GLOBAL AIRCRAFT SOLUTIONS, INC.
6901 S. Park Ave.
Tucson, Arizona
85706-3009 U.S.A.
Phone (520) 294-3481
Fax (520) 741-1430
www.globalaircraftsolutions.com
-------------------------------
PROSPECTUS DATED February 8, 2006
Trading Symbol - GACF.OB (OTCBB Market)
This prospectus relates to the resale by selling shareholders of Global Aircraft
Solutions, Inc. ("Global" or "Company") of a total of 20,358,215 shares of
common stock of the Company issued by us in private transactions exempt from
registration with the SEC pursuant to Rule 506 under Regulation D as promulgated
by the SEC Act 1933 and a total of 10,868,234 shares of common stock of the
Company issueable upon exercise of all issued and outstanding warrants held by
the selling shareholders. The shares of common stock are being offered for sale
by the selling shareholders at prices established on the Over-the-Counter
Bulletin Board during the term of this offering. On February 2, 2006, the last
reported sale price of our common stock was $1.54 per share. These prices will
fluctuate based on the demand for the shares of common stock.
The selling shareholders named in this prospectus are offering all of the
31,348,080 shares of common stock offered through this prospectus. We will not
receive any of the proceeds from the sale of the originally issued (exclusive of
any warrant exercise) 12,715,386 shares of common stock by the selling
shareholders. However, the Company may receive proceeds from the exercise of any
of the 18,632,694 warrants originally issued unless the warrant holders elect to
implement the cashless exercise option that is available for any warrants
exercised prior to the existence of an effective registration statement with
respect to such underlying shares. (See Section entitled "Use of Proceeds" and
"Offering").
This offering and an investment in our shares involves a high degree of risk and
is suitable only for those persons with substantial financial resources in
relation to their investment and who understand the particular risks of this
investment. Please see "Risk Factors" on pages 8-12 to read about factors you
should consider carefully before buying our shares.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
SUMMARY........................................................................3
OFFERING.......................................................................6
RISK FACTORS...................................................................8
FORWARD LOOKING STATEMENTS....................................................12
USE OF PROCEEDS...............................................................12
DIVIDEND POLICY...............................................................13
DILUTION......................................................................13
SELLING SHAREHOLDERS..........................................................14
PLAN OF DISTRIBUTION..........................................................17
LEGAL PROCEEDINGS.............................................................18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..................18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................20
DESCRIPTION OF SECURITIES.....................................................20
INTEREST OF NAMED EXPERTS AND COUNSEL.........................................20
DISCLOSURE OF COMMISSION POSITION FOR SECURITIES ACT LIABILITY................21
ORGANIZATION WITHIN THE LAST FIVE YEARS.......................................21
DESCRIPTION OF BUSINESS.......................................................21
MANAGEMENT DISCUSSION AND ANALYSIS............................................29
DESCRIPTION OF PROPERTY.......................................................42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................42
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................43
EXECUTIVE COMPENSATION........................................................44
FINANCIAL STATEMENTS..........................................................46
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTANT CONTROL
AND FINANCIAL DISCLOSURE......................................................47
FURTHER INFORMATION...........................................................47
Page 2
SUMMARY
Global Aircraft Solutions, Inc. ("Global" or "Company") was incorporated in
Nevada on September 5, 1997. Our principal office is located at 6901 S. Park
Ave., Tucson, AZ 85706. Global is a public company that trades in the U.S.
over-the-counter market. Our common stock is quoted on the OTC Bulletin Board
under symbol GACF. Global was formed as a holding company to establish, maintain
and administer the equity and debt funding of any acquired subsidiaries as well
as maintain such capitalization of any subsidiaries. On April 12, 2002, Global
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 Global
(he has since resigned). Mr. Brasher was also a principal stockholder of Global
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 May 2, 2002, Global acquired newly formed Hamilton Aerospace Technologies,
Inc., a Delaware corporation, located at 6901 S. Park Ave., Tucson, AZ 85706
("HAT") in a stock-for-stock exchange. HAT was formed on April 5, 2002 and
commenced operations on April 15, 2002, to create a premier provider of aircraft
maintenance, repair, and overhaul ("MRO") services to owners and operators of
Transport Category commercial jet aircraft. Its customers are all aircraft
operators, including passenger and cargo air carriers, and aircraft leasing
companies. In conjunction with commencing operations on April 15, 2002, HAT
entered into an agreement to purchase the operating assets and inventory from an
existing MRO, Hamilton Aviation ("Sale of Assets Agreement") as well as entering
into a Lease/Purchase Agreement with Hamilton Aviation for the same assets so
that HAT could commence operations pending a closing of the Sale of Assets
Agreement ("Lease Agreement"). Shortly after entering into this Sale of Assets
Agreement, Hamilton Aviation filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. The Sale of Assets Agreement was submitted to the
Bankruptcy Estate for approval as part of Hamilton Aviation's plan of
reorganization; and pending the Bankruptcy Estate's review and acceptance of the
Sale of Assets Agreement and such plan of reorganization, HAT and Hamilton
entered into an interim agreement whereby HAT agreed to assume Hamilton
Aviation's service contracts pending approval of the Sale of Assets Agreement.
During the Bankruptcy Estate's review of the Sale of Assets Agreement and plan
of reorganization, HAT and Hamilton renegotiated the terms and purchase price of
the Sale of Assets Agreement; and in March 2004, the modified Sale of Assets
Agreement was approved by the Bankruptcy Estate and memorialized and finalized
by the entry of a Settlement Agreement among HAT, Hamilton Aviation and the
Bankruptcy Estate. This Settlement Agreement was then confirmed by Order of the
Bankruptcy Court dated May 6, 2004.
On July 15, 2004, Global acquired World Jet Corporation ("World Jet") a
privately owned Nevada corporation, located at 6900 S. Park Ave., Tucson, AZ
85706 pursuant to a stock purchase agreement whereby Global acquired 100% of the
stock of World Jet for a total purchase price of $2,050,000.00 payable as
follows: 1) $1,250,000.00 in cash, 2) $300,000.00 promissory note, and 3)
1,000,000 shares of Global stock at a price of $0.50 per share as well as
assuming all liabilities of World Jet including the income tax liability for
World Jet fiscal 2003. World Jet is an aircraft parts sales and aircraft parts
brokerage facility servicing aircraft operators, aircraft leasing companies and
MRO facilities. Tucson, Arizona is the only workplace for Global, HAT and World
Jet.
As a holding company, over 97% of Global's operations are currently conducted by
our two operating subsidiaries (1)HAT which accounts for approximately 82% of
Global's revenue; and (2) World Jet which accounts for approximately 15% of
Global's revenue. Although a majority of Global's business is conducted by these
two wholly owned subsidiaries, Global does report some revenue and operating
expenses which represents less than 5% of the overall consolidated revenue,
expenses and assets of Global on a stand alone basis. The operating expenses
incurred by Global are for administrative, legal and accounting functions
associated with Global managing the shares of its wholly owned subsidiaries as
well as all activities related to capitalizing and maintaining adequate
capitalization levels for its subsidiaries. The only revenue that has been
reported by Global is revenue derived from a contract with Mesa Airlines,
beginning in the third quarter of 2003 and ending in December of 2004. This
represents the first revenue produced by Global since consolidation with HAT.
This work was performed by HAT, but revenue and expenses were booked to Global
because the customer wanted to contract directly with HAT's parent (Global)
rather than with the wholly owned subsidiary (HAT).
HAT is an aircraft repair station licensed by the Federal Aviation
Administration (FAA) and by the Joint Aviation Authority of the European
Economic Community (JAA), and is known as an "Air Agency" in FAA parlance. Its
MRO services include maintenance, repair, overhaul and modification services for
narrow-body Transport Category aircraft, repair and overhaul services on a wide
range of aircraft components and aircraft interiors. Our major modification
services include the conversion of passenger aircraft to freighter configuration
and technical support for third party modification programs.
Page 3
HAT is a full service aviation maintenance and modification repair facility that
primarily performs heavy maintenance and component overhaul of large narrow body
jets, such as the Boeing 727, 737, 757, DC9 and MD80 series aircraft. HAT
provides airport terminal "turn around" maintenance for most of the airlines
operating into Tucson International airport. HAT also has extensive engine
hush-kit experience including Federal Express and Raisbeck kits for Boeing 727
aircraft, ABX kits for DC9 aircraft, as well as Nordam and Av Aero kits for
Boeing 737 aircraft. Below is a brief description of HAT's core services:
Maintenance and repairs for narrow body commercial jet aircraft constitutes
HAT's core business. These services include simple repairs and servicing, heavy
maintenance referred to as a "C-check" and complete overhaul referred to as a
"D-check." In addition, HAT performs major configuration changes of commercial
aircraft, such as interior reconfiguration and conversion from passenger service
to cargo service. HAT provides services for each aircraft under a Maintenance
and Service Agreement (MSA) with each operator. These contracts are generally
fixed-price labor-only, with a cap on hours expended on unforeseen repairs.
Parts are either provided by the operator or can be procured by HAT and resold
to the operator. With certain long-term customers such as Jetran International,
Pegasus and Falcon Air, HAT has entered into a General Terms Agreement, which is
an umbrella agreement that covers the general framework for all services HAT
expects to render to the customer. HAT is qualified to perform all levels of
maintenance service from pre-flight checks up through complete major overhauls
("D" checks).
In addition to scheduled maintenance services, HAT also offers refinishing,
painting and return-to-service maintenance. HAT also offers numerous related
services, such as worldwide commercial aircraft pre-purchase inspection and
appraisal services, post-purchase configuration, maintenance and operational
program development, post-contract and post-lease condition assessment,
commercial aircraft accident assessment and recovery, flight line maintenance,
termination of lease recovery, and aircraft storage and storage maintenance.
Modification Services
HAT modification services include passenger to cargo conversions, engine noise
suppression, power plant retrofits, and avionics upgrades to the latest in
navigation, communication, and digital technology. HAT also provides interior
replacement and refurbishment services as well variety of custom seating
arrangements to meet operators' requirements, including all types of commercial
configurations as well as special purpose interiors for sports teams,
humanitarian missions or VIP aircraft.
Market
Narrow body commercial airliners (Boeing 727s, 737s, 757s, DC9s, MD80s) are
HAT's primary market for selling aircraft maintenance, repair, and component
overhaul services. Major commercial airlines, lower-tier airlines, package
carriers, and charter operators operate these aircraft. We estimate that the
worldwide market for MRO services is approximately $40 billion annually. HAT's
target market of specific narrow body commercial jet aircraft constitutes an
estimated 25% of the worldwide commercial aircraft maintenance market. Due to
the relatively small portion of its revenues that come from activities other
than its core MRO services HAT has not examined the markets for those other
activities.
Ancillary Activities and Services
In addition to its core maintenance, repair, component overhaul and modification
services, HAT opportunistically generates additional income from the following
revenue sources encountered in the course of the company's day-to-day business
activities: Distress purchases, Parts Sales, Commission Sales, Aircraft storage,
Inspection and Certification, Aircraft Sales and Leasing Commissions, Aircraft
Ferry and Flight Crew Services and Labor Contracting
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. We saw revenue grow from $15,378,352 in
2003 to $30,851,118, over $2.3 million in net income, before taxes in 2004
compared with a loss of $1.3 million in 2003, and EBITDA increased from
$(496,861) for 2003 to $3,108,651 in 2004. Although the company has reported net
income, before taxesfor the first two quarters of 2004, the Company has incurred
an overall loss since May of 2002 and there is always a risk as to whether or
not the Company will be able to continue to operate as a going concern and our
auditor has issued a going concern opinion.
Page 4
The following table graphically depicts the quarterly performance for Global,
HAT and World Jet operating subsidiaries on a stand-alone and consolidated basis
for the year ended December 31, 2004:
Period Income Stand Alone Stand Alone Stand Alone * Eliminate Consolidated
Quarter Ended Statement: Global HAT World Jet HAT/WJI Global
- ------------- ---------- ------ --- --------- ------- ------
March 31,2004 Revenues $ 230,576 $ 3,355,532 $ 789,964 $ (90,041) $ 4,286,031
Cost of Sales (144,832) (2,299,340) (547,140) 90,041 (2,901,271)
Expenses (188,875) (465,427) (15,685) (669,987)
Net Profit (Loss) ($ 103,131) $ 590,765 $ 227,339 $ 714,773
June 30, 2004 Revenues $ 545,458 $ 3,083,528 $ 743,721 $ (71,833) $ 4,300,874
Cost of Sales (286,625) (2,108,359) (377,292) 71,833 (2,700,443)
Expenses (354,016) (496,756) 53,315 (797,457)
Net Profit (Loss) ($ 95,183) $ 478,412 $ 419,744 $ 802,973
Sept. 30, 2004 Revenues $ 165,968 $ 6,576,013 $ 1,893,902 $ (523,801) $ 8,112,082
Cost of Sales (92,624) (5,153,587) (1,486,416) 523,801 (6,206,743)
Expenses (694,927) (338,106) (232,162) (1,267,278)
Net Profit (Loss) ($ 621,583) $ 1,084,320 $ 175,324 $ 638,061
Dec. 31, 2004 Revenues $ 105,679 $ 12,273,815 $ 3,630,877 $ (1,858,239) $ 14,152,131
Cost of Sales 67,437 (11,522,222) (3,000,840) 1,858,239 (12,595,303)
Expenses (363,431) (710,419) (345,416) (1,431,349)
Net Profit (Loss) ($ 190,315) $ 41,174 $ 284,620 $ 135,479
2004 Revenues $ 1,047,681 $ 25,288,888 $ 7,058,464 $ (2,543,914) $ 30,851,118
Year End Cost of Sales (456,644) (21,083,509) (5,411,688) 2,543,914 (24,407,926)
Results Expenses (1,601,249) (2,010,708) (539,948) (4,151,906)
Net Profit (Loss) (1,010,212) $ 2,194,671 $ 1,106,827 $ 2,291,286
Page 5
March 31,2005 Revenues $ 1,775,000 $ 5,730,920 $ 2,255,788 $ (1,109,472) $ 8,652,236
Cost of Sales (975,000) (4,879,870) (1,609,007) 1,109,472 (6,354,405)
Expenses (588,411) (655,535) (395,793) (1,639,739)
Net Profit $ 211,589 $ 195,515 $ 250,988 $ 658,092
(Loss)
June 30,2005 Revenues $ 1,420,000 $ 6,364,608 $ 2,092,211 $ (1,047,441) $ 8,829,378
Cost of Sales (750,068) (5,169,421) (1,558,291) (1,047,441) (6,430,339)
Expenses (371,917) (1,138,211) (206,744) (1,716,872)
Net Profit $ 298,015 $ 56,976 $ 327,176 $ 0 $ 682,167
(Loss)
September 30,2005 Revenues $ 8,680,000 $ 4,226,592 $ 3,245,789 $ (690,235) $ 15,462,146
Cost of Sales (6,861,538) (3,736,561) (2,312,666) 690,235 (12,220,530)
Expenses (1,067,583) (855,049) (364,465) (2,287,107)
Tax Estimate (293,266)
Net Profit $ 750,879 $ (365,018) $ 568,648 $ 0 $ 661,243
(Loss)
* The eliminate column reflects the dollar amounts of Inter-Company Sales by
World Jet to HAT in 2004 & 2005. On a consolidated basis Revenues and Cost of
Sales are reduced to reflect the Revenues and Cost of Sales for external sales
only, with a zero $ impact on stand alone or consolidated profit (loss) figures.
The current registration includes 12,715,386 shares of common stock of the
Company that have been issued pursuant to a private placement exempt from
registration with the SEC pursuant to Rule 506 under Regulation D as promulgated
by the SEC pursuant to Section 4(2), and 18,632,694 shares of common stock of
the Company issueable upon exercise of warrants 7,200,000 of which were
exercised by selling shareholder Barron on July 27, 2005; 399,000 of which were
exercised by selling shareholder JG Capital on September 20, 2005 and 22,812
which were exercised by selling shareholder Grushko on September 14, 2005. If
all warrants are exercised, the number of shares of common stock the Company is
registering (31,348,080) will represent 63.6% of the authorized and outstanding
shares of common stock of the Company.
Unless otherwise indicated, "Global Aircraft Solutions, Inc." "we", "us" "our"
"Company" refer to Global Aircraft Solutions, Inc. and its subsidiaries.
OFFERING
Securities Being Offered 20,358,215 shares of common stock (1) and up to
10,868,234 shares of common stock upon the
exercise of all warrants (2).
Securities Issued 38,618,215 shares of common stock were issued
and to be Issued and outstanding as of the date of this
prospectus and an additional 10,868,234 shares
of common stock will be issued and outstanding
if all warrants are exercised (3). Also see
footnote (2)
Page 6
Use of Proceeds We will not receive any proceeds from the sale
of the private placement issue of (i) 17,842,829
shares of common stock by the selling
shareholders, Contrarion Equity Fund, LP
("CEF"), CRT Capital Group, LLC ("CRT"),
Contrarioan Long Short, L.P. ("CLS"), Silver
Point Capital Offshore Fund, Ltd. ("SPCOF"),
Delta Offshore, Ltd. ("DOFS"), Delta
Institutional ("DI"), Brencourt Advisors, LLC
("BA"), Brencourt Distressed Securities Master,
Ltd. ("BDSM"), Loeb Partners Corporation
("Loeb"), JMG Triton Offshore Fund, Ltd. LP
("Triton"), JMG Capital Partners, LP ("JMG"),
Blackmore Offshore, Ltd. ("BOFS"), Blackmore
Wallace Partners, LP ("BWP"), Delta Onshore, LP
("DONS"), Blackmore Partners ("BP"), Delta
Pleiades, LP ("DP"), Silver Point Capital Fund,
LP ("SPCF") , AHFP Contrarian ("AHFP"), AF
Capital, LLC ("AFC"), Core Fund, L.P. ("CF"),
Cedarview Opportunities Master Fund ("COMF") and
JG Capital, Inc. ("JG Capital") (ii) 1,000,000
shares of common stock by selling shareholder
Ralph Garcia; and (iii) 1,515,386 shares of
common stock by selling shareholders Alpha
Capital ("Alpha"), Stonestreet Limited
Partnership ("Stonestreet"), Whalehaven Capital
Fund Limited ("Whalehaven") and Greenwich Growth
Fund Limited ("Greenwich"). We will receive the
proceeds from the exercise of any of the
warrants issued to the selling shareholders
Barron Partners, LP ("Barron"), Whalehaven,
Stonestreet, Greenwich, Alpha, JG Capital, Inc.,
Heza Holding, Inc. and Grushko & Mittman, P.C.
("Grushko") unless the cashless exercise
feature (which is available to all warrant
holders if the registration of shares underlying
such warrants is not effective at the time of a
warrant exercise), is exercised by the warrant
holder. See section entitled "Use of Proceeds".
- --------------------------------------------------------------------------------
(1) 9,600,000 shares of common stock were issued to the selling shareholders,
Barron Partners, pursuant to a private placement under Rule 506 of Regulation D
of SEC Act of 1933,7,200,000 shares of common stock were issued to selling
shareholder Barron Partners on July 27, 2005 upon the exercise of $.68 warrants
and stock issueable upon exercise of such warrants pursuant to a private
placement under Rule 506 of Regulation D of SEC Act of 1933 on May 31, 2004,
399,000 shares of common stock were issued to selling shareholder JG Capital on
September 20, 2005 upon the cashless exercise of a $.34 warrant representing
501,000 of 720,000 shares of common stock (discounted to 399,000 shares upon a
cashless exercise) issueable upon exercise of such warrants pursuant to a
private placement under Rule 506 of Regulation D of SEC Act of 1933 on September
2, 2004, 22,812 shares of common stock were issued to selling shareholder
Grushko on September 14, 2005 upon the cashless exercise of a $.52 warrant
(discounted to 22,812 from 31,731 shares upon a cashless exercise) issueable
upon exercise of such warrants pursuant to a private placement under Rule 506 of
Regulation D of SEC Act of 1933 on September 2, 2004; and 21,017 shares of
common stock were issued to selling shareholder Heza on December 27, 2005 upon
the cashless exercise of a $.52 warrant (discounted to 21,017 from 31,731 shares
upon a cashless exercise) issueable upon exercise of such warrants pursuant to a
private placement under Rule 506 of Regulation D of SEC Act of 1933 on September
2, 2004 . All of the 16,800,000 shares of common stock owned by Barron were sold
by Barron in a private placement to Qualified Institutional Buyers CEF, CRT,
CLS, DOFS, DI, BA, BDSM, Loeb, Triton, JMG, BOFS, BWP, DONS, BP DP, SPCOF , SPCF
and AHFP. A total of 2,115,386 shares of common stock were issued to selling
shareholders as follows: Whalehaven Capital Fund Limited ("Whalehaven") 288,462
shares; Stonestreet Limited Partnership ("Stonestreet") 384,616 shares; Alpha
Capital ("Alpha") 1,250,000 shares and Greenwich Growth Fund Limited
("Greenwich") 192,308 shares pursuant to a private placement under Rule 506 of
Regulation D of SEC Act of 1933. 1,000,000 shares of common stock were issued to
selling shareholder Ralph Garcia pursuant to a private placement under Rule 506
of Regulation D of SEC Act of 1933 as partial compensation for the acquisition
of World Jet Corporation.
(2) Warrants entitling the selling shareholder Barron Partners, JG Capital,
Inc., Alpha, Stonestreet, Whalehaven, Greenwich, Heza Holding, Inc. and Grushko
& Mittman, P.C. to an additional 10,887,865 shares of common stock upon the
exercise of such warrants as follows: Barron Partners - warrants to purchase
7,200,000 shares of common stock at an exercise price of $1.36 per share; JG
Capital, Inc. - warrants to purchase 219,000 (instead of 321,000 shares due to
the discount of 102,000 shares for a cashless exercise of warrants) shares of
common stock at $0.34 per share, 95,192 shares of common stock at an exercise
price of $0.52 per share, 540,000 shares of common stock at $0.68 per share,
47,597 shares of common stock at $1.00 per share, and 587,597 shares of common
stock at $1.36 per share; ; Alpha- warrants to purchase 625,000 shares of common
stock at an exercise price of $1.00 per share and 625,000 shares of common stock
at an exercise price of $1.36 per share; Stonestreet - warrants to purchase
192,308 shares of common stock at an exercise price of $1.00 per share and
192,308 shares of common stock at an exercise price of $1.36 per share;
Whalehaven - warrants to purchase 144,231 shares of common stock at an exercise
price of $1.00 per share and 144,231 shares of common stock at an exercise price
of $1.36 per share; Greenwich - warrants to purchase 96,154 shares of common
stock at an exercise price of $1.00 per share and 96,154 shares of common stock
at an exercise price of $1.36 per share; Heza Holding, Inc. - warrants to
purchase 15,865 shares of common stock at an exercise price of $1.00 per share,
and 15,865 shares of common stock at an exercise price of $1.36 per share;
Grushko - warrants to purchase 15,865 shares of common stock at an exercise
price of $1.00 per share, and 15,865 shares of common stock at an exercise price
of $1.36 per share. All warrants are subject to a cashless exercise option at
the election of the warrant holder if the shares issueable upon exercise of the
warrants are not registered at the time such warrants are exercised.
(3) The amount of shares issued and outstanding will increase up to a maximum of
49,333,080 upon the exercise of all warrants. The amount of issued and
outstanding shares includes 1.5 million shares of common stock issued to Seajay
Holding which have been voided by the Company and for which the Company has
filed a lawsuit against Seajay Holdings seeking a court order for the return of
the 1.5 million shares (See "Legal Proceedings" section).
Page 7
RISK FACTORS
Investing in our common stock involves a high degree of risk. Before agreeing to
buy, you should carefully consider the following risk factors, in addition to
the other information contained or incorporated by reference in this prospectus:
PROBLEMS IN THE AIRLINE INDUSTRY
Problems in the airline industry could adversely affect our business. Since our
customers consist primarily of passenger and cargo air carriers and aircraft
leasing companies, the lingering effects of the terrorist events of September
11, 2001 continue to adversely impact the airline industry and consequently
adversely impact our business. However, it does affect our business to a much
lesser extent than it affects Maintenance, Repair and Overhaul ("MRO") firms
that rely heavily on major airlines for business. 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 which 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.
INCREASING COST OF JET FUEL
The potential for increasing costs in 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.
TERRORIST ATTACKS
The events of September 11th have had a negative impact on the airline industry
in general, and thereby indirectly on us. Factors arising (directly or
indirectly) from these terrorist attacks which could affect our business may
include: (i) the impact of these terrorist attacks and the impact in declines in
air travel as a result of these terrorist attacks on the financial condition of
one or more of our airline customers, (ii) possible increases in jet fuel prices
as a result of events relating to these terrorist attacks, (iii) potential
reductions in the need for aircraft maintenance due to declines in airline
travel and cargo business and (iv) the adverse effect these terrorist attacks,
or future events arising as a result of these terrorist attacks, on the economy
in general.
AVIATION INDUSTRY IS SUBJECT TO HEAVY GOVERNMENT REGULATION
The aviation industry is highly regulated by the FAA in the United States and by
similar agencies in other countries. We must be certified by the FAA, and in
some cases authorized by the original equipment manufacturers, in order to
repair aircraft components and to perform maintenance and repair services on
aircraft. Commercial jets, like any other complex vehicles, require periodic
maintenance to allow for their safe and economical operation. Unlike many
vehicles, the repair and modification of such aircraft is highly regulated by
the various aviation authorities in each country of operation around the world.
In the United States, the Federal Aviation Administration (FAA) regulates the
manufacture, repair, overhaul and operation of all aircraft and aircraft
equipment operated in the U.S. pursuant to the Federal Aviation Regulations
(FARs). The FAA must certify each authorized repair station, and certified
facilities are issued an Air Agency Certificate. Each certificate contains
ratings and limitations that specifically authorize the repair station to only
perform certain types of services on specific makes and models of aircraft. FAA
regulations are designed to ensure that all aircraft and aircraft equipment are
continuously maintained in proper condition to ensure safe operation of the
aircraft. Similar rules apply in other countries. All aircraft must be
maintained under a continuous condition-monitoring program and must periodically
undergo thorough inspection and maintenance. The inspection, maintenance and
repair procedures for the various types of aircraft and aircraft equipment are
prescribed by regulatory authorities and can be performed only by certified
repair facilities utilizing certified technicians. Certification and conformance
is required prior to installation of a part on an aircraft. We closely monitor
the FAA and industry trade groups in an attempt to understand how possible
future regulations might impact us.
Page 8
There is no assurance that new and more stringent government regulations will
not be adopted in the future or that any such new regulations, if enacted, will
not materially adversely affect our business, financial condition or results of
operations. Further, our operations are also subject to a variety of worker and
community safety laws. In the United States, the Occupational Safety and Health
Act mandates general requirements for safe workplaces for all employees.
Specific safety standards have been promulgated for workplaces engaged in the
treatment, disposal or storage of hazardous waste. We believe that our
operations are in material compliance with health and safety requirements under
the Occupational Safety and Health Act.
DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS
For the partial year ended December 31, 2002, our 2 largest continuing customers
accounted for approximately 80% of our total revenues, and our largest
continuing customer accounted for approximately 43% of total revenues. For the
year ended December 31, 2003, our 2 largest continuing customers accounted for
35.6% of our total revenues and our largest continuing customer accounted for
approximately 25.3% of total revenues. Five customers accounted for 74.2% of our
total 2003 revenue. The broadening of our customer base has spread the risk
associated with the failure of a significant customer. Efforts are continually
being made to broaden our customer base and we expect to further reduce this
risk during 2005. While the relative significance of customers varies from
period to period, the loss of, or significant curtailments of purchase of our
services by, one or more of our significant customers at any time could
adversely affect our revenue and cash flow. The customers upon which Company
relies for 10% or more of its revenue as of the fiscal year ending December 31,
2004 are as follows:
HAT WORLD JET
Percentage Percentage
Customer of Revenue Customer of Revenue
- -------- ---------- -------- ----------
Shaheen 21% HAT 37%
Teebah Airlines 13% Aircraft, LLC 27%
Jetran International 11%
Falcon Air Express 10%
World Jet's two largest customers through the fiscal year ended December 31,
2004 were Aircraft LLC and HAT and they accounted for 64% of World Jet's total
revenue through this period. A significant curtailment in purchases of aircraft
parts by one or more of World Jet's significant customers could adversely affect
World Jet's revenues and cash flow since only two customers comprise 64% of
World Jet's total source of revenue.
LEASE OF PROPERTY
Global's wholly owned subsidiary, HAT is currently conducting operations on
leased property at the Tucson International Airport. The lease is a one year
lease commencing March 1, 2005 and permits HAT to apply for two additional one
year options. Until HAT possesses a long-term lease, there remains a risk that
HAT will have to relocate operations which could have an adverse impact on HAT's
operations.
RISK OF OPERATING IN ONE LOCATION
Global conducts 97% of its operations through its two wholly owned subsidiaries,
HAT and World Jet, at 6901 and 6900 South Park Avenue, Tucson, Arizona
respectively. While World Jet serves as HAT's parts supply facility for aircraft
parts at 6900 South Park Avenue Tucson, Arizona, and accounts for 15 % of
Global's total revenue, the MRO operation of HAT located at 6901 South Park
Avenue, Tucson, Arizona comprises approximately 82% of Global's revenue. By
having only one location for aircraft repair and maintenance HAT is at risk of
temporary or permanent cessation of all operations should HAT encounter an event
which renders its facility unusable for any period of time or HAT encounters any
issues or problems related to the use of the facility at this location.
Although World Jet represents only 15 % of Global's operations, World Jet
operates out of only one location in Tucson, Arizona and cessation of operation
at this location due to events which render the facility unusable for any period
of time will correspondingly adversely impact Global's operations and revenue
stream. Since World Jet maintains all of its parts inventory at this one
location, any damage to or destruction of this facility and/or the inventory
will also adversely impact the Company.
Page 9
UNDERCAPITALIZATION
From its inception through the fiscal year ending December 2003, HAT incurred
operating losses and was undercapitalized. This undercapitalization is a direct
result of a failed debenture financing agreement between HAT and various
investors including Seajay Holdings, LLC (See detailed explanation under "Legal
Proceedings"). As a consequence of this failed debenture capitalization, HAT
remained under capitalized through December 2003. HAT received equity financing
in May 2004 in the amount of $3,264,000.00 from selling shareholder Barron
Partners, LPand in September 2004, HAT received $1,100,000.00 from selling
shareholders Alpha, Stonestreet, Whalehaven, and Greenwich to avoid defaulting
on from the Settlement Agreement with the bankruptcy estate of Hamilton
Aviation. Moreover, in fiscal 2004, HAT operated at a net profit of
$2,510,662.00.HAT's profitability in 2004 in conjunction with the receipt of
$3,264,000.00 in equity financing and the receipt of $1,100,000.00 in funding to
avoid a contract default and retain operating assets has resulted in HAT
becoming properly capitalized.
STATUS AS A GOING CONCERN
The Company operating through its two wholly owned subsidiaries, HAT and World
Jet, engages in business operations solely related to the aviation industry. Any
problems in the airline/aviation industry may have an adverse impact on our
operations and ability to operate as a going concern. Any terrorist incidents,
increases in the price of Jet fuel, or other economic factors which adversely
impact the airline/aviation industry could effect our ability to operate as a
going concern. Moreover, any events which may adversely impact our ability to
continue operations at our facilities at Tucson, Arizona could also adversely
affect our ability to operate as a going concern. Although the Company realized
a net profit of $2,510,662 in fiscal 2004 on a consolidated basis, the Company
incurred an overall loss from its inception through the fiscal year ending
December 2003 and there is a risk based upon these losses as to whether or not
the Company will be able to continue to operate as a going concern and our
auditor has issued a going concern opinion.
