
| Options Issued: | |||||||
| @ $0.17 | .23 | 900,000 | |||||
| @ $1.03 | 1.03 | 30,000 | |||||
| Subtotal | 930,000 | ||||||
| Awards of stock | |||||||
| pending under | |||||||
| employment | |||||||
| contracts | |||||||
| 1/01/2007 | 10,000 | ||||||
| 6/01/2007 | 10,000 | ||||||
| 6/05/2007 | 62,500 | ||||||
| 7/01/2007 | 20,000 | ||||||
| 12/01/2007 | 10,000 | ||||||
| 12/05/2007 | 62,500 | ||||||
| 6/01/2008 | 10,000 | ||||||
| 6/05/2008 | 62,500 | ||||||
| 7/01/2008 | 20,000 | ||||||
| 12/01/2008 | 10,000 | ||||||
| 12/05/2008 | 62,500 | ||||||
| 6/05/2009 | 62,500 | ||||||
| 12/01/2009 | 10,000 | ||||||
| Subtotal | 412,500 | ||||||
| Total | 51,252,304 | ||||||
SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS
| PLAN NAME | TOTAL SHARES | ISSUED | AVAILABLE | ||||
|---|---|---|---|---|---|---|---|
2002 Compensatory Stock Option Plan | 3,000,000 | 1,035,000 | 1,965,000 | ||||
| 2003 Employee Stock Compensation Plan | 5,000,000 | 4,657,500 | 342,500 | ||||
Stock-based Compensation Disclosure
Stock issued under plans to employees was issued at the value of the stock at the measurement date. All options issued were immediately exercisable. Until 2004, options issued were immediately exercised. Those options issued to employees that were not immediately exercised remained outstanding at September 30, 2006 and are summarized below:
| Weighted Average Exercise Price | |||||||
|---|---|---|---|---|---|---|---|
Options outstanding at | 900,000 | $ 0.17 | Exercisable on grant date | ||||
| beginning of year | |||||||
| Granted during year | 30,000 | $ 1.03 | Exercisable on grant date | ||||
| Exercised year | None | ||||||
| Forfeited year | None | ||||||
| Outstanding at | 930,000 | $ 0.1977 | Exercisable on grant date | ||||
| 12/31/2006 | |||||||
| Options exercisable at | 930,000 | $ 0.1977 | |||||
| year end | |||||||
| Weighted average fair | $1.09 | ||||||
| value of options | |||||||
| granted during the year | |||||||
The aggregate remaining contractual lives in years for the 900,000 and 30,000 options outstanding and exercisable on December 31, 2006 was 2.47 and 4.85, respectively. Aggregate intrinsic value represents total pretax intrinsicvalue (the difference between Global’s closing stock price on December 31, 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders executed their options on December 31, 2006. This amount changes based on the fair market value of Global’s stock. The total intrinsic value of options outstanding as of December 31, 2006 was $783,300. The total intrinsic value of options exercisable on December 31, 2006 was $783,300. There were no options exercised during the year ended December 31, 2006. The Company issues new shares of common stock upon the exercise of stock options.
At December 31, 2006, 1,965,000 shares were available for future grants under the Company’s 2002 Compensatory Stock Option Plan and 342,500 shares were available for future grants under the Company’s 2003 Employee Stock Option Plan. At December 31, 2006, the Company had approximately $729,000 of total unamortized compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over the weighted average period of 2.47 years.
The 900,000 options issued in 2004 were issued at $0.06 below the share price on the measurement date. Expense in the amount of $54,000 was included in selling, general and administrative expenses for 2004. Because the options were immediately available the intrinsic value and the fair value of the options is calculated at the same $.23 per share.
| 2005 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Weighted Average Exercise Price | ||||||||||
| Options outstanding at | 1,050,000 | $ 0.179 | Exercisable on grant date | |||||||
| beginning of year | ||||||||||
| Granted during year | None | |||||||||
| Exercised during year | 50,000 | $ 0.30 | ||||||||
| Cancelled during year | 100,000 | $ 0.20 | ||||||||
| Forfeited during year | None | |||||||||
| Outstanding at | 900,000 | $ 0.17 | Exercisable on grant date | |||||||
| 12/31/2005 | ||||||||||
| Options exercisable at | 900,000 | $ 0.17 | ||||||||
| year-end | ||||||||||
| Weighted average fair | $ 0 | |||||||||
| value of options | ||||||||||
| granted during the year | ||||||||||
10. COMMITMENTS AND CONTINGENCIES
On December 9, 2005, Global Aircraft Solutions, Inc (“Global”), Hamilton Aerospace Technologies, Inc. (“HAT”), a wholly owned subsidiary of Global Aircraft Solutions, Inc. and World Jet Corporation, (“WJ”) a wholly owned subsidiary of Global Aircraft Solutions, Inc. (collectively the “Borrowers”) closed on a first Modification to the May 5, 2005 Initial Loan Agreement with M&I Marshall & Ilsley Bank (“M&I Bank”). The modification increased the $2.5 million operating line of credit to $5 million (“Line of Credit”); added a Guidance Line of Credit in the amount of $7 million (“Guidance Credit”) solely for the acquisition of aircraft and Letter of Credit Facilities in combined amounts not to exceed $200,000.00. The Guidance Credit portion of the agreement has expired and no longer exists. The interest rate on the Line of Credit was reduced from 3.50% per annum to 3.00% per annum in excess of the applicable LIBOR rate. At December the applicable interest rate was 7.39% per annum. The interest rate for each Letter of Credit Facility, if drawn upon, shall also be 3.00% per annum in excess of the applicable LIBOR rate. The Line of Credit and any Letter of Credit Facility remains secured by a first priority lien on Global’s, HAT’s and WJ’s personal property. The term of the Line of Credit and the Letter of Credit Facility all expire on October 31, 2007 and the entire outstanding principal balance, all accrued and unpaid interest, and all other sums due and payable under the Line of Credit shall be due on the expiration date.
