Global Aircraft Solutions (GACF) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

[ x ]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For quarterly period ended June 30, 2008
[    ]	Transition report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
	For the transition period from	to
	Commission File No. 0-28575
GLOBAL AIRCRAFT SOLUTIONS, INC.
(Exact name of issuer as specified in its charter)
	NEVADA		84-1108499
	(State or other jurisdiction of		(I.R.S. Employer Identification No.)
	incorporation or organization)
	6901 South Park Avenue
	Tucson, Arizona 85706
	Mail: P.O. Box 23009
	Tucson AZ		85734-3009
(Address of Principal Executive Offices)			(Zip Code)
Registrant’s telephone number, including area code: (520) 294-2481

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.

Yes [ x ] No [      ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [      ]    Accelerated filer [      ]    Non-accelerated filer [      ]    Smaller Reporting Company [ x ]

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [    ]      No [ x ]

The registrant had 41,081,301 shares of its Common Stock outstanding as of June 30, 2008.

1

INDEX
PART I.   FINANCIAL INFORMATION
Item 1.    Financial Information
Condensed Consolidated Balance Sheets (unaudited): As of
June 30, 2008 and December 31, 2007	3
Condensed consolidated Statements of Operations (unaudited):
For the three and six months ended June 30, 2008 and 2007	5
Condensed Consolidated Statement of Changes in Stockholders’
Equity (unaudited): For the year ended December 31, 2007 and
six months ended June 30, 2008	6
Condensed Consolidated Statements of Cash Flows (unaudited):
For the six month periods ended June 30, 2008 and 2007	7
Item 2.    Management’s Discussion and Analysis of Financial Condition	15
Item 3.    Controls and Procedures	21
PART II.    OTHER INFORMATION
Item 1.    Legal Proceedings	21
Item 6.     Exhibits	22
Signatures	23
Certifications

2

 

ITEM 1.     FINANCIAL STATEMENTS.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
June 30, 2008 and December 31, 2007
(unaudited)
ASSETS
		June 30,		December 31,
		2008		2007
CURRENT ASSETS
Cash and cash equivalents	$	646,091	$	1,221,598
Accounts receivable, net		5,337,724		7,412,120
Due from equity investee partner		347,000		472,000
Inventory, net		12,903,662		16,429,501
Costs and estimated earnings on contracts in excess of		231,625
billings on contracts in progress, net
Restricted funds		446,007		196,181
Deferred income taxes		3,895,966		1,682,948
Other current assets		1,075,081		752,784
TOTAL CURRENT ASSETS		24,883,156		28,167,132
Property, plant and equipment, net		881,167		1,024,837
Investments in and advances to affiliates		20,000		20,000
Goodwill		38,992		38,992
Deferred taxes		76,718		76,718
Other assets		39,951		366,469
TOTAL ASSETS	$	25,939,984	$	29,694,148

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
June 30, 2008 and December 31, 2007
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
		June 30,			December 31,
		2008			2007
CURRENT LIABILITIES
Notes payable	$	9,135,091		$	10,268,091
Accounts payable – trade		2,323,772			3,051,776
Customer deposits		3,294,674			419,076
Billings in excess of costs and estimated
earnings on contracts in progress, net		--			822,782
Accrued liabilities		647,727			484,109
Income taxes payable		596,874			673,453
Current maturities – capital lease obligations		65,080			62,038
TOTAL CURRENT LIABILITIES		16,063,218			15,781,325
LONG-TERM LIABILITIES
Capitalized lease obligations		138,044			170,990
TOTAL LONG-TERM LIABILITIES		138,044			170,990
TOTAL LIABILITIES		16,201,262			15,952,315
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized no
shares issued or outstanding 2008 and 2007		--			--
Common stock, $.001 par value, 100,000,000 shares authorized
and 41,081,301 and 40,181,301 shares issued and
outstanding 2008 and 2007		41,081			40,181
Additional paid-in capital		14,107,524			13,755,973
Contributed capital		620,289			620,289
Subscriptions receivable		154,035
Accumulated deficit		(4,876,137	)		(674,610	)
TOTAL STOCKHOLDERS' EQUITY		9,738,722			13,741,833
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	25,939,984		$	29,694,148

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
For the Three and Six Months ended June 30, 2008 and June 30,2007
(unaudited)
	Three Months				Three Months			Six Months			Six Months
	ended June 30,				Ended June 30,			ended June 30,			ended June 30,
	2008				2007			2008			2007
Sales
Sales, maintenance, repair and overhaul	$	5,118,194		$	2,742,659		$	8,689,349		$	8,276,990
Sales, aircraft trading		1,556,167			7,850,000			3,549,917			7,900,000
Sales, parts		744,552			594,800			1,851,014			1,225,468
Sales, other		64,050			(13,569	)		271,668			432
Total sales		7,482,963			11,173,890			14,361,948			17,402,890
Cost of sales
Cost of sales, maintenance, repair and
overhaul		(3,959,445	)		(2,207,074	)		(6,266,010	)		(5,958,354	)
Cost of sales, aircraft trading		(2,185,599	)		(6,846,000	)		(3,405,730	)		(6,846,234	)
Cost of sales, parts		(383,225	)		(193,084	)		(952,870	)		(567,093	)
Cost of sales, other		(57,630	)					(198,398	)		(435	)
Inventory write-down		(3,037,350	)		(61,741	)		(3,075,288	)		(61,741	)
Total cost of sales		(9,623,249	)		(9,307,899	)		(13,898,296	)		(13,433,857	)
Gross profit		(2,140,286	)		1,865,991			463,652			3,969,033
Selling, general and administrativeexpense		(4,225,862	)		(1,528,706	)		(6,356,833	)		(3,128,191	)
Income from operations		(6,366,148	)		337,285			(5,893,181	)		840,842
Other income (expense):
Interest income		3,074			177,848			7,566			184,291
Interest expense		(380,360	)		(378,889	)		(776,174	)		(510,489	)
Miscellaneous income		46,304			52,746			48,478			74,745
Legal settlement		200,000			- -			200,000			(100,000	)
Loss on asset disposal		(157	)		- -			(1,234	)		- -
Equity in income of unconsolidated
affiliate											214,800
Gain on sale of interest in
unconsolidated affiliate		- -			27,210			- -			27,210
Net income, before taxes		(6,497,287	)		216,200			(6,414,545	)		731,399
Provision for income taxes		2,241,978			(75,670	)		2,213,018			(256,004	)
Net income	$	(4,255,309	)	$	140,530		$	(4,201,527	)	$	475,395
Net income per share:
Basic	$	(0.11	)	$	0.00		$	(0.10	)	$	0.01
Diluted	$	(0.11	)	$	0.00		$	(0.10	)	$	0.01
Weighted average number of common
shares outstanding:
Basic		40,369,213			34,779,327			40,275,527			39,719,669
Diluted		40,369,213			35,894,478			40,275,527			40,783,188