IMPACT OF BEING AN OTC BULLETIN BOARD STOCK
Global's common stock is quoted on the OTC Bulletin Board under the trading
symbol GACF and is traded in the over-the-counter markets. Unless and until our
common shares become quoted on the NASDAQ system or listed on a national
securities exchange, we may at any time be subject to the "penny stock"
provisions of the Exchange Act and applicable SEC rules. At any time when the
market price of our common stock is below $5.00 per share, our common stock may
be deemed to be a penny stock. In that event, our common stock will be subject
to rules that impose additional sales practices on broker-dealers who sell our
securities. For transactions covered by the penny stock rules, the broker-dealer
must make a suitability determination for each purchaser and receive the
purchaser's written agreement prior to the sale. In addition, the broker-dealer
must make certain mandated disclosures in penny stock transactions, including
the actual sale or purchase price and actual bid and offer quotations, the
compensation to be received by the broker-dealer and certain associated persons,
and deliver certain disclosures required by the SEC. So long as Global's common
shares are considered "penny stocks", many brokers will be reluctant or will
refuse to effect transactions in Global's shares, and many lending institutions
will not permit the use of penny stocks as collateral for any loans. This could
have an adverse effect on the liquidity of our common stock.
OUR COMMON STOCK IS THINLY TRADED AND OUR STOCK PRICE MAY BE MORE VOLATILE THAN
THE MARKET IN GENERAL
Because our common stock is thinly traded, its market price may fluctuate
significantly more than the stock market in general or the stock prices of
similar companies, which are exchanged, listed or quoted on NASDAQ. Our public
float is approximately 13,920,386 shares, thus our common stock will be less
liquid than the stock of companies with broader public ownership, and, as a
result, the trading prices for our common stock may be more volatile. Among
other things, trading of a relatively small volume of our common stock may have
a greater impact on the trading price for our stock than would be the case if
our public float were larger
SINCE BECOMING A PUBLIC COMPANY, WE HAVE NEVER PAID DIVIDENDS.
Since becoming a public company in September of 1997, Global has never paid a
dividend and does not expect to pay a cash dividend upon its capital stock in
the foreseeable future.
Page 10
RELIANCE ON EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our continued success depends significantly upon the services of our executive
officers and upon our ability to attract and retain qualified personnel in all
of our operations. While we have or are issuing employment agreements with each
of our executive officers and certain of our key employees, most of our
employees are employed on an at-will basis. The loss of one or more of our
executive officers and of a significant number of our other employees without
capable replacements could materially adversely affect our business, financial
condition or results of operations.
COMPETITION
The airline industry and the markets for our products and services are extremely
competitive, and we face competition from a number of sources. Our competitors
are other companies providing MRO services. Certain of our competitors are
currently experiencing financial difficulties, and some or all of them may
respond to their financial difficulties by reducing prices on their services to
increase or retain market share. Any material deterioration in our financial
condition is likely to affect our ability to compete with price-cutting by our
competitors. Some of our competitors have substantially greater financial and
other resources than us. We cannot assure you that competitive pressures will
not materially adversely affect our business, financial condition or results of
operations.
PRODUCT LIABILITY
Our business exposes us to possible claims for personal injury or death, which
may result from the failure of an aircraft or an aircraft part repaired or
maintained by us or from our negligence in the repair or maintenance of an
aircraft or an aircraft part. While HAT maintains what we believe to be adequate
liability insurance to protect us from claims of this type, based on our review
of the insurance coverage maintained by similar companies in our industry, we
cannot assure you that claims will not arise in the future or that our insurance
c overage will be adequate. Additionally, there can be no assurance that
insurance coverage can be maintained in the future at an acceptable cost. Any
liability of this type not covered by insurance could materially adversely
affect our business, financial condition or results of operations.
SUSCEPTIBILITY TO OTHER LIABILITY CLAIMS
Our business exposes us to possible claims for personal injury or death, which
may result if we were negligent in repairing or overhauling an airplane. We
cannot assure you that claims will not arise in the future or that our insurance
coverage will be adequate to protect us in all circumstances. Additionally, we
cannot assure you that we will be able to maintain adequate insurance coverage
in the future at an acceptable cost. Any liability claim not covered by adequate
insurance could materially adversely affect our business, financial condition or
results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and exercise of all warrants, the Company will
have outstanding 49,333,080 shares of Common Stock. Of these shares, the Common
Stock sold in the Offering will be freely tradable without restriction or
limitation under the Securities Act of 1933, as amended (the "Securities Act"),
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. The Company, its executive officers, directors and
stockholders, have agreed that, for a period of 180 days from the date of this
Prospectus, they will not sell, offer to sell, solicit an offer to buy, contract
to sell, grant any option to purchase or otherwise transfer or dispose of, any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock, subject to certain exceptions. The
sale of a substantial number of shares of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock and/or impair the
Company's ability in the future to raise additional capital through the sale of
its equity securities.
PRICE VOLATILITY
The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. From time to time in recent years, the securities markets have
experienced significant price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of the
Common Stock.
Page 11
IMPACT OF WARRANT EXERCISE ON MARKET
In the event of the exercise of a substantial number of warrants within a
reasonably short period of time after the right to exercise commences, the
resulting increase in the amount of our common stock in the trading market could
substantially affect the market price of our common stock.
PREEMPTIVE RIGHTS
The selling shareholders, Barron Partners, Alpha, Stonestreet, Whalehaven and
Greenwich have preemptive rights/rights of first refusal with respect to all
shares they hold or may acquire whereby each such investor shall have the right
to participate in any equity or debt convertible into equity or equivalent
financing, by the Company on a pro rata basis at 100 percent (100%) of the
offering price, provided that the price of such financing is not less than $0.68
per share. If the price is less than $0.68 per share, then each investor shall
have the right to invest at 80% of such price. One risk of such preemptive
rights is that it may make it difficult to attract new capital since new
investors could, in effect, overpay compared to those who possess preemptive
rights that it may make it extremely difficult to obtain new financing unless we
purchase back the issued preemptive rights. Another risk factor of the existing
preemptive rights would be that dilution may occur to the extent that the
selling shareholders exercise their preemptive rights/rights of first refusal
(see section titled "Dilution").
THE MARKET PRICE OF OUR COMMON STOCK COULD BE DEPRESSED BY FUTURE SALES
Future sales of our common stock, or the perception that these sales could
occur, could adversely affect the market price of our common stock. We cannot
assure you as to when, and how many of, the shares of our common stock will be
sold and the effect these sales may have on the market price of our common
stock. In addition, we may issue additional shares of common stock in connection
with possible future acquisitions or other transactions. Although these
securities may be subject to regulatory or contractual resale restrictions, as
these restrictions lapse or if these shares are registered for sale to the
public, they may be sold to the public. In the event we issue a substantial
number of shares of our common stock, which subsequently become available for
unrestricted resale, there could be a material adverse effect on the prevailing
market price of our common stock.
FORWARD LOOKING STATEMENTS
This prospectus 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 and uncertainties (including those described under "Risk Factors"
below and elsewhere in this\report), 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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of (i) the 3,355,669 shares of
common stock offered through this prospectus by selling shareholder CEF, (ii)
the 2,500,000 shares of common stock offered through this prospectus by selling
shareholder CRT, (iii) the 2,000,000 shares of common stock offered through this
prospectus by Silver Point, (iv) the 1,599,900 shares of common stock offered
through this prospectus by selling shareholder DOFS, (v) the 1,260,000 shares of
common stock offered through this prospectus by selling shareholder SPCOF, (vi)
the 650,000 shares of common stock offered through this prospectus by Alpha,
(vii) the 1,015,500 shares of common stock offered through this prospectus by
selling shareholder DI, , (viii) the 1,000,000 shares of common stock offered
through this prospectus by selling shareholder BA, (ix) the 1,000,000 shares of
common stock offered through this prospectus by selling shareholder BDSM, (x)
the 1,000,000 shares of common stock offered through this prospectus by selling
shareholder Ralph Garcia, (xi) the 800,000 shares of common stock offered
through this prospectus by selling shareholder Loeb (xii) the 750,000 shares of
common stock offered through this prospectus by selling shareholder JMG, (xiii)
the 750,000 shares of common stock offered through this prospectus by selling
shareholder Triton, (xiv) the 740,000 shares of common stock offered through
this prospectus by selling shareholder SPCF (xv) the 534,313 shares of common
stock offered through this prospectus by selling shareholder CLS, (xvi) the
486,763 shares of common stock offered through this prospectus by selling
shareholder BOFS,(xvii) the 384,616 shares of common stock offered through this
Page 12
prospectus by Stonestreet, (xviii) the 335,038 shares of common stock offered
through this prospectus by selling shareholder BWP, (xix) the 300,000 shares of
common stock offered through this prospectus by selling shareholder AFC; (xx)
the 288, 462 shares of common stock offered through this prospectus by selling
shareholder Whalehaven, (xxi) the 200,100 shares of common stock offered through
this prospectus by selling shareholder DONS (xxii) the 200,000 shares of common
stock offered through this prospectus by selling shareholder CF; (xxiii) the
192, 308 shares of common stock offered through this prospectus by selling
shareholder Greenwich (xxiv) the 184,500 shares of common stock offered through
this prospectus by selling shareholder DP, (xxv) the 178,199 shares of common
stock offered through this prospectus by selling shareholder BP, (xxvi) the
110,018 shares of common stock offered through this prospectus by selling
shareholder AHFP; (xvii) the 100,000 shares of common stock offered through this
prospectus by selling shareholder COMF . We have received the proceeds of
$4,896,000.00 from the exercise by Barron of a $.68 warrant to purchase
7,200,000 shares of common stock. These proceeds will be used as follows:
$3,196,000 - debt reduction (factoring, M&I credit facility and vendor debt)
$1,000,000 - HAT working capital
$700,000 - World Jet working capital
We may receive the proceeds from the exercise of any warrants issued to selling
shareholders Barron, JG Capital, Inc. Whalehaven, Alpha, Stonestreet, Greenwich,
Heza Holdings or Grushko. However, all such warrants have a cashless exercise
feature that may be implemented by the warrant holder in the event the shares
underlying any warrants remain unregistered at the time the warrants are
exercised by such shareholder. JG Capital has elected the cashless exercise
option on 501,000 of the 720,000 shares underlying a $.34 warrant issued
pursuant to a private placement on September 2, 2004; however, the total shares
issued to JG Capital upon such exercise on September 20, 2005 was 399,000 as a
consequence of the discount rate applied for exercise of the cashless feature of
the warrant. Grushko has elected the cashless exercise option on 31,731 shares
underlying a $.52 warrant issued pursuant to a private placement on September 2,
2004; however, the total shares issued to Grushko upon such exercise on
September 14, 2005 was 22,812 as a consequence of the discount rate applied for
exercise of the cashless feature of the warrant. Heza has elected the cashless
exercise option on 31,731 shares underlying a $.52 warrant issued pursuant to a
private placement on September 2, 2004; however, the total shares issued to Heza
upon such exercise on December 27, 2005 was 21,017 as a consequence of the
discount rate applied for exercise of the cashless feature of the warrant. If
the remaining warrants are exercised without implementing the cashless exercise
feature, these proceeds will amount to $13,700,926.00. The intended use of these
proceeds will be for working capital, acquisition of assets and acquisitions of
businesses. We have used the proceeds of $3,264,000.00 already received from the
Barron Partners private placement equity funding and the $1,100,000.00 private
placement equity funding received from Stonestreet, Alpha Capital, Whalehaven
and Greenwich as follows: $3,264,000.00 - working capital and acquisition of
World Jet $1,100,000.00 - purchase of operating assets from bankruptcy estate of
Hamilton Aviation
DIVIDEND POLICY
The Company does not intend to pay any cash dividends with respect to its Common
Stock in the foreseeable future, Rather, the Company intends, after the
consummation of the Offering, to retain its earnings, if any, for use in the
operation of its business.
DILUTION
The Company is a reporting Company. Dilution to our existing shareholders will
occur should the selling shareholders exercise the warrants. If the selling
shareholders exercise any of the warrants dilution may occur to the extent of
such exercise. If all warrants are exercised in addition to any common stock
currently held by any of the selling shareholders, the selling shareholders will
own the following percentages of the issued and outstanding common stock of the
Company:, Barron Partners, will own 14.6%; selling shareholder CEF will own
6.8%; selling shareholder CRT will own 5%; selling shareholder Alpha will own
5%; selling shareholder JG Capital, Inc. will own 4.03%; selling shareholder
DOFS will own 3.2%; selling shareholder SPCOF will own 2.55%; selling
shareholder BA will own 2%; selling shareholder BDSM will own 2%; selling
shareholder DI will own 2%; selling shareholder Loeb will own 1.6%; selling
shareholder Stonestreet will own 1.56%; selling shareholder JMG will own 1.5%;
selling shareholder Triton will own 1.5%; selling shareholder SPCF will own
1.5%; selling shareholder Whalehaven will own 1.16%; selling shareholder AHFP
will own .2%; selling shareholder CLS will own 1%; selling shareholder AFC will
own .6%; selling shareholder CF will own .4%; selling shareholder DONS will own
..4%; selling shareholder DP will own .3%; selling shareholder BP will own .3%;
selling shareholder BWP will own .67%; selling shareholder BOFS will own .98%;
selling shareholder Greenwich will own .77%; selling shareholder COMF will own
..2%; selling shareholder Heza Holdings will own 0.12%; and selling shareholder
Grushko will own 0.12%. The selling shareholders, Barron, Alpha, Stonestreet,
Whalehaven and Greenwich also have preemptive rights/rights of first refusal
with respect to all shares held or acquired whereby each such investor shall
have the right to participate in any equity or debt convertible into equity or
equivalent financing, by the Company on a pro rata basis at 100 percent (100%)
of the offering price, provided that the price of such financing is not less
than $0.68 per share. If the price is less than $0.68 per share, then each
investor shall have the right to invest at 80% of such price. The selling
shareholders, , CEF, CLS, DONS, DP, DI, DOFS, BP, BWP, BOFS, JMG, Triton, Loeb,
BA, BDSM, CRT, Silver Point, AHFP, Heza Holdings, Grushko, Ralph Garcia and JG
Capital, Inc., do not have any such preemptive rights.
Page 13
The Company has also adopted the following stock option and stock compensation
plans for directors, officers and employees of Global and HAT: (i) 2002
Compensatory Stock Option Plan for directors and officers of Global and HAT
which has reserved a maximum of 3,000,000 shares of common stock of which
1,920,000 shares of common stock remain available to be issued; and (ii) 2003
Employee Stock Compensation Plan for employees of HAT which has reserved a
maximum of 5,000,000 shares of common stock of which 2,800,000 shares of common
stock remain available to be issued.
SELLING SHAREHOLDERS
The selling shareholders named in this prospectus are offering all of the
31,348,080 shares of common stock offered through this prospectus. The shares
include the following:
1. 9,600,000 shares of our common stock that selling shareholder, Barron
Partners, acquired from us in an offering that was exempt from registration
pursuant to Section 4(2) as amended of the Securities Act of 1933 and
completed on May 31, 2004 and 7,200,000 shares of common stock that were
issued to selling shareholder Barron Partners on July 27, 2005 upon the
exercise of a $.68 warrant and stock issueable upon exercise of such
warrant which was issued pursuant to a private placement under Rule 506 of
Regulation D of SEC Act of 1933 on May 31, 2004 for a combined total of
16,800,000 shares all of which such 16,800,000 shares of common stock were
sold by Barron in a private placement transaction to the following
qualified institutional buyers who are selling shareholders: 3,355,669
shares of common stock to CEF; 2,500,000 shares of common stock to CRT;
1,599,900 shares of common stock to DOFS; 1,260,000 shares of common stock
to SPCOF; 1,000,000 shares of common stock to BA; 1,015,500 shares of
common stock to DI; 1,000,000 shares of common stock to BDSM; 800,000
shares of common stock to Loeb; 750,000 shares of common stock to JMG;
750,000 shares of common stock to Triton; 740,000 shares of common stock to
SPCF; 534,313 shares of common stock to CLS; 335,038 shares of common stock
to BWP; 486,763 shares of common stock to BOFS; 200,100 shares of common
stock to DONS; 184,500 shares of common stock to DP;178,199 shares of
common stock to BP and 110,018 shares of common stock to AHFP. A total
2,115,386 shares of our common stock that the selling shareholders
Whalehaven (288,462), Stonestreet (384,616), Alpha (1,250,000; 600,000 of
which were sold by Alpha in a private placement transaction on August 4,
2005 as follows: AFC - 300,000 shares; CF - 200,000 shares; and COMF -
100,000 shares) and Greenwich (192,308) acquired from us in an offering
that was exempt from registration pursuant to Section 4(2) as amended of
the Securities Act of 1933 and completed on September 3, 2004; 1,000,000
shares of our common stock that the selling shareholder Ralph Garcia
acquired from us in an offering that was exempt from registration pursuant
to Section 4(2) as amended of the Securities Act of 1933 as partial
consideration for the purchase of World Jet; 7,200,000 shares of our common
stock that selling shareholder, Barron Partners, may receive pursuant to
warrants issued in conjunction with the private placement of Common Stock,
warrants and shares issueable upon the exercise of warrants on May 31,
2004. A total of 399,000 shares of our common stock that selling
shareholder JG Capital received upon exercise of a $.34 warrant issued
pursuant to a private placement on September 2, 2004; A total of 22,812
shares of our common stock that selling shareholder Grushko received upon
exercise of a $.52 warrant issued pursuant to a private placement on
September 2, 2004 and the following shares of common stock issueable upon
the exercise of warrants issued pursuant to a private placement of common
stock and warrants under Rule 506 of Regulation D of SEC Act 1933 on
September 2, 2004: A total of 21,017 shares of our common stock that
selling shareholder Heza received upon exercise of a $.52 warrant issued
pursuant to a private placement on September 2, 2004 and the following
shares of common stock issueable upon the exercise of warrants issued
pursuant to a private placement of common stock and warrants under Rule 506
of Regulation D of SEC Act 1933 on September 2, 2004; 1,489,386 shares of
our common stock selling shareholder, JG Capital, Inc., may receive
pursuant to warrants; 1,250,000 shares of our common stock selling
shareholder Alpha may receive pursuant to warrants; 384,616 shares of our
common stock selling shareholder Stonestreet may receive pursuant to
warrants; 288,462 shares of our common stock selling shareholder Whalehaven
may receive pursuant to warrants; 192,308 shares of our common stock
selling shareholder Greenwich may receive pursuant to warrants; 31,731
shares of our common stock selling shareholder Heza Holdings may receive
pursuant to warrants; and 31,731 shares of our common stock selling
shareholder Grushko may receive pursuant to warrants.
The following table provides as of February 2, 2006, information regarding the
beneficial ownership of our common stock held by each of the selling
shareholders, including:
1. The number of shares owned by each prior to this offering;
2. The total number of shares that are to be offered for each;
3. The total number of shares that will be owned by each upon completion
of the offering;
4. The percentage owned by each; and
5. The identity of the beneficial holder of any entity that owns the
shares.
Page 14
To the best of our knowledge, the named parties in the table that follows are
the beneficial owners and have the sole voting and investment power over all
shares or rights to the shares reported. In addition, the table assumes that the
selling shareholders do not sell shares of common stock not being offered
through this prospectus and do not purchase additional shares of common stock;
however, all selling shareholders may be deemed underwriters. Based upon
information provided to use by the selling shareholders, CRT Capital Group, LLC
is the only selling shareholder that is a broker-dealer and therefore considered
an underwriter. None of the other selling shareholders are broker-dealers or
affiliates of a broker-dealer. Because the selling shareholders may be deemed to
be "underwriters" within the meaning of the Securities Act, the selling
shareholders will be subject to the prospectus delivery requirements of the
Securities Act and the rules promulgated thereunder and they may be subject to
certain statutory liabilities under the Securities Act, including, but not
limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under
the Exchange Act. We have informed the selling shareholders that the
anti-manipulative provisions of Regulation M promulgated under the Exchange Act
may apply to their sales in the market. With certain exceptions, Regulation M
precludes the selling shareholders, any affiliated purchasers, and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security.
The column reporting the percentage owned upon completion assumes that all
shares offered are sold, and is calculated based on 49,333,080 shares
outstanding upon the exercise of all warrants.
Name of Shares Total of Total Percent
Selling Shareholder Owned Prior Shares Shares Owned
To This Offered After After
Offering For Sale Offering Offering
- ------------------------------------------------------------------------------------------
Barron Partners, LP 7,200,000(4) 7,200,000 0 0
(Andrew Worden
controlling person)
Contrarian Equity Fund, L.P. 3,355,669 3,355,669 0 0
CRT Capital Group, LLC 2,500,000 2,500,000 0 0
Alpha Capital 1,900,000(6) 1,900,000 0 0
Konrad Ackerman
And Rainer Posch
controlling persons)
JG Capital, Inc. 1,888,386(5) 1,888,386 0 0
(Richard Josephberg
controlling person)
Delta Offshore, Ltd. 1,599,900 1,599,900 0 0
Silver Point Capital
Offshore Fund, Ltd. 1,260,000 1,260,000 0 0
Deltal Institutional, LP 1,015,500 1,015,500 0 0
Ralph Garcia 1,000,000 1,000,000 0 0
Brencourt Advisors, LLC 1,000,000 1,000,000 0 0
Brencourt Distressed
Securities Masters, Ltd. 1,000,000 1,000,000 0 0
Loeb Partners Corporation 800,000 800,000 0 0
Page 15
Stonestreet 769,232(7) 769,232 0 0
JMG Capital Partners, LP 750,000 750,000 0 0
JMG Triton Offshore Fund, Ltd. 750,000 750,000 0 0
Silver Point Capital Fund, L.P. 740,000 740,000 0 0
Whalehaven 576,924(8) 576,924 0 0
Contrarian Long Short, L.P. 534,313 534,313 0 0
Blackmore Offshore, Ltd. 486,763 486,763 0 0
Greenwich 384,616(9) 384,616 0 0
Blackmore Wallace Partners 335,038 335,038 0 0
AF Capital, LLC 300,000 300,000 0 0
Delta Onshore, LP 200,100 200,100 0 0
Core Fund, LP 200,000 200,000 0 0
Delta Pleiades, LP 184,500 184,500 0 0
Blackmore Partners 178,199 178,199 0 0
AHFP Contrarian 110,018 110,018 0 0
Cedarview Opportunies
Master Fund 100,000 100,000 0 0
Heza Holding, Inc. 52,748(10) 52,748 0 0
(Ari Kluger
controlling person)
Grushko 54,543(11) 54,543 0 0
(Edward Grushko,
controlling person)
- ------------------------------------------------------------------------------------------
(4) all of which is common stock issueable upon the exercise of warrants
(5) 1,489,386 of which is common stock issueable upon the exercise of warrants
(6) 1,250,000 of which is common stock issueable upon the exercise of warrants
(7) 384,616 of which is common stock issueable upon the exercise of warrants
(8) 288,462 of which is common stock issueable upon the exercise of warrants
(9) 192,308 of which is common stock issueable upon the exercise of warrants
(10) 31,731 of which is common stock issueable upon the exercise of warrants
(11) 31,731 of which is common stock issueable upon the exercise of warrants
To our knowledge, none of the selling shareholders:
1. Has had a material relationship with Global or HAT other than as a
shareholder as noted above at any time within the past three years; or
2. Has ever been an officer or director of Global or HAT
Selling Shareholder Ralph Garcia, was the majority shareholder of the acquired
company World Jet Corporation during the past three (3) years.
Page 16
PLAN OF DISTRIBUTION
The selling shareholders have not informed us of how they plan to sell their
shares. However, they may sell some or all of their common stock in one or more
transactions, including block transactions:
1. on such public markets or exchanges as the common stock may from time to
time be trading;
2. in privately negotiated transactions;
3. through the writing of options on the common stock;
4. in short sales; or
5. in any combination of these methods of distribution.
The sales price to the public may be:
1. the market price prevailing at the time of sale;
2. a price related to such prevailing market price; or
3. such other price as the selling shareholders determine from time to time.
The shares may also be sold in compliance with the Securities and Exchange
Commission's Rule 144.
The selling shareholders may also sell their shares directly to market makers
acting as principals or brokers or dealers, who may act as agent or acquire the
common stock as a principal. Any broker or dealer participating in such
transactions as agent may receive a commission from the selling shareholders,
or, if they act as agent for the purchaser of such common stock, from such
purchaser. The selling shareholders will likely pay the usual and customary
brokerage fees for such services. Brokers or dealers may agree with the selling
shareholders to sell a specified number of shares at a stipulated price per
share and, to the extent such broker or dealer is unable to do so acting as
agent for the selling shareholders, to purchase, as principal, any unsold shares
at the price required to fulfill the respective broker's or dealer's commitment
to the selling shareholders.
Brokers or dealers who acquire shares as principals may thereafter resell such
shares from time to time in transactions in a market or on an exchange, in
negotiated transactions or otherwise, at market prices prevailing at the time of
sale or at negotiated prices, and in connection with such re-sales may pay or
receive commissions to or from the purchasers of such shares. These transactions
may involve cross and block transactions that may involve sales to and through
other brokers or dealers. If applicable, the selling shareholders also may have
distributed, or may distribute, shares to one or more of their partners who are
unaffiliated with us. However, only those selling shareholders who are listed in
this prospectus, or added through post-effective amendment or supplement, may
resell through this prospectus. We can provide no assurance that all or any of
the common stock offered will be sold by the selling shareholders.
We are bearing all costs relating to the registration of the common stock. Any
commissions or other fees payable to brokers or dealers in connection with any
sale of the common stock, however, will be borne by the selling shareholders or
other party selling the common stock.
The selling shareholders must comply with the requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934 in the offer and sale of their
common stock. In particular, during times that the selling shareholders may be
deemed to be engaged in a distribution of the common stock, and therefore be
considered to be an underwriter, they must comply with applicable law and may,
among other things:
1. not engage in any stabilization activities in connection with our
common stock;
2. furnish each broker or dealer through which common stock may be
offered, such copies of this prospectus amended from time to time, as
may be required by such broker or dealer; and
3. not bid for or purchase any of our securities or attempt to induce any
person to purchase any of our securities other than as permitted under
the Securities Exchange Act.
Page 17
LEGAL PROCEEDINGS
On June 29, 2004, the Company initiated a lawsuit against Corwin Foster and Jane
Doe Foster, husband and wife, and Seajay Holdings, LLC a Michigan Limited
Liability Company (the "Defendants") in the United States District Court for the
District of Arizona requesting entry of a judgment for the return of 1,500,000
shares of common stock. Global and HAT have asserted claims that Corwin Foster
(who is the sole shareholder and president of Seajay Holdings) and Seajay
Holdings acquired 1,500,000 shares of common stock of Global as part of a Stock
Exchange Agreement without consideration for the receipt of such common stock.
The Company is pursuing the return of these shares. This lawsuit emanates from a
stock exchange agreement of April 2002 whereby Old Mission Assessment ("OMAC")
agreed to provide HAT financing and capital for its newly established business.
OMAC and its officers Corwin Foster and others, entered into two debenture
related agreements on April 15, 2002 whereby OMAC agreed to pay to HAT the sum
of $1,500,000.00 under each debenture agreement on or before July 15, 2002. In
consideration of this agreement HAT agreed to provide to various investing
parties, including Corwin Foster's entity Seajay Holdings, shares of stock of
HAT. On May 2, 2002, Global acquired HAT in a stock exchange thereby entitling
the investing parties, including Corwin Foster's entity Seajay Holdings, to
Global stock in consideration for the $3,000,000.00 investment. Seajay Holdings
acquired 1,500,000 shares of common stock of Global pursuant to this
transaction. Although Global stock was issued to the investors, including Corwin
Foster's entity Seajay Holdings, HAT/Global only received $400,535.00 of the
agreed upon $3,000,000.00 to be paid pursuant to the debenture agreements. Since
payment in full was never received by Global for the shares of common stock
issued as consideration for the debenture agreements, Global was able to secure
the return of all common stock issued in connection with the debenture
agreements except the 1,500,000 shares of common stock issued to Corwin Foster's
entity Seajay Holdings. Global has agreed to return the $400,535.00 of the
agreed upon $3,000,000.00 received pursuant to the debenture agreements. This
sum was released from escrow and paid to United Pay Phone, an investor in OMAC,
pursuant to an agreed upon order of court.
Although Global has made repeated demands upon Corwin Foster and Seajay Holdings
to return the 1,500,000 shares of common stock, Corwin Foster and Seajay
Holdings have failed and refused to return such stock. As a consequence of
Corwin Foster's and Seajay Holdings failure to return the common stock received,
Global initiated legal proceedings for damages in the amount of no less than
$1,000,000.00 plus interest and fees; the return of the 1,500,000 shares of
common stock; and punitive damages in the amount of $10,000,000.00.
On September 13, 2005, Hamilton Aerospace Technologies, Inc., ("HAT") a wholly
owned subsidiary of the Company, initiated a lawsuit against Aero Micronesia,
d/b/a Asia Pacific, in the Superior Court of Arizona, Pima County, requesting
entry of a judgment in the amount of $184,684.64, plus interest, costs and fees
for failure of Aero Micronesia to pay the remaining $184,684.64 outstanding
balance owed to HAT for aircraft maintenance services rendered pursuant to a
written contract dated August 19, 2004.
World Jet is not involved in any legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The Directors and Officers of Global, all of those whose one year terms will
expire May 2006, or at such a time as their successors shall be elected and
qualified are as follows:
Name & Address Age Position Date First Elected Term Expires
or appointed
- ------------------------------------------------------------------------------------------------------
Ian Herman 58 Chairman/CEO/CFO/Director 5/02 05/06
John Sawyer 40 Director & President 5/02 05/06
Gordon Hamilton 51 Director 5/02 05/06
Alfredo Mason 43 Director 5/04 05/06
Lawrence Mulcahy 55 Director 5/04 05/06
Sy Siegel 63 Director 1/06 05/06
Each of the foregoing persons may be deemed a "promoter" of the company, as that
term is defined in the rules and regulations promulgated under the Securities
and Exchange Act of 1933.
Page 18
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers are appointed
to serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
No Executive Officer or Director of the Corporation has been the subject of any
Order, Judgment, or Decree of any Court of competent jurisdiction, or any
regulatory agency permanently or temporarily enjoining, barring suspending or
otherwise limiting him from acting as an investment advisor, underwriter, broker
or dealer in the securities industry, or as an affiliated person, director or
employee of an investment company, bank, savings and loan association, or
insurance company or from engaging in or continuing any conduct or practice in
connection with any such activity or in connection with the purchase or sale of
any securities.
No Executive Officer or Director of the corporation has been convicted in any
criminal proceeding (excluding traffic violations) or is the subject of a
criminal proceeding which is currently pending. No Executive Officer or Director
of the corporation is the subject of any pending legal proceedings.
Resumes
Ian Herman: CEO/CFO/Chairman. From 2002 through the present, Mr. Herman has
served as the CEO/CFO and Chairman of Global Aircraft Solutions, Inc. and its
subsidiaries. From 2000 through the present, Mr. Herman has been the President
of the Financial Capital Group, Inc. which is engaged in financial and business
consulting. From 1995-2000, Mr. Herman was Chairman and a Board Member for the
British government handling major inward investments into the United Kingdom as
well as administering and evaluating projects in diverse industries totaling
more than $200,000,000.00. During his tenure with the British government, Mr.
Herman was awarded the Freedom of the City of London in recognition of his
services. During the period of 1990-1999, Mr. Herman was the Chief Executive
Officer of his own accounting and business consulting business specializing in
publishing, healthcare, telecommunications, airlines, manufacturing and
information technology. From 1988-1990 Mr. Herman was Chairman and Chief
Executive Officer for British World Airways Limited.