While there is no required monthly repayment obligation of the Line of Credit, the Line of Credit is based upon and limited by a borrowing base equal to the sum of 80% of the outstanding amount of all Eligible Accounts as defined in the Loan Agreement and 50% of the net book value of all Eligible Inventory as defined in the Loan Agreement. If any Letter of Credit Facility is drawn upon, all principal and accrued and unpaid interest shall be due and payable upon demand.
The Borrowers paid total fees and expenses of approximately $37,500.00 in connection with the modification to the Line of Credit and addition of the Guidance Credit and Letter of Credit Facility. The Borrowers will owe the bank a fee for the issuance of any Letter of Credit in the amount of 2% of the amount of the letter of credit.
The balance due of the Line of Credit at December 31, 2006 was $4,814,397.30. The Line of Credit also secures a Letter of Credit for $128,000, which was issued to TAA as part of the lease agreement for the HAT facility. The total available credit facility is $5,000,000 at December 31, 2006 subject to the borrowing base.
At December 31, 2006, the Company was in compliance with the quick ratio (defined as cash, liquid cash equivalents and accounts receivable, divided by current liabilities) covenant of the loan agreement. The quick ratio is to be at least ..60 to 1. At December 31, 2006 the ratio for the Company was .65 to 1.
11. RELATED PARTY TRANSACTIONS
BCI Aircraft Leasing, Inc.
BCI Aircraft Leasing, Inc., Global’s partner in Jetglobal, see Note 6, accounted for 16.6% of Company revenue during 2006 and 4% during 2005. The account receivable from BCI at December 31, 2006 was $1,827,481.90 and at December 31, 2005 was $141,591.86.
Jetglobal, LLC accounted for 7.2% of the Company’s revenue in 2006. The total amount due to the Company from Jetglobal was $1,093,316.19. December 31, 2005 balance was $90.00.
BCI Jet, a BCI controlled company, accounted for 3.8% of the Company’s revenue in 2006. BCI Jet owed the Company $1,300,000 at December 31, 2006. BCI Jet had no balance due at December 31, 2005.
During 2005, Jetglobal has a sale rescinded due to a customer canceling a sales agreement. This sale was guaranteed by Jetglobal’s other partner BCI. In settlement of the guarantee commitment to Jetglobal, BCI agreed to take the aircraft in a distribution from Jetglobal and provide Global with a payment equal to its share of lost earnings. As a result, BCI and the Company entered into a settlement agreement of $1,957,692. The Company recorded the settlement as a gain for $1,268,970 and reduced its investment in Jetglobal for $688,722, which represents The Company’s interest in the aircraft at the acquisition cost of Jetglobal
12. CONTRACTS IN PROGRESS
At December 31, 2006and December 31, 2005, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings on uncompleted contracts consist of the following:
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
Costs incurred on uncompleted contracts | $ 1,486,387 | $ 1,072,582 | |||
| Profit earned to date | 521,378 | 1,156,235 | |||
| $ 2,007,765 | $ 2,228,817 | ||||
| Less: Billings to date | (2,314,710 | ) | (2,252,275 | ) | |
| ($ 306,945 | ) | ($ 23,458 | ) | ||
Included in the accompanying balance sheet at December 31, 2006 and 2005 under the following caption:
Billings in excess of costs and estimated earnings on uncompleted contracts
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
| Billings in excess from above | ($306,945 | ) | $23,458 | ||
| Time and material earnings unbilled | 82,899 | 0 | |||
| Net | ($224,046 | ) | $23,458 | ||
Billings in excess are the result of amounts due from customers under contractual terms, which can be, in some cases, in advance of actual work performed.