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

 

GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2007 and the Six Months Ended June 30, 2008
(unaudited)
						Additional			Contributed	Subscriptions			Retained			Stockholder
						Paid-in			Capital	Receivable			Earnings			Equity
	Shares					Capital
Balance
December 31,
2006	39,587,807	$	39,967		$	12,723,213		$	620,289			$	2,370,737		$	15,754,206
Exercise of
warrants, (non-
cash)	48,494		48			(48	)									--
Share-based
payments to
directors	10,000		10			13,890										13,900
Stock issued to
employees for
compensation	340,000		340			204,670										205,010
Stock issued to
third parties	120,000		120			94,680										94,800
Stock
(restricted)
issued to 3rd
parties for
current and
future services	75,000		75			29,465										29,540
Shares vested
on employment
agreements						176,843										176,843
Options issued
to a Director						10,546										10,546
Warrants
issued with
debentures						581,282										581,282
Repricing of
existing
warrants						69,241										69,241
Tax effects of
share-based
payments						(148,188	)									(148,188	)
Reclassification
from commons
stock to APIC			(379	)		379										--
Net loss, 2007													(3,045,347	)		(3,045,347	)
Balance
December 31,
2007	40,181,301	$	40,181		$	13,755,973		$	620,289	--		$	(674,610	)	$	13,741,833
Shares vested
on employment
agreements						175,175										175,175
Options issued
to a Director						2,601										2,601
Options
exercised	900,000		900			152,100				(154,035	)					(1,035	)
Stock to be issued
to third parties
pursuant to
financing agreement						21,675										21,675
Net income													(4,201,527	)		(4,201,527	)
Balance June 30,	41,081,301	$	41,081		$	14,107,524		$	620,289	(154,035	)	$	(4,876,137	)	$	9,738,722

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

     GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 31, 2008 and 2007
 (unaudited)

		2008			2007
Cash flow from operating activities:
Net Income	$	(4,201,527	)	$	475,395
Adjustments to reconcile net profit to netcash
used in operating activities:
Depreciation		229,092			292,787
Equity in income of unconsolidatedaffiliate		--			(214,800	)
Physical inventory adjustments		2,925,289			--
Bad debt expense		1,820,857			--
Stock based compensation expense		209,451			329,814
Intercompany non-cash transactions		(10,000	)		--
Gain on sale of interest inunconsolidatedaffiliate					(27,210	)
Gain on disposal of fixed assets					(50,000	)
Changes in Assets and Liabilities:
Accounts receivable		918,134			(1,060,910	)
Prepaid expenses		376,973			130,905
Inventory		2,350,550			131,453
Restricted funds		(249,826	)		--
Deposits		(606,480	)		(911	)
Other non-current assets		74,309			--
Accounts payable-trade		(1,267,600	)		(2,174,399	)
Deferred income taxes		(2,213,018	)		--
Customer deposits		2,974,878			494,939
Billings in excess of cost and estimatedearnings on contracts in progress, net		(1,054,407	)		(195,281	)
Income tax payable		(76,579	)		256,005
Accrued liabilities		163,618			33,098
Net cash (used in) provided by operating activities		2,363,714			(1,579,115	)
Cash flows from investing activities:
Purchase of property, plant and and equipment		(85,422	)		(32,237	)
Notes receivable		--			116,672
Non-consolidated affiliate (investment) receipt					48,973
Net cash (used in) provided by investing activities		(85,422	)		133,408
Cash flows from financing activities:
Proceeds from bank loans		--			57,603
Repayment of loans		(2,546,990	)		--
Payments on capital lease obligations		(29,903	)		(27,548	)
Proceeds from note payable, related party		300,000			800,000
Payments on notes payable, related party		(300,000	)		--
Proceeds from note payable					1,250,000
Payments on notes payable		(275,871	)		(727,544	)
Other financing activities, net		(1,035	)		(9,670	)
Net cash (used in) provided by financing activities		(2,853,799	)		1,342,841
Net decrease in cash and cash equivalents		(575,507	)		(102,866	)
Cash and cash equivalents at beginning of period		1,271,598			104,440
Cash and cash equivalents at end of period	$	646,091		$	1,574

Interest paid for the six-month periods ended June 30, 2008 and 2007 was $748,360 and $502,238, respectively.

Taxes paid during the six-month periods ended June 30, 2008 and 2007 were $100,000 and $0, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

GLOBAL AIRCRAFT SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

These Condensed Consolidated Financial Statements include the accounts of Global Aircraft Solutions, Inc., and its wholly owned subsidiaries, Hamilton Aerospace Technologies, Inc. (“HAT”) and Johnstone Softmachine Corporation (“Johnstone”), and World Jet Corporation (“World Jet”), collectively, the “Company” or “Global”. HAT and Johnstone were acquired by Global on May 2, 2002. Johnstone is currently inactive.

All material transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements.

These Condensed Consolidated Financial Statements have been prepared by the Company without audit. These Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company for the six months ended, June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. T he Condensed Consolidated Financial Statements should be read in conjunction with the notes to the Condensed Consolidated Financial Statements contained in our annual report on Form 10-K for the fiscal year ended December 31, 2007.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers 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.

Reclassifications

Certain amounts in the accompanying financial statements as of June 30, 2007 have been reclassified to conform to the current year presentation, with no effect on reported net income.

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, 2007 and June 30, 2008 there were 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.

8

Revenue from part sales is recognized when parts are shipped. All parts are shipped FOB shipping point; title passes at time of shipping and the Company has no further contractual or legal obligation to the customer upon shipping. 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.

Recently Issued Accounting Pronouncements

On May 9, 2008, the FASB issued Statement No. 162,Hierarchy of Generally Accepted Accounting Principles, which simply moves the requirements related to which authoritative literature to look to first from the audit standards to GAAP. SFAS 162 is effective 60 days following the SEC's approval of the PCAOB’s amendments to AU Section 411,The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.