John B. Sawyer: President, Chief Operating Officer and Director. From May 2002
through the present, Mr. Sawyer has been the President of Global Aircraft
Solutions, Inc.. From 1998 through May 6, 2002, John Sawyer was Chief Operating
Officer of Hamilton Aviation, Inc. From 1996 until 1997, Mr. Sawyer was
president of Matrix Aeronautica S.A. de C.V., a Mexican repair station located
in Tijuana, Baja California. John received an A.A. in Aerospace Engineering from
the University of Texas (Austin). In 1986 John joined Pan American World Airways
based in Berlin, Germany. Subsequent to that he worked as a Production Foreman
at Raytheon, a Quality Control Supervisor at TIMCO, a Heavy Maintenance
Representative for World Airways, and Director of Quality Control at Federal
Express Feeder.
Gordon D. Hamilton: Director. Gordon is the son of Hamilton Aviation founder,
Gordon B. Hamilton, and literally grew up in the aviation business. Mr. Hamilton
joined Hamilton Aviation full time as Vice President, Marketing after graduating
with honors from the University of Chicago in 1978 with a BA in Tutorial
Studies. Gordon became President and Chief Executive Officer of Hamilton
Aviation in 1993; a position that he held until joining Hamilton Aerospace in
2003.
Alfredo Alejandro Mason: Director. From 1983 - 1986 Mr. Mason was the Director
of Administration and Engineering for Pan Aviation Airlines. From 1986 - 1988
Mr. Mason was the Senior Account Executive for the Aviation and Aerospace
Division of Marsh & McLennan. From 1988 - 1990 Mr. Mason was the Director of
Aviation and Aerospace for Sedgwick James. From 1990 - Present Mr. Mason was the
founder of and currently serves as the President and CEO of Southeast Marine and
Aviation Insurance. Mr. Mason attended Embry-Riddle Aeronautical University
where he majored in Aeronautical/Aerospace Engineering and also attended the
University of Miami where he studied International Finance and Insurance.
Lawrence Mulcahy: Director. Since 1988, Mr. Mulcahy has served as the President
of L.L. Industries, d/b/a Davis Kitchens. Davis Kitchens is a wholesale
distributor of cabinetry for commercial and residential use. Since 1994, Mr.
Mulcahy has served as the President of Becker Specialties and Manufacturing in
Tucson, AZ, a manufacturer of plastic laminate countertop blanks. Mr. Mulcahy
has also been a partner in Davis Kitchens since 1994. Mr. Mulcahy received his
B.S. in Economics from the University of Arizona and was a member of the United
States Air Force prior to attending college.
Seymour Siegel: Director. Mr. Siegel is a principal in the Siegel Rich Division
of Rothstein, Kass & Company, P.C. Rothstein, Kass & Company is a national firm
of accountants and consultants with over 600 members and offices in 7 cities.
Mr. Siegel was managing partner and founder of Siegel Rich and Co., P.C., which
merged into Weiser & Co., LLP, a large regional firm where he was a senior
partner until forming Siegel Rich Inc. in 1994, which in April 2000, became a
division of Rothstein Kass. Mr. Siegel is also currently the Chairman of the
Audit Committee of Hauppauge Digital, Inc., Emerging Vision, Inc., and Gales
Industries, Inc.
Page 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information on the ownership of the company's
voting securities by Officers, Directors and major shareholders as well as those
who own beneficially more than five percent of the company's issued and
outstanding common stock through the most current date - February 2, 2006:
Title of Class Name Amount Percent Owned
- -----------------------------------------------------------------------------------------
Common Officers/Directors as a Group 4,230,000 10.95%
6901 S. Park Ave.
Tucson, AZ 85706
Common Contrarian Funds , LLC 3,355,669 8.76%
411 West Putnam, Ste. 225
Greenwich, CT 06830
Common CRT Capital Group, LLC 2,500,000 6.5%
262 Harbor Drive
Stamford, CT 06902
Common Perugia Design 2,000,000 5.22%
1904 East 4th St.
Tucson, AZ 85719
Control Person
Paula Cooper Hamilton
Common Officers/Directors Individually
-------------------------------
Common Ian Herman/Officer & Director 2,315,000 6%
6901 S. Park Ave.
Tucson, AZ 85706
Common John Sawyer/Officer & Director 1,915,000 4.95%
6901 S. Park Ave.
Tucson, AZ 85706
DESCRIPTION OF SECURITIES
The company's Certificate of Incorporation authorizes the issuance of
100,000,000 Shares of Common Stock, .001 par value per share and 5,000,000
shares of preferred stock. On May 17, 2004, the Company cancelled all authorized
shares of preferred stock. There is no preferred stock outstanding. The board of
directors retains the right to issue shares of preferred stock and determine the
rights associated with the preferred stock including, but not limited to rate of
dividends; voting rights; priority; rights in liquidation; and any other
privileges. Holders of shares of Common Stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of Common Stock
have cumulative voting rights. Holders of shares of Common Stock are entitled to
share ratably in dividends, if any, as may be declared, from time to time by the
Board of Directors in its discretion, from funds legally available therefore. In
the event of a liquidation, dissolution, or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Barron Partners, Alpha,
Stonestreet, Whalehaven, and Greenwich are the only holders of Common Stock that
have preemptive or rights of first refusal with respect to such shares.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the legality of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency
basis, or had, or is to receive, in connection with the offering, a substantial
interest, direct or indirect, in the registrant. Nor was any such person
connected with the registrant as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
Page 20
DISCLOSURE OF COMMISSION POSITION FOR SECURITIES ACT LIABILITIES
Global's By-Laws allow for the indemnification of company Officers and Directors
in regard to their carrying out the duties of their offices. We have been
advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or other controlling
persons in connection with the securities registered, we will, unless in the
opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court's decision.
ORGANIZATION WITHIN LAST FIVE YEARS
Global was incorporated in Nevada on September 5, 1997 as a holding company.
Global was formed as a holding company to establish, maintain and administer the
equity and debt funding of any acquired subsidiaries as well as maintaining such
capitalization of any subsidiaries. In April 2002, Global issued 3,000,000
shares of common stock to LogiCapital in a stock for stock exchange of Johnstone
SoftMachine ("JSM") a Colorado Corporation that never existed past the
development stage. JSM held a data license, but Global never exploited such data
license and no revenue was generated therefrom as Global chose to focus its
efforts entirely in the aircraft maintenance, repair and overhaul industry. On
May 2, 2002, Global acquired newly formed HAT in a stock-for-stock exchange. On
July 15, 2004 (effective as of January 1, 2004), Global acquired World Jet
Corporation, a privately owned Nevada corporation, located at 6900 S. Park Ave.,
Tucson, AZ 85706 ("World Jet") pursuant to a stock purchase agreement whereby
Global acquired 100% of the stock of World Jet for a total purchase price of
$2,050,000.00 payable as follows: 1) $1,250,000.00 in cash, 2) $300,000.00
promissory note, and 3) 1,000,000 shares of Global stock at a price of $0.50 per
share as well as assuming all liabilities of World Jet including the income tax
liability for World Jet fiscal 2003. World Jet is an aircraft parts sales and
aircraft parts brokerage facility servicing aircraft operators, aircraft leasing
companies and MROM facilities.
DESCRIPTION OF BUSINESS
Global is a public company that trades in the U.S. over-the-counter market. Our
common stock is quoted on the OTC Bulletin Board under symbol GACF. Global was
formed as a holding company to establish, maintain and administer the equity and
debt funding of any acquired subsidiaries as well as maintaining such
capitalization of any subsidiaries. We are a holding company, and over 97% of
our operations are currently conducted by our two operating subsidiaries, HAT
which accounts for approximately 82% of Global's revenue and World Jet
Corporation ("World Jet"), which accounts for approximately 15% of Global's
revenue. Although a majority of Global's business is conducted by it's wholly
owned subsidiaries, HAT and World Jet, Global does report some revenue and
operating expenses which represents less than 5% of the overall consolidated
revenue, expenses and assets of Global on a stand alone basis. The operating
expenses incurred by Global are for administrative, legal and accounting
functions associated with Global managing the shares of it's wholly owned
subsidiaries as well as all activities related to capitalizing and maintaining
adequate capitalization levels for it's subsidiaries. The only revenue that has
been reported by Global is revenue derived from a contract with Mesa Airlines
beginning in the third quarter of 2003 and represents the first revenue produced
by the parent Company (Global) since consolidation with HAT. This work is
performed by HAT, but booked to Global because the customer wanted to contract
directly with HAT's parent (Global) rather than with the wholly owned subsidiary
(HAT).
HAT was organized on April 5, 2002 and World Jet was organized on April 22,
1997. Unless otherwise specified, the operations discussed below pertain to
operations of HAT since its inception on April 5, 2002 and the operations of
World Jet since January 1, 2004. On May 2, 2002, Global acquired newly formed
HAT, a Delaware corporation ("HAT") in a stock-for-stock exchange. HAT was
formed on April 5, 2002, and began operations on April 15, 2002 to create a
provider of aircraft maintenance, repair, overhaul ("MRO") services to owners
and operators of Transport Category commercial jet aircraft. Its customers are
all aircraft operators, including passenger and cargo air carriers, and aircraft
leasing companies. HAT has also developed a segment of business in aircraft
trading. Aircraft trading denotes the purchase and resale or lease, for profit,
of aircraft, aircraft engines, and/or other aircraft major components. On July
15, 2004, (effective as of January 1, 2004), Global acquired World Jet
Corporation, a privately owned Nevada corporation, located at 6900 S. Park Ave.,
Tucson, AZ 85706 ("World Jet") pursuant to a stock purchase agreement whereby
Global acquired 100% of the stock of World Jet for a total purchase price of
$2,050,000.00 payable as follows: 1) $1,250,000.00 in cash, 2) $300,000.00
promissory note, and 3) 1,000,000 shares of Global stock at a price of $0.50 per
share as well as assuming all liabilities of World Jet including the income tax
liability for World Jet fiscal 2003. World Jet is an aircraft parts sales and
aircraft parts brokerage facility servicing aircraft operators, aircraft leasing
companies and MROM facilities.
Page 21
HAMILTON AEROSPACE TECHNOLOGIES, INC. ("HAT")
- ---------------------------------------------
HAT is an aircraft repair station licensed by the Federal Aviation
Administration (FAA) and by the Joint Aviation Authority of the European
Economic Community (JAA). Its MRO services include maintenance, repair, overhaul
and modification of narrow-body Transport Category aircraft; repair and overhaul
of aircraft components and aircraft interiors. Our major modification services
include the conversion of passenger aircraft to freighter configuration and
technical support for third party modification programs.
While the airlines and large leasing operators get the lion's share of
attention, MRO facilities such as HAT are companies in the aviation industry
that provide services for the following reasons:
First, no modification or repair can be made to any aircraft, nor can any
parts be installed, inspected or certified, except by FAA or similarly
certified repair facilities.
Second, aircraft require regular inspection and maintenance in accordance
with FAA or similar regulations and must regularly visit repair stations.
Third, operators frequently rely on repair stations to obtain parts for
them, and many operators rely on repair stations entirely to manage their
parts usage.
Fourth, when operator customers have planes to be torn down and parted out,
or parts inventories to be disposed of, repair stations are often called
upon to do the work and find buyers for the parts.
Fifth, because of their closeness to their operator customers, repair
stations often are the first to learn of bargains on parts inventories and
aircraft.
Sixth, repair stations can avoid many of the effects of aviation downturns
because air fleets still must undergo scheduled maintenance irrespective of
industry conditions. Even in a severe downturn when large numbers of
aircraft are parked, aircraft storage can still be a profit center for
repair stations.
Seventh, HAT's extensive working relationships with aircraft leasing
companies, airlines, subcontractors and vendors provides the foundation for
identifying and evaluating further asset and company acquisitions.
OPERATIONS
- ----------
HAT holds FAA Air Agency Certificate #HOCR426X ("FAA Certificate") as an
authorized and approved FAA repair station, which permits HAT to service narrow
body large commercial jet aircraft. This certificate allows HAT the following
ratings: Instrument, Accessory, Limited Airframe, and Limited Engine for the
following aircraft (with certain limitations for each rating and aircraft):
RATING MANUFACTURER MAKE/MODEL
- ------ ------------ ----------
Airframe Boeing B-727-100-200 - All Series
Boeing B-737-100/200/300/400/500 - All Series
Boeing B-757-All Series
Douglas DC-8 - All Series
Douglas DC-9 - All Series
Power Plant Pratt & Whitney JT-3D
Pratt & Whitney JT-8D
General Electric CFM-56
NON-DESTRUCTIVE INSPECTION, TESTING AND PROCESSING
HAT is inspected regularly by the FAA for conformity to federal regulations and
consistently passes those inspections with no significant discrepancies. Weekly
visits by the primary maintenance inspector (PMI) from the FAA provide
continuous monitoring of all HAT activities. HAT maintains a working
relationship with the FAA staff and all work is carried out according to the
standards and requirements of the FARs.
Page 22
HAT also holds an equivalent certificate in the European Economic Community, JAA
Agency No. JAA.5903. Without the JAA certificate, HAT would not be allowed to
work on aircraft that operate in European Economic Community ("EEC") airspace.
Both certificates are in good standing. Licensure and regulation of aviation
companies is almost exclusively federal in nature.
Quality Assurance (which includes Quality Control and Inspection) and Production
functions are separate and distinct at HAT, as required by the FAA, and the
management of each is autonomous from the other, as federal law requires. Upon
completion, all work will have been fully documented as to the materials used,
parts and labor applied, and conformity to the approved data and FARs.
MRO Services
HAT is a full service aviation maintenance and modification repair facility that
primarily performs heavy maintenance and component overhaul of large narrow body
jets, such as the Boeing 727, 737, 757, DC9 and MD80 series aircraft. HAT has
extensive engine hush-kit experience including Federal Express and Raisbeck kits
for Boeing 727 aircraft, ABX kits for DC9 aircraft, as well as Nordam and Av
Aero kits for Boeing 737 aircraft. Below is a brief description of HAT's core
services:
o Routine minor and major maintenance (phase checks A, B, C and D)
o Corrosion control and prevention programs
o Structural inspections
o Avionic upgrades
o Interior reconfiguration and refurbishment
o Strip and paint services to operators' livery requirements
o Comprehensive systems and structural modifications
o Flight test support
o Component overhaul
HAT provides services for each aircraft under a Maintenance and Service
Agreement (MSA) with each operator. These contracts are generally fixed-price
labor-only, with a cap on hours expended on unforeseen repairs. Parts are either
provided by the operator or can be procured by HAT and resold to the operator.
Delivery of the aircraft to and from HAT's facility are at the operator's cost
and risk, and HAT requires each operator to execute a Final Acceptance and
Release which acknowledges that the services have been performed properly, that
the commercial aircraft is airworthy, and which, apart from contractual
warrantees, releases HAT from any financial or legal responsibility with respect
to the aircraft and services. With certain long-term customers such as Jetran
International, Pegasus, Falcon Air and Custom Air, HAT has entered into a
General Terms Agreement, which is an umbrella agreement that covers the general
framework for all services HAT expects to render to the customer.
HAT is qualified to perform all levels of maintenance service from pre-flight
checks up through complete major overhauls ("D" checks). Because of its low
overhead structure and the experience of its employees, HAT is widely recognized
throughout the industry as a provider of cost-effective, quality maintenance
services for Boeing 727 and 737 and DC9/MD80 aircraft. HAT is now building its
reputation in the newly entered Boeing 757 market.
In addition to scheduled maintenance services, HAT also offers refinishing,
painting and return-to-service maintenance. HAT also offers numerous related
services, such as worldwide commercial aircraft pre-purchase inspection and
appraisal services, post-purchase configuration, maintenance and operational
program development, post-contract and post-lease condition assessment,
commercial aircraft accident assessment and recovery, flight line maintenance,
termination of lease recovery, and aircraft storage and storage maintenance.
Component Overhaul:
In order to better support its aircraft maintenance operations, HAT has been
developing its component overhaul capabilities. HAT performs maintenance, repair
and overhaul of airframe components, including fairing panels, nacelle systems
and exhaust systems, and refurbishes aircraft interior component
Page 23
Modification Services:
The pace of technological advancement in the commercial aircraft industry,
including new developments in aerodynamics, metallurgy, composite materials,
electronics and computer-based devices, constantly offer new opportunities to
improve aircraft performance and communications. Due to the very high cost of
new aircraft, these advances have increased the advantages of retrofitting
existing dependable, supportable and economical-proven commercial aircraft with
state-of-the-art technology by improving utility, performance and value.
HAT modification services include passenger to cargo conversions, engine noise
suppression, power plant retrofits, and avionics upgrades to the latest in
navigation, communication, and digital technology. Also, airline passengers
quickly form their opinion of aircraft from the attractiveness and comfort of
the interior. HAT provides interior replacement and refurbishment services as
well variety of custom seating arrangements to meet operators' requirements,
including all types of commercial configurations as well as special purpose
interiors for sports teams, humanitarian missions or VIP aircraft.
HAT plans to opportunistically grow its modification services. However, HAT
intends at this time to concentrate its business-building efforts in its primary
maintenance services.
Regulatory Oversight:
Aircraft maintenance and modification is a highly regulated industry, and a good
working relationship with the FAA is essential to the successful operation of an
FAA-approved Repair Station such as HAT. The policy of HAT management is to work
closely and proactively with the FAA, which has resulted in the relationship
needed to insure that when significant issues do occasionally arise between HAT
and the FAA they are addressed in a reasonable and constructive nature.
Market:
Narrow body commercial airliners (Boeing 727s, 737s, 757's DC9s, MD80s) are
HAT's primary market for selling aircraft maintenance, repair, and component
overhaul services. Major commercial airlines, lower-tier airlines, package
carriers, regional airlines and charter operators operate these aircraft.
Although the severe industry-wide impact of the September 11th event still is
being felt today, we estimate that the North American market for MRO services is
approximately $40 billion annually. HAT's target market of specific narrow body
commercial jet and regional aircraft constitutes an estimated 25% of the
worldwide commercial aircraft maintenance market. Due to the relatively small
portion of its revenues that come from activities other than its core MRO
services, HAT has not examined the markets for those other activities.
Customers and Revenue Streams:
When it was first launched, HAT concentrated its marketing efforts on so-called
"Tier 2" operators of older, narrow-body commercial jets, particularly Boeing
727 aircraft. HAT has expanded those efforts and now pursues both Tier 1 and
Tier 2 narrow-body and regional jet operators.
HAT's customers as of the end of fiscal 2004 include Shaheen Airlines (21%) a
Pakistani air carrier, Teebah (13%), a Jordanian aircraft leasing company,
Jetran International (11%), an aircraft trading and leasing company, Falcon Air
Express (10%) a 121 United States passenger operator, Aero Micronesia (7%) a 121
freight operator, Aero California (5%), a Mexican airline, Pegasus Aviation
(4%), a large aircraft leasing company, as well as a number of smaller
customers. HAT is working to increase and diversity its customer base and
expects to sign more large maintenance contracts.
Ancillary Activities and Services:
In addition to its core maintenance, repair, component overhaul and modification
services, HAT opportunistically generates additional income from the following
revenue sources encountered in the course of the company's day-to-day business
activities:
o Distress purchases: HAT is able to buy planes and parts at pennies on
the dollar, re-certify parts, engines and airframes and resell them at
a profit.
o Parts Sales: HAT generates revenue on all parts it installs in
customer aircraft.
o Commission Sales: HAT buys parts on request for customers that don't
maintain parts inventory and charges a commission for that service.
Page 24
o Aircraft storage: HAT offers environmentally favorable aircraft
storage to aircraft operators and has some 60 aircraft parked on its
ramp for which the customers are paying both tarmac space rental and
storage maintenance labor and components. Because it costs tens of
thousands of dollars to fly them to another comparable facility, most
of these aircraft will be returned to service at a cost of hundreds of
thousands of dollars each in new work for Hamilton.
o Inspection and Certification: HAT charges a service to inspect and to
re-certify parts, engines and airframes for customers.
o Aircraft Sales and Leasing Commissions: HAT takes full advantage of
its position as a maintenance provider to earn commissions on aircraft
sales or leases.
o Aircraft Ferry and Flight Crew Services: HAT offers aircraft ferry
service and flight crew operations, to shuttle aircraft for
maintenance or repositioning. Contract crews are used in order not to
create additional overhead.
o Labor Contracting: HAT provides teams of technicians to understaffed
competitors on a contract basis, or as field teams to rescue
distressed aircraft in remote locales.
These other services are synergistic in that each can generate additional
services and opportunities. For example, HAT typically gets the maintenance and
overhaul work on aircraft stored on its tarmac, due to the tens of thousands of
dollars often required to relocate such aircraft. HAT also frequently gets the
first offer to buy or broker aircraft due to knowledge of the industry and its
ability insect, appraise, and return the aircraft to service on a turn-key basis
in accordance with the new operator's specifications. These abilities exist
because, as described above, aircraft repair stations such as HAT are companies
at the center of the aviation industry.
Emphasis on Quality:
Our MRO facility is licensed by the FAA and JAA. We emphasize quality and
on-time delivery to our customers. We are focused on meeting and exceeding FAA
and JAA requirements. As industry, regulatory and public awareness have focused
on safety, our ability to meet and exceed these requirements on a consistent
basis has become important to customers.
Description of Property and Facilities:
HAT is located in Tucson, Arizona at Tucson International Airport. This
favorable location provides 360 days of sunshine per year together with
extremely low humidity year round. The facility is situated on the northwest
ramp on 22 acres of concrete within the airport proper.
The HAT facility is fully paved with concrete sufficient to handle the largest
aircraft on any part of its 22 acres. Two hangars provide the space for any
modification and maintenance work that must be performed indoors. The larger
hanger has 180' clear span and is 185' deep (30,400 sq. ft.) enabling it to
wholly enclose a DC9 and a 727 at the same time. Immediately adjacent on the
south side of this hangar are 3,300 square feet of office space which house the
electrical shop, avionics, quality control and the library. The hangar has been
modified to use as a paint booth as needed.
The smaller hangar is 100' clear span by 100' deep (10,000 sq. ft.) with 2,000
square feet of office space on the north side and another 4,000 square feet of
enclosed space on the south. Offices for production planning and control are in
this area, as engineering, the welding shop, receiving, materials and purchasing
departments. The two hangars face each other at a distance of approximately 220
feet. Numerous mobile offices have been added to provide additional space for
administrative and customer representative offices.
To the southeast of the large hangar is a 12,000 foot covered building used to
store aircraft components and maintenance equipment. A 9,000 square foot
warehouse on the west side of the facility houses the interior department as
well as additional storage for materials and records. Both main hangars are
equipped with lighting, water, compressed air, and 115/220/440 volt AC
electricity. All office spaces are heated and cooled.
Page 25
Asset Purchases
On April 15, 2002, HAT entered into an agreement to purchase the operating
assets and inventory from an existing MRO, Hamilton Aviation ("Sale of Assets
Agreement") as well as entering into a Lease/Purchase Agreement with Hamilton
Aviation for the same assets so that HAT could commence operations pending a
closing of the Sale of Assets Agreement. Shortly after entering into this Sale
of Assets Agreement, Hamilton Aviation filed for reorganization under Chapter 11
of the United States Bankruptcy Code. The Sale of Assets Agreement was submitted
to the Bankruptcy Estate for approval as part of Hamilton Aviation's plan of
reorganization; and pending the Bankruptcy Estate's review and acceptance of the
Sale of Assets Agreement and such plan of reorganization, HAT and Hamilton
entered into an interim agreement whereby HAT agreed to assume Hamilton
Aviation's service contracts ("Service Agreement") pending approval of the Sale
of Assets Agreement. During the Bankruptcy Estate's review of the Sale of Assets
Agreement as part of Hamilton Aviation's plan of reorganization, HAT and
Hamilton Aviation renegotiated the terms and purchase price of the Sale of
Assets Agreement; and in March 2004, the modified Sale of Assets Agreement was
approved by the Bankruptcy Estate and memorialized and finalized by the entry of
a Settlement Agreement among HAT, Hamilton Aviation and the Bankruptcy Estate.
This Settlement Agreement was then confirmed by Order of the Bankruptcy Court
dated May 6, 2004.
The Settlement Agreement provides for the acquisition of all the ramp equipment,
special tooling, FAA-approved data, office furnishings and equipment, including
phone and computer systems necessary to perform the functions required to
operate the FAA-approved aircraft repair station. These assets are located in
the HAT facility and are being used daily in HAT's operations. More
specifically, the equipment and tooling includes:
o Ground equipment consisting of stands, compressors, jacks, tugs, power
and hydraulic equipment, etc.
o Special tools appropriate to the specific type of aircraft applied for
on the FAA Air Agency application, including engine slings, jack pads,
hand tools, special fittings, etc.
o Computer hardware and software relevant to the inventory purchased and
repair logistics management
o Machinery including drill presses, lathes, shears, brakes, presses and
other machine shop equipment.
o General tools used in repair, maintenance and modification of
commercial aircraft.
The Settlement Agreement also includes certain intellectual property assets from
Hamilton Aviation as well as the estate of Gordon B. Hamilton (deceased),
including all uses of the name "Hamilton," "Hamilton Aviation," "Gordon B.
Hamilton," "Gordon D. Hamilton," "Hamilton Brothers," and "Hamilton
Aeronautics".
The Settlement Agreement requires a down payment of $100,000, $73,365.75 of
which had already been paid, and monthly payments of $15,000 plus interest at 6%
per annum. An additional lump sum payment is to be made by HAT within 60 days of
the Entry date plus $50,000 shall be paid on or before each annual anniversary
of the Entry Date. The agreement has a reduced payoff provision stipulating that
if all payments have been made in a timely manner by the fifth anniversary date
of the entry date $1,000,000 will be considered as payment in full, otherwise
the amount is to be $1,500,000. The agreement calls for a five year entry date
anniversary profit payment equal to one-half of HAT's net profits in excess of
12%, but limited so as to provide no more than a total of all payments due of
$1,500,000 plus interest over the five-year term of the agreement. The Company
recorded the $1,500,000 as the total liability pursuant to the Settlement
Agreement.
As set forth above, during the quarter ended March 31, 2004, the Sale of Assets
Agreement was renegotiated and finalized in the Settlement Agreement. The
liabilities which accrued during the period HAT was operating pending approval
of the transaction by the bankruptcy estate were not required to be paid. The
overaccrued liabilities have been recognized as a gain during the period ended
June 30, 2004.
Employees and Employment
At December 31, 2004 a total of approximately 150 employees were employed by
HAT. World Jet has approximately 20 employees consisting of sales staff and
administrative personnel. In connection with the acquisition of World Jet by
Global, Global retained the entire World Jet staff including key sales and
management personnel to maintain customer contacts and relations to assure a
smooth and consistent administration of operations.
Page 26
All employees are highly trained and qualified. During the last quarter of 2003,
a reassessment of the HAT business plan resulted in the decision to employ a
work force whose number would be adequate to handle the workflow without
downtime in slower periods. This decision was focused on increased efficiency
and profitability. The employment capacity of the facilities currently occupied
by HAT is estimated to be at least up to 500 full-time employees working two
staggered shifts, which allows for considerable growth in the future. Global,
World Jet and HAT are non-union and believe that their relationships with
employees are good. HAT's management is also experienced in the hiring,
training, and retention of people necessary to operate its repair, maintenance
and modification facilities.
Based upon the available talent pool, Global, World Jet, and HAT believe that
their needs for labor will be addressed adequately in the future. This includes
the key technical positions that require licensure by the FAA. The Company does
not expect that identifying; attracting and retaining qualified personnel in any
of the key areas will be difficult.
In addition, Pima Community College, located in Tucson, has been training
mechanics since 1991. Pima operates a major new training facility adjacent to
HAT's facility. HAT works closely with Pima to apprentice new Pima students to
work at HAT and to hire experienced Pima alumni.
Due to complexity of aircraft maintenance operations, it is essential that HAT
employ highly experienced and highly competent people in key management
positions. This is necessary both to attract and keep business and to maintain
HAT's good standing with the FAA. Accordingly, HAT has found it most cost
effective to attract and keep key personnel by offering attractive salaries,
while aggressively replacing those key employees who, after given a reasonable
opportunity to do so, fail to successfully meet their job requirements. While
this may seem harsh, the critical public safety issues associated with
commercial aircraft maintenance require that HAT quickly identify and address
any shortcomings in the oversight of its activities.
Similarly, in an industry where aircraft down time represents tens of thousands
of dollars a day in lost revenue, and a misdrilled hole or a bolt left in an
engine inlet can cost tens of thousands of dollars to address, HAT has found it
most cost effective to pay its production personnel wages at the higher end of
national standards while demanding in return a high level of professionalism
from its employees. To insure that a good level of communication is maintained
with all employees, HAT provides regular written evaluations to all employees.
Significant Employees
The following persons are considered significant employees of our HAT
subsidiary:
Ian Herman, Chairman and Chief Executive Officer. See Biography information
under Section titled Directors, Executive Officers, Promoters, and Control
Persons.
John B. Sawyer, President. See Biography information under Section titled
Directors, Executive Officers, Promoters, and Control Persons.
Alan R. Abate, Vice President and Senior Corporate Officer. Mr. Abate started
his aviation career in 1976 at Hamilton Aviation. During his early years, he
earned his FAA Airframe and Powerplant certificates and honed his skills in
transport category aircraft repair, maintenance and modification. In 1986, Mr.
Abate joined the management team at Hamilton Aviation. Working days and going to
school at night, he earned an Advanced Certificate and AAS degree, with honors,
in Business Administration from Pima College in Tucson, Arizona. Since joining
HAT shortly after its inception in April 2002, Mr. Abate has been responsible
for contract management and corporate administration including human resources
and information systems for Hamilton Aerospace.
Patricia Graham, Vice President of Finance. Since 1995, Patricia Graham has been
associated with the aviation industry serving as Divisional Controller for IAC
Complete Controls, Inc., as Regional Controller for American Aircarriers
Support, Inc., and as Controller and Corporate Officer for Evergreen Air Center,
Inc. prior to joining HAT. Ms. Graham graduated Summa Cum Laude from the
University of Arizona with a B.S. in Business Administration. Ms. Graham has
over 15 years history in accounting, fiscal planning and budgetary operations,
as well as 5 years public accounting experience.
Page 27
David T. Querio - Vice President of Operations, Hamilton Aerospace
Mr. Querio joined the company in May 2004 and brings with him over 21 years of
aviation industry maintenance and maintenance management experience. Prior to
joining HAT, Mr. Querio was Vice President of Operations for a large FAR145
Repair Station supervising in excess of 450 personnel. Prior to this, Mr. Querio
served as Vice President, General Manager of the AMS Goodyear, AZ facility; Vice
President, Engineering and Maintenance for Mesa Airlines; Vice President,
Maintenance for Mahalo Airlines and Vice President; Customer Support, Planning
and Sales for West Virginia Air Center. Mr. Querio also worked for American
Airlines for nine years in numerous mechanical and management positions.
The following persons are considered significant employees of our World Jet, Inc
subsidiary:
Ralph Garcia, General Manager, World Jet Corporation. Mr. Garcia established
World Jet Corporation in 1996 as a broker in the aircraft parts industry. World
Jet Corporation operated an aircraft parts facility in Los Angeles, CA until
2003 when the company relocated it's operations to Tucson, AZ. Mr. Garcia was
the owner and managing director of World Jet Corporation for 7 years until
January 1,2004, the effective date of the acquisition of World Jet Corporation
by Global Aircraft Solutions, Inc. After the acquisition in January 2004, Mr.
Garcia accepted employment as the General Manager of the World Jet Corporation
division of Global Aircraft Solutions, Inc. Prior to establishing World Jet
Corporation in 1996, Mr. Garcia was self employed as an independent sales and
marketing representative and has over 15 years of experience in sales and the
aviation industry.