13. TRADE ACCOUNTS RECEIVABLE
As of December 31, 2006 and December 31, 2005, trade accounts receivable consist of the following:
| 2006 | 2005 | 2004 | |||||
|---|---|---|---|---|---|---|---|
| Contracts in progress | $ 1,158,998 | $ 769,322 | $ 1,961,319 | ||||
| Completed contracts | 7,185,118 | 4,274,731 | 2,858,045 | ||||
| $ 8,344,116 | $ 5,044,053 | $ 4,819,364 | |||||
| Less: allowance for doubtful accounts | (473,317 | ) | (292,507 | ) | (53,149 | ) | |
| $ 7,870,799 | $ 4,751,546 | $ 4,766,215 | |||||
The amounts charged to the allowance for doubtful accounts are as follows for the years ended December 31:
| Year | Balance at the Beginning of Year | Charged to Expense | Deductions | Balance at the End of Year | |||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | $ 38,655 | $ 14,494 | $ 53,149 | ||||||
| 2005 | $ 53,149 | $437,208 | $(197,850 | ) | $292,507 | ||||
| 2006 | $292,507 | $337,508 | $(156,689 | ) | $473,326 | ||||
Deductions represent recovery of previously reserved amounts. |
14. NOTES RECEIVABLE
On September 1, 2003 Global was tendered a $100,000 note receivable. The note bears interest at 5%. The due date of the note was extended to December 20, 2006. At December 31, 2006, the note, plus interest, was outstanding in the amount of $116,671. During January 2007, the note plus accrued interest was paid in full.
During the 4th quarter of 2005, a note receivable in the amount of $600,000 was issued to the Company by Avolar Aero Lineas S.A. de C.V. The due date of the note was extended to June 30, 2007. The note bears interest at 6.5% per annum. At December 31, 2006, the balance due plus interest was $339,186. This note is not collateralized.
15. INCOME TAXES
The following table summarized components of income tax expense for the years ended December 31, 2006, 2005 and 2004:
| 2006 | 2005 | 2004 | |||||
|---|---|---|---|---|---|---|---|
| Current provision/(benefit) | $ 211,382 | $ 372,578 | $ 0 | ||||
| Deferred provision/(benefit) | $ 175,118 | $ (6,400 | ) | $ 0 | |||
| $ 386,500 | $ 366,178 | $ 0 | |||||
Below is a reconciliation of the differences between the effective and statutory rates as follows for the years ended December 31, 2006, 2005 and 2004:
| 2006 | 2005 | 2004 | |||||
|---|---|---|---|---|---|---|---|
| Federal income tax expense (benefit) at statutory rate (34%) | $ 412,355 | $ 1,186,442 | $ 855,000 | ||||
| State income tax expense (benefit) net of federal tax effect | 84,654 | 174,476 | 81,000 | ||||
| Benefit of net operating loss carryover | (951,200 | ) | (936,000 | ) | |||
| Deferred income tax valuation allowance | (57,000 | ) | |||||
| Permanent differences | 31,145 | (43,540 | ) | ||||
| Tax credits and other | (84,654 | ) | |||||
| Net income tax expense | $ 386,500 | $ 366,178 | $ 0 | ||||
Deferred tax assets and liabilities are determined based on the difference between currently enacted tax rates. Deferred tax expense or benefit is the result of the changes in deferred tax assets and liabilities.
Deferred income taxes arise principally from the temporary differences between financial statement and income tax recognition of net operating losses.
The components of deferred taxes at December 31, 2006, 2005 and 2004 in the accompanying balance sheet is summarized below:
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
| Deferred tax assets | |||||
| Allowance for bad debts | $ 186,802 | $ 117,000 | |||
| Amortization of intangibles | 164,069 | 102,000 | |||
| Accrued vacation and compensation | 85,413 | 46,000 | |||
| Other | 27,293 | ||||
| $ 463,577 | $ 265,000 | ||||
| Deferred tax liabilities | |||||
| Depreciation | 139,911 | 78,000 | |||
| Investment in affiliate | 368,185 | ||||
| Deferred tax liabilities | 508,096 | 78,000 | |||
| Valuation allowance | 0 | (57,000 | ) | ||
| Deferred tax assets (liabilities) net | $ (44,519 | ) | $ 130,000 | ||
16. CONCENTRATION OF REVENUES
The Company’s top four customers accounted for 52.4% of sales during the year ended December 31, 2006. The Company’s top four customers accounted for 37.6% of sales during the year ended December 31, 2005 and 56% during the same period in 2004. Three customers accounted for 63.8% of the Company’s accounts receivable at December 31, 2006. Five customers accounted for 45% of the Company’s accounts receivable at December 31, 2005. The broadening of our customer base will spread the risk associated with a potential failure of a significant customer. Efforts are continually being made to broaden our customer base. While the relative significance of customers varies period to period, the loss of, or significant curtailments of purchase of our services by, one or more or our significant customers at any time could adversely affect our revenue and cash flow. The top four customers reference above for 2006, 2005 and 2004 are listed in the table below:
| 2006-Top Four Customers | 2006-% Of Revenues | 2005-Top Four Customers | 2005-% Of Revenues | 2004-Top Four Customers | 2004-% Of Revenues | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Customer H | 18 | .4 | Customer E | 16 | .7 | Customer A | 21 | .3 | ||||||
| Customer I | 20 | .3 | Customer C | 8 | .3 | Customer B | 13 | .2 | ||||||
| Customer J | 7 | .2 | Customer F | 6 | .6 | Customer C | 11 | .7 | ||||||
| Customer K | 6 | .5 | Customer G | 6 | .0 | Customer D | 9 | .8 | ||||||
| Top Four-2006 | Top Four-2005 | Top Four-2004 | ||||||||||||
| Total % | 52 | .4 | Total % | 37 | .6 | Total % | 56 | |||||||
17. GAIN ON RENEGOTATION OF CONTRACTS
During the quarter ended March 31, 2004, an agreement between the Company and Hamilton Aviation was negotiated that eliminated an accrued liability for rental payments resulting in a gain of $88,000. During the first and second quarters of 2004 our World Jet, subsidiary successfully negotiated with creditors reductions in some liabilities which resulted in gains totaling $449,338.