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 the three and six month periods ended June 30 of 2008 and 2007 are as follows:

		For the Three Months ended June 30, 2008
		Income		Shares		Per-Share
		(Numerator)		(Denominator)		Amount
Net Income		(4,255,309	)
Basic and diluted EPS
Income available to common stockholders		(4,255,309	)	40,369,213	($	0.11	)
		For the Six Months ended June 30, 2008
		Income		Shares		Per-Share
		(Numerator)		(Denominator)		Amount
Net Income	$	(4,201,527	)
Basic EPS and diluted EPS
Income available to common stockholders	$	(4,201,527	)	40,275,257	($	0.10	)
		For the Three Months ended June 30, 2007
		Income		Shares		Per-Share
		(Numerator)		(Denominator)		Amouht
Net Income	$	140,530
Basic EPS
Income available to common stockholders	$	140,530		34,779,327	$	0.00
Warrants				10,865
Options				681,429
Unvested employment agreement shares				422,857
Diluted EPS
Income available to common stockholders and
assumed conversions	$	140,530		35,894,478	$	0.00

9

 

		For the Six Months ended June 30, 2007
		Income	Shares		Per-Share
		(Numerator)	(Denominator)		Amount
Net Income	$	475,395
Basic EPS
Income available to common stockholders	$	475,395	39,719,669	$	0.01
Warrants			69,105
Options			724,138
Unvested employment agreement shares			270,276
Diluted EPS
Income available to common stockholders and
assumed conversions	$	475,395	40,783,188	$	0.01

3.    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.    TRADE ACCOUNTS RECEIVABLE

As of June 30, 2008 and December 31, 2007, trade accounts receivable consist of the following:

				June 30, 2008			December 31, 2007
Contracts in progress			$	467,214		$	2,393,224
Completed contracts				8,584,233			7,789,974
			$	9,051,447		$	10,183,198
Less: allowance for doubtful accounts				(3,713,723	)		(2,771,078	)
			$	5,337,724		$	7,412,120
Bad debt expense during the first six months of 2008 was $1,820,856.
5.    INVENTORY
Inventories consisted of the following:
		June 30, 2008					December 31, 2007
Maintenance hardware	$	982,196				$	912,745
Parts for resale		6,205,897					6,527,947
Aircraft & engines		5,715,569					8,988,809
	$	12,903,662				$	16,429,501

Management reviews listed inventory items to determine whether there are slow moving or obsolete items on an annual basis. It has been and remains our policy to expense any items that we determine to be obsolete, damaged or unlikely to sell. The Company has an allowance for slow moving and obsolete parts inventory in the amount of $125,980.

10

6.    NOTES PAYABLE

On December 20, 2007, Global and its subsidiaries HAT, World Jet and Hamilton Aerospace S.A. de C.V. ("HATMEX") (collectively the "Companies") entered into and closed on three non-convertible secured debenture financing agreements with two accredited institutional investors ("Holders") in the total amount of $10 million (collectively the "Debentures"). The Debentures accrue interest at the rate of 15% per annum, which is payable quarterly in arrears beginning April 1, 2008. The Debentures also provide for a cash flow recapture to the Holders equal to 60% of any proceeds related to the sale of Global's aircraft inventory. The Debentures mature on December 19, 2008.

Pursuant to the Pledge and Security Agreement and Aircraft Security Agreements, the Debentures are secured by (a) a first lien on all the current and future assets of the Companies including any owned aircraft; (b) the equity interests currently held by Global in HAT, WJ and HATMEX; and (c) the 40% membership interest of Global in Global Aircraft Leasing Partners, LLC. However, in the event of default, foreclosure of the foregoing equity and membership interests held by Global can only be enforced if the foreclosure on all other assets of the Companies is insufficient to satisfy repayment of the Debentures.

At June 30, 2008, the Company was in compliance with the covenants of these debentures. At June 30, 2008, the outstanding balance was approximately $7.453M.

On May 21, 2008, Global entered into a purchase agreement for one MD-83 airframe, N789BV, Serial #49789. The contract calls for $300,000 cash and a note in the amount of $850,000 to be paid in eight equal monthly installment of $106,250 plus 6% interest with the first payment due no later than August 1, 2008. (See Note 12,Subsequent Events)

On June 19, 2008, Global and its subsidiaries HAT, World Jet and Hamilton Aerospace S.A. de C.V. entered into and closed on a Secured Note and Aircraft Security Agreement, (“MD-83 Note and Security Agreement), with Victory Park Master Fund, Ltd. The principal amount of the note is $800,000, payable on or before September 15, 2008 and bears interest at the greater of 15% or Prime +10%. One MD-83, N9306T, Serial #49567 secures the Note. The holders of the Debentures described above waived any default or other breach arising out of this MD-83 Note and Security Agreement. As an inducement for participation in this transaction, 75,000 shares of the Company’s common stock are to be issued to Victory Park Master Fund, Ltd. (See Note 12,Subsequent Events)

7.    CONTRACTS IN PROGRESS

At June 30, 2008 and December 31, 2007, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings on uncompleted contracts consist of the following:

		June 30, 2008			December 31, 2007
Costs incurred on uncompleted contracts	$	1,212,285		$	1,670,556
Profit earned to date		1,393,606			1,630,873
	$	2,605,891		$	3,301,429
Less: Billings to date		(2,423,346	)		(4,124,211	)
		182,545		$	( 822,782	)

Included in the accompanying balance sheet at June 30, 2008 and December 31, 2007, under the following captions:

Costs and estimated earnings in excess of billings on uncompleted contractsandBillings in excess of costs and estimated earnings on uncompleted contracts.

		June 30,  2008		December 31, 2007
Billings in excess from above	$	182,545	$	( 822,782	)
Time and material earnings unbilled		49,080		--
Net	$	231,625	$	( 822,782	)

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.

11

 

8.    SHAREHOLDERS' EQUITY

Options

On April 24, 2008 options for 10,000 shares, at an exercise price of $0.28, were granted to a Director pursuant to a compensation agreement. The options are exercisable for a term of five years and were immediately vested. Using the Black Scholes Model, the call option value of these options was calculated to be $.26. $2,601 was expensed during the second quarter of 2008 relative to these options. 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 following assumptions: Risk free interest rate of 3.66%, Expected life of 2.5 years, Dividend rate of 0% and Expected volatility of 165.23% .

On May 13, 2008 options for 900,000 shares at $0.17 per share were exercised. The Company received two personal notes in the amounts of $22,667 and $130,333, respectively. Both notes are payable on or before May 12, 2009, including interest at 6.5% . The Company is holding the stock certificates until payment is received on the notes.

Stock

On June 19, 2008, the Company agreed to issue 75,000 shares of restricted common stock to Victory Park Master Fund, Ltd. as an inducement for granting the Company an $800,000 Secured Note and Aircraft Security Agreement as described herein under Note 7, “Notes payable”. The value of the stock at measurement date was $0.29 per share and $21,675 was expensed during the second quarter of 2008.

SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS

	TOTAL SHARES	ISSUED	AVAILABLE
PLAN NAME			June 30, 2008
2002 Compensatory Stock Option Plan	3,000,000	1,055,000	1,945,000
2003 Employee Stock Compensation Plan	5,000,000	4,987,500	12,500

Stock-based Compensation Disclosure

Stock issued under plans to employees was issued at the value of the stock at the measurement date. All outstanding options were exercisable at the grant date. Those options issued to employees that were not immediately exercised remained outstanding at June 30, 2008 and are summarized below:

		June 30, 2008
		Weighted Average
		Exercise Price
Options outstanding at  beginning of year	940,000	$0.207	Exercisable on grant  date
Granted during quarter 1	None
Granted during quarter 2	10,000
Exercised duringduring quarter 1	None
Exercised during quarter 2	900,000
Forfeited during quarter 1 & 2	None
Outstanding at 6/30/2008	50,000	$0.28	Exercisable on grant date
Options exercisable at 6/30/2008	50,000	$0.88	Exercisable on grant date
Weighted average fair value of options granted during quarter 2	$0.28

12

The aggregate remaining contractual lives in years for the 30,000, 10,000 and 10,000 options outstanding and exercisable on June 30, 2008 was 3.153, 3.683 and 4.819, respectively.

		June 30, 2007
		Weighted Average
		Exercise Price
Options outstanding at
beginning of year	930,000	$0.198	Exercisable on grant  date
Granted during quarter 1	10,000	$1.05
Exercised during quarter 1	None
Cancelled during quarter 1	None
Forfeited during quarter 1	None
Outstanding at 3/31/2007	940,000	$0.207	Exercisable on grant date
Options exercisable at 3/31/2007	940,000	$0.207	Exercisable on gran datet
Weighted average fair value of options granted during quarter 1	$1.05

9.   SEGMENT INFORMATION

The company has divided its operations into the following reportable segments: (i) Aircraft maintenance, repair, and overhaul; (ii) Aircraft brokerage; and (iii) 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 three and six months ended June 30, 2008 and June 30, 2007.

	Three months	Three months		Six months	Six months
	ended	ended		ended	ended
	June 30, 2008	June 30, 2007		June 30, 2008	June 30, 2007
	($millions)	($millions)		($millions)	($millions)
Segment sales:
Aircraft maintenance	5.551	2.743		9.122	8.277
Aircraft trading	1.556	7.850		3.550	7.900
Part sales	2.166	1.385		4.045	3.513
Other	.064	(.014	)	.272	--
Sub Total	9.337	11.964		16.989	19.690

13

 

Elimination of intersegment sales	(1.854	)	(.790	)	(2.627	)	(2.287	)
Total consolidated sales	7.483		11.174		14.362		17.403
Gross profit:
Aircraft maintenance	1.159		.536		2.423		2.319
Aircraft trading	(3.666	)	1.004		(2.892	)	1.054
Part sales	.361		.340		.860		.598
Other	.006		(.014	)	.073		(.002	)
Sub total	(2.140	)	1.866		.464		3.969
Selling, general, administrative expense	(4.226	)	(1.529	)	(6.357	)	(3.128	)
Income from operations:	(6.366	)	.337		(5.893	)	.841
Other, net	(.131	)	(.148	)	(.521	)	(.352	)
Share of Jetglobal net income (a/c/trading)	--		--		--		.215
Gain on sale of interest in Jetglobal	--		.027		--		.027
Consolidated earnings (loss) before taxes	(6.497	)	.216		(6.414	)	.731
Interest income by segment
Aircraft maintenance	.002		.173		.007		.174
Aircraft trading	--		--		--		--
Part sales	--		--		--		--
Corporate	.001		.005		.001		.010
Total interest income	.003		.178		.008		.184
Interest expense by segment
Aircraft maintenance	.019		.262		.042		.287
Aircraft trading	--		--		--		--
Part sales	--		.007		--		.008
Corporate	.361		.110		.734		.216
Total interest expense	.380		.379		.776		.511
	Three months		Three months		Six months		Six months
	ended		ended		ended		ended
	June 30, 2008		June 30, 2007		June 30, 2008		June 30, 2007
	($millions)		($millions)		($millions)		($millions)
Depreciation and amortization by segment
Aircraft maintenance	.105		.104		.182		.215
Aircraft brokerage	--		--		--		--
Part sales	--		--		--		--
Corporate	.010		.039		.047		.078
Total	.115		.143		.229		.293
Net asset values:
Aircraft maintenance	7.288		7.790		7.288		7.790
Aircraft trading	5.866		9.022		5.866		9.022

14

Part sales	6.622	6.767	6.622	6.767
Corporate	6.422	5.152	6.422	5.152
Total	26.198	28.731	26.198	28.731
Capital expenditures:
Aircraft maintenance	.072	--	.083	--
Aircraft brokerage	--	--	--	--
Part sales	--	--	--	--
Corporate	.001	.021	.002	.043
Total	.073	.021	.085	.043

The Company’s facilities and assets are primarily located in the United States. 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:

		Six Months		Six Months
		Ended		Ended
		June 30, 2008		June 30, 2007
Afghanistan	$	883,292	$
Angola				63,524
Belgium		125,426		21,534
Canada		2,680,127
France		800
Hong Kong				30
Israel		5,500		42,057
Italy		55
Lebanon		13,500		19,845
Lithuania		4,000
Mexico		3,011,360		2,703,851
Nigeria		1,305,195
Pakistan		500		285,020
Singapore				48,973
South Africa		2,655
Turkey		250
UAE		27,800		44,369
Ukraine		188,888		6,560
United Kingdom		29,276		4,260
TOTALS	$	8,278,624	$	3,240,023

10.   CONCENTRATIONS

Revenues

The Company’s top four customers accounted for 54.7% and 79.2% of sales during the 1^stsix months of 2008 and 2007, respectively. Three customers accounted for 54.5% of the Company’s net accounts receivable at June 30, 2008. 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. It should be noted that in any single quarter, due to the length of the typical repair job, percentages will normally be significantly higher than on an annual basis. While the relative significance of customers varies period to period, the loss of, or significant curtailments of purchase ofour ser vices by, one or more or our significant customers at any time could adversely affect our revenue and cash flow. The top four customers, referenced above, for the 1^stsix months of 2008 and 2007 are listed in the table below:

15

1st Six months of 1008 - Top Four	1st Six Months of 2008 - % of	1st Six months of 2007 - Top Four	1st Six months of 2007 - % of
Customers	Revenues	Customers	Revenues
Customer E	21.0%	Customer A	45.5%
Customer F	16.4%	Customer B	15.4%
Customer G	9.1%	Customer C	14.5%
Customer H	8.2%	Customer D	3.8%
Top Four- 1stSix months of		Top Four- 1stSix months of
2008 Total %	54.7%	2007 Total %	79.2%

Cash

We are potentially subjected to concentration of credit risk through our cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited or managed by major financial institutions and at times are in excess of FDIC insurance limits. At June 30, 2008 and December 31, 2007 cash and cash equivalents held in excess of FDIC insurance limits were approximately $429,000 and $900,000, respectively.