Andrew Maxam, Sales. Mr. Maxam started in the aviation business in 1987 as
director of sales with American Aerospace, Inc From 1991 - 1996 Mr. Maxam served
as President of International Aerotech, Inc., an aerospace parts sales company
employing 25 in Irvine, CA. Currently Mr. Maxam is responsible for sales for
World Jet Corp,.
Ramon P. Curbita, Accountant. Has been with the company since 2000. A
professional with 17 years experience in accounting and other related fields. He
has extensive knowledge in various industries such as banking, manufacturing,
construction, wholesale and retail industry. Graduated college with the a
Bachelor of Science Degree in Commerce, major in Accounting and an undergraduate
of Master in Business Administration at the Polytechnic University of the
Philippines. He held various positions as Finance and Operations Manager for Tan
Holdings Group of Companies in Guam and Chief Accountant for Saipan Ice and
Water Company in the Commonwealth of the Northern Mariana Islands, U.S.
Commonwealth, Pacific.
WORLD JET CORPORATION, INC. ("WORLD JET")
- -----------------------------------------
Operations and Services
- -----------------------
World Jet sells and brokers the sale of aircraft parts, airframe components,
engines and engine materials including Expendables, Rotables and Consumables.
Expendables are miscellaneous hardware items such as nuts, bolts, rivets,
screws, etc. used as part of the aircraft part installation and service process.
Rotables are serialized aircraft parts and components that are FAA certificated
and tracked as FAA certified parts. Consumables are miscellaneous supplies such
as sealants, grease, oil, lubricants, tape, etc. that are used and consumed in
conjunction with the installation of Expendables and Rotables. World Jet brokers
the sale of aircraft parts, airframe components, engines and engine materials
and also maintains an inventory of it's own overhauled aircraft parts, airframe
components, engines and engine materials for re-sale. When brokering such
materials and parts, World Jet introduces other aircraft parts sellers with
aircraft parts consumers who are in need of certain aircraft parts and receives
a brokerage commission for arranging such sale. World Jet also maintains an
inventory of aircraft parts, airframe components, engines and engine materials
for re-sale which World Jet obtains from distressed companies and by purchasing
aircraft and salvaging and overhauling the parts therefrom.
If any parts purchased by World Jet from distressed companies or removed and
salvaged from aircraft purchased by World Jet require any repairs or overhaul,
World Jet outsources such repair and/or overhaul work to an FAA approved repair
and overhaul facility which must comply with FAA regulations regarding the
traceability of certificated aircraft parts. World Jet services aircraft
operators, aircraft leasing companies and MROM facilities such as HAT. World Jet
is recognized by the Airline Suppliers Association ("ASA") as an ASA-100 (FAA
Advisory Circular 00-56) accredited supplier of aircraft parts. This
certification, audited annually, is recognized and accepted by the FAA for
suppliers of replacement aircraft parts. World Jet supplies certified airframe
components, engines and engine material and aircraft parts.
Page 28
Regulatory Oversight
- --------------------
World Jet is a seller/broker of aircraft parts which is not an operation or
activity which is regulated by the FAA or any other governing body or
governmental agency; however, any aircraft parts sold by World Jet must be
accompanied by documentation verifying that such part is traceable to either an
FAA approved manufacturer, overhaul or repair facility, or an FAA certificated
operator. In furtherance of satisfying customers that World Jet does sell and
broker parts that are traceable to FAA certification, World Jet voluntarily
participates in the Airline Suppliers Association ("ASA") which requires an
annual audit of suppliers of aircraft parts to verify that such supplier
maintains the proper traceability documents, properly tags aircraft parts in
support of such traceability and maintains proper packaging and storage of
aircraft parts. In addition to the foregoing, World Jet also certifies to each
customer that any part or material sold was not involved in any incident and is
not government surplus.
Property and Facilities
- -----------------------
World Jet operates out of a 73,000 square foot facility in Tucson, Arizona. This
facility consists of office space and warehouse space to accommodate the
aircraft parts (Expendables, Rotables and Consumables), airframe components,
engines and engine material inventory maintained by World Jet. This facility is
located directly across the street from HAT which allows HAT immediate access to
aircraft parts, (Expendables, Rotables and Consumables), airframe components,
engines and engine material necessary to perform MRO services without incurring
any costs or delays that may be related to shipping and improves the turn time
of any such services provided.
Employees
- ---------
World Jet has approximately 20 employees consisting of sales staff and
administrative personnel. In connection with the acquisition of World Jet by
Global, Global retained the entire World Jet staff including key sales and
management personnel to maintain customer contacts and relations to assure a
smooth and consistent administration of operations.
MANAGEMENT DISCUSSION AND ANALYSIS
As a holding company, the bulk of our day-to-day operations are currently and
were as of September 30, 2005, conducted by our operating subsidiaries, HAT,
which was organized on April 5, 2002 and began operations on April 15, 2002, and
World Jet, which was acquired July 25, 2004, with an effective date of January
1, 2004. Management elected, beginning in 2005, to conduct our aircraft trading
operations under the parent company Global Aircraft Solutions, Inc.
On December 10, 2004, the Renegade Venture (NEV) Corporation formally changed
its name to Global Aircraft Solutions, Inc. pursuant to vote of shareholders on
October 26, 2004. The corporate name was changed in order to more accurately
reflect the business operations of the Company. Global Aircraft Solutions, Inc.
("Global"), is a public company that trades in the U.S. over-the-counter market.
Our common stock is quoted on the OTC Bulletin board under the symbol GACF
(formerly RDVN). Global was formed as a holding company to establish, maintain
and administer the equity and debt funding of any acquired subsidiaries as well
as maintaining such capitalization of any subsidiaries. We are a holding
company, and over 97% of our operations are currently conducted by our two
operating subsidiaries, Hamilton Aerospace Technologies, Inc. ("HAT") which
accounts for approximately 82% of Global's revenue and World Jet Corporation
("World Jet"), which accounts for approximately 15% of Global's revenue.
Although a majority of Global's business is conducted by it's wholly owned
subsidiaries, HAT and World Jet, Global does report some revenue and operating
expenses which represents less than 5% of the overall consolidated revenue,
expenses and assets of Global on a stand alone basis. The operating expenses
incurred by Global are for administrative, legal and accounting functions
associated with Global managing the shares of it's wholly owned subsidiaries as
well as all activities related to capitalizing and maintaining adequate
capitalization levels for its subsidiaries. The only revenue that has been
reported by Global is revenue derived from a contract with Mesa Airlines
beginning in the third quarter of 2003 and represents the first revenue produced
by the parent Company (Global) since consolidation with HAT. This work is
performed by HAT, but booked to Global because the customer wanted to contract
directly with HAT's parent (Global) rather than with the wholly owned subsidiary
(HAT).
Page 29
On May 2, 2002, Global acquired newly formed aviation company Hamilton Aerospace
Technologies, Inc., a Delaware corporation ("HAT") in a stock-for-stock
exchange. HAT was formed on April 5, 2002 and commenced operations on April 15,
2002, to create a premier provider of large aircraft Maintenance, Repair, and
Overhaul ("MRO") services to owners and operations of certain Transport Category
commercial jet aircraft. Its customers are all aircraft operators, including
passenger and cargo air carriers, and aircraft leasing companies. Global's plan
of operation for the immediate future is to seek and to acquire, if possible,
aviation industry related businesses to complement its HAT subsidiary such as
the recent acquisition of World Jet. On July 15, 2004 (effective January 1,
2004), Global acquired World Jet Corporation, a privately owned Nevada
corporation, located at 6900 S. Park Ave., Tucson, AZ 85706 ("World Jet")
pursuant to a stock purchase agreement whereby Global acquired 100% of the stock
of World Jet for a total purchase price of $2,050,000.00 payable as follows: 1)
$1,250,000.00 in cash, 2) $300,000.00 promissory note, and 3) 1,000,000 shares
of Global stock at a price of $0.50 per share as well as assuming all
liabilities of World Jet including the income tax liability for World Jet fiscal
2003.. World Jet is an aircraft parts sales and aircraft parts brokerage
facility servicing aircraft operators, aircraft leasing companies and MRO
facilities. Additionally, the Company will seek to expand HAT. Global will not
limit its search for business combination candidates to any particular
geographical area. Management of Global will seek combination candidates in the
United States and other countries, as available time and resources permit,
through existing associations and by word of mouth. This plan of operation has
been adopted in order to attempt to create value for Global's shareholders.
On August 26, 2005, Global together with BCI Aircraft Leasing, ("BCI"), formed a
joint venture Delaware limited liability company called JetGlobal, LLC. 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
Global will be responsible for the technical, repair and maintenance aspects
associated with remarketing purchased aircraft. Global 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 interest, it is only responsible for 25% of the costs and expenses
associated with JetGlobal including any business transactions. (See Form 8-K/A
filed September 9, 2005.)
Nearly simultaneously to the finalization of the LLC agreement with BCI, a
customer of the Company's opted to purchase an aircraft that the LLC bought
subsequent to the formation of the LLC. By mutual agreement of the LLC partners,
BCI and the Company, that particular aircraft was transferred to the Company for
a direct sale to the Company's customer. The Company's investment in the LLC was
reduced by $215,385, which represented 25% of the cost of the aircraft and which
had been originally invested by the Company into the LLC. The other 75% of the
cost of the aircraft was paid directly to BCI, the Company's partner in the LLC.
This transaction was largely the result of the timing of different sets of
negotiations. It is not the company's plan to purchase aircraft from the LLC in
the future. The Financial Statements herein presented for September 30, 2005
include an amount of $861,538 in cost of sales related to this transaction. The
approximate consolidated net income before tax included related to this sales
transaction is $888,462.
Hamilton Aerospace Technologies ("HAT")
HAT is an aircraft repair station licensed by the Federal Aviation
Administration (FAA) and by the Joint Aviation Authority of the European
Economic Community (JAA), and is known as an "Air Agency" in FAA parlance. HAT
provides MRO services including maintenance, repair, overhaul and modification
services for narrow-body Transport Category aircraft, repair and overhaul
services on a wide range of aircraft components and aircraft interiors, and
servicing of Pratt & Whitney JT8D and General Electric CFM56 engines. HAT's
major modification services comprise the conversion of passenger aircraft to
freighter configuration. In order to control overhead expense, some services are
outsourced, such as engine overhaul.
Key operational strategies of HAT are governed by the complexity of aircraft
maintenance operations. It is essential that HAT employ highly experienced and
highly competent people in key management positions. This is necessary both to
attract and keep business and to maintain HAT's good standing with the FAA.
Accordingly, HAT has found it most cost effective to attract and keep key
personnel by offering attractive salaries, while aggressively replacing those
key employees who, after given a reasonable opportunity to do so, fail to
successfully meet their job requirements. While this may seem harsh, the
critical public safety issues associated with commercial aircraft maintenance
require that HAT quickly identify and address any shortcomings in the oversight
of its activities.
Similarly, in an industry where aircraft down time represents tens of thousands
of dollars a day in lost revenue, and a miss-drilled hole or a bolt left in an
engine inlet can cost tens of thousands of dollars to address, HAT has found it
most cost effective to pay its production personnel wages at the higher end of
national standards while demanding in return a high level of professionalism
from its employees. To insure that a good level of communication is maintained
with all employees, HAT provides regular written evaluations to all employees.
Page 30
The principal focus of the operations group at HAT is the implementation of
strategies to enhance worker productivity, which include assigning dedicated
crews and dedicated project managers to each maintenance and modification job,
ongoing training for supervisors, project managers and quality control
personnel, and improving material flow to each job site.
Management has rejected a policy of growth for growth's sake in favor of
focusing on profitability and building a good reputation for HAT's operations
group by limiting work contracts to those perceived to have a high probability
of success. This strategy is also beneficial to the company's marketing efforts
in that a good track record of maintenance and modification contracts, delivered
successfully on-time and on-budget, is by far the most potent tool for securing
new work contracts. In managing its operations, the Company is committed to
continuously evaluating the adequacy of its management structure and its
existing systems and procedures; including its quality control, financial, and
internal controls systems. HAT is focused on maintaining a small, but tightly
knit and multi-tasking, highly experienced management team.
Aircraft maintenance and modification is a highly regulated industry, and a good
working relationship with the FAA is essential to the successful operation of an
FAA-approved Repair Station such as HAT. The policy of HAT management is to work
closely and proactively with the FAA, which has resulted in the very positive
relationship needed to insure that when significant issues do occasionally arise
between HAT and the FAA they are addressed in a reasonable and constructive
nature.
HAT competes principally on the high quality of its services and its price
competitiveness due to its location in the Southwest. Location related benefits
include low labor rates; a dry, mild climate enabling HAT to do many MRO
projects outdoors; and the low cost of its Tucson facility.
The large aircraft repair business is highly competitive. Revenues are sensitive
to adverse changes in the air carrier business, with factors such as airline
profit levels, changes in fuel costs, average fare levels, and passenger demand.
The heavily regulated airline industry, however, requires scheduled maintenance
and repair services irrespective of industry economics, thus providing a
reasonably steady market for HAT's services.
In addition to performing MRO services, the Company and HAT have also seized
opportunities to engage in the aircraft trading business. Aircraft trading
denotes the purchase and resale or lease, for profit, of aircraft, aircraft
engines, and/or other aircraft major components. Aircraft trading accounted for
approximately one-quarter of the Company's 2004 annual income and it is the goal
of the Company to maintain this level of aircraft trading as a percentage of
revenue.
World Jet Corporation ("World Jet")
On July 15, 2004 (effective January 1, 2004), Global acquired World Jet
Corporation ("World Jet"), a privately held, Nevada corporation, pursuant to a
stock purchase agreement whereby Global acquired 100% of the stock of World Jet
for a total purchase price of $2,050,000.00 payable as follows: 1) $1,250,000.00
in cash, 2) $300,000.00 promissory note, and 3) 1,000,000 shares of Global stock
at a price of $0.50 per share as well as assuming all liabilities of World Jet
including the income tax liability for World Jet fiscal 2003. World Jet is an
aircraft parts sales and aircraft parts brokerage facility located across the
street from Global's wholly owned operating subsidiary HAT in Tucson, Arizona.
World Jet services aircraft operators, aircraft leasing companies and MRO
facilities such as HAT. World Jet has been a supplier of aircraft parts to HAT
since HAT's inception in April 2002 and acquiring World Jet as part of HAT's
operations is a natural and beneficial association. World Jet is recognized by
the Airline Suppliers Association ("ASA") as an ASA-100 (FAA Advisory Circular
00-56) accredited supplier of aircraft parts. This certification, audited
annually, is recognized and accepted by the FAA for suppliers of replacement
aircraft parts. World Jet supplies certified airframe components, engines and
engine material and aircraft parts. By acquiring World Jet, Global now owns an
aircraft parts supplier through which its subsidiary, HAT, can more easily and
more cost effectively acquire aircraft parts to support its MRO operations as
well as gaining access to other revenue generating operations in the aircraft
parts and brokerage industry.
World Jet's operating revenues consist primarily of revenues from sales of
aircraft parts. Since aircraft parts sales are directly related to maintenance
of aircraft, aircraft parts sales fluctuate and are impacted by the timing of
maintenance by air carriers. Increases in aircraft maintenance prompted by FAA
Administrative Directives or slower periods in air travel will correspondingly
increase the demand for aircraft maintenance and aircraft parts. The September
11 terrorist attacks carried out against the United States in 2001 had a severe
impact on the aviation industry including aircraft parts sales due to the fact
that many aircraft were retired from service as a consequence of reduced air
travel thereby reducing the number of aircraft requiring maintenance, service
and parts.
Page 31
RECENT DEVELOPMENTS AFFECTING OUR OPERATIONS
The aerospace industry continues to display a state of dynamic tension and
change. Within the U.S. and abroad the major airlines or `legacy' carriers are
experiencing severe competitive pressure from existing and start up low cost
carriers that are not burdened by the higher operating costs and hub-and-spoke
structures found in most of the legacy carriers. Several legacy carriers have
recently filed for Chapter 11 protection and large scale restructuring within
the entire industry is likely to continue. Legacy carriers and low cost
operators alike are being severely negatively impacted by increased fuel prices
and the entire industry is susceptible to the impact of changes in fuel
availability and prices due to war, terrorism or political events. While the
airline industry has not experienced significant terrorist attacks since
September 11, 2001, the effect of the terrorist acts, the continued alerts by
the U.S. Department of Homeland Security and fears of new terrorist attacks
could quite possibly produce negative impact on the aviation industry. Also,
since a significant portion of Global's business involves emerging economies
around the world, that portion of the Company's business remains at risk from
localized or regional political or economic turmoil.
RESULTS OF OPERATIONS
As a holding company, the bulk of our day-to-day operations are currently and
were as of September 30,2005, conducted by our operating subsidiaries, HAT,
which was organized on April 5, 2002 and began operations on April 15, 2002, and
World Jet, which was acquired July 25, 2004, with an effective date of January
1, 2004. Management elected, beginning in 2005, to conduct our aircraft trading
operations under the parent company Global Aircraft Solutions, Inc.
The Company has divided its operations into the following reportable segments:
Aircraft maintenance, repair, and overhaul; aircraft trading (i.e. aircraft
brokerage and /or the purchase for resale or lease of aircraft and /or aircraft
engines; and part sales. All aircraft maintenance, repair and overhaul is
performed at HAT. Beginning January 1, 2005, all aircraft trading has been done
through Global. Prior to that date all aircraft trading transactions were
handled through HAT. Subsequent to its acquisition in January 2004,
substantially all part sales were done by the Company's wholly owned subsidiary,
World Jet.
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. 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, certain salaries and such, 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 of our customers and
upon 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.
2003 & 2004 Operations
- ----------------------
In 2004 the Company revenues were approximately double from the 2003 figure of
$15,378,352 to $30,851,118 in 2004. Our World Jet subsidiary, a January 1, 2004
acquisition, contributed $4,514,550, after inter-company sales were eliminated,
in revenues in 2004; our revenue growth minus their contribution was solid at
71%. The Company had over $2.3 million in net income, before taxes in 2004
compared with a loss of $1.3 million in 2003, and EBITDA increased from
$(496,861) for 2003 to $3,108,651 in 2004.
Efforts to take advantage of opportunities, as they arise, to grow our aircraft
trading business met with a degree of success. Aircraft trading denotes the
purchase and resale or lease, for profit, of aircraft, aircraft engines, and/or
other aircraft major components. Aircraft trading specifically encompasses the
transactions representing approximately one-quarter of the Company's 2004 annual
income and it is the goal of the Company to maintain this level of aircraft
trading as a percentage of revenue. Our 2004 revenue included $7.9 million
attributable to aircraft trading compared with $2.9 million in 2003. Gross
profit for the fourth quarter of 2003 was $917,945 while gross profit for the
fourth quarter of 2004 was $1,554,744, also a substantial increase.
Page 32
While the Company aggressively seizes revenue-producing opportunities such as
aircraft trading, management gauges results by looking at what has been the core
revenue producing activity to date, the sale of labor hours. In 2004, revenue
produced from labor was $14,332,802 as compared with $9,902,174 in 2003. This
represents an increase of 45%. The comparative costs for all direct labor,
including work performed by outside contractors, was $8,428,838 in 2004 compared
with $5,363,319 in 2003, representing a 57% increase in cost. The relationship
between direct labor costs to direct labor revenues rose approximately 5% to
about 59% in 2004 as compared with 54% in 2003. Direct labor percentages will
always vary to some degree due to the nature of flat rat bidding as opposed to
billing for all time and materials. Other costs of goods sold related to labor
sales were reduced 1.6% from 2003 to 2004.
During the third quarter of 2004, Management secured two "unique" maintenance
opportunities that may substantially increase the aircraft trading volume of
activity at HAT and introduce HAT into international government work
opportunities. The Company elected to take on additional aircraft maintenance
work from Savannah Aircraft Leasing and the Mexican Government. We viewed these
as `unique' maintenance opportunities because the Savanna Aircraft Leasing
business has the potential to offer future aircraft trading opportunities in
partnership with Savannah and some of its associates, while the Mexican
Government work offered the opportunity for the Company to establish itself in
the lucrative government aircraft maintenance business.
During the first three quarters of 2004, as a result of being selective in the
work booked, considerable increase in efficiencies was experienced due to a
smaller, highly skilled, stable work force. A substantial sudden increase in
volume, such as HAT was undergoing at the end of the third quarter and
throughout the fourth quarter, can be expected to have a temporary impact on
efficiencies. The 5% increase mentioned in the above paragraph can in a large
part be attributed to decline in efficiencies. Management is confident that
timely adjustment to the increased volume will be made and profitability will
benefit over time. Labor hours worked on jobs increased substantially quarter by
quarter during 2004. First quarter hours were 39,861; second quarter hours were
46,530; third quarter hours were 55,615 and fourth quarter hours were 100,063.
During 2004, we were able to secure equity funding which allowed us to satisfy
all of our secured debts and to enhance our Global family by the acquisition of
World Jet. In the MRO business the greatest efficiencies of operation are
usually experienced when customer lines of nose-to-tail maintenance are
developed. HAT's fourth quarter decision to accept orders in excess of their
labor capacity at the time has proved instrumental in establishing relationships
with new customers.
Included in the operating expenses for the Company in the years ended December
31,2003 and December 31, 2004 are $568,000 and $476,613, respectively,
associated with the award of stock and stock options. There was $1,144,502 in
gains reported during 2004 that were the result of several contract
renegotiation items. Our HAT subsidiary experienced a gain of $88,000 on the
waiving of rental fees to Hamilton Aviation during contract negotiations. HAT
also experienced a gain of $607,194 as the result of the acceptance of a payment
of $750,000 cash to satisfy all obligations under then existing agreement
generated upon the purchase of the Hamilton Aviation assets. For details of the
Hamilton Aviation transaction see Note 1, Related Party Transactions, in the
footnotes of the Audited Financial Statements included as part of this report.
World Jet reported gains of $449,308 related to renegotiations of amounts due
under various agreements, the predominate items being: $209,708 in commissions
was waived, $173,000 of debt was forgiven and $33,700 was the result of the
renegotiation of management services fees.
Company SG&A expenses were $4,826,519 for 2004 and as a percentage of revenues
were 16%. In 2003 SG&A expenses were $3,727,036, which was 24% as a percentage
of revenues. During 2004, SG&A expenses included approximately $680,000 due to
commissions related to aircraft sales transactions compared with $230,000 in
2003. The Company experienced an expense of approximately $94,000 related to
management and employee annual bonuses in 2004. Approximate legal expenses for
the year ended December 31, 2003 were $340,000 and were $100,000 for the year
ended December 31, 2004.
Interest expense for 2004 was $329,023 and for 2003 was $690,663, $370,030 of
which was billed to a customer under an agreement that the customer would
reimburse the Company for interest expense on invoice factorings.
Page 33
The following table graphically depicts the operating performance for Global,
HAT and World Jet subsidiaries on a stand-alone and consolidated basis for the
year ended December 31, 2004:
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
----------- ----------- ----------- ------------ ------------
2004 Revenues $ 1,047,680 $ 25,288,888 $ 7,058,464 $ (2,543,914) $ 30,851,118
Year End Cost of Sales (456,643) (20,871,009) (5,411,688) 2,543,914 (24,195,426)
Results Expenses (1,524,055) (2,873,658) (937,209) (5,334,922)
Operating Profit (Loss) (933,018) $ 1,544,221 $ 709,567 $ 1,320,770
* The eliminate column reflects the $ amounts of Inter-Company Sales by World
Jet to HAT in 2004. On a consolidated basis Revenues and Cost of Sales are
reduced to reflect the Revenues and Cost of Sales for external sales only, with
a zero $ impact on stand alone or consolidated profit (loss) figures.
The following table graphically depicts the operating performance for Global and
HAT subsidiaries on a stand-alone and consolidated basis for the year ended
December 31, 2003:
Period Global HAT Consolidated
Stand Alone Stand Alone
----------- ----------- ------------
Revenue $ 312,185 $15,066,167 $15,378,352
2003
Year End Cost of Sales (239,329) ($12,199,918) ($12,439,247)
Results Expenses (1,408,160) ($ 2,500,972) ($ 3,909,132)
Operating Profit (Loss) ($1,335,304) $ 365,277 ($ 970,027)
Third Quarter 2005
- ------------------
Operating revenue for the three and nine months ended September 30, 2005 was
$15,462,146 and $32,943,780, respectively. This operating revenue was nearly
twice the $8,112,082 and $16,698,987 that was earned during those periods in
2004. Aircraft trading contributed $12.675million to revenues in the first nine
months of 2005.
Gross profit for the first nine months of 2005 was $7,938,486 while gross profit
for the first nine months of 2004 was $4,888,448, a 62% increase. During the
first nine months of 2005, 48% of HAT's revenue came from its top five
customers, 62% of Word Jet's revenue, after inter-company eliminations, was
derived from its top 3 customers.
Company SG&A expenses were $876,193 for the first quarter of 2004, $822,399 for
the second quarter of 2004 and $1,827,738 for the third quarter of 2004 and as a
percentage of revenues were 20%, 19% and 23% respectively. The same periods in
2005 showed SG&A expenses of $1,628,734, $1,738,041 and $2,284,532 which were
19%, 21%, and 15% as a percentage of revenues. Management's continued efforts to
control costs remain a high priority.
Interest expense for the Company, during the first nine months of 2005, was
$358,153 however, $154,368 of that amount was billed to a customer under
separate agreement wherein the customer agreed to pay the interest assessed
under the factoring agreement because only that particular customer's invoices
were factored as a result of the customer's cash flow needs. During the course
of the year, the factor has been paid in full and the customer has paid all
interest charges that were billed by the Company.
Interest income of $259,506 was recognized during the nine months ended
September 30, 2005. Interest charges on various accounts receivable accounts
comprised $251,295 of this 154,368 of which was discussed in the preceding
paragraph. Interest on notes receivable comprised $3,750, and the balance was
interest earned on various bank accounts.
Page 34
The following tables depict our results of operations for the third quarter of
2005, for the third quarter of 2004, the first nine months of 2005 and for the
first nine months of 2004 on a stand-alone basis and on a consolidated basis for
Global, HAT and World Jet:
3rd Quarter 2005
- ----------------
Global HAT World Jet Inter-company Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 8,680,000 4,226,592 3,245,789 690,235 15,462,146
Less: Cost of sales 6,861,538 3,736,561 2,312,666 690,235 12,220,530
Less: Expenses 1,061,040 871,853 351,639 2,284,532
Gain (loss) from operations 757,422 (381,822) 581,484 957,084
Other income (expense) (6,543) 16,804 (12,836) (2,575)
Net profit (loss) before taxes 750,879 (365,018) 568,648 954,509
3rd Quarter 2004
- ----------------
Global HAT World Jet Inter-company Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 165,968 6,576,013 1,893,902 523,801 8,112,082
Less: Cost of sales 92,624 5,153,586 1,486,416 523,801 6,208,825
Less: Expenses 681,446 940,211 227,336 1,848,993
Gain (loss) from operations (608,102) 482,216 180,150 54,264
Other income (expense) (13,481) 602,104 4,826 583,797
Net profit (loss) before taxes (621,583) (112,437) 175,324 638,061
First nine months of 2005
- -------------------------
Global HAT World Jet Inter-company Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 11,875,000 16,322,120 7,593,788 2,847,148 32,943,760
Less: Cost of sales 8,586,606 13,785,852 5,479,964 2,847,148 25,005,274
Less: Expenses 2,023,924 2,674,213 954,176 5,652,313
Gain (loss) from operations 1,264,470 (137,945) 1,159,648 2,286,173
Other income (expense) (3,987) 25,508 (12,836) 8,685
Net profit (loss) before taxes 1,260,483 (112,437) 1,146,812 2,294,858
First nine months of 2004
- -------------------------
Global HAT World Jet Inter-company Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 942,002 13,015,073 3,427,587 685,675 16,698,987
Less: Cost of sales 524,081 9,561,285 2,410,848 685,675 11,810,539
Less: Expenses 1,212,758 1,891,244 634,095 3,738,097
Gain (loss) from operations (794,837) 1,562,544 382,644 1,150,351
Other income (expense) (25,030) 590,923 439,563 1,005,456
Net profit (loss) before taxes (819,867) 2,153,467 822,207 2,155,807
The third quarter 2005 stand-alone results for HAT are considerably different
than the 2004 results for the same period. First, it should be pointed out that
during 2004 aircraft trading revenue was recorded by HAT rather than Global
($2.625 million revenue in third quarter of 2004). Second, during the third
quarter of 2005, there was one aircraft that approximately broke even on direct
cost and so consequently was a loss. The Company experiences a pattern of
month-to-month volatility stemming principally from the increasing amount of
aircraft trading the Company is succeeding in developing. Most, but not all of
our aircraft trading transactions contain an internal aircraft maintenance
budget for return to service work performed by HAT. Unlike third party
maintenance work where we attempt to achieve as large as possible profit margin
within HAT, on aircraft trading deals we have set artificially low in-house
maintenance budgets to encourage HAT to minimize its costs and thereby maximize
the total return to Global on the transaction. This practice has had the net
result of artificially increasing Global's aircraft trading profit margins to
the detriment of HAT's profit margins.
Page 35
While Management has been aggressively doing its aircraft trading and aircraft
parts sales business, it still views HAT's aircraft maintenance segment as the
major generator of business opportunities for World Jet and Global. In order to
prevent further cannibalization of HAT's profit margins by Global's rapidly
growing aircraft trading business segment, Management has decided that moving
forward it makes more sense on an internal accounting basis for HAT to bill
Global on a cost-plus basis for all in-house aircraft trading maintenance work.
In that way, we can still maintain budgetary pressure on HAT for in-house work
but, as the aircraft trading transaction is in process, the numbers will more
accurately reflect the contribution of HAT to the total deal while also giving a
more realistic picture of the profitability of the trading side of the
transaction. This internal accounting change, together with the fact that HAT
has completed and delivered the one loss-generating maintenance contract that
adversely effected HAT's third quarter bottom line, should insure that HAT will
return to profitability in the fourth quarter. This internal accounting change
will have no impact on the Company's consolidated results. It should be noted
however, that to the extent that aircraft trading operations constitute a
growing portion of our business, there will tend to be spikes in revenue in our
financial statements upon closing of such transactions due to the large dollar
amounts of the same.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
On July 8, 2005 Global, HAT and World Jet closed on a transaction to increase
Global's Revolving Line of Credit with Global's existing bank to $2.5 million
with an interest rate of 3.5% per annum in excess of the applicable LIBOR rate
secured by a first priority lien on Global's, HAT's and World Jet's personal
property. The term of the line of credit expires on April 30, 2006 when the
entire unpaid principal balance and accrued and unpaid interest is due and
payable. While there are no required monthly installments, the Line of Credit is
based upon and limited by a borrowing base equal to the sum of 80% of all
eligible accounts receivable plus 50% all eligible inventory as defined in the
loan agreement up to a maximum of $2.5 million. See Form 8-K filed July 14,
2005. At September 30, 2005, the entire amount of this line of credit was
available to the Company with the exception of $128,000 which secured a letter
of credit required by TAA under the terms of the property lease covering the
premises used for HAT's operations.
On August 1, 2005 all monies due to factor were paid in full and the Company has
no plans of entering into any future factoring arrangements in the foreseeable
future.
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.
Significant changes in the Company's Balance Sheet for the quarter ended
September 30, 2005 were as follows:
Cash on hand increased $3,080,032. On July 27, 2005, Global issued
7,200,000 shares of restricted common stock to Barron Partners, L.P. upon
the exercise of warrants to purchases 7,200.000 shares of restricted common
stock of the Company at $0.68 per share representing a total warrant
exercise price of $4,896,000. See Form 8-K filed 8/02/2005.
Accounts receivable showed an increase of $2,749,367. (see Note 10 in the
Condensed Consolidated Financial Statements that are included in this
filing.)
Costs and expenses on uncompleted contracts in excess of billings decreased
$337,388.