On July 8, 2004, the Estate Administrator, on behalf of Hamilton Aviation, Inc., accepted an offer by HAT calling for satisfaction of all of its obligations under the May 6, 2004 Settlement Agreement by payment of a lump sum of $750,000 on or before September 6, 2004. HAT made this final lump sum payment and the resulting elimination of accrued liabilities resulted in a gain of $607,194 recorded during the quarter ended September 30, 2004.
Summarized below are the $ amounts recognized on renegotiation of contracts by quarter and by operating unit:
| Quarter Ended: | Global Aircraft | Hamilton Aerospace | World Jet | Consolidated | |||||
|---|---|---|---|---|---|---|---|---|---|
| March 31, 2004 | $ 88,000 | $ 224,654 | $ 312,654 | ||||||
| June 30, 2004 | $ 224,654 | $ 224,654 | |||||||
| September 30, 2004 | $ 607,194 | $ 607,194 | |||||||
| December 31, 2004 | $ -0- | ||||||||
| Totals for Year | $ -0- | $ 695,194 | $ 449,308 | $ 1,144,502 | |||||
18. SUBSEQUENT EVENTS
On March 13, 2007, the Company announced that they have acquired a 20% ownership interest in, and entered into an exclusive service agreement with, Global Aircraft Leasing Partners ("GALP"). Concurrently, the Company entered into a financial advisory services agreement with B. Riley & Co., Inc. ("B. Riley").
GALP is a start-up aircraft-leasing venture formed to acquire aircraft through a combination of debt and equity financing, and lease these commercial jet aircraft to operators throughout the world. GACF and GALP have entered into a strategic alliance wherein Global will acquire a 20% interest in GALP in exchange for a capital contribution of $20,000, together with infrastructure, industry expertise, management assistance, and other non-monetary contributions. Global Aircraft will specifically not be required to invest capital in aircraft acquired by GALP. Other members of GALP will include equity funding specialists and aircraft leasing professionals. Global Aircraft and GALP have also agreed that Global will have first right of refusal for all aircraft maintenance, aircraft parts and technical consulting requirements GALP may have as a result of its aircraft acquisition and leasing activities. Global expects that its strategic partnership with GALP will have a positive effect upon the volume of its MRO and parts sales businesses.
Additionally, GALP has entered into an agreement with B. Riley wherein GALP will provide the equity portion for GALP aircraft acquisitions, while B. Riley will assist in securing the debt portion of the financing for those acquisitions. B. Riley has also agreed to assist Global in obtaining an expanded operating credit facility as well as a $25,000,000 credit facility for Global to pursue its own aircraft trading opportunities.
Subsequent to December 31, 2006, the Company entered into an agreement to sell a 49% interest in one of its subsidiaries, World Jet. The Company entered into a letter of intent with the buyer in April 2007 for a sales price of approximately $6,000,000.
On March 13, 2007 the Company also announced that Ian Herman would continue his duties as Chairman of the Company, while John Sawyer, President of Global, will be assuming the title of CEO. Mr. Herman advised the Company that he would be devoting the majority of his time to the development of the start-up aircraft leasing company, Global Aircraft Leasing Partners, LLC (GALP). The Company’s Board of Directors has ratified Mr. Sawyer's appointment as CEO, the strategic alliance with GALP, and the engagement of B. Riley
Avolar’s increasing fleet size resulted in increasing receivables due Hamilton Aerospace. At the same time, Avolar’s past due receivables increased significantly. In order to protect the Company’s financial status, late in February Management put Avolar on a COD basis and negotiated a schedule for Avolar to bring its account current. The parties also agreed that Avolar would obtain whatever services and credit it could from other maintenance service providers in order to facilitate Avolar’s pay-down of monies due Hamilton Aerospace. By the end of March 2007, Avolar had made progress reducing the amount owed Hamilton Aerospace, but Avolar is not in full compliance with the terms of its payment schedule agreed to with Hamilton Aerospace. Avolar has stated its intention to bring its accounts current with Hamilton Aerospace and World Jet and renew its maintenance and support agreements with both companies. However, in view of these recent developments, it is unlikely that the income and profit contributions from Avolar to Hamilton Aerospace and World Jet in 2007 will reach the amounts previously indicated by Management.