11.    RELATED PARTY TRANSACTIONS

GALP

GALP accounted for 1.7% of Company revenue during the first six months of 2008. At June 30, 2008, the Company had receivables in the amount of $1,496,546, (an allowance of $656,000 has been established), from GALP, which represents 15.8%, after allowance, of the Company’s net accounts receivable balance.

12.     SUBSEQUENT EVENTS

On July 18, 2008 Global entered into a sales agreement with Credi Trade, LLP, as buyer. Global is selling one MD-83 N9306T Serial #49567 to be equipped with two JT8D-217C engines. The aircraft was purchased by Global during the second quarter of 2008. The purchase price to be paid by Credi Trade, LLP is $5,025,000. The down payment on the aircraft is $1,250,000 and the balance is payable on a monthly schedule beginning July 1, 2008 and ending September 1, 2009.

On July 18, 2008 Global entered into a sales agreement with Credi Trade, LLP, as buyer. Global is selling one MD-83 N789BV Serial #49789 to be equipped with two JT8D-217C engines. The aircraft was purchased by Global during the second quarter of 2008. The purchase price to be paid by Credit Trade, LLP is $4,960,000. The down payment on the aircraft is $1,250,000 and the balance is payable on a monthly schedule beginning June 1, 2008 and ending September 1, 2009.

16

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS.

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements and information relating to Global Aircraft Solutions, Inc. (“Global”) and its wholly owned subsidiaries Hamilton Aerospace Technologies Inc., "HAT", and World Jet Corporation, “World Jet”, that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words "anticipate", "believe", "estimate", "expect", "intend", "plan" and similar expressions, as they relate to Global, HAT, World Jet, or its management, are intended to identify forward-looking statements. These statements reflect management's current view of Global, HAT, and World Jet concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others relating to our results of operations: competitive factors, shifts in market demand, and other risks an d uncertainties, that may affect our ability to generate sufficient working capital to meet our operating requirements and service our indebtedness, our ability to refinance our secured debt, or to convert such debt to equity, maintaining good working relationships with our vendors and customers, our ability to attract and retain qualified personnel, future terrorist-related activities, economic factors that affect the aviation industry, changes in government regulation, increases in fuel prices, and the overall economy. Should any of the assumptions underlying a forward-looking statement prove incorrect, actual results could differ materially from those anticipated. We are not obligated, nor do we undertake the obligation, to revise these forward-looking statements to reflect future events or circumstances.

PART 1

RECENT DEVELOPMENTS AFFECTING OUR OPERATIONS

High fuel costs and the general state of the economy are producing negative impact on the aviation industry.

The trend in the market towards increasing jet fuel prices may adversely affect our business. The price of jet fuel affects the maintenance and repair markets, since older aircraft, which consume more fuel and which account for most of our maintenance and repair services business, become less viable as the price of fuel increases. In response to increased fuel prices and their negative effect upon the older aircraft that have been the principal focus of the Company up to this time, the Company has added more fuel-efficient ‘next generation’ Boeing 737 aircraft (i.e. 737-600 through 737-900) to HAT’s FAA-approved repair station certificate and has initiated marketing efforts to secure new maintenance work on that class of aircraft.

When economic factors adversely affect the airline industry, they tend to reduce the overall demand for maintenance and repair services, causing downward pressure on pricing and increasing the credit risks associated with doing business with airlines. We cannot assure you that economic and other factors, which may affect the airline industry, will not adversely impact our business, financial condition or results of operations. Such adverse effects in the airline industry, can also adversely affect our aircraft parts sales business conducted by our wholly owned subsidiary, World Jet. Any event or occurrence that adversely impacts the aircraft maintenance industry will also adversely impact the aircraft parts sales industry because aircraft parts sales are directly related to the demand for maintenance of aircraft.

Problems in the airline industry could adversely affect our business. However, the effect to our business would be to a much lesser extent than to MRO firms that rely heavily on major airlines for business.

RESULTS OF OPERATIONS

HAT operating revenues consist primarily of service revenues and sales of materials consumed while providing services. World Jet revenues consist primarily of sales of aircraft parts. Cost of sales consists primarily of labor and materials, cost of parts and freight charges. Global revenues consist of revenues derived from aircraft trading. Operating results have fluctuated in the past and may fluctuate significantly in the future. Many factors affect our operating results, including timing of repair orders and payments from large customers, competition from other third-party MRO service providers, the state of the aviation industry and the number of customers seeking services, the impact of fixed pricing on gross margins and our ability to accurately project our costs, our ability to obtain financing and other factors.

Significant portions of our operating expenses, such as insurance, rent, debt payments and certain salaries, are relatively fixed. Since we typically do not obtain long-term commitments from our customers, we must anticipate the future volume of orders based upon the historic patterns and from discussions with our customers as to their future requirements. Cancellations, reductions or delays in orders by a customer or group of customers could have a material adverse effect on our business, financial condition and results of operations.

17

Consolidated Results

Consolidated net sales for the three months ended June 30, 2008 decreased $3.7 million, or 33%, to $7.483 million from $11.174 million for the three months ended June 30, 2007. Cost of sales consists of costs of inventory sold for World Jet, time and materials for HAT and aircraft purchases for Global aircraft trading. Consolidated cost of sales for the three months ended June 30, 2008 increased $315K, or 3.4%, to $9.623 million from $9.308 million for the three months ended June 30, 2007. Cost of sales included $3.037 million of inventory write-down. Consolidated cost of sales, absent the inventory write-down, decreased 29.2% as compared to the 2ndquarter of 2007. Consolidated cost of sales, as a percentage of revenue, increased in the second quarter of 2008 to 129% from 83% for the s ame period in 2007. Absent the inventory write-down, consolidated cost of sales as a percentage of revenue was 88% in the second quarter of 2008.

Consolidated net sales for the six months ended June 30, 2008 decreased $3 million, or 17.5%, to $14.362 million from $17.403 million for the six months ended June 30, 2007. Consolidated cost of sales for the six months ended June 30, 2008 increased $464K, or 3.5%, to $13.898 million from $13.434 million for the six months ended June 30, 2007. Consolidated cost of sales included $2.925 million of inventory write-downs. Consolidated cost of sales, absent the inventory write-down, decreased 19.4% as compared to the six months ended June 30, 2007. Consolidated cost of sales, as a percentage of revenue, increased in the first six months of 2008 to 96.8% from 77.2% for the same period in 2007. Absent the inventory write-down, consolidated cost of sales as a percentage of revenue was 75.4% in the first and second quarters of 2008.