The value of inventory increased $4,145,384 reflecting the purchase of the
inventory previously held on consignment plus an MD-82 airframe for $3.4
million. Also two MD81 airframes were purchased for $680,000.
The Company's third quarter Balance Sheet reflects the reclassification of
$2,517,058 of Inventory to Inventory, non-current. This is a substantial
increase over the December 31, 2004 reclassification of $212,500 and is
largely due to the unsold World Jet inventory acquired as part of the World
Jet purchase on January 1, 2004.
Equity in net assets of and advances to affiliates, a new account in the
third quarter, had a balance of $2,935,057 at September 30, 2005. (see Note
5 in the Condensed Consolidated Financial Statements that are included in
this filing.)
Page 36
During the third quarter of 2005, total liabilities increased from
$4,558,483 at June 30, 2005 to $11,748,763 at September 30, 2005.
Accounts Payable increased over the June 30, 2005 balance by
$8,182,485.
Due to factor decreased $895,320 as all obligations to factor were
paid in full
Notes payable decreased $654,253 due to the satisfaction of the M&I
loan that the Company owed at June 30, 2005.
Income taxes payable increased $202,732 reflecting a payment of
$90,454 and the addition of estimated taxes generated in the third
quarter of $293,256. This tax expense is based on the estimate that
the Company's net operating loss carry forward has been used as a
result of the Company's successive periods of profitability.
Cash
As of September 30, 2005 we had $3,220,391 in cash on hand and approximately
$7,681,582 in collectible receivables. Management believes that anticipated cash
flows will be adequate to sufficiently provide working capital. We cannot assure
you that financing alternatives will be available to us in the future to support
our working capital requirements.
OBLIGATIONS
Short-Term Financing
None.
Long-Term Financing
On July 8, 2005 Global, HAT and World Jet closed on a transaction to increase
Global's Revolving Line of Credit with Global's existing bank to $2.5 million
with an interest rate of 3.5% per annum in excess of the applicable LIBOR rate
secured by a first priority lien on Global's, HAT's and World Jet's personal
property. The term of the line of credit expires on April 30, 2006 when the
entire unpaid principal balance and accrued and unpaid interest is due and
payable. While there are no required monthly installments, the Line of Credit is
based upon and limited by a borrowing base equal to the sum of 80% of all
eligible accounts receivable plus 50% all eligible inventory as defined in the
loan agreement up to a maximum of $2.5 million. At September 30, 2005, the
entire amount of this line of credit was available to the Company with the
exception of $128,000 which secured a letter of credit required by TAA under the
terms of the property lease covering the premises used for HAT's operations.
On December 9, 2005, Global, HAT, and World Jet Corporation, closed on a first
Modification to Global's July 8, 2005 Revolving Line of Credit as set forth
above. 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 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. The interest rate on the Guidance Credit
is also 3.00% per annum in excess of the applicable LIBOR rate. 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. Any advances pursuant to the Guidance Credit shall
be secured by a first priority lien on any aircraft purchased with such advance.
The term of the Line of Credit; the Guidance 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 both the Line of Credit and Guidance Credit shall be due on the expiration
date.
Page 37
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. While there is no required monthly repayment
obligation of the Guidance Credit, the Borrowers are required to repay, from
time to time, (i) an amount equal to any amount by which the outstanding
principal balance of the Guidance Credit exceeds $7 million, (ii) all amounts
received by Borrowers under any aircraft purchase agreement, other than an
initial down payment to the extent it does not exceed twenty-five percent (25%)
of the purchase price, and (iii) any portion of an advance or readvance not paid
within ninety (90) days of the advance or readvance. Borrowers are also
responsible to immediately repay to bank the amount of an advance upon any
breach of the aircraft purchase 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 a loan fee
to the bank equal to 1% of the amount of any requested advance under the
Guidance Credit with a cap of $52,500.00 in cumulative fees. 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.
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.
The only other continuing obligations of the Company are with respect to the two
employment agreements between the Company and officers Ian Herman and John
Sawyer. Both employment agreements are for a term of three (3) years beginning
July 2003 and provide as follows:
Ian Herman
- ----------
The Company has an employment agreement with Ian Herman that provides that he
shall serve as Chairman of the Board of Directors and Chief Executive Officer of
the Company until July 21 2006, subject to successive one-year extensions, at
the election of the Company and Mr. Herman, in the event that the Board of
Directors fails to give him written notice, on or before July 21 2006, of its
intent not to renew the agreement or to renew on different terms. The Company
has agreed to compensate Mr. Herman at a base salary of not to exceed
$150,000.00 per year plus employee benefits and has agreed to indemnify him
against certain losses. Mr. Herman is entitled to an increase in base salary
based upon the performance of the Company. In the event the Company's net profit
equals at least $1,000,000.00, Mr. Herman's base salary shall be increased not
to exceed $200,000.00 for such annual period and in the event the Company's
annual net profit is greater than $1,000,000.00, the base salary shall increase
up to $250,000.00, with such increase not to exceed 5% of all net profit in
excess of $1,000,000.00. Mr. Herman may also be entitled to an annual
discretionary bonus as determined by the Company's board of directors.
John Sawyer
- -----------
The Company has an employment agreement with John Sawyer that provided that he
would serve as President and Chief Operating Officer of the Company until July
21, 2006, subject to successive one-year extensions, at the election of the
Company and Mr. Sawyer, in the event that the Company failed to give him written
notice, on or before July 21, 2006 of the Company's intent not to renew the
agreement or to renew on different terms. Pursuant to this agreement, the
Company agreed to compensate Mr. Sawyer at a base salary not to exceed
$150,000.00 per year plus employee benefits and, agreed to indemnify him against
certain losses. Mr. Sawyer is entitled to an increase in base salary based upon
the performance of the Company. In the event the Company's net profit equals at
least $1,000,000.00, Mr. Sawyer's base salary shall be increased not to exceed
$200,000.00 for such annual period and in the event the Company's annual net
profit is greater than $1,000,000.00, the base salary shall increase up to
$250,000.00, with such increase not to exceed 5% of all net profit in excess of
$1,000,000.00. Mr. Sawyer may also be entitled to an annual discretionary bonus
as determined by the Company's board of directors.
Each of these employment agreements is terminable by the Company with or without
cause and by the named executive officer upon the occurrence of certain events,
including a change in control of the Company, and a change in the named
executive officer's responsibilities.
On July 29, 2004 Directors Alfredo Mason and Lawrence Mulcahy accepted
Engagement Agreements to serve as Directors. The Agreements call for an
honorarium payment of $100.00 per hour for every hour reasonably expended in
performance of their duties and incentive compensation in the form of options to
purchase 50,000 shares each of common stock, under the 2003 CSOP. On October 29,
2004, Gordon Hamilton resigned his position with HAT and became a compensated
Director for the Company at the annual rate of $40,000 plus medical benefits and
expenses.
Page 38
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the Company's financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES
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.
REVENUE RECOGNITION. We recognize revenues related to engine overhaul services
when we ship the overhauled engine. Revenues from fixed-fee contracts for MRO
sales are recognized on 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. Revision in
cost and labor hour estimates and recognition of losses on these contracts are
reflected in the accounting period in which the facts become known. Revenues
from time and material contracts are recognized as the services are performed.
Revenues from part sales are recognized when parts are shipped.
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 accounts 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.
Stock-Based Compensation
------------------------
As permitted under the Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation", the Company accounts for
its stock-based compensation to employees in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees". As such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. Certain pro forma net income and EPS disclosures for employee stock
option grants are also included in the notes to the financial statements as if
the fair value method as defined in SFAS No. 123 had been applied. Transactions
in equity instruments with non-employees for goods or services are accounted for
by the fair value method.
MARKETING STRATEGIES
HAT has identified maintenance and modification of the Boeing 727,737, 757 and
the DC-9/MD80 jet aircraft as its major target markets through at least 2005.
Although aircraft maintenance is a multi-billion dollar annual industry, in many
ways it is a very tightly knit community in which many key players are well
known to one another. As a result, there exists a surprisingly efficient flow of
information throughout the industry that makes a company's reputation by far its
most important marketing asset.
The market for HAT's aircraft maintenance and modification services, although
global in scope, is made up of a relatively small number of aircraft owners and
operators. As such, HAT does not rely on media advertising, but rather focuses
its marketing efforts on building personal relationships with the aircraft
owners, operators, operations managers, consultants, customer representatives
and key industry vendors that make up this surprisingly tight knit international
aviation community.
World Jet's marketing plan centers around building a loyal base of customers by
providing quality service. World Jet is one of a limited number of parts brokers
who provide 24-hour AOG, (aircraft on ground), coverage to its customers. World
Jet strives to broaden its customer base by building inventories, through
bargain purchases and securing consignment arrangements for large inventories,
which provide customers with a broad range of parts availability.
Page 39
While Global does provide press releases to industry trade journals, the
majority of its advertising budget is spent on "wining and dining" or otherwise
entertaining customers and customer representatives on a face-to-face basis.
Some of these meetings are made at industry trade conferences or at the
customer's offices. More frequently, these meetings take place in Tucson when
the customer or his representative visits to inspect HAT's facility or aircraft
stored at the facility. Since the most potent marketing tool available to any
repair station is a good reputation for delivering aircraft back to its
customers on time and on budget, much of HAT's "marketing" really consists of
maintaining good communication, performing well and otherwise making sure that
each maintenance visit is an enjoyable experience for the customer and his
on-site representatives or consultants. The marketing strategies described here
have kept, and are keeping, HAT fully booked or over booked for the foreseeable
future. Accordingly, HAT has no plans to change its marketing approach at this
time.
Global regularly provides press releases on major jobs and provides interviews
for trade journals as a method for maintaining visibility in the industry. HAT
also maintains a web site that describes its facilities, personnel and
capabilities at www.globalaircraftsolutions.com
BUSINESS PHILOSOPHY
Management has rejected a policy of growth for growth's sake in favor of
focusing on profitability and building a good reputation for HAT's operations
group by limiting work contracts to those perceived to have a high probability
of success. This strategy is also very beneficial to the company's marketing
efforts in that a good track record of maintenance and modification contracts
delivered successfully on-time and on-budget is by far the most potent tool for
securing new work contracts.
The principal focus of the operations group at HAT is the implementation of
strategies to enhance worker productivity, which include assigning dedicated
crews and dedicated project managers to each aircraft in work, ongoing training
for supervisors, project managers and quality control personnel, and improving
material flow to each job site.
In managing its operations, the Company is committed to continuously evaluating
the adequacy of its management structure and its existing systems and
procedures; including its quality control, financial, and internal controls
systems. HAT is focused on maintaining a small, but tightly knit and
multi-tasking, highly experienced management team.
GOALS
HAT's corporate goals are very narrow and focused. They are:
o Maximize the profitability of the Company's operations group.
o Rationalize the Company's debt and capital structure.
o Cautiously build Company value through the strategic exploitation of
synergistic arbitrage and acquisition opportunities.
OPERATIONS STRATEGIES
Through experience, the management team at HAT has learned that, in the aircraft
maintenance business, taking on too much work results in reduced profit margins,
dissatisfied customers and, ultimately, the loss of future business. On the
other hand, limiting work contracts to the number and type that can be performed
effectively results in improved profit margins and increased future business
opportunities.
Also, for budgetary purposes, most aircraft maintenance customers today prefer
fixed-bid contracts on their scheduled maintenance checks. This common industry
practice offers efficient well-managed repair stations the opportunity to
significantly improve their profit margins, while still maintaining customer
satisfaction.
By maintaining small, tightly knit work crews, retaining experienced crew chiefs
and carefully screening work contracts, HAT has found that it can routinely come
under budget on scheduled aircraft maintenance contracts fix-priced at rates
widely accepted by the industry. Accordingly, while mindful of the need for
long-term growth by the Company, Management is presently focused on pursuing a
strategy of maximizing operations profitability and customer satisfaction rather
than rapid growth.
Page 40
FINANCIAL STRATEGIES
The principle financial strategy of Global is to secure equity and/or debt
financing sufficient to insure the efficient day-to-day operation of the HAT
facility and enable the Company to provide reasonable payment terms to
creditworthy customers. Management is also interested in securing additional
funding for the purpose of certain productivity-improving or synergistic
acquisitions and other asset-based business opportunities. Since HAT is now
profitable, Global can, if necessary, meet its financial requirements
internally. However, the equity and/or debt financing currently pursued by
Management will greatly accelerate the growth of value in Global. Consequently,
while Management is aggressively seeking to secure additional financial
resources, it has no interest in entering into overly dilutive equity funding or
onerous debt financing.
BUSINESS DEVELOPMENT STRATEGIES
As described in Operations Strategies above, Management is, for the foreseeable
future, taking a conservative approach to growing the core aircraft maintenance
services business in favor of more aggressively seeking to increase operating
profit margins and customer satisfaction. In practical terms, this translates
into annual sales revenue growth rates of no more than 20% in the Company's core
aircraft maintenance business. Growing our parts sales business at World Jet
will be positively affected by the multi-million dollar consignment agreement
with Jetran International that was completed during the 4th quarter of 2004.
(see 8-K/A filed 12/09/2004). Our goal is a growth rate in the parts sales side
of the business in the range of 20% to 25% per year. There does exist
significant growth opportunities for Global by expanding some of the business
activities related to HAT's and World Jet's core businesses such as aircraft
sales and leasing, as well as aviation consulting services.
Distressed aviation assets often come to the attention of HAT, as a maintenance
service provider and aircraft storage facility, prior to becoming known to the
market at large. Frequently, such assets can be placed with end-users known to
HAT. These arbitrage opportunities can involve distressed parts inventories,
distressed aircraft that can be torn down for parts, or distressed aircraft that
can be purchased, repaired and sold or leased at a profit. These types of
arbitrage opportunities annually represent tens of millions of dollars of
additional lucrative potential business available to HAT. As Global gains more
access to capital from outside sources or as a result of HAT operating profits,
Management anticipates the revenue to Global from these types of opportunistic
arbitrage transactions will become a significant portion of Global's future
growth. The large aircraft repair business is highly competitive. Revenues are
sensitive to adverse changes in the air carrier business, due to factors such as
airline profit levels, changes in fuel costs, average fare levels, and passenger
demand. The heavily regulated airline industry, however, requires scheduled
maintenance and repair services irrespective of industry economics, thus
providing a reasonably steady market for HAT's services and World Jet's parts.
HAT competes principally on the high quality of its services, its price
competitiveness due to its location in the Southwest and low labor rates, its
dry, mild climate and ability to do many MRO projects outdoors, and the low cost
of its Tucson facility. World Jet competes on parts availability, time of
delivery, and competitive pricing.
INDUSTRY OVERVIEW
As is the case in most industries, the aviation industry is cyclical in nature.
Historical evidence suggests that the typical business cycle in the aviation
industry has a duration of approximately 10 years peak to peak. The aviation
industry appeared by mid-2001 to be headed into a prolonged downturn, and this
trend was violently accelerated by the event of September 11th. Since September
11, 2001, at least five major repair stations either ceased doing business or
filed for Chapter 11 protection. This factor has restricted the supply of
services to the industry and opened up an opportunity for HAT. Air carriers such
as United Airlines also have filed for Chapter 11 protection. The recession in
the aviation industry appears to have bottomed out with some indications of a
rebound now appearing on the horizon. We believe that the following trends are
currently affecting the aviation industry and our operations in particular.
GROWTH IN THE MARKET FOR AIRCRAFT MRO SERVICES
The Boeing 2003 Current Market Outlook Report projects that the average
worldwide passenger growth will be 5.1% per year through 2022. Similarly, the
Boeing 2003 Current Market Outlook Report projects that the average worldwide
cargo traffic growth will be 6.4% per year through 2022. This report also
predicts that by 2022 HAT's target market of regional and narrow body jets will
make up 74% of the worldwide fleet of commercial aircraft. We anticipate that
these factors will in the long term increase the demand for maintenance and
repair services. Based on this and other data, HAT estimates the worldwide
market for MRO services at approximately $40 billion annually and that
approximately $5 billion of that amount will be provided in North America. We
believe airlines perform approximately well over half of the North American
services and that the balance is performed by independent facilities such as
HAT.
Page 41
DIVERSIFIED SERVICES AND STRONG COMPETITIVE POSITION
Our services include a wide range of aircraft maintenance and repair services
across a number of different airframes. The breadth of our services allows us to
be a vendor of choice to our customers in a highly fragmented industry. HAT
competes principally on the high quality of its services, its price
competitiveness due to its location in the Southwest and low labor rates, its
dry, mild climate that allows services to be performed with only rare weather
interruptions and to do much of its service out of doors, and the low cost of
its Tucson facility.
EMPHASIS ON QUALITY
The FAA and JAA license our MRO facility. We emphasize quality and on-time
delivery to our customers. We are focused on meeting and exceeding FAA and JAA
requirements. As industry, regulatory and public awareness have focused on
safety, our ability to meet and exceed these requirements on a consistent basis
has become important to customers.
DESCRIPTION OF PROPERTY
The principal executive offices for both Global and HAT are located at the HAT
hangar facilities in Tucson, Arizona at Tucson International Airport. This
favorable location provides 360 days of sunshine per year together with
extremely low humidity year round. These facilities are situated on the
northwest ramp on 22 acres of concrete within the airport proper and are
patrolled by the Tucson Airport Authority police force. HAT leases these
facilities at a rental rate of $25,650 per month.
The HAT facility is level and fully paved with concrete sufficient to handle the
largest aircraft on any part of its 22 acres. Two hangars provide the space for
any modification and maintenance work that must be performed indoors. The larger
hanger has 180' clear span and is 185' deep (30,400 sq. ft.), enabling it to
wholly enclose a DC9 and a 727 at the same time. The hangar has been modified to
serve as a paint booth as needed.
The smaller hangar is 100' clear span by 100' deep (10,000 sq. ft.) with 2,000
square feet of office space on the north side and another 4,000 square feet of
enclosed space on the south. Offices for production planning and control are in
this area, as engineering, the welding shop, receiving, materials and purchasing
departments. The two hangars face each other at a distance of approximately 220
feet. Numerous mobile offices have been added to provide additional space for
administrative and customer representative offices.
To the southeast of the large hangar is a 12,000 foot covered building used to
store aircraft components and maintenance equipment. A 9,000 square foot
warehouse on the west side of the facility houses the interior department as
well as additional storage for materials and records. Both main hangars are
equipped with lighting, water, compressed air, and 115/220/440 volt AC
electricity. All office spaces are heated and cooled.
World Jet operates out of a 73,000 square foot facility in Tucson, Arizona. This
facility consists of office space and warehouse space to accommodate the
aircraft parts (Expendables, Rotables and Consumables), airframe components,
engines and engine material inventory maintained by World Jet. This facility is
located directly across the street from HAT which allows HAT immediate access to
aircraft parts, (Expendables, Rotables and Consumables), airframe components,
engines and engine material necessary to perform MRO services without incurring
any costs or delays that may be related to shipping and improves the turn time
of any such services provided.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Global
- ------
On July 15, 2004, Global completed the acquisition of World Jet Corporation, a
privately owned Nevada corporation, located at 6900 S. Park Ave., Tucson, AZ
85706 ("World Jet") pursuant to a stock purchase agreement. The consolidated
Statement of Cash Flows for the period ending June 30, 2004 for World Jet and
HAT, includes accounts payable to a related party, Ralph Garcia, the majority
owner of World Jet, which represents $1,250,000 for the World Jet closing;
$300,000.00 note payable to Ralph Garcia and Michele Barkan and $454,000.00 due
from World Jet in outstanding commissions. All of these obligations have been
satisfied as of fiscal year end 2004.
Page 42
HAT
- ---
On April 15, 2002, HAT entered into an agreement to purchase the operating
assets and inventory from an existing MRO, Hamilton Aviation ("Sale of Assets
Agreement"), a privately held Arizona corporation. The agreement contemplated
the purchase by HAT of substantially all of Hamilton Aviation's equipment and
inventory used in its aircraft maintenance, repair and modification services
business. Under the terms of this agreement, the closing date was to be not
later than July 15, 2002. The agreement was for a purchase price of $1.5
million, with a down payment in the amount of $300,000. The balance was payable
monthly at 6 1/2% interest. Hamilton Aviation is considered a related party
because of the dependence of HAT on the agreement with Hamilton Aviation.
Also on April 15, 2002, Hamilton Aerospace entered into a Lease/Purchase
Agreement with Hamilton Aviation for the same assets that were included in the
Sale of Assets Agreement. Under the Lease/ Purchase Agreement, these assets
would be leased for a term of three (3) years or until the Sale of Assets
Agreement closed, at which time, all assets would transfer to HAT. The Lease /
Purchase Agreement provided for payments in the amount of $8,000 per month to
Hamilton Aviation through April 15, 2005. Provided that the Sale of Assets
Agreement did not close by the expiration of Lease /Purchase Agreement, title of
all assets covered under the Lease / Purchase Agreement would pass from Hamilton
Aviation to HAT upon expiration of the Lease/Purchase Agreement.
On May 9, 2002, Hamilton Aviation filed for protection and reorganization under
Chapter 11 of the United States Bankruptcy Code. The Sale of Assets Agreement
was submitted to the Bankruptcy Estate for approval as part of Hamilton
Aviation's plan of reorganization; and pending the Bankruptcy Estate's review
and acceptance of the Sale of Assets Agreement and such plan of reorganization,
HAT and Hamilton entered an interim agreement whereby HAT agreed to assume
Hamilton Aviation's service contracts ("Service Agreement") pending approval of
the Sale of Assets Agreement. Because the Sale of Assets Agreement was
negotiated prior to Hamilton Aviation's petition for bankruptcy, HAT and
Hamilton Aviation renegotiated the Sale of Assets Agreement to better reflect
the scope of the current transaction in light of the current market. The
renegotiated Sale of Assets Agreement covers sale of a portion of Hamilton
Aviation's physical assets and has a reduced payoff clause, which states that $1
million will be considered full payment, providing HAT satisfies said agreement
according to its terms. In March 2004, the new sale of assets agreement was
approved by the Bankruptcy Estate and memorialized and finalized by the entry of
a Settlement Agreement among HAT, Hamilton Aviation and the Bankruptcy Estate.
This Settlement Agreement was then confirmed by Order of the Bankruptcy Court
dated May 6, 2004.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During the fiscal year ended December 31, 2003, the Common Shares were quoted
under former symbol "RDVN", now GACF on the OTC Bulletin Board maintained by the
National Association of Securities Dealers, Inc. Prior to May 2, 2002, the date
on which Global acquired HAT, few transactions took place. As of December 31,
2004, the approximate number of record holders of Company common stock was 57
which number does not include shareholders whose shares are held in street or
nominee names. The following information relates to the trading of our common
stock, par value $.001 per share. The high and low last sales prices of our
common stock for each quarter during our two most recent fiscal years, as
reported by the OTC Bulletin Board to date, are set forth below:
HIGH LOW
2005
First Quarter $ .96 $ .71
Second Quarter 1.40 .74
Third Quarter 1.95 1.14
2004
First Quarter $ .53 $ .23
Second Quarter .86 .19
Third Quarter .72 .52
Fourth Quarter .85 .45
2003
First Quarter $ .44 $ .24
Second Quarter .31 .17
Third Quarter .47 .20
Fourth Quarter .55 .16
Page 43
EXECUTIVE COMPENSATION
Global currently has in place an employee stock compensation plan and a
compensatory stock option plan. Global has no long-term incentive plans, as that
term is defined in the rules and regulations of the Securities and Exchange
Commission. There are no other compensatory or benefit plans, such as retirement
or pension plans, in effect or anticipated to be adopted at this time, although
in the future the Board of Directors may adopt other plans.
Compensation of Officers and Directors and Executive Officers
The table below presents information concerning the compensation of the
Company's Chairman of the Board, Chief Executive Officer and its other most
highly compensated executive officers for the current year. None of such persons
were compensated by the Company or by HAT during 2001. Such officers are
sometimes collectively referred to below as the "Named Officers."
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Year Salary Bonus Other Restricted Securities, LTIP Other
principal position Stock Awards Underlying Payouts Compensation
options &
SAR's
(Shares)
Ian Herman 2004 $120,012 $13,000 $8,000 (1) 2003award 133,334 None None
Chairman, CEO/CFO vested
2003 $109,717 None None 2,500,000 None None None
2002 $ 75,240 None None None $40,000 None None
John B. Sawyer 2004 $146,546 $26,000 $46,000 (1) 2003award 766,666 None None
President, COO vested
2003 $142,159 None None 2,500,000 None None None
2002 $ 88,310 None None 400,000 None None None
Gordon Hamilton, 2004 $ 46,598 None None None None None None
Director
2 2003 $ 33,518 None None None None None None
Ronald J. Clark 2004 None None None None None None None
Former President, CEO
2003 $ 28,766 None None None None None None
3 2002 $ 75,240 $15,000 None None None None None
Page 44
Randy J. Sasaki 2004 None None None None None None None
Former Director
2003 $0 None None None None None None
4 2002 $0 $22,500 None None None None None
John Brasher 2004 None None None None None None None
Former Director
2003 $0 None None None None None None
4 2002 $0 None $18,340 None None None None
- --------------------------------------------------------------------------------------------------------------------
(1) Represents the amount of compensation from options awarded in May 2004 based
up a $.06 discount between the exercise price and the market price at the
measurement date.
(2) The Restricted stock awards given to Herman and Sawyer in 2003 are pursuant
to Employment Agreements filed under form DEF 14C on September 26, 2003.
(3) Hamilton became a director September 1, 2003.
(4) The bonus amounts payable in 2002 to Clark consist of awards of common stock
pursuant to the 1997 Employee Stock Compensation Plan. The restricted stock
awards consist of common stock awarded pursuant to the 1997 Employee Stock
Compensation Plan.
(5) Sasaki and Brasher were directors, and Sasaki was an executive officer of
the Company for the years respectively ended December 31, 2001 and 2002. Their
service terminated on May 3, 2002. Other compensation payable to Brasher for
those years consisted of legal fees.
The Company has or intends to implement employee benefits that are or will be
generally available to all its employees and its subsidiary employees, including
medical, dental and life insurance benefits and a 401(k) retirement savings
plan.
None of the Named Officers received any form of non-cash compensation from the
Company or Hamilton Aerospace in the years ended December 31, 2003, 2002 or
2001, nor currently receives any such compensation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
Name Number of Securities % of Total Exercise or Base Expiration Date
Underlying Options/SAR's Granted Price ($/Sh)
Options/SAR's Granted to Employees in
Fiscal Year
Ian Herman 133,334 10% $0.17 05/13/2008 (30 day
grace period)
John B. Sawyer 766,666 58% $0.17 05/13/2008 (30 day
grace period)
Page 45
AGGREGATED OPTION'SAR EXERCISES IN LAST FISCAL YEAR and FISCALYEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Name Shares Acquired on Value Realized ($) Exercisable Unexercisable
Exercise
Ian Herman None N/A 133,334 N/A
John B. Sawyer None N/A 766,666 N/A
2002 Compensatory Stock Option Plan
Global has adopted the 2002 Compensatory Stock Option Plan for officers,
employees, directors and advisors (the "2002 CSO Plan"). Global has reserved a
maximum of 3,000,000 Common Shares to be issued upon the exercise of options
granted under the 2002 CSO Plan. The 2002 CSO Plan will not qualify as an
"incentive stock option" plan under Section 422A of the Internal Revenue Code of
1986, as amended. The Board of Directors or other plan administrator will grant
options under the 2002 CSO Plan at exercise prices to be determined. With
respect to options granted pursuant to the 2002 CSO Plan, optionees will not
recognize taxable income upon the grant of options granted at or in excess of
fair market value. Global will be entitled to a compensating deduction (which it
must expense) in an amount equal to any taxable income realized by an optionee
as a result of exercising the option. The Board of Directors administers the
2002 CSO Plan. Options to purchase an aggregate of 580,000 shares of Global
common stock have been granted under the 2002 CSO Plan.
2003 Employee Stock Compensation Plan
Global has adopted the 2003 Employee Stock Compensation Plan for officers,
employees, directors and advisors (the "2002 ESC Plan"). Global has reserved a
maximum of 5,000,000 Common Shares to be issued upon the grant of awards under
the ESC Plan. Employees will recognize taxable income upon the grant of Common
Stock equal to the fair market value of the Common Stock on the date of the
grant and Global will recognize a compensating deduction at such time. The Board
of Directors administers the ESC Plan. 2,800,000 shares of Common Stock
available under the EXC Plan have been awarded and issued.
Compensation of Directors
We have employment agreements with Ian Herman and John B. Sawyer. Each provides
for the payment of a base salary with increases in base salary based upon the
company's net profit performance and for bonus compensation based on
performance.
On July 29, 2004 Directors Alfredo Mason and Lawrence Mulcahy accepted
Engagement Agreements to serve as Directors. The Agreements call for an
honorarium payment of $100.00 per hour for every hour reasonably expended in
performance of their duties and incentive compensation in the form of options to
purchase 50,000 shares each of common stock, under the 2003 CSOP. On October 29,
2004, Gordon Hamilton resigned his position with HAT and became a compensated
Director for the Company at the annual rate of $40,000 plus medical benefits and
expenses.
FINANCIAL STATEMENTS
The audited financial statements of Global for the years ended December 31, 2003
and 2004; the unaudited financial statements for the quarter ended September 30,
2005, as well as the financial statements of World Jet for the years ended
December 31, 2002 and 2003 and related notes which are included in this offering
have been examined by Larry O'Donnell, CPA, and have been so included in
reliance upon the opinion of such accountants given upon their authority as an
expert in auditing and accounting.
Page 46
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
CONTROL AND FINANCIAL DISCLOSURE
On January 9, 2006, the Audit Committee of the Board of Directors of the Company
voted to dismiss Larry O'Donnell, CPA, P.C. as the Company's independent
registered public accountant. Larry O'Donnell, CPA, P.C. was notified of the
dismissal on January 9, 2006. This dismissal followed the Audit Committee's
receipt of proposals from other independent auditors to audit the Company's
consolidated financial statements for the fiscal year ended December 31, 2005.
None of the reports of Larry O'Donnell, CPA, P.C. on the Company's financial
statements for either of the past two years or subsequent interim period
contained an adverse opinion or disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles, except that
the reports did contain a going concern paragraph. During the Company's past two
fiscal years and through January 9, 2006 there have been no disagreements with
Larry O'Donnell, CPA, P.C. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Larry O'Donnell, CPA, P.C.
would have caused them to make reference thereto in their reports on the
financial statements of the Company for such years.
On January 9, 2006, the Audit Committee of the Board of Directors of the Company
engaged Epstein, Weber & Conover, PLC ("EWC") as the Company's independent
auditors with respect to the audit of the Company's consolidated financial
statements for the fiscal year ended December 31, 2005. The decision to engage
EWC was made by the Audit Committee of the Board of Directors. Neither the
Company nor someone on behalf of the Company consulted with EWC regarding any of
the items listed in Item 304(a)(2) of Regulation SB.
FOR FURTHER INFORMATION
We are a small business reporting company and file annual, quarterly, and
current reports, proxy statements, and other information with the SEC. You may
read and copy these reports, proxy statements, and other information at the
SEC's public reference rooms at 100 F Street, N.E., Washington, D.C. 20549, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at (800) SEC-0330 for more information about the operation of the public
reference rooms. You may also request copies of these documents by writing to
the SEC and paying a fee for the copying cost. Our SEC filings are also
available at the SEC's web site at "http://www.sec.gov" and at our own web site
at "http://www.globalaircraftsolutions.com".
As a small business and SB-2 filer we are not permitted to incorporate any
information or documents filed by the Company by reference and therefore we will
file post effective amendments when any of our financial statements become
outdated.
If you are interested in receiving a copy of any of the Company's filings, we
will provide you, without cost, with a copy of any of these filings on request
made orally or in writing to us at the following addressee:
Global Aircraft Solutions, Inc.