By the end of the fourth quarter 2006 and into the first quarter 2007 the past due amounts due Hamilton Aerospace by BCI Aircraft Leasing, Inc. had also reached unacceptable levels. Additionally, BCI had failed to provide information legally demanded by the Company regarding the financial results of its joint venture with BCI, Jetglobal. The parties are now drafting language wherein BCI will pay the Company cash plus transfer, free and clear, ownership to the Company of enough aircraft out of the Jetglobal assets to settle in full all amounts due the Company for services provided to BCI and from the Company’s ownership in Jetglobal. Although BCI is presently cooperating with the Company to resolve these issues equitably, a final agreement and settlement has not at his time been reached between the companies.
19. SELECTED QUARTERLY FINANCIAL DATA
Selected Quarterly Financial Data
(in thousands except per share amounts, unaudited)
| Quarterly | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net revenue | |||||||||||||
| 2006 | $11,509 | $10,199 | $ 7,904 | $ 4,930 | |||||||||
| 2005 | $ 8,652 | $ 8,829 | $15,462 | $ 8,285 | |||||||||
| Gross Profit | |||||||||||||
| 2006 | $ 3,973 | $ 2,431 | $ 2,148 | $ 49 | |||||||||
| 2005 | $ 2,298 | $ 2,399 | $ 3,241 | $ 2,233 | |||||||||
| Net Income- Before Taxes | |||||||||||||
| 2006 | $1,903 | $1,444 | $ 359 | -$ 2,493 | |||||||||
| 2005 | $ 658 | $ 682 | $ 955 | $ 1,195 | |||||||||
| Net Income-After Taxes | |||||||||||||
| 2006 | $1,123 | $1,055 | $ 233 | -$ 1,585 | |||||||||
| 2005 | $ 658 | $ 682 | $ 661 | $ 1,122 | |||||||||
| Net Income per common share - basic, | |||||||||||||
| continuing operations | |||||||||||||
| 2006 | $ 0.03 | $ 0.03 | $ 0.01 | -$ 0.05 | |||||||||
| 2005 | $ 0.02 | $ 0.02 | $ 0.02 | $ 0.03 | |||||||||
| Net Income per common share - diluted, | |||||||||||||
| continuing operations | |||||||||||||
| 2006 | $ 0.03 | $ 0.03 | $ 0.01 | -$ 0.05 | |||||||||
| 2005 | $ 0.02 | $ 0.02 | $ 0.02 | $ 0.03 | |||||||||
Report of Independent Accountants
To the Members
Jetglobal, LLC:
We have audited the accompanying balance sheets of Jetglobal, LLC (the “Company”) as of December 31, 2006 and 2005, and the related statements of operations and members’ equity and cash flows for the year ended December 31, 2006 and for the period from inception (August 26, 2005) to December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with accordance with generally accepted auditing standards of the United States of America.. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position Jetglobal, LLC as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the year ended December 31, 2006 and for the period from inception (August 26, 2005) to December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ Moss Adams LLP
April 16, 2007
Scottsdale, Arizona
JETGLOBAL, LLC
BALANCE SHEET
December 31, 2006 and December 31, 2005
ASSETS
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
| CURRENT ASSETS | |||||
| Accounts receivable | $ 830,445 | $ | |||
| Inventory | 16,234,615 | 9,578,842 | |||
| Deposits | 350,000 | 5,488,468 | |||
| Prepaid insurance | 103,950 | ||||
| TOTAL CURRENT ASSETS | $17,519,010 | $15,067,310 | |||
| TOTAL ASSETS | $17,519,010 | $15,067,310 | |||
The accompanying notes are an integral part of these financial statements.
JETGLOBAL, LLC
BALANCE SHEET
December 31, 2006 and December 31, 2005
LIABILITIES AND MEMBERS' EQUITY
| 2006 | 2005 | ||||
|---|---|---|---|---|---|
| CURRENT LIABILITIES | |||||
| Notes payable – short term | $ 1,427,189 | $ | |||
| Accounts payable – trade | 800,434 | 76,055 | |||
| Due to related parties | 1,091,316 | ||||
| Commitments and contingencies | |||||
| TOTAL CURRENT LIABILITIES | $ 3,318,939 | $ 76,055 | |||
| TOTAL LIABILITIES | $ 3,318,939 | $ 76,055 | |||
| MEMBERS’ EQUITY | |||||
| BCI Aircraft Leasing | 3,596,247 | 11,156,444 | |||
| Global Aircraft Solutions | 5,100,918 | 4,361,056 | |||
| BCI Aircraft Leasing Retained earnings (loss) | 3,852,034 | (368,372 | ) | ||
| Global Aircraft Solutions Retained earnings (loss) | 1,650,872 | (157,873 | ) | ||
| TOTAL MEMBERS’ EQUITY | $14,200,071 | $ 14,991,255 | |||
| TOTAL LIABILITIES AND MEMBERS’ EQUITY | $17,519,010 | $ 15,067,310 | |||
The accompanying notes are an integral part of these financial statements.