Consolidated selling, general and administrative expenses for the three months ended June 30, 2008, as percentage of sales, were 56.5%, which was 42.8% greater than for the same period in 2007. For the first half of 2008 consolidated selling, general and administrative expenses were 44% of sales as compared to 18% in the same period of 2007. The bad debt expense of $1.816M recorded in 2008 impacts the percentages for the first six months by 12.6% .

Company-wide gross profit for the six months ended June 30, 2008 of $.464 million was less than the same period in the prior year by $3.5 million. Consolidated gross profit was impacted during the second quarter by the write down of our aircraft inventory in the amount of $3.037M. Gross profit levels during any particular period are dependent upon the number and type of aircraft serviced, the contract terms under which services are performed and the efficiencies that can be obtained in the performance of such services. Significant changes in any one of these factors could have a material impact on the amount and percentage of gross profits. Additionally, gross profit could be impacted in the future by considerations as to the value of our inventory.

Consolidated S G &A expense for the six months ended June 30, 2008 was $6,356,833 a 103% increase over the $3,128,191 recorded in the first six months of 2007. The 2008 results included bad debt expense of $1.816M resulting from allowances taken against accounts receivable balances of HAT.

Consolidated interest expense was $380,360 as compared to $378,889 in the second quarters of 2008 and 2007, respectively.

The following tables depict our pre-tax operating profit or (loss) for the first six months and the second quarter of 2008 and 2007 on a stand-alone basis and a consolidated basis for Global, HAT and World Jet:

2ndquarter of 2008
	Global		HAT		World Jet	Intercompany		Consolidated
	Stand-Alone		Stand-Alone		Stand-Alone	Eliminations
Revenues	956,667		6,257,231		2,123,278	(1,854,213	)	7,482,963
Less: Cost of sales	4,904,749		4,990,681		1,575,569	(1,847,750	)	9,623,249
Less: Expenses	1,293,031		2,636,593		303,318	(7,080	)	4,225,862
Pre-tax Operating Profit (Loss)	(5,241,113	)	(1,370,043	)	244,391	617		(6,366,148	)

18

First six months of 2008
	Global		HAT		World Jet	Intercompany		Consolidated
	Stand-Alone		Stand-Alone		Stand-Alone	Eliminations
Revenues	2,967,750		10,275,841		3,745,524	(2,627,167	)	14,361,948
Less: Cost of sales	6,124,880		7,729,369		2,664,751	(2,620,704	)	13,898,296
Less: Expenses	2,415,527		3,333,489		615,514	(7,697	)	6,356,833
Pre-tax Operating Profit (Loss)	(5,572,657	)	(787,017	)	465,259	1,234		(5,893,181	)
2ndquarter of 2007
	Global		HAT		World Jet	Intercompany		Consolidated
	Stand-Alone		Stand-Alone		Stand-Alone	Eliminations
Revenues	7,850,000		2,739,676		1,373,869	(789,655	)	11,173,890
Less: Cost of sales	6,846,083		2,347,804		903,667	(789,655	)	9,307,899
Less: Expenses	519,666		704,605		305,053	(618	)	1,528,706
Pre-tax Operating Profit (Loss)	484,251		(312,733	)	165,149	618		337,285
First six months of 2007
	Global		HAT		World Jet	Intercompany		Consolidated
	Stand-Alone		Stand-Alone		Stand-Alone	Eliminations
Revenues	7,900,000		8,299,107		3,491,025	(2,287,242	)	17,402,890
Less: Cost of sales	6,846,317		6,358,770		2,516,012	(2,287,242	)	13,433,857
Less: Expenses	1,103,554		1,402,185		623,687	(1,235	)	3,128,191
Pre-tax Operating Profit (Loss)	(49,871	)	538,152		351,326	1,235		840,842

Aircraft maintenance and repair

During the second quarter of 2008, our maintenance segment revenues were $5.1M an increase of 86.6% from the second quarter of 2007 which was $2.7M. Cost of sales for our maintenance segment increased $1.75 million or 79.4% from the second quarter of 2007 amount of $2.2M to $3.96M for the second quarter of 2008. Cost of sales as a percentage of revenue was 77.4% and 80.5% in the second quarters of 2008 and 2007, respectively.

The core revenue-producing activity at our aircraft maintenance and repair segment, HAT, is the sale of labor hours. During the first six months of 2008, revenue produced from labor was $5.942 million as compared with $4.936 million the first six months of 2007. This represents an increase of 20.4% . Billable hours for the 2ndquarter of 2008 were 45,055 compared with 30,703 in the 1stquarter, a 47% increase. Billable hours for the 2ndquarter of 2007 were 32,057 compared with 45,518 hours in the 1stquarter of 2007.The comparative costs for all direct labor, including work performed by outside contractors, was $3.875M in the first six months of 2008 compared with $2.721M for the same period in 2007. All direct labor costs were 37.7% of total maintenance sales in first six months of 2008 compared with 32.8% in the first six months of 2007. All direct labor costs were 65.2% of labor sales in first six months of 2008 compared with 55.1% in the first six months of 2007. The relationship between direct labor costs and direct labor revenues saw relative costs increase 10.1% from 2007 to 2008. Direct labor percentages will always vary to some degree due to the nature of flat-rate bidding as opposed to billing for all time and materials. Additionally, the Company gradually increased its labor rate, where possible, during the first quarter of 2008. A substa ntial sudden increase in volume can be expected to have a temporary impact on efficiencies and are viewed by Management as a temporary consequence of growth. A sudden decrease in volume should have a negative impact due to the retention of core labor during slower periods. Management is confident that adjustments to volume changes should be made and profitability will benefit over time.

S G &A expenses for the 1^stand 2ndquarters of 2008 were $3.019M compared with $1.393M for the 1stand 2ndquarters of 2007. Absent the bad debt expense recorded during the 2008 period of $1.816M, S G & A expense is about $190K less in 2008 than in 2007. The bad debt expense consists primarily of increased allowance f or Avolar of $929K, BCI of $1.75M and GALP of $656K as discussed below:

19

Avolar

The progress of Avolar mde in paying doen their balance in 2007 has not continued in 2008. With the additional reserve taken in 2008, the company has reserved a total of 75% of the Avolar account receivable. We have engaged legal counsel in Mexico to pursue collection of the full balance of $1.658M plus interest.