P.O. Box 23009
Tucson, AZ 85734
Attn: Investor Relations
Tel: (520) 294-3481
Fax: (520) 741-1430
Page 47
Global Aircraft Solutions, Inc.
formerly,
Renegade Venture (NEV.) Corporation
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
DECEMBER 31, 2004
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED BALANCE SHEETS F-2 - F-3
CONSOLIDATED STATEMENT OF OPERATIONS F-4
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY F-5, F-6 & F-7
CONSOLIDATED STATEMENT OF CASH FLOWS F-8 - F-9
NOTES TO FINANCIAL STATEMENTS F-10 - F-30
Page 48
F-1
Larry O'Donnell, CPA, P.C.
2228 South Fraser Street Unit 1
Aurora, Colorado 80014
Telephone (303) 745-4545
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
2003, 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 2003,
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
Page 49
F-2
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Balance Sheet
December 31, 2003 and 2004
(Audited)
ASSETS
2003 2004
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 8,680 $ 549,904
Accounts receivable 1,612,945 4,766,215
Note receivable 175,642
Note receivable: related party 6,400 0
Inventory 570,794 3,507,249
Other current assets 392,407 380,932
----------- -----------
TOTAL CURRENT ASSETS $ 2,591,226 $ 9,379,942
Property, plant and equipment 532,388 1,632,134
Investments 25,000
Customer list, net 267,771
Agreement with vendor, net 56,980
Goodwill 38,992
Inventory, non-current 212,500
Other assets 122,167 144,693
----------- -----------
TOTAL ASSETS $ 3,245,781 $11,758,012
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 50
F-3
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Balance Sheet
December 31, 2003 and 2004
(Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
2003 2004
------------ ------------
CURRENT LIABILITIES
Notes payable $ 798,862 $ 0
Note payable-related party -- --
Accounts payable - trade 1,691,853 2,644,593
Accounts payable - related party 71,827 0
Due to factor 394,391 604,411
Customer deposits 27,800 280,537
Billings in excess of costs and estimated
earnings on contracts in progress 323,686 966,238
Accrued liabilities 688,518 844,709
Income Taxes Payable 311,182
Shares subject to mandatory redemption 400,535 0
------------ ------------
Total Current Liabilities
4,397,472 5,651,670
------------ ------------
TOTAL LIABILITIES $ 4,397,472 $ 5,651,670
============ ============
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 50,000,000 and 100,000,000
shares authorized in 2003 and 2004, 17,480,000 and 30,650,386
issued and outstanding in 2003 and 2004 17,860 31,030
Additional paid-in capital 2,412,373 7,033,950
Deferred compensation (332,000) 0
Contributed capital 620,289 620,289
Accumulated deficit (3,870,213) (1,578,927)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (1,151,691) 6,106,342
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,245,781 $ 11,758,012
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
Page 51
F-4
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Statement of Operations
Years ended December 31, 2003 and 2004
(Audited)
2003 2004
------------ ------------
Net sales $ 15,378,352 $ 30,851,118
Cost of sales (12,439,247) (24,195,426)
Inventory Writedown (50,000) (212,500)
------------ ------------
Gross profit 2,889,105 6,443,192
Selling, general and administrative expenses (3,727,036) (4,826,519)
Penalties (132,096) (295,903)
------------ ------------
Gain (loss) from operations (970,027) 1,320,770
Other income (expense):
Interest income 370,030 87,521
Interest expense (690,663) (329,023)
Gain on renegotiation of contract 1,144,502
Miscellaneous expense (19,551) (9,084)
Discounts taken 45,438
Miscellaneous income 10,780 31,162
------------ ------------
Net gain (loss) $ (1,299,428) $ 2,291,286
============ ============
Net gain (loss) per share (Basic) $ (0.10) $ 0.09
============ ============
Net gain (loss) per share (Fully Diluted) $ (0.10) $ 0.09
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
Page 52
F-5
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (NEV.) Corporation
Consolidated Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 2003 and the Year Ended December 31, 2004
Additional Contributed Deferred Treasury Accumulated Stockholder
Paid-in Capital Compensation Stock Earnings/Deficit Equity
Capital
Shares Amount Amount Amount Amount Amount Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at
December 31, 2002 18,980,000 19,360 1,904,075 520,289 (66,000) (114,000) (2,570,785) 307,061
1st Qtr, 2003
Shares issued as
compensation for
consultancy
services valued
at $15,000 50,000 50 14,950
Shares returned (50,000) (50) 50
Compensation
expensed 18,000
2nd Qtr, 2003
Shares returned
by OMAC pursuant
to court order
due non-payment
of adequate
consideration (8,100,000) (8,100) (392,435)
Shares returned
as the result of
agreement under
a mediated
settlement with
former officer (250,000) (250) (16,427)
Compensation
expensed 18,000
3rd Qtr, 2003
Shares issued
under executive
employment
agreement with
Herman and Sawyer 5,000,000 5,000 395,000 (320,000)
Shares issued as
compensation for
consultancy
services valued
at $92,000 460,000 460 91,540
Shares issued as
compensation for
consultancy
services valued
at $45,000 150,000 150 44,850
Shares returned
by Joana due to
lack of adequate
consideration
being given for
the original
issue (1,500,000) (1,500) 1,500
Shares returned
as unearned
under an
employee
agreement
originally
valued at
$18,000 (60,000) (60) (17,940)
Page 53
F-6
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (NEV.) Corporation
Consolidated Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 2003 and the Year Ended December 31, 2004
Additional Contributed Deferred Treasury Accumulated Stockholder
Paid-in Capital Compensation Stock Earnings/Deficit Equity
Capital
Shares Amount Amount Amount Amount Amount Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Compensation
expensed 18,000
Reclassification of
stock , had been
designated
treasury stock in
error (114,000) 114,000
4th Qtr, 2003
Net Income/Loss (1,299,428)
Shares issued as
compensation for
consultancy
services valued
at $288,000 1,600,000 1,600 286,400
Shares issued as
compensation for
consultancy
services valued
at $216,000 share 1,200,000 1,200 214,800
Capital contributed
by LogiCapital in
the form of
a note assignment 100,000
Balance December
31, 2003 17,480,000 17,860 2,412,373 620,289 (332,000) (3,870,213) (1,151,691)
1st Qtr, 2004
Compensation
expensed 12,000
2nd Qtr, 2004
Shares issued to
Barron partners for
a cash
consideration of
$.34 per share 9,600,000 9,600 3,009,600
Shares pledged as
payment on the
purchase of World
Jet valued at $.50
(issued 7/27/04) 1,000,000 1,000 499,000
900,000 options
granted at $.06
below market 54,000
3rd Qtr, 2004
Shares issued to JG
Capital, et al for
a cash
consideration or
$.52 per share 2,115,386 2,115 946,832
Shares issued upon
exercise of options
at $.32 per share
and cash payment of
$17,600 55,000 55 17,545
Shares issued as
compensation for
professional
services to be
rendered over a
two-year period
Valued at $92,000 400,000 400 91,600
100,000 options
granted at .03
below market 3,000
Page 54
F-7
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (NEV.) Corporation
Consolidated Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 2003 and the Year Ended December 31, 2004
Additional Contributed Deferred Treasury Accumulated Stockholder
Paid-in Capital Compensation Stock Earnings/Deficit Equity
Capital
Shares Amount Amount Amount Amount Amount Amount
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Shares vested
(Herman & Sawyer
employment
agreement, 3rd
Quarter of 2003) 320,000
4th Qtr, 2004
Net Income/Loss 2,291,286
Balance December
31, 2004 30,650,386 31,030 7,033,950 620,289 0 (1,578,927) 6,106,342
The accompanying notes are an integral part of these consolidated financial statements.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 55
F-8
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Statement of Cash Flows
Years ended December 31, 2003 and 2004
(Audited)
2003 2004
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net Profit/(Loss) $(1,299,428) $ 2,291,286
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 111,904 325,966
Amortization 162,376
Write down of inventory 212,500
Allowance for Doubtful Accounts 60,562 14,944
Gain from Renegotiation of Contract (1,144,502)
Expenses paid with stock 571,000 476,613
----------- -----------
Net adjustments to reconcile net loss to net cash 743,466 (47,897)
Changes in Assets and Liabilities:
Accounts receivable (920,033) (3,584,402)
Prepaid expenses (15,216) (75,157)
Inventory (158,205) (1,631,494)
Investments (25,000)
Restricted funds (75,410) (409)
Other current assets 421 83,906
Other non-current assets 22,292 (212,500)
Accounts payable-trade 1,067,726 2,269,999
Accounts payable-related party (55,202) 16,173
Due to factor 272,979 (394,391)
Customer deposits 27,800 252,737
Billings in excess of cost and estimated
earnings on contracts in progress 250,335 642,552
Income Taxes Payable 208,989
Accrued liabilities (227,539) (414,735)
----------- -----------
Net cash used by operating activities 366,014 (524,549)
Cash flows from investing activities:
Purchase of property, plant and equipment (83,941) (1,388,070)
Purchase of World Jet, net of cash acquired (959,644)
----------- -----------
Net cash used by investing activities (83,941) (2,347,714)
Page 56
F-9
Cash flows from financing activities:
Proceeds from issuance of common stock 4,381,600
Payments related to common stock issued
Redemption of Shares (395,853)
(400,535)
(16,667)
Proceeds from short term loan 598,061 1,723,686
Repayments and costs of short term loans
(1,851,400)
Other financing activities, net
(124,650) (44,011)
----------- -----------
Net cash provided by financing activities 456,744 3,505,487
Net increase (decrease) in cash and cash equivalents 6,789 541,224
Cash and cash equivalents at beginning of period 1,891 8,680
----------- -----------
Cash and cash equivalents at end of period $ 8,680 $ 549,904
=========== ===========
o Interest paid in 2003 was $690,663 and paid in 2004 was $329,023.
o No income taxes were paid in 2003 or 2004 due to NOL carryforward.
Schedule of non-cash investing and financing activities:
Common stock issued for World Jet Corporation $500,000
The accompanying notes are an integral part of these consolidated financial
statements.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 57
F-10
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
(Formerly Renegade Venture (NEV) Corporation)
Notes to Financial Statements
December 31, 2003 and December 31,2004
1. BASIS OF PRESENTATION
The accompanying audited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for financial information. In the opinion of management, all adjustments
consisting of normal recurring adjustments considered necessary to a fair
presentation have been included.
The 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"), collectively, the "Company". All were
acquired by Global on May 2, 2002. The accounting records of HAT/Johnston
reflect activities since inception of April 5, 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. Since HAT began operating on April 15, 2002
no results of operations for the period January 1, 2002 to April 14, 2002 have
been presented. As such, the financial statements reflect the accounting
activity of HAT since its inception date of April 5, 2002.
The acquisition of 100% of World Jet, Inc was finalized on July 15, 2004, with
an effective date of January 1, 2004. As such, the financial statements include
the accounting activity of World Jet since January 1, 2004.
2. ORGANIZATION AND NATURE OF OPERATIONS
Global Aircraft Solutions, Inc., 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 leasers, and governmental entities.
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 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.
Page 58
F-11
The following unaudited pro forma summary presents the results of operations for
the year ended December 31, 2003 of the Company as if the business combination
had occurred on January 1, 2003.
Revenues $19,772,632 Earnings (loss) per share
Net income (loss) $(1,425,294) Basis $(.11)
Fully diluted $(.11)
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma results do not necessarily
represent results which would have occurred if the business combination had
taken place at the date and on the basis assumed above.
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. 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 have not been material to the financial statements.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory items held for over one year are classified as "noncurrent
inventories". 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.
Page 59
F-12
Revenue and Cost Recognition
Revenues from fixed-fee contracts or portions of contracts 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 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, 2004 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.
The following table shows a breakdown of sales by category that comprise total
Net Sales and Cost of Sales for the periods presented:
Sales Breakdown 2003 2004
Aircraft Maintenance:
Labor $ 9,092,174 $14,332,802
Parts 3,059,219 2,886,994
Aircraft Sales/Engines 2,950,000 7,940,943
Parts Sales 8,791 4,688,501
Other Services 268,168 818,545
Commissions 183,333
----------- -----------
Total Sales $15,378,352 $30,851,118
Cost of Sales Breakdown
Aircraft Maintenance:
Labor $ 7,356,790 $10,861,470
Parts 2,187,163 2,875,375
Aircraft Sales/Engines 2,800,000 7,005,363
Parts Sales 7,326 2,985,070
Other Services 87,968
468,148
Commissions 0 0
----------- -----------
Total Cost of Sales $12,439,247 $24,195,426
Page 60
F-13
Income (Loss) per share
Basic earnings per share includes no dilution and is computed by dividing net
earnings (loss) 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.
During the year ended December 31, 2003 there were no dilutive securities.
Reconciliation of EPS for 2004 and 2003 are as follows:
For the Year Ended 2004
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income $2,291,286
Basic EPS
Income available to common stockholders $2,291,286 24,517,259 $ 0.09
Warrants 149,472
Options 421,297
Diluted EPS
Income available to common stockholders
+ assumed conversions $2,291,286 25,088,029 $ 0.09
For the Year Ended 2003
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income ($1,299,248)
Basic EPS
Income available to common stockholders ($1,299,248) 12,722,685 ($ 0.10)
Warrants None
Options None
Diluted EPS
Income available to common stockholders
+ assumed conversions ($1,299,248) 12,722,685 ($ 0.10)
Page 61
F-14
Calculation of Weighted Average Shares for 2004:
Issues Shares Date Days Weighted shares
17,480,000 1/01 - 6/01 152 7,259,454
9,600,000 27,080,000 1/06 - 7/01 30 2,219,672
1,400,000 28,480,000 7/01 - 7/07 6 466,885
55,000 28,535,000 7/07 - 9/03 58 4,521,940
2,115,386 30,650,386 9/03 - 1/01 120 10,049,307
---- -----------
TOTALS 366 24,517,258
Calculation of Dilution for 2004
Warrants/Options under $.52, No. of shares Incremental shares Date of issue Days to Weighted Average
The average price for 2004 Outstanding 12/31/2004 Dilution
Warrants @ $.34 720,000 249,120 5/26/2004 219 149,472
Options @ $ .17 900,000 605,700 5/13/2004 232 384,993
Options @ $ .20 100,000 34,600 5/13/2004 232 21,992
Options @$ .30 50,000 21,150 4/28/2004 247 14,312
----------
TOTAL DILUTION 570,770
Page 62
F-15
Calculation of Weighted Average Shares for 2003:
Issues Shares Date Days Weighted shares
10,880,000 1/01 - 6/15 165 4,918,356
(250,000) 10,630,000 * 6/15 - 8/25 71 2,067,753
3,440,000 14,070,000 ** 8/25 - 8/26 1 38,548
250,000 14,320,000 8/26 - 9/11 16 627,726
100,000 14,420,000 9/11 - 9/26 15 592,603
260,000 14,680,000 9/26 10/14 18 723,945
1,600,000 16,280,000 10/14 10/23 9 401,425
1,200,000 17,480,000 10/23 1/01 70 3,352,329
------- --------------
TOTALS 366 12,722,685
* The 8,100,000 shares that were ordered, by the court, to be returned to Global
were deducted from the shares issued and outstanding at January 1, 2003.
** The 250,000 shares that were to be returned under the mediation agreement are
deducted as of the date of the agreement.
No separate calculation of Fully Diluted Earnings per Share for 2003 is
necessary as there were no outstanding options or warrants at December 31, 2003.
Therefore, fully diluted EPS would also be ($.10).
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
are 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 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.
Goodwill
- --------
The Company bought 100% of the stock of World Jet. This acquisition of world Jet
was recorded as follows:
Assets purchased from World Jet:
Cash 590,356
Accounts receivable 983,796
Inventories 1,517,461
Page 63
F-16
Other assets 47,235
Customer list 401,657
Agreement with vendor 85,470
Goodwill 38,992
--------
3,664,967
Liabilities assumed from World Jet:
Accounts payable and accrued expenses 870,967
Loans payable - related parties 744,000
----------
1,614,967
----------
Net purchase price $2,050,000
The $38,992 goodwill recorded represents the difference between the price paid
of $2,050,000 and the World Jet equity of $2,011,008 at January 1, 2004. The
purchase price was payable as follows: $1,250,000 in cash at closing; $300,000
in the form of a note maturing January 27, 2005, with payments of $1,500.00 per
month plus interest at 6% per annum, the first payment being due August 27,
2004; 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. The $$38,992
goodwill recorded is expected to be deductible for tax purposes.
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.
Recently Issued Accounting Pronouncements:
FASB Interpretation 46R "Consolidation of Variable Interest Entities", as
revised (FIN 46R), requires that variable interest entities created before
December 31, 2003 be consolidated during the first interim period beginning
after December 15, 2003. Accordingly, on January 1, 2004, we adopted FIN 46R and
the initial application had no impact on our financial statements.
In January, 2004 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 (revised 2003) "Employers' Disclosures
about Pensions and Other Postretirement Benefits", an amendment of FASB
Statements No. 87, 88, and 106. The Statement revises employers' disclosures
about pension plans and other postretirement benefit plans. The statement
retains the disclosure requirements contained in FASB Statement No. 132, which
it replaces, and requires additional annual disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. Statement No. 132R
requires us to provide disclosures in interim periods for pensions and other
postretirement benefits. We adopted Statement No. 132R in the quarter ended
March 31, 2004.
Page 64
F-17
In May 2004, the Financial Accounting Standards Board issued a staff position,
FSP 106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003". FSP 106-2
provides guidance on accounting for the effects of the Medicare Prescription
Drug Improvement Act of 2003 for employers that sponsor postretirement
healthcare plans that provide prescription drug benefits. We adopted FSP 106-2
in our third quarter beginning on July 1, 2004 and the initial application had
no impact on our financial statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs an amendment of
ARB No. 43, Chapter 4." This Statement clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials.
This Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The initial application of SFAS No. 151 will have
no impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This
Statement references the financial accounting and reporting guidance for real
estate time-sharing transactions that is provided in AICPA Statement of Position
04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement
also states that the guidance for incidental operations and costs incurred to
sell real estate projects does not apply to real estate time-sharing
transactions. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. The initial application of SFAS No. 152
will have no impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets - an amendment of APB Opinion No. 29." This Statement eliminates the
exception for non-monetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. This Statement is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company
does not expect application of SFAS No. 153 to have a material affect on its
financial statements.
Stock-Based Compensation
------------------------
As permitted under the Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation", the Company accounts for
its stock-based compensation to employees in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees". As such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. Certain pro forma net income and EPS disclosures for employee stock
option grants are also included in the notes to the financial statements as if
the fair value method as defined in SFAS No. 123 had been applied. Transactions
in equity instruments with non-employees for goods or services are accounted for
by the fair value method.
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.
Page 65
F-18
Selected information by business segment is presented in the following tables
for the years ended December 31, 2003 and December 31, 2004.
2003 2004
---- ----
($millions) ($millions)
Segment sales:
Aircraft maintenance 12.151 17.220
Aircraft brokerage 2.950 7.941
Part sales .009 6.546
Other .268 1.002
Sub Total 15.378 32.709
Elimination of intersegment sales -1.858
Total consolidated sales 15.378 30.851
Operating income:
Aircraft maintenance 2.557 3.270
Aircraft brokerage .150 .936
Part sales .002 1.703
Other .180 .534
Sub total 2.889 6.443
Selling, general, administrative -3.727 -4.827
expense
Penalties -.132 -.296
Other, net -.329 .971
Consolidated earnings before taxes -1.299 2.291
* Other category includes .953 in commissions that were agreed to as the result
of moving all aircraft brokerage from our HAT subsidiary to the parent company,
Global on January 1, 2005.
2003 2004
($) ($)
--------- ---------
Depreciation and amortization by segment:
Aircraft maintenance 96,212 248,910
Aircraft brokerage
Part sales
Corporate 15,692 77,056
Total 111,904 325,966
Net asset values:
Aircraft maintenance 2,434,352 6,633,504
Aircraft brokerage
Part sales 2,099,485
Corporate 811,429 3,025,023
Total 3,245,781 11,758,012
Capital expenditures:
Aircraft maintenance 168,517 1,080,173
Aircraft brokerage
Part sales
Corporate 570 338,439
Total 169,087 1,418,612
Page 66
F-19
All of the Company's facilities and assets are 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:
Year Year
Ended ended
December 31, 2003 December 31, 2004
----------------- -----------------
Australia $ $ 97,741
Canada 3,700 577
Columbia 3,946
Ecuador 1,174,538 2,207,564
Germany 18,800 51,520
Guam 2,170,778
Hong Kong 890
Italy 72,883
Jordan 4,063,944
Mexico 33,000 1,443,626
Nigeria 3,104,835
Pakistan 6,510,001
Peru 31,426 19,600
Surinam 10,011
Tunisia 4,130
UAE 4,500 18,600
United Kingdom 12,300 55,888
Venezuela 31,532
-----------------------------------------------------
TOTALS $ 4,393,110 $ 16,753,220
5. INVENTORY
Inventories consisted of the following:
2003 2004
---------- ----------
Maintenance Hardware $ 145,794 $ 991,206
Parts for Resale 425,000 2,011,269
Aircraft & Engine 0 514,774
---------- ----------
$ 570,794 $3,507,249
The $425,000 Parts for Resale-2003 (previously rotable parts) was reclassified
in 2004. $212,500 was written off during 2004 as a write down of inventory value
and the balance of $212,500 was reclassified as a non-current asset (Inventory,
non-current).
Page 67
F-20
6. PROPERTY AND EQUIPMENT
2003 2004
---------- ----------
Gross Asset Values
Land and improvements $ 25,094 $ 25,094
Buildings and improvements 123,313 183,866
Vehicles 45,040 73,328
Machinery and equipment 456,912 1,568,847
Computer Equipment 0 289,561
Other Office Equipment 1,915 50,805
---------- ----------
652,224 2,191,501
Less accumulated depreciation 119,886 559,367
---------- ----------
Property and equipment, Net $ 532,388 $1,632,134
========== ==========
During 2003 and 2004 depreciation expense was $111,904 and $325,966.
7. SHAREHOLDERS' EQUITY
Common Stock
In 1996, the Company's articles of incorporation were amended, making several
changes affecting common stock. A reverse-stock split was approved, whereby each
100 shares of original common stock were exchanged into one share of common
stock. This action reduced the outstanding common shares from 3,200,000 to
320,000. The number of authorized common shares was increased after the reverse
split from 32,000,000 to 50,000,000. In addition, the amount of authorized
preferred stock was changed to 5,000,000 shares. As a result of the
re-domiciliation to Nevada, statutory par value of $.001 for both common and
preferred stock was established.
As discussed in Note 1, the Company went through two acquisitions during the
quarter ended June 30, 2002. Under the terms of these mergers, the Company
issued 3,000,000 common shares to the stockholders of Johnstone Softmachine
Corporation and 12,500,000 shares to the stockholders of Hamilton Aerospace
Technologies, Inc. The issuance of these shares is reflected in the accompanying
financial statements.
On July 21, 2003 the Directors of the Company took the following actions by
Unanimous Consent of the Board of Directors in lieu of Special Meeting:
The 8,100,000 shares held by OMAC, 1,500,0000 shares held by Seajay Holdings,
LLC and 1,500,000 shares held by Joane Corporation were declared void due to
failure of consideration for the issuance of such shares. Further the proper
officers of the Corporation were authorized and directed to take all action
necessary to cause the certificate representing the 8,100,000 shares of common
stock held by OMAC to be returned to the Corporation for cancellation in
accordance with the terms of the Judgment, discussed in Note 7 below, as entered
by the Superior Court of Maricopa County Arizona. The proper officers of the
Company were authorized and directed in accordance with said Judgment to open an
escrow account and to fund such account in the amount of $400,535.14 within 90
days of the return and cancellation of the OMAC certificate. Further the
certificate of Joane Corporation, representing 1,500,000 shares of common stock,
shall be canceled. The shares represented by such certificate shall revert to
authorized and unissued shares of the Company's capital stock. Further, the
proper officers of the Corporation were authorized and directed to take such
action as necessary to cause the certificate held by Seajay Holdings, LLC to be
returned to the Company for cancellation.
Page 68
F-21
The Board of Directors determined that it would be in the best interest of the
Company to enter into employment agreements with its executive officers, Ian
Herman and John B. Sawyer. Included in the terms of each employment agreement is
a grant of 2,500,000 shares of common stock each to Messrs. Herman and Sawyer.
The shares are subject to vesting. The employment agreements were approved by
owners of the majority of the outstanding shares of the Company's common stock
as of July 29, 2003. Details of these employment agreements can be found in Form
8-K filed September 11, 2003.
On October 15, 2003, the Company was notified that an agreement between
LogiCapital Corporation and Perugia Design Corporation, a company controlled by
a family member of one of the Company's Directors, had been reached. This
agreement calls for the sale of 2,000,000 shares of the 3,000,000 shares held by
LogiCapital, discussed earlier. The stock was transferred in 2004.
On May 26, 2004, the Company entered into a private placement agreement with
Barron Partners, LP. Under the terms of the private placement, Barron Partners
purchased restricted 9,600,000 shares of common stock at a price of $.34 per
share, and for each share purchased received .75 warrants to purchase an
additional share at $.68 per share plus .75 warrants to purchase an additional
share at $1.36 per share. If all of the warrants are exercised at their full
purchase price, Barron Partners will acquire a total of 24,000,000 shares of the
Company's common stock in exchange for a total of $17,952,000 in equity funding.
On May 26, 2004, the Company agreed to issue 720,000 warrants to J G Capital,
Inc. to purchase one share for each warrant at a price of $.34 per share plus
540,000 warrants to purchase one share for each warrant at a price of $.68 per
share plus 540,000 warrants to purchase one share for each warrant at a price of
$1.36 per share in consideration for professional services rendered in securing
the private placement discussed above.
On July 15, 2004, the Company finalized an agreement to buy 100 percent of the
common stock of World Jet Corporation, a privately held aircraft parts, sales
and brokerage company for $1.55 million in cash and notes and 1,000,000 shares
of restricted common stock valued at $.50 per share for the purposes of this
transaction. The effective date of this agreement is January 1, 2004. The shares
of stock were issued in July 2004.
On July 29, 2004 the Board of Directors of the Company elected to fully vest the
2,000,000 incentive shares that resulted under the Employment Agreements with
Messrs. Herman and Sawyer, discussed earlier, that were entered into on July 21,
2003.
On September 3, 2004, pursuant to the "safe harbor" private offering exemption
provided by Rule 506 of Regulation D under Section 4(2) of the Securities Act of
1933, in exchange for One Million One Hundred Thousand Dollars ($1,100,000.00)
the Company sold 2,115,386 shares of the Company's common stock (purchase price
of $0.52), class A warrants to purchase 1,057,693 shares of the Company's common
stock (exercise price of $1.00 per share), and Class B warrants to purchase
1,057,693 shares of the Company's common stock (exercise price of $1.36 per
share).The Company also issued the following warrants as part of the commissions
paid in connection with the above offering: (i) warrants to purchase 158,654
shares of the Company's common stock at an exercise price of $0.52 per share;
(ii) warrants to purchase 79,327 shares of the Company's common stock at an
exercise price of $1.00 per share; (iii) warrants to purchase 79,327 shares of
the Company's common stock at an exercise price of $1.36 per share.
On October 26, 2004, the Company held its 2003 annual meeting. The stockholders
voted to increase the authorized shares of common stock from 50,000,000 to
100,000,000. The Stockholders also ratified an amendment to the Company's
Certificate of Incorporation to change the corporate name from Renegade Venture
(Nev.) Corporation to Global Aircraft Solutions,
Stock Options
During 1996, the Company's shareholders approved the 1994 Compensatory Stock
Option Plan. The plan provides for options to purchase up to 2,000,000 shares of
common stock, after the reverse stock split discussed above. The options give
the right to purchase common stock at "fair market value", as determined by the
board of Directors, at the date of issuance for a period of up to five (5)
years.
During the 1996, the Company's shareholders also approved the 1994 Employee
Stock Compensation Plan. This plan allows for up to 1,000,000 shares of common
stock, after the reverse stock split discussed above, to be issued to key
employees, officers, directors, and certain other persons affiliated with the
Company, as compensation. As part of the 1997 re-domiciliation to Nevada, the
1994 plans described above were adopted and renamed the 1997 Compensatory Stock
Option Plan and the 1997 Employee Stock Compensation Plan by the Nevada
Corporation. Under the terms of both of these plans, the Company is not
permitted to issue options from these plans after April 15, 2004.
Page 69
F-22
During the quarter ended June 30, 2002, the Company's directors approved the
2002 Compensatory Stock Option Plan. The plan provides for options to purchase
up to 3,000,000 shares of common stock. The options give the right to purchase
common stock at "fair market value", as determined by the Board of Directors, at
the date of issuance for a period of up to ten (10) years. Under the terms of
the plan, the Company is not permitted to issue options from the 2002
Compensatory Plan after April 14, 2012. The plan was filed on October 3, 2003.
On May 5, 1999, the Company issued 1,000,000 stock options to two directors
under the 1997 Compensatory Stock Option plan. These options had a three (3)
year term and an exercise price of $.05 per share. These options were exercised
on April 30, 2002, resulting in total proceeds to the Company of $50,000.
Subsequently, these two directors resigned and were replaced on the Board after
the reverse merger with Hamilton Aerospace.
On May 3, 2002, the Company also granted and issued 1,000,000 shares of common
stock to various directors, employees, and consultants of the Company under the
1997 Employee Stock Compensation Plan. The Company recorded an expense of
$330,000 for the quarter ended June 30, 2002 as a result of this grant, which is
included in selling, general and administrative expenses on the Company's 2002
statement of operations.
On May 31, 2002, the Company granted and issued 650,000 common shares to an
employee and consultants in exchange for options granted on May 3 2002, under
the 1997 Compensatory Stock Option Plan for additional services that were
rendered. The Company has recorded an expense of $650,000 for the quarter ended
June 30, 2002 as a result of this grant, which is included in selling, general
and administrative expenses on the Company's 2002 statement of operations.
On May 31, 2002, the company also granted 400,000 restricted common shares under
the 2002 Compensatory Stock Option Plan to John B. Sawyer, a director and Chief
Operating Officer of the Company for services rendered during the quarter ended
June 30, 2002. The company recognized an expense of $400,000 (the value of the
shares at measurement date) for the quarter ended June 30, 2002 as a result of
this grant, which is included in selling, general and administrative expenses on
the 2002 statement of operations.
Prior to June 30, 2002, 330,000 of the shares previously granted to consultants
for services rendered were returned to the Company to reflect a $99,000
adjustment to the value of the services performed.
On November 15, 2002, The Board cancelled 1,180,000 of unexercised options
issued under the 2002 Compensatory Stock Option Plan. The options were
exercisable by their terms only during the respective optionee's employment or
other service with the Company, or during a 30-day grace period following
termination without cause of such employment or other service.
On November 14, 2002, the Company granted 150,000 shares of common stock to an
outside consultant of the Company under the 1997 Compensatory Stock Option Plan.
The Company values the services received at $25,000 and recorded an expense in
that amount for the quarter ended December 31, 2002. This expense is included in
selling, general and administrative expenses on the Company's 2002 statement of
operations
On December 5, 2002, the Board agreed to grant options to key management
personnel of HAT in the amount of 240,000 shares under the 2002 Compensatory
Stock Option Plan. Options will be restricted for one year. Due to the loss of
one of the key management people, during the restriction period, 60,000 shares
were never issued. The expenses for these shares of $54,000 (the value of the
shares at measurement date) was recorded on a monthly basis (1/12 each month)
and included in selling, general and administrative expenses for the appropriate
periods.
On March 6, 2003, the Directors of the Company granted and issued 20,000 shares
of common stock under the 1997 Compensatory Stock Option Plan to an outside
consultant for services rendered to the Company which the Directors valued at
$6,000. This expense is included in selling, general and administrative expenses
on the accompany statement of operations.