JETGLOBAL, LLC
STATEMENT OF OPERATIONS
For the Years ended December 31, 2006 and the Period from
Inception (August 26, 2005) to December 31, 2005
| 2006 | From Inception (August 26, 2005) To December 31, 2005 | ||||
|---|---|---|---|---|---|
| Revenue | |||||
| Net aircraft sales | $ 12,429,860 | $ | |||
| Net aircraft leases | 1,893,232 | ||||
| Total Revenue | $ 14,323,092 | ||||
| Cost of sales | (7,150,356 | ) | |||
| Gross profit | 7,172,736 | ||||
| Selling, general and administrative expense | (1,012,979 | ) | (526,245 | ) | |
| Gain /(loss) from operations | 6,159,757 | ||||
| Other income (expense): | |||||
| Interest expense | (130,606 | ) | |||
| Net income/(loss) | $ 6,029,151 | $ (526,245 | ) | ||
The accompanying notes are an integral part of these financial statements.
JETGLOBAL, LLC
STATEMENT OF MEMBERS’ EQUITY
For the year ended December 31, 2006 and the Period from Inception (August 26, 2005)
To December 31, 2005
| BCI | GLOBAL | TOTAL | |||||
|---|---|---|---|---|---|---|---|
Capital contributions | $ 15,423,750 | $ 4,576,440 | $ 20,000,190 | ||||
| Distributions | (3,621,152 | ) | (861,538 | ) | (4,482,690 | ) | |
| Other payments | (646,154 | ) | 646,154 | ||||
| Net loss | (368,372 | ) | (157,873 | ) | (526,245 | ) | |
| Members’ Equity, December 31, 2005 | $ 10,788,072 | $ 4,203,183 | $ 14,991,255 | ||||
| Capital contributions | 4,287,451 | 2,258,612 | 6,546,063 | ||||
| Distributions | (11,066,398 | ) | (300,000 | ) | (11,366,398 | ) | |
| Net income | 4,220,406 | 1,808,745 | 6,029,151 | ||||
| Members’ Equity, December 31, 2006 | $ 7,448,281 | $ 6,751,790 | $ 14,200,071 | ||||
The accompanying notes are an integral part of these financial statements.
JETGLOBAL, LLC
Consolidated Statement of Cash Flows
For the Years ended December 31, 2006 and the Period from Inception (August 26, 2005) to
December 31, 2005
| 2006 | From Inception (August 26, 2005) to December 31, 2005 | ||||
|---|---|---|---|---|---|
| Cash flows from operating activities: | |||||
| Net income (loss) | $ 6,029,151 | $ (526,245 | ) | ||
| Adjustments to reconcile net profit to net cash | 0 | 0 | |||
| provided (used) by operating activities: | |||||
| Changes in Assets and Liabilities: | |||||
| Accounts receivable | (830,445 | ) | |||
| Prepaid expenses | (103,950 | ) | |||
| Inventory | (2,028,843 | ) | (9,578,842 | ) | |
| Deposits | (350,000 | ) | (5,488,468 | ) | |
| Accounts payable-trade | 1,815,695 | 76,055 | |||
| Net cash provided by/(used for) operating activities | 4,531,608 | (15,517,500 | ) | ||
| Cash flows from investing activities: | |||||
| Net cash used for investing activities | 0 | 0 | |||
| Cash flows from financing activities: | |||||
| Cash in by partners | 4,546,064 | 20,000,190 | |||
| Cash out by partners | (10,504,861 | ) | (175,000 | ) | |
| Funds received on notes payable | 4,257,000 | ||||
| Payments made on notes payable | (2,829,811 | ) | |||
| Net cash provided by (used for) financing activities | (4,531,608 | ) | 19,825,190 | ||
| Net increase in cash and cash equivalents | 0 | 0 | |||
| Cash and cash equivalents at beginning of period | 0 | 0 | |||
| Cash and cash equivalents at end of period | $ 0 | $ 0 | |||
| Supplemental schedule of non-cash financing | |||||
| activities | |||||
| Aircraft inventory distributed to members | $ 861,538 | $ 4,307,690 | |||
Interest paid for the year ended December 31, 2006 was $130,606. No interest was paid for the year ended December 31, 2005.
The accompanying notes are an integral part of these condensed consolidated financial statements.