BCI

We have engaged legal counsel, made final demand for payment, and are preparing a suit for the total amount due of $2,331,149 plus interest, plus damages that will be served on BCI near term. We have increased our reserve to 75% of the BCI account receivable.

GALP

GALP is claiming that the 737-300 sold to them by Global did not meet the agreed upon delivery conditions for that aircraft. Management has written down the GALP account receivable by 50% as a result.

Part sales

Our parts sales segment increased from $1.385M in the second quarter of 2007 to $2.166M for the same period in 2008, a 56% increase. The Company experienced a 25% increase in sales to third parties during 2008’s 2nd quarter over the 2nd quarter of 2007. As a percentage of part sales revenue, cost of sales was 83% and 75% for the quarters ending June 30, 2008 and 2007, respectively.

S G & A expenses for our part sales segment remained nearly constant from period to period, $303K in the second quarter of 2008 as compared to $305K in the second quarter of 2007.

Aircraft trading

Aircraft sales revenue in the first half of 2008 was $3.550M compared with $7.9M in the first half of 2007. Aircraft sales tend to vary significantly on a period-to-period basis based on the particular aircraft sold as well as the time necessary to complete a transaction.

Cost of sales for our aircraft-trading segment was 86.7% of revenue in the first half of 2007 compared with 181.5% of revenue in 2008. Cost of sales includes an inventory write-down of $3.037M, which was 85.6% of revenue. In 2007, Global received five 737-200s and one MD82 aircraft from the wind down of our Jetglobal partnership. At the time of the transaction, market conditions supported the cost recorded for the transaction of $1.5M per aircraft for the 737-200s and $1.15M for the MD82. The market for these aircraft has fallen and consequently, the Company reduced the carrying value of its aircraft assets by $3.037M during the second quarter of 2008.

Additionally, impacting the relationship between revenue and cost of sales was the 2008 transaction with Pamir Airlines. Pamir Airlines was given credit on the 2008 transaction for $1.4M, about 47% of revenue, which had been forfeited on an earlier transaction dating back to 2007. Management elected to give Pamir Airlines credit on this new sale (1) in order to enhance cash flow and aid in paying down our senior debt and (2) to eliminate a potential legal adversarial situation. Global has also received a deposit of $550,000 from Pamir to be applied to the purchase of a second aircraft.

S G &A expenses for the first half of 2008 were $2.415M as compared with $1.104M in the first half of 2007. The major period-to-period increases recorded were $580K in commissions, $542K in legal professional and director fees, $130K in salaries and $52K in employee benefit plans,

The following tables depict our pre-tax operating profit or (loss) for the first six months and the second quarter of 2008 and 2007 on a stand-alone basis and a consolidated basis for Global, HAT and World Jet:

20

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Improvement in the Company’s liquidity position depends on 3 main factors:

1	.	The collections of the large past due amounts due from Avolar and BCI.
2	.	The successful marketing of the aircraft and engines now in our inventory, converting them to cash.
3	.	The continued growth and profit experienced prior to the cash problems experienced in 2007.

At this time, HAT plans to expand its capabilities to include MRO servicing of new-generation aircraft. It is estimated that the necessary tooling to accomplish this expansion will cost between $200,000 and 250,000. The Company has no plans to make any other significant capital expenditures during 2008.

Our ability to make payments of principal and interest on outstanding debt will depend upon our future operating performance, which will be subject to economic, financial, competitive and other factors, some of which are beyond our control. Our ability to repay our indebtedness is dependent on several factors: our continued ability to secure high profit margin jobs, more fully utilizing our capacities, creating a higher bottom line and consequently more cash; and our ability to establish revolving credit lines, which we can draw on as needed.

Changes in the Company’s Balance Sheet for the 1^stand 2^ndquarters ended June 30, 2008 reflected several events. Total assets decreased from $29,694,148 at December 31, 2007 to $25,939,984. Significant changes for the period were:

Cash on hand decreased $575,507 from the balance December 31, 2007 due to the use of funding from the debenture transaction, (seeShort-Term Financingbelow), principally to pay-down accounts payable.

Accounts receivable decreased $2,074,396 largely due to Managements decision to increase the allowance for several large outstanding accounts as discussed earlier under the discussion of maintenance segment results.

Total inventory decreased $3.5M. The Company bought aircraft and engines for $2.3 million and sold aircraft and engines valued at $2.8 million. Additionally, inventory values of aircraft and engines were decreased $3M to reflect current market values.

Cost and estimated earnings on contracts in progress increased $231,625

Restricted funds increased $250K due to required performance bonds related to a HAT customer. Deferred income taxes increased $2,213,018 due to the tax benefit of our year-to-date loss.

There was a reclassification from other asserts to other current assets of $320K.

During the quarter ended June 30, 2008 total liabilities increased from $15,952,315 at December 31, 2007 to $16,201,262 primarily due to:

Notes payable decreased $1.133K as a result of payments on the note related to the debenture agreement of $2.5M plus $1.6M in two notes issued during the 2ndquarter (seeShort-Term Financingbelow for details on financings). 200K related to financed insurance premiums and capital lease obligations was paid during the period.

Accounts Payable decreased $728K.

Customer deposits increased $2.9M reflecting payments made under a letter of intent for the purchase of two aircraft.

Billings in excess of costs and estimated earnings on contracts in progress decreased $822,782.

21

Cash

As of June 30, 2008, we had $646,091 in cash on hand and $5,337,724 in accounts receivable.

During 2007, the Company experienced a major cash deficit. In December of 2007, the Company was able to find the source of funding detailed underShort-Term Financingbelow. This funding was used to (i) eliminate the expensive short-term debt the Company had acquired to provide the cash necessary for day-to-day operations and (ii) pay off a $5,000,000 loan from M&I Marshall & Ilsley Bank.

The Company believes that it will fully recover from the effects of the cash shortage it experienced for most of 2007. Management bases its assessment on several factors:

• The Company will continue efforts to sell the aircraft received due to the termination of its partnershipin Jetglobal.
• The Company will continue to aggressively collect on its older outstanding receivable balances fromAvolar and BCI.
• Our HAT operation will increase its marketing effort in order to secure new customers to fill the voidleft by our withdrawal from Jetglobal and our cessation of work for Avolar. HAT is being successfulin securing profitable maintenance contracts with new customers.

Management believes that anticipated cash flows from the operations of HAT and World Jet and from the anticipated sale of our aircraft inventory will be adequate to sufficiently provide working capital and satisfy the requirements of our short-term debt. We cannot give assurance that financing alternatives will be available to us in the future to support our working capital requirements should they be needed.