On March 6, 2003, the Directors of the Company granted and issued 30,000 shares
of common stock under the 2003 Employee Stock Compensation Plan to an outside
consultant for services rendered to the Company which the Directors valued at
$9,000. This expense is included in selling, general and administrative expenses
on the accompany statement of operations.
On August 26,2003, the Directors of the Company granted and issued 150,000
shares of common stock under the 2002 Compensatory Stock Option Plan to an
outside consultant for services rendered to the Company which the Directors
valued at $45,000. This expense is included in selling, general and
administrative expenses on the accompanying statement of operations.
Page 70
F-23
On August 26, 2003, the Directors of the Company granted and issued 100,000
shares of common stock to outside consultants to the Company under the 2002
Compensatory Stock Option Plan. The Company valued these services at $20,000.
This expense is included in selling, general and administrative expenses on the
accompanying statement of operations.
On September 11, 2003, the Directors of the Company granted and issued 100,000
shares of common stock to outside consultants to the Company under the 2002
Compensatory Stock Option Plan. The Company valued these services at $20,000.
This expense is included in selling, general and administrative expenses on the
accompanying statement of operations.
On September 26, 2003 the Directors of the Company granted and issued 260,000
shares of common stock to outside consultants for services rendered to the
Company under the 2002 Compensatory Stock Option Plan. The Company valued these
services at $52,000. This expense is included in selling, general and
administrative expenses on the accompanying statement of operations.
On October 3, 2003, the Company filed The 2002 Compensatory Stock Option Plan
registering 3,000,000 shares of common stock ($.001 par value) at a proposed
maximum offering price of $0.20 per share.
On October 6, 2003, the Company filed The 2003 Employee Stock Compensation Plan
registering 5,000,000 shares of common stock ($.001 par value) at a proposed
maximum offering price of $.20 per share.
On October 7, 2003, the Company awarded 500,000 shares of common stock under the
2003 Employee Stock Compensation Plan of the Company for legal services and
1,100,000 shares of common stock under the 2003 Employee Stock Compensation Plan
of the Company for consultant services. The Board of Directors determined that
the fair value of these services was $288,000. This expense is included in
selling, general and administrative expenses on the accompanying statement of
operations.
On October 15, 2003, the Company awarded 1,200,000 shares of common stock under
the 2003 Employee Stock Compensation Plan of the Company for consultant services
to be rendered over a three-year period. The Board of Directors determined that
the fair value of these services was $216,000. The resulting prepaid expense is
being expensed on a monthly basis during the three-year term of the contract and
is included in selling, general and administrative expense on the accompanying
statement of operation.
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.
Page 71
F-24
Share value Vesting
on Date
Measurement
Date
Common Shares 30,650,386
Issued and
Outstanding
Unconverted
Warrants Issued:
@ $0.34 .50 720,000
@ $0.68 .50 7,740,000
@ $1.36 .50 7,740,000
@ $0.52 .65 158,654
@ $1.00 .65 1,137,020
@ $1.36 .65 1,137,020
Subtotal 18,632,694
Options Issued:
@ $0.17 .23 900,000
@ $0.20 .23 100,000
@ $0.30 .30 50,000 Exercised 1st
Qtr 2005
Subtotal 1,050,000
Awards of stock
pending under
employment
contracts
.60 07/23/2006 30,000
.60 07/30/2006 300,000
Subtotal 330,000
Total 50,663,080
SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS
TOTAL SHARES ISSUED AVAILABLE
PLAN NAME
2002 Compensatory Stock Option Plan 3,000,000 2,525,000 475,000
2003 Employee Stock Compensation Plan 5,000,000 3,330,000 1,670,000
Page 72
F-25
Pro-forma Stock-based Compensation Disclosure
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." but applies accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its plans. 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. During 2004, those options issued to employees that were
not immediately exercised are summarized below:
2004
---------------------------------------------------
Weighted Average
Exercise Price
---------------------------------------------------
Options outstanding at None
beginning of year
Granted during year 900,000 $0.17 Exercisable on grant date
Exercised during year None $0.17
Forfeited during year None
Outstanding at 900,000 $0.17 Exercisable on grant date
12/31/2004
Options exercisable at 900,000 $0.17
year-end
These options were issued at $0.06 below the share price on the measurement
date. Expense in the amount of $54,000 has been included in selling, general and
administrative expenses for 2004 in the accompanying statement of operations.
Because the options were immediately available the intrinsic value and the fair
value of the options is calculated at the same $.23 per share.
A summary of the Company's stock option plans as of December 31, 2004 and
changes during the year is presented below:
2004
----------------------------------------------------
Weighted Average
Exercise Price
----------------------------------------------------
Options outstanding at None
beginning of year
Granted during year 1,105,000 $0.186 Exercisable on grant date
Exercised during year 55,000 $0.32
Forfeited during year None
Outstanding at 1,050,000 $0.179 Exercisable on grant date
12/31/2004
Options exercisable at 1,050,000 $0.179
year-end
Weighted average fair $0.238
value of options
granted during the year
Page 73
F-26
8. SHARES SUBJECT TO MANDATORY REDEMPTION
On June 18, 2003, the Company obtained a judgment in the Superior Court of
Maricopa County, Arizona directing the return of a certificate of 8,100,0000
shares of common stock. Under the judgment the Company upon obtaining and
canceling the stock certificate will pay into escrow $400,535.14, the
consideration originally received by the Company for the shares. The
accompanying financial statements reflect this judgment and the resulting
liability. The $400,535.14 was received by the Company as part of the equity
investment by Barron Partner's, LP on or about May 31, 2004. This money was
deposited into an escrow account as required and the funds were released to
United Pay Phone Owners, LLP ("UPO") upon court order during the 4th quarter of
2004.
9. COMMITMENTS AND CONTINGENCIES
In June 2003, the Company reached a mediated agreement with a former director,
Ronald Clark, wherein Mr. Clark was paid a monetary settlement of $350,000;
$100,000 in cash and a $250,000 secured promissory note in exchange for the
return by Mr. Clark to the Company of 250,000 shares of common stock and the
divestiture of options to receive 1,250,000 shares of common stock of the
Company. The cash of $100,000.00 was paid and the $250,000.00 promissory note
was paid in full by July 2, 2004. On March 18, 2004, the Company received the
certificates for 250,000 shares of common stock that were covered by the Ronald
Clark mediated agreement. Additionally the Company received a bill of sale for
the consignment inventory that was purchased and paid off during the 3rd Qtr of
2003.
On March 1, 2003, Hamilton Aerospace and the Company signed a secured promissory
note with American Capital Ventures, L.L.C. as the lender. The principal amount
of the note was $675,000. Interest was payable in monthly installments at the
rate of l.25% per month, payments beginning April 1,2003. The entire unpaid
Principal and any accumulated, accrued or unpaid interest thereon are due and
payable on September 1, 2003. Only $300,000 was ever received by HAT and a new
agreement adds interest and fees to a restated principal balance of $354,375.
The new agreement specifies quarterly interest payments at a rate of 15%
interest per annum. The original loan represented the first installment of a
bridge loan of up to $2 million.
On March 26, 2004, the agreement with American Capital Ventures, LLC was further
amended. The agreement calls for the repayment of $354,375 at an interest rate
of 1.5% per month on the unpaid balance. The amended agreement calls for
principle payments for half of the unpaid balance and a final payment of
$176,146.87. The entire amount of the loan plus interest and fees totaling
$356,146.87 was paid in full as of July 30, 2004. This agreement was closed on
July 30, 2004 and no further borrowings will take place under this agreement.
Global signed a note with Universal Lease and Finance Corporation on September
3, 2003. This note provided funds to refurbish the small hangar. This note was
in the amount of $100,000 and was to be paid by 12 monthly payments of $9,834,
which includes interest at 18%. The entire balance was due on August 1, 2004. On
December 17, 2003, HAT signed a note with Universal Lease and Finance
Corporation for a short-term loan of $237,000, which bore interest at 3% per
week and had a maturity date of January 17, 2004. The loan agreements referenced
were paid off during 2004.
10. DUE TO FACTOR
As of December 31, 2004, the Company's World Jet subsidiary had placed invoices
belonging to various customers, in full recourse financing. The debt is secured
by the company's accounts receivable due from customers and bears interest at a
rate as high as 37.5% per annum. At December 31, 2004, open invoices had
accumulated interest at a rate of 32% per annum. The total amount of invoices
placed is $755,514.05 on which the factor advanced $604,411.24. At December 31,
2004, the customers had made payments totaling $119,577.00; leaving a balance
due to the factor of $635,937.05 payable by customers. No interest is being
charged to customers. Interest due to the factor as of December 31, 2004 was
$16,999.07. Interest is charged on the total face value of invoices placed less
the payments made.
All of HATS factoring activity for 2002 & 2003 has been paid and cleared.
11. RELATED PARTY TRANSACTIONS
Hamilton Aviation, Inc.
On April 15, 2002, Hamilton Aerospace entered into a Sale of Assets Agreement
with Hamilton Aviation, a privately held Arizona corporation. The agreement
contemplated the purchase by Hamilton Aerospace of substantially all of Hamilton
Aviation's equipment and inventory used in its aircraft maintenance, repair and
modification services business. Under the terms of this agreement, the closing
date was to be not later than July 15, 2002.
Page 74
F-27
Also on April 15, 2002, Hamilton Aerospace entered into a Lease/Purchase
Agreement with Hamilton Aviation for the same assets that were included in the
Sale of Assets Agreement. Under the Lease/ Purchase Agreement, these assets
would be leased for a term of three (3) years or until the Sale of Assets
Agreement closed, at which time, all asserts would transfer to Hamilton
Aviation. The Lease / Purchase Agreement provided for payments in the amount of
$8,000 per month to Hamilton Aviation through April 15, 2005. Provided that the
Sale of Assets Agreement did not close by the expiration of Lease /Purchase
Agreement, title of all assets covered under the Lease / Purchase Agreement
would pass from Hamilton Aviation to Hamilton Aerospace upon expiration of the
Lease/Purchase Agreement.
On May 9, 2002, Hamilton Aviation filed for protection under Chapter 11 of the
United States Bankruptcy Code. Since that time the Sale of Assets Agreement
between Hamilton Aviation and Hamilton Aerospace lapsed and accordingly, the
Company continued to operate under the Lease/Purchase Agreement. Accordingly,
the Company entered into negotiations with the trustee for Hamilton Aviation to
re-negotiate the terms of the Lease/Purchase Agreement so as to convert it to an
operating lease. A new month-to-month lease was negotiated with payments of
$8000 per month.
On February 10, 2003, the judge presiding over the Chapter 11 Bankruptcy of
Hamilton Aviation approved a Sale of Assets Agreement between Hamilton Aviation
and HAT. The agreement was for a purchase price of $1.5 million, with a down
payment in the amount of $300,000. The balance was payable monthly at 6-1/2%
interest. Because the original agreement to purchase Hamilton Aviation were
negotiated prior to Hamilton Aviation's petition for bankruptcy, HAT elected to
renegotiate a new agreement that better reflected the scope of the current
transaction in light of the current market. The new agreement covers sale of a
portion of Hamilton Aviation's physical assets and has a reduced payoff clause,
which states that $1 million will be considered full payment, providing HAT
satisfies said agreement according to its terms. At December 31, 2003
negotiations on the new agreement were ongoing.
During the quarter ended March 31, 2004, the agreement with Hamilton Aviation
was renegotiated. The liabilities, which were accrued during the period HAT was
operating under, pending approval of the transaction, were not required to be
paid. The over accrued liabilities, $88,000 in total, were recognized as a gain
during the period ended June 30, 2004.
On May 6, 2004, ("the Entry Date"), the presiding judge in the Hamilton Aviation
bankruptcy case issued an Order Approving Settlement Agreement relating to the
agreement reached between Hamilton Aviation, Inc. and HAT for the purchase of
certain of Aviations physical assets. The agreement calls for a down payment of
$100,000, $73,365.75 of which had already been paid, and monthly payments of
$15,000 plus interest at 6% per annum. An additional lump sum payment is to be
made by HAT within 60 days of the Entry date plus $50,000 shall be paid on or
before each annual anniversary of the Entry Date. The agreement has a reduced
payoff provision stipulating that if all payments have been made in a timely
manner by the fifth anniversary date of the entry date $1,000,000 will be
considered as payment in full, otherwise the amount is to be $1,500,000. The
agreement calls for a five year entry date anniversary profit payment equal to
one-half of HAT's net profits in excess of 12%, but limited so as to provide no
more than a total of all payments due of $1,500,000 plus interest over the
five-year term of the agreement. The Company recorded the cost of the assets at
$,1500,000 reflecting the total liability under the agreement.
Under the agreement HAT agreed to purchase certain assets and leasehold
interests from Hamilton Aviation, Inc., a company in Chapter 11 reorganization
that formerly occupied the facilities now occupied by HAT. The Bankruptcy Court
approved the purchase as part of the reorganization plan. The purchase includes
all the ramp equipment, special tooling, office furnishings and equipment,
including phone and computer systems necessary to perform the functions required
to operate the FAA-approved aircraft repair station. These assets are located in
the HAT facility and are being used daily in HAT's operations. More
specifically, the equipment and tooling includes:
o Ground equipment consisting of stands, compressors, jacks, tugs, power and
hydraulic equipment, etc.
o Special tools appropriate to the specific type of aircraft applied for on the
FAA Air Agency application, including engine slings, jack pads, hand tools,
special fittings, etc.
o Computer hardware and software relevant to the inventory purchased and repair
logistics management
o Machinery including drill presses, lathes, shears, brakes, presses and other
machine shop equipment.
o General tools used in repair, maintenance and modification of any commercial
aircraft.
Page 75
F-28
The purchase agreement also includes certain intellectual property assets from
Hamilton Aviation as well as the estate of Gordon B. Hamilton (deceased),
including all uses of the name "Hamilton," "Hamilton Aviation," "Gordon B.
Hamilton," "Gordon D. Hamilton," "Hamilton Brothers," and "Hamilton
Aeronautics." The final terms of this purchase agreement was established on May
6, 2004 by the presiding judge in the Hamilton Aviation bankruptcy case.
On July 8, 2004, the Estate Administrator, on behalf of Hamilton Aviation, Inc.,
accepted an offer made 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 to Hamilton
Aviation by the September 6, 2004 settlement date. The acceptance of this
payment as full and final settlement by the estate administrator and its
subsequent payment by HAT resulted in a gain due to the over-accrued liabilities
that were based on the ceiling price under the contract of $1,500,000. This gain
was recognized in the third quarter of 2004.
12. CONTRACTS IN PROGRESS
At December 31, 2004, costs and estimated earnings in excess of billings and
billings in excess of costs and estimated earnings on uncompleted contracts
consist of the following:
2003 2004
----------- -----------
Costs incurred on uncompleted contracts $ 152,225 $ 1,161,109
Profit earned to date 193,741 412,938
----------- -----------
$ 345,966 $ 1,574,047
Less: Billings to date (719,000) (2,855,203)
----------- -----------
($ 373,034) ($1,281,156)
Included in the accompanying balance sheet at December 31, 2003 and 2004 under
the following caption:
Billings in excess of costs and estimated earnings on uncompleted contracts
2003 2004
----------- -----------
Billings in excess from above $ 373,034 $ 1,281,156
Time and material earnings unbilled (49,348) (314,918)
----------- -----------
Net $ 323,686 $ 966,238
=========== ===========
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.
Page 76
F-29
13. TRADE ACCOUNTS RECEIVABLE
As of December 31, 2003 and December 31, 2004, trade accounts receivable consist
of the following:
2003 2004
---------- ----------
Contracts in progress $ 487,390 $1,961,319
Completed contracts 1,136,043 2,858,045
---------- ----------
$1,623,433 $4,819,364
Less: allowance for doubtful accounts 10,488 53,149
---------- ----------
$1,612,945 $4,766,215
========== ==========
14. INCOME TAXES
The Company had no current State or Federal income tax expense for the years
ended December 31, 2003 and December 31, 2004.
2003 2004
--------- ---------
Federal income tax expense (benefit) at statutory
rate (34%) $(442,000) $ 855,000
State income tax expense (benefit) net of federal
tax effect (42,000) 81,000
Benefit of new operating loss carryover 936,000
Deferred income tax valuation allowance 484,000
--------- ---------
Net income tax expense $ 0 $ 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, 2003 and December 31, 2004 in
the accompanying balance sheet is summarized below:
2003 2004
---------- ----------
Net operating loss carry 1,400,000 370,000
forward
Less valuation allowance (1,400,000) (370,000)
---------- ----------
Deferred tax asset - net
---------- ----------
At December 31, 2004, the Company has approximately $1,000,000 of unused Federal
net operating loss carry forwards, which expires in the year 2020.
Page 77
F-30
15. CONCENTRATION OF REVENUES
The Company had four customers who accounted for 59% of sales during the year
ended December 31, 2003. The Company had four customers who accounted for 55% of
sales during the year ended December 31, 2004. One customer accounted for 25% of
the Company's accounts receivable at December 31, 2004. 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 and we expect to further reduce this risk in 2005. 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 2003 & 2004 are listed in the table below:
2003-Top Four Customers 2003- % Of Revenues 2004-Top Four Customers 2004- % Of Revenues
- ----------------------- ------------------- ----------------------- -------------------
Customer A 22 Customer E 21
Customer B 17 Customer F 13
Customer C 11 Customer C 11
Customer D 9 Customer A 10
Top Four-2003 Total % 59 Top Four-2004 Total % 55
16. GAIN ON RENEGOTIATION 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:
Global
Quarter Ended: 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
17. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company had incurred losses
since acquiring Hamilton Aerospace in May of 2002 through December of 2003.
Since HAT is now profitable, Global can, if necessary, meet its financial
requirements internally. Management is also interested in securing additional
funding for the purpose of certain productivity-improving or synergistic
acquisitions and other asset-based business opportunities. The company requires
and is currently pursuing additional capital for growth and strategic plan
implementation. The company has filed a registration statement with the United
States Securities and Exchange Commission in pursuit of meeting these
requirements.
Page 78
18. SUBSEQUENT EVENTS
During the first quarter of 2005, the Tucson Airport Authority issued a Press
Release stating that they were granting a new lease to the Company for its HAT
facility. The TAA board of directors approved a one-year lease, with two
one-year options, with Hamilton Aerospace.
In February of 2005 HAT received funding on a closed and finalized Loan and
Security agreement with M&I Marshall & Ilsley Bank in the amount of 750,0000
secured by a first priority lien on HAT's accounts receivable and all other
assets. The term of the Loan is 3 years with an interest rate of 6.75% per
annum. The Loan is payable in monthly installments of $23,072.19 with a maturity
date of January 31, 2008. See Form 8-K filed February 8, 2005.
On July 8, 2005 Global, HAT and World Jet closed on a transaction to increase
Global's Revolving Line of Credit with Global's existing bank to $2.5 million
with an interest rate of 3.5% per annum in excess of the applicable LIBOR rate
secured by a first priority lien on Global's, HAT's and World Jet's personal
property. The term of the line of credit expires on April 30, 2006 when the
entire unpaid principal balance and accrued and unpaid interest is due and
payable. While there are no required monthly installments, the Line of Credit is
based upon and limited by a borrowing base equal to the sum of 80% of all
eligible accounts receivable plus 50% all eligible inventory as defined in the
loan agreement up to a maximum of $2.5 million. At September 30, 2005, the
entire amount of this line of credit was available to the Company with the
exception of $128,000 which secured a letter of credit required by TAA under the
terms of the property lease covering the premises used for HAT's operations.
On December 9, 2005, Global, HAT, and World Jet Corporation, closed on a first
Modification to Global's July 8, 2005 Revolving Line of Credit as set forth
above. 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 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. The interest rate on the Guidance Credit
is also 3.00% per annum in excess of the applicable LIBOR rate. 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. Any advances pursuant to the Guidance Credit shall
be secured by a first priority lien on any aircraft purchased with such advance.
The term of the Line of Credit; the Guidance 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 both the Line of Credit and Guidance 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. While there is no required monthly repayment
obligation of the Guidance Credit, the Borrowers are required to repay, from
time to time, (i) an amount equal to any amount by which the outstanding
principal balance of the Guidance Credit exceeds $7 million, (ii) all amounts
received by Borrowers under any aircraft purchase agreement, other than an
initial down payment to the extent it does not exceed twenty-five percent (25%)
of the purchase price, and (iii) any portion of an advance or readvance not paid
within ninety (90) days of the advance or readvance. Borrowers are also
responsible to immediately repay to bank the amount of an advance upon any
breach of the aircraft purchase 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 a loan fee
to the bank equal to 1% of the amount of any requested advance under the
Guidance Credit with a cap of $52,500.00 in cumulative fees. 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.
Page 79
Global Aircraft Solutions, Inc.
formerly,
Renegade Venture (NEV.) Corporation
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and September 30, 2005
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT F-32
CONSOLIDATED BALANCE SHEETS F-33 & F-34
CONSOLIDATED STATEMENT OF OPERATIONS F-35
CONSOLOIDATE STATEMENT OF CHANGE IN STOCKHOLDER'S EQUITY F-36 & F-37
CONSOLIDATED STATEMENT OF CASH FLOWS F-38 & F-39
NOTES TO FINANCIAL STATEMENTS F-40 - F-53
Page 80
F-32
Larry O'Donnell, CPA, P.C.
--------------------------
2228 South Fraser Street, Unit I
Aurora, Colorado 80014
Telephone(303) 745-4545
Fax (303) 369-9384
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Global Aircraft Solutions, Inc.
I have reviewed the accompanying condensed consolidated balance sheet of Global
Aircraft Solutions, Inc. as of September 30, 2005, the related condensed
consolidated statements of operations for the three-month and nine-month period
ended September 30, 2005 and 2004, and changes in stockholders' equity and cash
flows for the nine-month period ended September 30, 2005 and 2004. These interim
condensed consolidated financial statements are the responsibility of the
Company's management.
I conducted my reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, I do not express such an opinion.
Based on my reviews, I am not aware of any material modifications that should be
made to the accompanying interim condensed consolidated financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.
Larry O'Donnell,CPA, P.C.
November 21, 2005
Page 81
F-33
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Balance Sheet
December 31, 2004 and September 30, 2005
ASSETS
2004 2005
(audited) (unaudited)
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 549,904 $ 3,220,391
Accounts receivable 4,766,215 7,681,852
Note receivable 175,642 225,000
Costs and estimated earnings on uncompleted contracts in
excess of billings
Inventory 3,507,249 5,277,307
Other current assets 380,932 900,406
----------- -----------
TOTAL CURRENT ASSETS $ 9,379,942 $17,304,956
Property, plant and equipment 1,632,134 1,497,774
Investment 25,000 25,000
Equity in net assets of and advances to affiliates 2,935,057
Customer list, net 267,771 167,357
Agreement with vendor, net 56,980 35,613
Goodwill 38,992 38,992
Inventory, non-current 212,500 2,517,058
Other assets 144,693 1,000
----------- -----------
TOTAL ASSETS $11,758,012 $24,522,807
=========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 82
F-34
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Balance Sheet
December 31, 2004 and September 30, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2005
(audited) (unaudited)
------------ -------------
CURRENT LIABILITIES
Accounts payable - trade $ 2,644,593 $ 10,438,038
Due to factor 604,411
Customer deposits 280,537
Billings in excess of costs and estimated
earnings on contracts in progress 966,238 436,426
Accrued liabilities 844,709 360,305
Income taxes payable 311,182 513,914
Commitments and contingencies
------------ ------------
TOTAL CURRENT LIABILITIES $ 5,651,670 $ 11,748,763
LONG-TERM LIABILITIES
Notes payable - long term portion
------------ ------------
TOTAL LONG-TERM LIABILITIES
------------ ------------
TOTAL LIABILITIES $ 5,651,670 $ 11,748,763
============ ============
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 50,000,000 shares authorized
30,650,386 and 38,322,198 shares issued 2004 and 2005 and
30,650,386 and 38,322,198 shares outstanding 2004
and 2005 $ 31,030 $ 38,702
Additional paid-in capital 7,033,950 11,692,478
Deferred compensation
Contributed capital 620,289 620,289
Retained earnings (1,578,927) 422,575
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 6,106,342 $ 12,774,044
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,758,012 $ 24,522,807
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 83
F-35
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Statement of Operations
For the Three Months and Nine Months ended September 30, 2004 and 2005
(unaudited)
Three Months Three Months Nine Months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
2004 2005 2004 2005
Net sales $ 8,112,082 15,462,146 16,698,987 32,943,760
Cost of sales (6,153,617) (12,165,322) (11,650,470) (24,839,649)
Inventory write down (55,208) (55,208) (160,069) (165,625)
------------ ------------ ------------ ------------
Gross profit $ 1,903,257 $ 3,241,616 $ 4,888,448 $ 7,938,486
Selling, general and
administrative expense (1,827,738) (2,284,532) (3,526,330) (5,651,307)
Penalties (21,255) (211,767) (1,006)
------------ ------------ ------------ ------------
Gain (loss) from operations $ 54,264 $ 957,084 $ 1,150,351 $ 2,286,173
Other income (expense):
Interest income 3,159 61,970 64,551 259,506
Interest expense (50,765) (60,245) (235,578) (358,153)
Discounts taken 13,271 (10,000) 27,544 7,715
Miscellaneous expense (110) (9,084) (110)
Miscellaneous income 10,938 5,810 13,521 99,727
Gain on renegotiation of
contracts 607,194 1,144,502
------------ ------------ ------------ ------------
$ 638,061 $ 954,509 $ 2,155,807 $ 2,294,858
Net profit (loss), Before taxes
Estimated Income Tax (293,266) (293,356)
------------ ------------ ------------ ------------
Net profit (loss), After taxes $ 638,061 $ 661,243 $ 2,155,807 $ 2,001,502
============ ============ ============ ============
Net profit (loss) per share,
Basic $ 0.02 $ 0.02 $ 0.10 $ 0.06
Net profit (loss) per share,
Fully diluted $ 0.02 $ 0.02 $ 0.09 $ 0.06
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 84
F-36
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (NEV.) Corporation
Consolidated Statement of Changes in Stockholders' Equity
For the Year ended December 31, 2004 and the Nine Months ended September 30, 2005
Additional Contributed Deferred Treasury Accumulated Stockholder
Paid-in Capital Compensation Stock Earnings/Deficit Equity
Capital
Shares Amount Amount Amount Amount Amount Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 17,480,000 17,860 2,412,373 620,289 (332,000) (3,870,213) (1,151,691)
2003
1st Qtr, 2004
-------------
Compensation expensed 12,000
2nd Qtr, 2004
-------------
Shares issued to 9,600,000 9,600 3,009,600
Barron Partners for a
cash consideration of
$.34 per share
Shares pledged as 1,000,000 1,000 499,000
payment on the
purchase of World Jet
valued at $.50
(issued 7/27/04)
900,000 options 54,000
granted at $ .06
below market
3rd Qtr, 2004
-------------
Shares issued to JG 2,115,386 2,115 946,832
Capital, et al for a
cash consideration or
$.52 per share
Shares issued upon 55,000 55 17,545
exercise of options
at $.32 per share and
cash payment of
$17,600
Shares issued as 400,000 400 91,600
compensation for
professional services
to be rendered over a
two-year period
Valued at $92,000
100,000 options 3,000
granted at .03 below
market
Shares vested (Herman 320,000
& Sawyer employment
agreement, 3rd
Quarter of 2003)
4th Qtr, 2004
-------------
Net Income/Loss 2,297,286
Balance December 31, 30,650,386 31,030 7,033,950 620,289 0 (1,578,927) 6,106,342
2004
1st Qtr, 2005
-------------
Net Income/Loss
Shares issued 50,000 50 14,950
Net Income/Loss 658,092
Balance March 31, 30,700,386 31,080 7,048,900 620,289 0 (920,835) 6,779,434
2005
- ----------------
Page 85
F-37
2nd Qtr, 2005
-------------
No change
Net Income/Loss 682,167
Balance June 30, 30,700,386 31,080 7,048,900 620,289 0 (238,668) 7,461,601
2005
- ----------------
3rd Qtr, 2005
-------------
Shares issued to 7,200,000 7,200 4,644,000
Barron Partners for a
cash consideration of
$.68 per share
Shares issued under 421,812 422 (422)
non-cash provision of
warrants
Net Income/Loss 661,243
Balance September 30, 38,322,198 38,702 11,692,478 620,289 422,575 12,774,044
2005
The accompanying notes are an integral part of these condensed consolidated financial statements.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 86
F-38
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Statement of Cash Flows
For the Nine Months ended September 30, 2004 and 2005
(unaudited)
2004 2005
Cash flows from operating activities:
Net Profit/(Loss) 2,155,807 2,001,502
Adjustments to reconcile net profit to net cash
provided (used) by operating activities:
Depreciation 215,882 356,104
Amortization 121,782 121,782
Allowance for Doubtful Accounts (2,026) 165,625
Inventory write downs 157,291 104,847
Gain from renegotiation (1,144,502)
Expenses paid with stock 402,199 182,234
Changes in Assets and Liabilities:
Accounts receivable (277,981) (2,060,855)
Prepaid expenses 1,541 (99,817)
Costs and estimated earnings in excess of
billings on contracts in progress
Inventory (1,410,569) (2,106,202)
Inventory, non-current (2,134,040)
Investments (25,000)
Restricted Funds (400,945) (22,681)
Other current assets (21,823) (446,893)
Other non-current assets
Accounts payable-trade 999,532 6,738,531
Accounts payable-related party 56,737 (6,219)
Due to factor (102,452) (604,409)
Customer deposits (800) (280,537)
Billings in excess of cost and estimated
earnings on contracts in progress (461,067) (529,812)
Income tax payable (463,690) 202,812
Accrued liabilities (455,259) (478,185)
Net cash provided by/(used for) operating activities (655,341) 1,103,787
Cash flows from investing activities:
Purchase of property, plant and equipment (1,244,114) (221,746)
Purchase of World Jet, net of cash acquired (361,920)
Purchase of World Jet, Goodwill (597,724)
Investment in SPC (Equity Method) (2,935,057)
Net cash used for investing activities (2,203,758) (3,156,803)
Page 87
F-39
Cash flows from financing activities:
Proceeds from issuance of common stock 4,381,600 4,911,000
Payments related to issuance of common stock (395,853) (244,800)
Proceeds/payments - short term loans, net (422,238)
Proceeds from bank loans 4,486,634
Repayment of bank loans (4,486,634)
Payments used in mandatory redemptions (400,535)
Other financing activities, net 6,324 57,303
Net cash provided by/(used for) financing activities 3,169,298 4,723,503
Net increase in cash and cash equivalents 310,199 2,670,487
Cash and cash equivalents at beginning of period 367,691 549,904
Cash and cash equivalents at end of period 677,890 3,220,391
Interest paid for the nine months ended September 30, 2004 was $235,578.
Interest paid for the nine months ended September 30, 2005 was $358,153.
Taxes paid during the nine months ended September 30, 2004 were $0. Taxes paid
during the nine months ended September 30, 2005 were $90,544.00.
The accompanying notes are an integral part of these condensed consolidated financial statements.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 88
F-40
GLOBAL AIRCRAFT SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for financial information. In the opinion of management, all adjustments
consisting of normal recurring adjustments considered necessary to a fair
presentation have been included.
The condensed consolidated financial statements include the accounts of Global
Aircraft Solutions, Inc. ("Global") formerly Renegade Venture (NEV.) Corporation
and its wholly owned subsidiaries, Hamilton Aerospace Technologies, Inc.