JETGLOBAL, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
1. BASIS OF PRESENTATION
Jetglobal, LLC (the “Company”) was formed on August 26, 2005 to operate as an aircraft trading and leasing company. The Company’s members are BCI Aircraft Leasing Company, (”BCI”), which owns 70% and Global Aircraft Solutions, Inc., (“Global”), which owns 30%. The Company’s customers are international second and third tier airlines and leasing companies, who are located and operate worldwide.
The Company operated in a single business segment aircraft trading. However, as discussed in Note 5, 12 aircraft acquired, remained under lease arrangements with Delta Airlines. As a result, the Company had residual lease income from those lease arrangements. As the leases expired during 2006 the lease income ceased. The Company does not intend to enter into other leasing activity.
Subsequent to December 31, 2006, the two members agreed that Global will sell its 30% interest in the Company back to the Company. The members are negotiating a settlement to distribute certain of the assets of the Company to Global. The distribution of the assets, cash and inventory, is intended to be based upon the carrying value of those net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider cash and investments in securities with maturities at the date of purchase of three months or less to be cash and cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Trade Accounts Receivable
Trade accounts receivable represent amounts billed but uncollected on the sale of aircraft.
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. The allowance is estimated as a percentage of accounts receivable based on a review of accounts receivable outstanding and the Company's prior history of uncollectible accounts receivable. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable.
Inventory
Inventories are stated at the lower of cost or market. Inventories include used aircraft purchased for resale that are available for sale as well as aircraft that have been leased under a short-term operating lease contract.
The Company reviews the market value of inventories whenever events and circumstances indicate that the carrying value of inventories may not be recoverable from the estimated future sales price less cost of disposal and normal gross profit. In cases where the market values are less than the carrying value, a write down is recognized equal to an amount by which the carrying value exceeds the market value of inventories.
Revenue and Cost Recognition
Revenues from aircraft sales are recognized upon the customer’s acceptance of the particular aircraft.
Rental income for aircraft leased on short-term leases is recognized monthly in accordance with those lease agreements.
Income Taxes
The Company is a limited liability company and has elected to be taxed as a partnership under the Internal Revenue Code of 1986. As such, the Company is not a tax paying entity for U.S. federal and state income tax purposes and accordingly, the accompanying balance sheets do not reflect any assets or liabilities for federal or state income taxes. Member’s allocable share of taxable income or loss is reported on the members’ tax returns.
Fair Value of Financial Instruments
The carrying values of accounts receivable and accounts payable and notes payable approximate fair values due to the short-term maturities of these instruments.
Recently Issued Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of SFAS No. 133 and 140.” This Statement simplifies accounting for certain hybrid financial instruments, eliminates the interim guidance in Statement 33 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interest in Securitized Financial Assets,” and eliminates a restriction of the passive derivative instruments that a qualifying special-purpose entity may hold. The Statement is effective for fiscal years beginning after September 15, 2006. The adoption of this Statement is not anticipated to have a material impact on the Partnership’s financial statements.
In June 2006, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This interpretation clarifies the accounting for uncertainty in income taxes recognized by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Interpretation is effective for fiscal years beginning after December 15, 2006. This Interpretation is not anticipated to have a material impact on the Partnership’s financial statements.
In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements but could change the current practice in measuring current fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007. The Company does not anticipate that the adoption of this Statement will have a material impact on the Partnership’s financial statements.
3. TRADE ACCOUNTS RECEIVABLE
As of December 31, 2006, trade accounts receivable consisted of the amount owed on a single aircraft sale. The customer is in possession and has the risks and the rewards of aircraft ownership but the Company is holding title to the aircraft until payment in full is received.
4. NOTES PAYABLE
On May 18, 2006, Jetglobal, LLC signed a Term Note and Agreement with ComVest Capital, LLC. This original agreement was amended May 22, 2006. The final terms of this note included a principal sum of $4,257,000 all due and payable on or before May 10, 2007. The interest rate is 7% per annum during the original term of the loan. The interest rate increases to 7% until July 31, to 9.5% thereafter until October 31, 2006, and to 11.5% for any amounts due after November 1, 2006. Twelve aircraft that were part of the Omnibus Sale Agreement, mentioned in the note below on inventory, were conveyed as collateral security to ComVest. All interest payments were current at December 31, 2006.