Short-Term Financing

At June 30, 2008, the Company was in compliance with the covenants of the non-convertible secured debenture financing agreements entered into on December 20, 2007. During the first half of 2008, the original $10M balance was reduced to $7.5M.

On May 21, 2008, Global entered into a purchase agreement for one MD-83 airframe, N789BV, Serial #49789. The contract calls for $300,000 cash and a note in the amount of $850,000 to be paid in eight equal monthly installment of $106,250 plus 6% interest with the first payment due no later than August 1, 2008.

On June 19, 2008, Global and its subsidiaries HAT, World Jet and Hamilton Aerospace S.A. de C.V. entered into and closed on a Secured Note and Aircraft Security Agreement, (“MD-83 Note and Security Agreement), with Victory Park Master Fund, Ltd. The principal amount of the note is $800,000, payable on or before September 15, 2008 and bears interest at the greater of 15% or Prime +10%. One MD-83, N9306T, Serial #49567 secures the Note. The holders of the Debentures described above waived any default or other breach arising out of this MD-83 Note and Security Agreement. As an inducement for participation in this transaction, 75,000 shares of the Company’s common stock are to be issued to Victory Park Master Fund, Ltd.

Long-Term Financing

The long-term liabilities of Global, consisting primarily of capitalized lease obligations, were reduced to $138K by the end of the 1^sthalf of 2008.

Possible Cancellations, Reductions or Delays

A large portion of our operating expenses is relatively fixed; therefore cancellations, reductions or delays in orders by a customer or group of customers could materially adversely affect our business, financial condition or results of operations.

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CRITICAL ACCOUNTING ESTIMATES

Financial Reporting Release No. 60 of the SEC encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of the financial statements. Our consolidated financial statements filed as part of this annual report include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements.

Use of Estimates:Management's Discussion and Analysis of Financial Condition or Plan of Operation is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Management evaluates these estimates on an on-going basis, including those related to estimated losses on disposal of discontinued operations, the allowance to reduce inventory to the lower of cost or net realizable value, the estimated profit recognized as aircraft maintenance, design and construction services are performed, the allowance for doubtful acc ounts and notes receivable, future cash flows in support of long lived assets, medical benefit accruals, and the estimated fair values of facilities under capital leases. Management bases its estimates on historical experience and on various other assumptions that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

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.

Inventory:Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories include new and 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. All aircraft parts inventory are grouped as “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. When management determines that an allowance for slow moving and obsolete inventory should be provided for, the allowance is 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.

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. Revenue from part sales is recognized when parts are shipped. Revenues from time and material contracts and all other anci llary 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.

Value of Share-Based Payments:The value of stock and warrants issued as payment is determined by the closing price of the Company’s stock at measurement date. In connection with the adoption of SFAS 123R, the company values options and warrants by application of the Black Scholes Model.

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ITEM 3A.    CONTROLS AND PROCEDURES

Our management, including our chief executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report on form 10-Q. Based upon that evaluation, our chief executive officer and chief financial and accounting officer have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by our company in reports that we file under The Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information was made known to them by others within the company, as appropriate, to allow timely decisions regarding required disclosure.

The Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer that: (i) pertains to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements for external reporting in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorization of the Company’s management and directors; and (iii) provides reasonable assurance regarding prevent ion or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedure may deteriorate. As a non-accelerated filer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission inInternal Control —Integrated Framework. Based on this assessment, management concluded that certain controls and procedures were not effective. An explanation of the deficiencies is set forth below.

The Certifying Officers determined that certain deficiencies involving internal controls constituted material weaknesses as of the end of the period covered by its December 31, 2007 Annual Report. The deficiencies identified related to audit adjustments made due to limited or no review procedures performed by management beyond initial preparer calculations and estimates. Additionally, the Company identified a lack of formal control design structure for the review of external financial data.

In order to correct the foregoing deficiencies, the Company has taken the following remediation measures:

1	.	A formal quarterly review process has been established to examine the critical areas of account receivable
		collectibility and reach a determination as to the need for increased an allowance account and the amount of such increase.
2	.	A formal quarterly review process has been established to examine the carrying value of major inventory
		items relative to the changing market value and to determine the amount of adjustment needed, if any.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

As Plaintiff:

During the second quarter of 2008, hearing was held in the Company’s lawsuit against Corwin Foster and Jan Doe Foster husband and wife, and Seajay Holdings, LLC, a Michigan Limited Liability Company, (described in form 10K for the year ended December 31, 2007). At the close of said hearing the judge ruled in the Company’s favor and the Company is awaiting the post judgment findings, conclusions and amount of award for damages, if any.

As Defendant:

In re Falcon Air Express, Inc. United States Bankruptcy Court, Southern District of Floridawherein the Trustee of the Bankruptcy Court has asserted a preference under Section 547 of the Bankruptcy Code against HAT in the amount of $682,931 for payments received by HAT within 90 days of the Debtor Falcon filing for Bankruptcy under Chapter 11 of the Bankruptcy Code. HAT has asserted an exception to application of any preference as follows:

a)	Exception to preferences under Section 547 (c) (1) – Transfer was made to be a contemporaneous exchange for new value;
b)	Exception to preferences under Section 547 (c) (2) – Payments made in the ordinary course of business; and
c)	Exception to preferences under Section 547 (c) (4) – Extension of new credit to the debtor, the value of which offsets any preference claim.

This matter is currently pending discovery.

Other Matters.From time to time in the ordinary course of our business, we are also party to other legal proceedings or receive correspondence regarding potential or threatened legal proceedings. While we currently believe that the ultimate outcome of these other proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in our results of operations, legal proceedings are subject to inherent uncertainties.

ITEM 6.    EXHIBITS

  (a)     Exhibits

31.1	Certification of Principal Executive Officer, Mr. Gordon Hamilton
31.2	Certification of Principal Operating Officer, Mr. John B. Sawyer
31.3	Certification of Principal Accounting Officer, Ms. Patricia Graham
32.1	Certification of Mr. Gordon Hamilton, Chief Executive Officer

Forms 8-K filed during the first quarter of 2008:

Issued January 17, 2008, Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers and Item 9.01, Financial Statements and Exhibits. The exhibit was a Press Release of Global Aircraft Solutions, Inc. issued January 14, 2008.

Forms 8-K filed during the second quarter of 2008:

None

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SIGNATURES

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/Gordon Hamilton		Chief Executive Officer and Director	April 12, 2008
Gordon Hamilton
/s/John Sawyer		President, Chief Operating Officer and Director	April 12, 2008
John Sawyer
/s/Patricia Graham		Chief Accounting Officer	April 12, 2008
Patricia Graham

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