("HAT"), Johnstone Softmachine Corporation ("Johnstone"), and World Jet
Corporation ("World Jet") collectively, the ("Company"). Global acquired HAT and
Johnstone on April 30, 2002. For accounting purposes, the HAT/Global transaction
was treated as an acquisition of Global by HAT and as a recapitalization of
Global. The acquisition of 100 per cent of World Jet stock was finalized July
15, 2004, with an effective date of January 1, 2004. The financial statements
reflect the accounting activity of HAT since its inception, April 5, 2002 and of
World Jet since January 1, 2004. Johnstone is currently inactive.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 have not been material to the financial statements.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory items held over one year are classified as "Inventory non-current".
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 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 is five years at our HAT subsidiary; 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 add to the value of the property nor appreciably prolong its life are
charges to expense as incurred. Betterments or renewals are capitalized when
incurred.
Page 89
F-41
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 from 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 obsolescence, demand, competition and other economic factors.
Revenue and Cost Recognition
Revenues from fixed-fee contracts for MRO sales are recognized on 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
our facility. Revision in cost and labor hour estimates and recognition of
losses 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 September 30, 2005 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, error in
specifications or design, 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.
Income (Loss) per share - Basic earnings per share includes no dilution and is
computed by dividing net earnings (loss) 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. Reconciliations of EPS for quarters ended September 30, 2005
and 2004 are as follows:
For the Nine Months ended September 30, 2005
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income
Basic EPS
Income available to common stockholders $2,001,502 32,301,506 $0.06
Warrants 437,433
Options 967,359
Diluted EPS
Income available to common stockholders + assumed $2,001,502 33,706,298 $0.06
conversions
Page 90
F-42
For the Quarter ended September 30, 2005
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income
Basic EPS
Income available to common stockholders $661,243 35,460,775 $0.02
Warrants 939,599
Options 1,767,253
Diluted EPS
Income available to common stockholders + assumed $661,243 38,167,627 $0.02
conversions
For the Nine Months ended September 30, 2004
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income
Basic EPS
Income available to common stockholders $2,155,807 22,539,728 $0.10
Warrants 176,000
Options 615,556
Diluted EPS
Income available to common stockholders + assumed $2,155,807 23,331,284 $0.09
conversions
Page 91
F-43
For the Quarter ended September 30, 2004
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net Income
Basic EPS
Income available to common stockholders $638,061 28,880,828 $0.02
Warrants 342,096
Options 716,393
Diluted EPS
Income available to common stockholders + assumed $638,061 29,939,317 $0.02
conversions
Calculation of Weighted Average Shares for Nine Months ended September 30, 2005
--------------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
--------------- -------------- ------------------------ -------- ---------------
30,650,386 01/01/05 - 01/18/05 17 1,908,632
50,000 30,700,386 01/18/05 - 08/03/05 197 22,153,758
7,200,000 37,900,386 08/03/05 - 08/30/05 27 3,748,390
399,000 38,299,386 08/30/05 - 09/14/05 15 2,104,362
22,812 38,322,198 09/14/05 - 09/30/05 17 2,386,364
Total shares 32,301,506
Calculation of Weighted Average Shares for the Quarter ended September 30, 2005
-------------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
--------------- -------------- ----------------------- ------- ----------------
30,700,386 07/01/05 - 08/03/05 33 11,012,095
7,200,000 37,900,386 08/03/05 - 08/30/05 27 11,122,939
399,000 38,299,386 08/30/05 - 09/14/05 15 6,244,465
22,812 38,322,198 09/14/05 - 09/30/05 17 7,081,276
Total shares 35,460,775
Page 92
F-44
Calculation of Dilution for Nine Months ended September 30,2005
---------------------------------------------------------------
No. of shares Incremental shares
Outstanding
-------------------------- --------------- --------------------
Warrants @ $0.34 219,000 152,518
Warrants @ $0.52 135,842 72,773
Warrants @ $0.68 540,000 212,143
Warrants @ $1.00 1,137,020 121,824
Options @ $0.17 900,000 763,393
Options @ $0.20 100,000 82,143
Total dilution 1,404,793
(Average Price $1.12)
Calculation of Dilution for the Quarter ended September 30, 2005
----------------------------------------------------------------
No. of shares Incremental shares
Outstanding
-------------------------- --------------- ---------------------
Warrants @ $0.34 219,000 169,689
Warrants @ $0.52 135,842 89,062
Warrants @ $0.68 540,000 296,821
Warrants @ $1.00 1,137,020 384,027
Warrants @ $1.36 8,877,020 881,823
Options @ $0.17 900,000 798,675
Options @ $0.20 100,000 86,755
Total dilution 2,706,852
(Average Price $1.51)
Calculation of Weighted Average Shares for Nine Months ended September 30, 2004
-------------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
--------------- -------------- ------------------------ ------- ---------------
17,480,000 01/01/04 - 05/26/04 146 9,348,278
9,600,000 27,080,000 05/26/04 - 07/07/04 42 4,166,154
55,000 27,135,000 07/07/04 - 07/09/04 2 198,791
400,000 27,535,000 07/09/04 - 07/27/04 18 1,815,495
1,000,000 28,535,000 07/27/04 - 09/02/04 37 3,867,381
2,115,386 30,650,386 09/02/04 - 09/30/04 38 3,143,629
Total shares 22,539,728
Calculation of Weighted Average Shares for Three Months ended September 30, 2004
--------------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
--------------- -------------- ------------------------ -------- ---------------
27,080,000 07/01/04 - 07/07/04 6 1,766,087
55,000 27,135,000 07/07/04 - 07/09/04 2 589,981
400,000 27,535,000 07/09/04 - 07/27/04 18 5,378,283
1,000,000 28,535,000 07/27/04 - 09/02/04 37 11,476,033
2,115,386 30,650,386 09/02/04 - 09/30/04 29 9,661,535
Total shares 28,880,828
Page 93
F-45
Calculation of Dilution for Nine Months ended September 30, 2004
----------------------------------------------------------------
No. of shares Incremental shares
Outstanding
-------------------------- --------------- ---------------------
Warrants @ $0.34 720,000 176,000
Options @ $0.17 900,000 560,000
Options @ $0.20 100,000 55,556
Total dilution 791,556
(Average Price $0.45)
Calculation of Dilution for the Quarter ended September 30, 2004
--------------------------------------------------------------------
No. of shares Incremental shares
Outstanding
-------------------------- ---------------- -----------------------
Warrants @ $0.34 720,000 318,689
Warrants @ $0.52 158,654 23,408
Options @ $0.17 900,000 649,180
Options @ $0.20 100,000 67,213
Total dilution 1,058,490
(Average Price $0.61)
Equity in Net Assets and Advances to Affiliates
The investment in a 30% interest in Jetglobal, 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 should be recorded to estimated fair value.
All significant intercompany profits and balances have been eliminated.
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.
Page 94
F-46
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 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 the goodwill exceeds its implied
fair value.
Recently Issued Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4." This Statement clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials.
This Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The initial application of SFAS No. 151 had no
impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This
Statement references the financial accounting and reporting guidance for real
estate time-sharing transactions that is provided in AICPA Statement of Position
04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement
also states that the guidance for incidental operations and costs incurred to
sell real estate projects does not apply to real estate time-sharing
transactions. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. The initial application of SFAS No. 152 had
no impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- - - an amendment of APB Opinion No. 29." This Statement eliminates the exception
for nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This Statement is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The initial
application of SFAS No. 153 had no impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123 ( R), " Share Based Payment."
This Statement is a revision of SFAS No. 123, and supersedes APB Opinion No. 25.
SFAS No. 123 ( R) requires the recognition of the cost of employee services
received in exchange for an award of equity instruments based on the grant date
for value of the award. The cost will be recognized over the period during which
an employee is required to provide service in exchange for the award. No
compensation cost is recognized for equity instruments for which employees do
not render the required service period. In April, the SEC release No. 33-8568
delayed the implementation of SFAS No. 123 ( R). The Statement is now effective
for the Company beginning in the first quarter of fiscal year 2007. SFAS No. 123
( R) permits public companies to adopt its requirements using one of two
methods: (1) A "modified prospective method in which compensation cost is
recognized prospectively for both new grants issued subsequent to the date of
adoption, and all unvested awards outstanding at the date of adoption. Expense
for the outstanding awards must be based on the valuation determined for the pro
forma disclosures under SFAS No. 123. (2) A "modified retrospective" method,
which includes the requirements of the modified prospective method described
above, but also permits entities to restate all prior periods presented based on
the amounts previously recognized under SFAS No. 123 for purposes of pro forma
disclosures. The Company is currently in the process of evaluating the two
methods and has not yet determined which method it will use.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error - an
amendment of APB Opinion No. 29." This Statement applies to all voluntary
changes in accounting principle. It also applies to changes required by an
accounting pronouncement in the usual instance that the pronouncement does not
include specific transition provision. When a pronouncement includes specific
transition provisions, those provisions should be followed. Opinion 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. This Statement requires
retrospective application to prior periods financial statements of changes in
accounting principle, unless it is impractical to determine either the
period-specific effects of the cumulative effect of the change. This Statement
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The Company does not expect application
of SFAS No. 154 to have a material affect on its financial statements.
Page 95
F-47
Stock-Based Compensation
- ------------------------
Currently, as permitted under the Statement of Financial Accounting Standards
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation", the Company
accounts for its stock-based compensation to employees in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees". As such, compensation expense is recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. Certain pro forma net income and EPS disclosures for
employee stock option grants are also included in the notes to the financial
statements as if the fair value method as defined in SFAS No. 123 had been
applied. Transactions in equity instruments with non-employees for goods or
services are accounted for by the fair value method.
3. SEGMENT INFORMATION
The company has divided its operations into the following reportable segments:
Aircraft maintenance, repair, and overhaul; Aircraft Brokerage; and Part sales.
These segments, for the most part, reflect the discrete operations of our
consolidating companies HAT, Global and World Jet respectively. 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 nine months ended September 30, 2005 and September 30, 2004.
Three Months Three Months Nine Months Nine Months
Ended Ended ended Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
- ------------------------------------- -- ------------------ -- ------------------ -- ------------------ -- ------------------
($ millions) ($ millions) ($ millions) ($ millions)
- ------------------------------------- -- ------------------ -- ------------------ -- ------------------ -- ------------------
Segment sales:
Aircraft maintenance 4.010 3.757 13.623 10.491
Aircraft trading 8.680 2.625 12.675 2.925
Part sales 3.282 1.899 7.689 3.433
Other .180 .355 1.803 .536
Sub Total 16.152 8.636 35.790 17.385
Elimination of intersegment sales -.690 -.524 -2.846 -.686
Total consolidated sales 15.462 8.112 32.944 16.699
Operating income:
Aircraft maintenance .443 .612 1.184 3.064
Aircraft trading 1.818 .576 3.078 1.614
Part sales .939 .403 2.107 .922
Other .042 .312 1.569 .326
Sub total 3.242 1.903 7.938 4.888
Selling, general, administrative -2.285 -1.828 -5.652 -3.526
expense
Other, net -.002 .563 .009 .793
Consolidated earnings before taxes .955 .638 2.295 2.155
Page 96
F-48
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
- -------------------------------------- -- ------------------ -- ------------------ - ------------------ -- ------------------
($) ($) ($) ($)
- -------------------------------------- -- ------------------ -- ------------------ - ------------------ -- ------------------
Depreciation and amortization by
segment:
Aircraft maintenance 170,261 72,223 254,548 160,713
Aircraft trading
Part sales
Corporate 149,188 160,117 223,245 270,279
Total 319,449 235,340 477,793 430,992
Net asset values:
Aircraft maintenance 6,612,884 4,225,245 6,612,884 4,225,245
Aircraft trading 128,400 64,200 128,400 64,200
Part sales 7,829,971 2,868,893 7,829,971 2,868,893
Corporate 9,951,552 9,679,997 9,951,552 9,679,997
Total 24,522,807 9,679,997 24,522,807 9,679,997
Capital expenditures:
Aircraft maintenance 139,188 5,204 176,976 1,041,999
Aircraft trading
Part sales
Corporate 14,477 7,824 44,770 209,866
Total 153,665 13,028 221,746 1,251,865
All of the Company's facilities and assets are located in the United States. The
Company sells and ships to several foreign countries. All foreign revenues are
recorded and collected in U.S. dollars. Geographic information regarding sales
to foreign countries is presented in the following table:
Nine Months Nine Months
Ended Ended
September 30, 2004 September 30, 2005
-------------------- -- -------------------- -- --------------------
Angola $ $ 35,166
Australia 97,561 1,700
Brazil 5,100
Canada 577 688
Columbia 24,904
Ecuador 2,201,564
Germany 36,800 28,025
Guam 1,981,332
Hong Kong 890
Indonesia 835
Ireland 210,241
Italy 45,719 55,830
Jordan 2,755,713 1,532,471
Lebanon 221,618
Malawi 149,795
Mexico 251,991 267,645
Nigeria 279,656
Pakistan 459,612
Peru 19,600
South Africa 17,354
Spain 2,200
Tunisia 4,130
UAE 14,100 8,623,100
United Kingdom 52,537 500
Venezuela 50,162
-------------------- -- -------------------- -- --------------------
TOTALS $ 7,512,676 $ 11,916,440
Page 97
F-49
4. STOCK, STOCK OPTIONS AND WARRANTS
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.
Share value Vesting Date
on
Measurement
Date
--------------------- ------------- ------------- -------------
Common Shares 38,322,198
Issued and
Outstanding
--------------------- ------------- ------------- -------------
Unconverted
Warrants Issued:
--------------------- ------------- ------------- -------------
@ $0.34 .50 219,000
@ $0.68 .50 540,000
@ $1.36 .50 7,740,000
@ $0.52 .65 135,842
@ $1.00 .65 1,137,020
@ $1.36 .65 1,137,020
Subtotal 10,908,882
Options Issued:
--------------------- ------------- ------------- -------------
@ $0.17 .23 900,000
@ $0.20 .23 100,000
Subtotal 1,000,000
Awards of stock
pending under
employment
contracts
--------------------- ------------- ------------- -------------
.60 07/23/2006 30,000
.60 07/30/2006 300,000
Subtotal 330,000
Total 50,561,080
Page 98
F-50
Pro-forma Stock-based Compensation Disclosure
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." but applies accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations in accounting for its plans. 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, 2005 and are
summarized below:
Weighted Average
Exercise Price
- ------------------------- ---------------------- ----------------------- ----------------------
Options outstanding at 900,000
beginning of year
Granted during quarters None $0.17 Exercisable on grant
1 & 2 &3 date
Exercised during None $0.17
quarters 1 & 2 & 3
Forfeited during None
quarters 1 & 2 & 3
Outstanding at 9/30/2005 900,000 $0.17 Exercisable on grant
date
Options exercisable at 900,000 $0.17
quarter end, September
30, 2005
These options 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 in the statement of operations. Because the
options were immediately available the intrinsic value and the fair value of the
options is calculated at the same $.23 per share.
A summary of the Company's stock option plans as of September 30, 2005 and
changes during the year is presented below:
Weighted Average
Exercise Price
- ------------------------- ---------------------- ----------------------- ----------------------
Options outstanding at 1,050,000 $.0179 Exercisable on grant
beginning of year date
Granted during quarters None
1 & 2 &3
Exercised during 50,000 $0.30
quarter 1
Exercised during None
quarters 2 & 3
Forfeited during None
quarters 1 & 2 & 3
Outstanding at 9/30/2005 1,000,000 $0.173 Exercisable on grant
date
Options exercisable at 1,000,000 $0.173
quarter end, September
30, 2005
Weighted average fair None
value of options
granted during the year
Page 99
F-51
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 Delaware limited liability company called Jetglobal, LLC.
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 interest, it is only responsible for 25% of the
costs and expenses associated with JetGlobal including any business
transactions.
During the third quarter, the Company paid its 25% share, $1,925,000, into the
LLC for the purchase of seven aircraft. The LLC investment was reduced by
$215,384.61, representing 25% of the cost of an aircraft that was transferred
from the LLC to the Company by mutual agreement of the partners. The Company
also invested $100,441.61 in the form of cash advances for expenses of the LLC.
Since the Company was not obligated to advance this $100,441.61, the partners of
Jetglobal agreed that this amount is to be deducted from the Company's 25% share
of the expenses of the next scheduled aircraft purchase. The total Company
investment in the LLC at September 30, 2005 was $2,935,057.
As of September 30, 2005, Equity in net asserts and advances to affiliates
consisted of the following:
Initial investment in JetGlobal $1,125,000
Payment of 25% share of purchase of seven 1,925,000
aircraft
Expenses paid on behalf of JetGlobal 100,442
Reduction of investment, related to
transfer of aircraft to the Company* (215,385)
Balance at September 30, 2005 $2,935,057
*Nearly simultaneously to the finalization of the LLC agreement with BCI, a
customer of the Company's opted to purchase an aircraft that the LLC bought
subsequent to the formation of the LLC. By mutual agreement of the LLC partners,
BCI and the Company, that particular aircraft was transferred to the Company for
a direct sale to the Company's customer. The Company's investment in the LLC was
reduced by $215,385, which represented 25% of the cost of the aircraft and which
had been originally invested by the Company into the LLC. The other 75% of the
cost of the aircraft was paid directly to BCI, the Company's partner in the LLC.
This transaction was largely the result of the timing of different sets of
negotiations. It is not the company's plan to purchase aircraft from the LLC in
the future. The Financial Statements herein presented for September 30, 2005
include an amount of $861,538 in cost of sales related to this transaction. The
approximate consolidated net income before tax included related to this sales
transaction is $888,462.
6. TRADE ACCOUNTS RECEIVABLE
As of September 30, 2005, trade accounts receivable consisted of the following:
September 30, December 31,
2005 2004
Unaudited Audited
Contracts in progress 1,514,091 $ 1,961,319
Completed contracts 6,248,940 2,858,045
----------- -----------
$ 7,763,031 $ 4,819,364
Less: allowance for doubtful
accounts (81,179) (53,149)
----------- -----------
$ 7,681,852 $ 4,766,215
=========== ===========
Page 100
F-52
7. CONTRACTS IN PROGRESS
At September 30, 2005 costs and estimated earnings in excess of billings and
billings in excess of costs and estimated earnings on uncompleted contracts
consisted of the following:
September 30, December 31,
2005 2004
Unaudited Audited
Costs incurred on uncompleted $ 975,994 $ 1,161,109
contracts
Profit earned to date 531,648 412,938
----------- -----------
1,507,642 $ 1,574,047
Less: Billings to date (1,944,068) (2,855,203)
----------- -----------
$ (436,426) $(1,281,156)
=========== ===========
Included in the accompanying balance sheet at September 30, 2005 and December
31, 2004 under the following caption:
Billings in excess of costs and estimated earnings on uncompleted contracts.
September 30, December 31,
2005 2004
Unaudited Audited
Billings in excess from above $ 436,426 $ 1,281,156
Time and materials, unbilled 0 (314,918)
----------- -----------
NET $ 436,426 $ 966,238
=========== ===========
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
8. INVENTORY
Inventories consisted of the following:
September 30, December 31,
2005 2004
Unaudited Audited
Maintenance Hardware 635,203 $ 991,206
Parts for Resale 4,513,704 2,011,269
Aircraft & Engines 128,400 214,774
---------- ----------
$5,277,307 $3,507,249
========== ==========
Page 101
F-53
9. PROPERTY AND EQUIPMENT
September 30, December 31,
2005 2004
Unaudited Audited
Gross Asset Value
Land and improvements $ 25,094 $ 25,094
Buildings and improvements 190,479 183,866
Vehicles 79,028 73,328
Computers and Software 291,437 289,561
Other office equipment 43,963 50,805
Machinery and equipment 1,783,246 1,568,847
---------- ----------
Sub Total $2,413,247 $2,191,501
Less accumulated depreciation 915,473 559,367
---------- ----------
Property and equipment, Net $1,497,774 $1,632,134
========== ==========
During 2004, depreciation expense was $325,966 and depreciation expense was
$356,104 during the 1st nine months of 2005.
10. SUBSEQUENT EVENTS
On October 31, 2005, the Company received notice that HAT customers Delta
Airlines and Northwest Airlines both filed a Petition for Reorganization under
Chapter 11 of Title 11 of the United States Bankruptcy Code. The outstanding
balance owed from Delta Airlines to HAT at September 30, 2005 was $3,099.00 and
the outstanding balance owed from Northwest Airlines to HAT was $940.00. HAT
will be filing a Proof of Claim with respect to both outstanding balances.
On October 14, 2005, HAT customer TransMeridian airlines, Inc. filed a Petition
for Bankruptcy under Chapter 7 of the United States Bankruptcy Code. The
outstanding balance owed from TransMeridian to HAT was $25,916.71 on September
30, 2005. HAT will be filing a Proof of Claim with respect to the outstanding
balance.
In October of 2005, it was agreed that the Company would contra receivables in
the amount of $1.668 million to satisfy a portion of the obligation arising from
the third quarter inventory purchase of $3.4 million in inventory.
On December 9, 2005, Global, HAT, and World Jet Corporation, closed on a first
Modification to Global's July 8, 2005 Revolving Line of Credit as set forth
above. 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 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. The interest rate on the Guidance Credit
is also 3.00% per annum in excess of the applicable LIBOR rate. 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. Any advances pursuant to the Guidance Credit shall
be secured by a first priority lien on any aircraft purchased with such advance.
The term of the Line of Credit; the Guidance 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 both the Line of Credit and Guidance Credit shall be due on the expiration
date.
Page 102
F-54
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. While there is no required monthly repayment
obligation of the Guidance Credit, the Borrowers are required to repay, from
time to time, (i) an amount equal to any amount by which the outstanding
principal balance of the Guidance Credit exceeds $7 million, (ii) all amounts
received by Borrowers under any aircraft purchase agreement, other than an
initial down payment to the extent it does not exceed twenty-five percent (25%)
of the purchase price, and (iii) any portion of an advance or readvance not paid
within ninety (90) days of the advance or readvance. Borrowers are also
responsible to immediately repay to bank the amount of an advance upon any
breach of the aircraft purchase 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 a loan fee
to the bank equal to 1% of the amount of any requested advance under the
Guidance Credit with a cap of $52,500.00 in cumulative fees. 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.
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Page 103
World Jet Corporation
Financial Statements
December 31, 2003 and 2002
Table of Contents
Page
----
Independent Auditor's Report F-55
Financial Statements
Balance Sheets F-56
Statement of Income F-57
Statements of Retained Earnings F-58
Statements of Cash Flows F-59
Notes to Financial Statements F-60-F-63
Page 104
F-55
Larry O'Donnell, CPA, P.C.
2228 South Fraser Street, Unit 1
Aurora, Colorado 80014
Telephone (303) 745-4545
Independent Auditor's Report
Board of Directors
World Jet Corporation
I have audited the accompanying balance sheets of World Jet Corporation as of
December 31, 2003 and 2002 and the related statements of operations, retained
earnings 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 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 World Jet Corporation as of
December 31, 2003 and 2002 and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting principles
in the United States of America.
Larry O'Donnell, CPA, P.C.
November 23, 2004
Page 105
F-56
World Jet Corporation
Balance Sheets
December 31, 2003 and 2002
Assets
2003 2002
---- ----
Current Assets
Cash $ 590,356 $ 869,901
Accounts receivable, allowance for
doubtful accounts $43,834,2003 and 2002 983,796 1,756,746
Inventories 1,445,856 1,733,450
Prepaid expenses 9,593
Income tax refunds receivable -- 18,321
---------- ----------
Total current assets 3,029,601 4,378,418
---------- ----------
Property and equipment, net of
accumulated depreciation 2003 $113,515,
2002 $98,096 37,642 18,249
---------- ----------
$3,067,243 $4,396,667
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Note payable $1,682,929
Account payable $ 359,642 670,302
Accrued expenses 170,433
Income taxes payable 124,402
Loans payable-related parties 744,000 --
---------- ----------
Total current liabilities 1,274,075 2,477,633
---------- ----------
Stockholders' equity
Common stock, no par value, 25,000 shares,
Authorized, issued and outstanding 25,000 25,000
Retained earnings 1,768,168 1,894,034
---------- ----------
1,793,168 1,919,034
$3,067,243 $4,396,667
========== ==========
Page 106
F-57
World Jet Corporation
Statements of Income
Years Ended December 31, 2003 and 2002
2003 2002
---- ----
Net sales $ 4,394,280 $ 8,198,308
Cost of sales 3,705,809 6,552,386
----------- -----------
Gross profit 688,471 1,645,922
Selling general and administrative 2,822,975 1,692,284
----------- -----------
Income (loss) from operations (2,134,504) (46,362)
Other income (expenses)
Insurance settlement income 2,037,541 551,753
Interest expenses (54,965) (71,092)
----------- -----------
Income before income taxes (151,928) 434,299
Income taxes (26,062) 115,775
----------- -----------
Net income (loss) $ (125,866) $ 318,524
=========== ===========
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Page 107
F-58
World Jet Corporation
Statements of Retained Earnings
Years Ended December 31, 2003 and 2002
Balance, December 31, 2001 $ 1,575,510
Net income for the period 318,524
-----------
Balance, December 31, 2002 1,894,034
Net loss for the period (125,866)
-----------
Balance, December 31, 2003 $ 1,768,168
===========
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Page 108
F-59
World Jet Corporation
Statements of Cash Flows
Years Ended December 31, 2003 and 2002
2003 2002
---- ----
Cash flows from operating activities
Net income(loss) $ (125,866) $ 318,525
Noncash items included in net loss
Depreciation 15,419 6,303
Increase (decrease) in:
Accounts receivable 772,950 593,058
Inventory 287,594 (585,716)
Income tax refund receivable 18,321 (18,321)
Other assets (9,593) 480
(Increase) decrease in:
Accounts payable (310,660) (286,595)
Accrued expenses 170,433 (10,998)
Income taxes payable (124,402) 87,708
----------- -----------
Net Cash provided by operating activities 694,196 104,444
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (34,812) (14,460)
----------- -----------
Net cash used by investing activities (34,812) (14,460)
----------- -----------
Cash flows from financing activities
Increase(decrease) in notes payable (1,682,929) 794,442
Increase (decrease) in loans payable-related parties 744,000 (170,472)
----------- -----------
Net cash provided by financing activities (938,929) 623,970
----------- -----------
Increase (decrease) in cash (279,545) 713,954
Cash, beginning 869,901 155,947
----------- -----------
Cash ending $ 590,356 $ 869,901
=========== -----------
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 54,965 $ 71,092
Income taxes $ 80,019 $ 46,388
Page 109
F-60
World Jet Corporation
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Nature of Operations
- --------------------
The Company 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.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reporting 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 periods. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from these estimates.
Fair Value of Financial Instruments
- -----------------------------------
Fair value estimates are based upon certain market assumptions and pertinent
information available to management as of September 30, 2004 and December 31,
2003. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
cash (bank overdraft) and accrued expenses. Fair values were assumed to
approximate carrying values for cash and payables because they are short term in
nature and their carrying amounts approximate fair values or they are payable on
demand.
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, establishes requirements for disclosure of comprehensive income (loss).
The Company did not have any components of comprehensive income (loss) to
report.
Cash equivalents
- ----------------
The Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
Property and Equipment
- ----------------------
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided primarily by the straight-line method over the
estimated useful lives of the related assets.
Net Loss Per Share
- ------------------
SFAS No. 128, Earnings per Share, requires dual presentation of basic and
diluted earnings or loss per share ("EPS") for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution; diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
Page 110
F-61
Basic loss per share is computed by dividing net loss applicable to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted loss per share reflects the potential dilution that could
occur if dilutive securities and other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company, unless the effect is to
reduce a loss or increase earnings per share. The Company had no potential
common stock instruments which would result in a diluted loss per share.
Therefore, diluted loss per share is equivalent to basic loss per share.
Stock-Based Compensation
- ------------------------
SFAS No. 123, Accounting For Stock-Based Compensation, defines a
fair-value-based method of accounting for stock-based employee compensation
plans and transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees, and encourages but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company, at times, issues shares of common
stock in payment for services rendered to the Company. The estimated fair value
of the shares issued approximates the value of the services provided.
The Company accounts for employee stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting For Stock Issued To Employees ("APB No. 25") and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's common stock at
the date of the grant over the amount an employee must pay to acquire the stock.
Accounts Receivable
- -------------------
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. 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 has not been material to the
financial statements.
Inventories
- -----------
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method for determining cost.
Revenue recognition
- -------------------
The Company recognizes revenue on an accrual basis as it invoices for services.
The Company recognizes revenue after the services are provided and invoiced.
Income Taxes
- ------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of and the accounting and reporting
provisions of APB Opinion No. 30. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years.
Page 111
F-62
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Others FIN 45 requires that upon issuance of a guarantee,
the guarantor must recognize a liability for the fair value of the obligation it
assumes under that guarantee. The interpretations provisions for initial
recognition and measurement should be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of both interim and annual
periods that end after December 15, 2002. The Company believes the adoption of
FIN 45 will not have a material impact on its financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting or Stock Based
Compensation--Transition and Disclosure--an Amendment of SFAS No. 123,
Accounting for Stock-Based Compensation. This Statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the methods of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The statement has varying effective dates commencing
with interim periods beginning after December 15, 2002. The Company does not
expect the adoption of SFAS No. 148 to have a material effect on its financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities--an Interpretation of ARB No. 51.
FIN 46 addresses consolidation of business enterprises of variable interest
entities. FIN 46 is effective February 1, 2003. The Company does not expect the
adoption of FIN 46 to have an effect on its financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS No. 150 is to be implemented by
reporting the cumulative effect of a change in an accounting principal for
financial instruments created before the issuance date of the Statement and
existing at the beginning of the interim period of adoption. The Company does
not expect the adoption of SFAS No. 150 to have a material effect on its
financial statements.
Note 2 - Acquisition by Global Aircraft Solutions, Inc.
On July 15, 2004, the Company's shareholders entered into a stock purchase
agreement with Global Venture (NEV) Corporation, a publicly traded company. On
July 28, 2004, Global Venture (NEV) Corporation completed an acquisition of 100
percent of the outstanding common stock of World Jet Corporation. Thus the
Company became a wholly owned subsidiary of Global Venture (NEV) Corporation.
Note 3 - Property and equipment
2003 2002
---- ----
Computer equipment $ 78,068 $ 64,840
Machinery and equipment 38,957 26,297
Furniture and equipment 25,208 25,208
Leasehold improvements 8,924
-------- --------
151,157 116,345
Accumulated depreciation 113,515 98,096
-------- --------
$ 37,642 $ 18,249
======== ========
Page 112
F-63
Note 4 - Related party transactions
The Company has loans payable due to its officers. The loans have no fixed due
date, are unsecured and do not bear interest.
The Company sales to Hamilton Aerospace Technologies, a wholly owned subsidiary
of Global Venture (NEV) Corporation of $1,025,675 and $709,526, for the years
ended December 31, 2003 and 2002, respectively. The Company had an account
receivable due from Hamilton Aerospace Technologies of $449,893 and $508,608 as
of December 31, 2003 and 2002, respectively.
The Company sales to Hamilton Aviation, Inc., whose assets have been acquired by
a Hamilton Aerospace Technologies, of $10,047 for the year ended December 31,
2002. The Company had an account receivable due from Hamilton Aviation, Inc. of
$ $115,132 as of December 31, 2002.
Note 5 - Insurance Settlement
The Company received a settlement with an insurance claim due to damage incurred
to inventory of $2,037,542 and 551,753 for the years ended December 31, 2003 and
2002, respectively.
Note 6- Income Taxes
Income taxes at the federal statutory rate is reconciled to the Company's actual
income taxes as follows:
2003 2002
---- ----
Federal income tax benefit at statutory rate (34%) $ (52,000) $ 147,000
State income tax benefit net of federal tax effect (5,500) 14,000
Effect of expenses not deducted for tax purposes 31,438
Effect of income not subject to tax (45,225)
--------- ---------
$ (26,062) $ 115,775
========= =========
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Page 113
Until May 8, 2006, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.