5. INVENTORY
Inventories consisted of the following aircraft with associated costs:
| December 31, 2006 | December 31, 2005 | ||||||
|---|---|---|---|---|---|---|---|
| N301DL | 737-200 | 861,538 | |||||
| N302DL | 737-200 | 861,538 | |||||
| N303DL | 737-200 | 861,538 | |||||
| N304DL | 737-200 | 861,538 | |||||
| M305DL | 737-200 | 861,538 | |||||
| N306DL | 737-200 | 861,538 | |||||
| N307DL | 737-200 | 861,538 | 861,538 | ||||
| N308DL | 737-200 | 861,538 | |||||
| N309DL | 737-200 | 861,538 | |||||
| N314DL | 737-200 | 861,539 | |||||
| N316DL | 737-200 | 861,539 | 861,538 | ||||
| N317DL | 737-200 | 861,539 | 861,358 | ||||
| N318DL | 737-200 | 861,539 | 861,538 | ||||
| N320DL | 737-200 | 861,538 | |||||
| N321DL | 737-200 | 861,538 | |||||
| N322DL | 737-200 | 861,538 | |||||
| N323DL | 737-200 | 775,000 | 775,000 | ||||
| N326DL | 737-200 | 861,539 | |||||
| N327DL | 737-200 | 861,538 | |||||
| N328DL | 737-200 | 861,538 | |||||
| N329DL | 737-200 | 861,539 | |||||
| N330DL | 737-200 | 861,539 | |||||
| N332DL | 737-200 | 525,000 | 525,000 | ||||
| N334DL | 737-200 | 525,000 | |||||
| N382DL | 737-200 | ||||||
| N937AS | MD80 | 1,150,000 | |||||
| $16,234,615 | $9,578,842 | ||||||
The Company acquired 26 aircraft that were all held in separate equipment trusts administered by Wilmington Trust Company through an Omnibus Sale Agreement. The aircraft were divided into two categories: one with 14 aircraft and one with 12. The 14 were conveyed by bill of sale. The 12 were used as collateral security to ComVest Capital, LLC.
The current inventory also has 2 aircraft that were part of the same fleet originally but were purchased by the company on the open market from other parties, as was the one MD80 in the inventory.
Delta Lease
Aircraft N301DL, N302DL, N303DL, N304DL, N305DL, N306DL, N308DL, N309DL, N314DL, N326DL, N329DL & N330DL were continued to be operated and leased by Delta Airlines for during most of year 2006. They were returned to Jetglobal during the 4th quarter of 2006. The total rent paid by Delta Airlines during the tenure of the lease was $1,893,232. These funds were paid directly to ComVest Capital and applied as principal and interest payment on the note discussed underNotes Payable above.
6. MEMBER EQUITY ACCOUNTS
The operating agreement calls for member BCI Aircraft Leasing to be responsible for 75% of the costs and member Global Aircraft Solutions to be responsible for 25% of the costs for the partnership. However the profits and liquidation are to be split 70% to BCI and 30% to Global. An analysis of the partnership Cash In/Out accounts, at December 31, 2006, is presented below:
| 75%/25% of total Cash In/ Cash Out | Due from/(Due to) Member | ||||||
|---|---|---|---|---|---|---|---|
BCI Aircraft Leasing | 3,596,247 | 6,522,874 | (2,926,627 | ) | |||
| Cash In/Out | |||||||
| Global Aircraft | 5,100,918 | 2,174,291 | 2,926,627 | ||||
| Solutions Cash In/Out | |||||||
| Total Cash in/Out | 8,697,165 | ||||||
The members are negotiating a settlement for the exchange of consideration for the membership interest held by Global (See Note 1).
7. DEPOSITS
At December 31, 2005, the Company had $5.4 million on deposit in escrow related to the purchase of the 26 aircraft bought under the Omnibus Sales Agreement. At December 31,2006, these deposits had been used and the purchase of the original 26 aircraft was complete. At December 31, 2006, the Company had $350,000 on deposit related to supplying DIP financing for bankrupt Falcon Airlines. Subsequent to December 31, 2006, the presiding judge in the case has ordered the return of the $350.000.
RELATED PARTY TRANSACTIONS
During 2005, Jetglobal had a sale rescinded due to a customer canceling a sales agreement. This sale was guaranteed by BCI. In settlement of the guarantee commitment to Jetglobal BCI agreed to take the aircraft in a distribution from Jetglogal and provide Global with a payment equal to its share of lost earnings. As a result, BCI and Global entered into a settlement agreement for $1,957,692. This transaction was accounted for as a distribution to BCI in 2005 at the aircraft carrying value of $2,100,000. BCI settled its guarantee obligation directly with Global. The payment of $1,957,962 was made by BCI to Global in January 2006.
The Company had accounts payable with Global owned companies in the amount of $1.1 million at December 31, 2006 and $90 at December 31, 2005. For the year ended December 31, 2006, Global billed the Company $2.4 million for modification services performed on the Company’s aircraft. There were no billings from Global owned companies in 2005.
Both BCI and Global provide management and administrative services on behalf of the Company. No value has been ascribed to these services to be included in the accompanying financial statements.
CONCENTRATION OF REVENUES
During 2006, sales to Northern Air Cargo comprised for 38% of Company revenue, Air Philippines comprised 30%, Royal Khmer Airlines comprised 19% and RAVSA comprised 14%.
Exhibits
| 23.1 | Amended Consent of Independent Registered Public Accounting Firm |
Pursuant to SEC Rule 12b-15, this form 10-K/A includes amended Exhibit 23.1 and new certifications by the Chief Executive Officer and Chief Financial Officer.
