UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1
to
Form SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GLOBAL AIRCRAFT SOLUTIONS, INC.
--------------------------------------------------
Formerly Renegade Venture (NEV.) Corporation, Inc.
Trading Symbol - GACF (OTCBB Market)
Nevada 4581 84-1108499
------- ---- ----------
(State or jurisdiction (Primary SIC Number) (IRS Employer
of incorporation) Identification No.)
P.O. Box 23009, Tucson, AZ 85734
-----------------------------------------------------------
(Address and telephone number of principal executive offices)
520-294-3481
------------
(Telephone)
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
If any of the securities being registered on the Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 to the Registration Statement further amends
our Registration Statement declared effective on February 8, 2006 to include
the Registrant's Annual Report on Form 10-KSB for the year ended December 31,
2005, as filed with the Securities and Exchange Commission on April 14, 2006,
and Quarterly Reports on Form 10-Q for the three months ended March 31, 2006,
and for the three months ended June 30, 2006, as filed with the Securities and
Exchange Commission on May 15, 2006, and August 14, 2006 respectively.
[GRAPHIC OMITTED]
GLOBAL AIRCRAFT SOLUTIONS, INC.
Mailing Address: P.O. BOX 23009,
Tucson, Arizona 85734-3009 U.S.A.
Phone (520) 294-3481
Fax (520) 741-1430
www.globalaircraftsolutions.com
-------------------------------
PRELIMINARY PROSPECTUS DATED September 25, 2006
SUBJECT TO COMPLETION
The information in this preliminary prospectus is not complete and may be
changed. The selling shareholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective.
Trading Symbol - GACF (OTCBB Market)
This preliminary prospectus relates to the resale by selling shareholders of
Global Aircraft Solutions, Inc. ("Global" or "Company") of a total of 20,343,215
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 10,887,865 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 September
22, 2006, the last reported sale price of our common stock was $1.00 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 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 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 9-13 to read about factors you
should consider carefully before buying our shares.
This preliminary prospectus is not an offer to sell these securities and it is
not a soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
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.
Page 1
TABLE OF CONTENTS
SUMMARY.......................................................................3
OFFERING......................................................................7
RISK FACTORS..................................................................9
FORWARD LOOKING STATEMENTS...................................................13
USE OF PROCEEDS..............................................................14
DIVIDEND POLICY..............................................................14
DILUTION.....................................................................15
SELLING SHAREHOLDERS.........................................................15
PLAN OF DISTRIBUTION.........................................................18
LEGAL PROCEEDINGS............................................................19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.................20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............22
DESCRIPTION OF SECURITIES....................................................23
INTEREST OF NAMED EXPERTS AND COUNSEL........................................23
DISCLOSURE OF COMMISSION POSITION FOR SECURITIES ACT LIABILITY...............23
ORGANIZATION WITHIN THE LAST FIVE YEARS......................................24
DESCRIPTION OF BUSINESS......................................................24
MANAGEMENT DISCUSSION AND ANALYSIS...........................................33
DESCRIPTION OF PROPERTY......................................................48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................48
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................49
EXECUTIVE COMPENSATION.......................................................50
FINANCIAL STATEMENTS.........................................................53
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTANT CONTROL
AND FINANCIAL DISCLOSURE.....................................................53
FURTHER INFORMATION..........................................................54
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.
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 and profit 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 year ended December 31, 2005, 73% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
56% of the Company's revenue and Word Jet which accounted for approximately 17%
of the Company's revenue. The Company's share of Jetglobal 2005 net income was
over $1,000,000. Global contributed 27% of the Company's revenue through its
entrance into the aircraft trading venue. In addition to the operating expenses
incurred by Global 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, Global, beginning in 2005, also reports expenses
generated in the pursuit of aircraft trading.
Page 3
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 of the Company's aircraft
trading has been done through Global. (the Company's partnership, Jetglobal ,
also did aircraft trading). 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.
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, the year ended December 31, 2005 and the
Quarters ending March 31, 2006 and June 30, 2006:
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
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
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Page 4
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
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
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
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 (Loss) $ 211,589 $ 195,515 $ 250,988 $ 658,092
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
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 (Loss) $ 298,015 $ 56,976 $ 327,176 $0 $ 682,167
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
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 (Loss) $ 750,879 $ (365,018) $ 568,648 $0 $ 661,243
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
December 31, 2005 Revenues $ (178,462) $ 6,882,992 $ 3,028,893 $ (1,448,535) $ 8,284,888
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Cost of Sales 626,269 (5,778,207) (2,349,284) 1,448,535 (6,052,687)
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Expenses (455,883) (1,023,620) (669,118) (2,148,621)
Equity-Net 1,111,096 1,111,096
Expenses of
Affilates
Tax Estimate (262,638) 189,816 (72,822)
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Net Profit (Loss) $ 840,382 $ 81,165 $ 200,307 $0 $ 1,121,854
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Page 5
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
2005 Revenues $ 11,696,538 $ 23,205,112 $ 10,622,681 $0 $ 41,228,648
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Year End Cost of Sales (7,960,337) (19,564,059) (7,829,248) $0 (31,057,961)
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Results Expenses (2,483,794) (3,672,415) (1,636,120) (7,792,339)
Tax Estimate
(262,638) 189,816 (72,822)
Equity-Net
Expenses of
Affiliates 1,111,096 1,111,096
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
Net Profit (Loss) 2, 100,865 $ (31,362) $ 1,347,119 $0 $ 3,416,622
- ------------------ ------------------- ---------------- ----------------- ----------------- ----------------- --------------------
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Period Income Stand Alone Stand Alone Stand Alone * Eliminate Consolidated
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Quarter Ended Statement: Global HAT World Jet HAT/WJI Global
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
March 31,2006 Revenues $ 3,175,000 $ 6,554,442 $ 2,975,124 $ (1,195,843) $ 11,508,723
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Cost of Sales (1,949,139) (4,586,370) (2,195,743) 1,195,843 (7,535,409)
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Expenses (1,549,446) (759,779) (540,688) (2,849,913)
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Net Profit (Loss) (323,585) $ 1,208,293 $ 238,693 $ 1,123,401
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
June 30, 2006 Revenues $ 1,300,000 $ 7,788,142 $ 3,187,544 $ (2,077,035) $ 10,198,651
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Cost of Sales (1,574,485) (5,841,501) (2,429,094) 2,077,035 (7,768,045)
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Expenses (174,900) (703,017) (497,313) (1,375,230)
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
Net Profit (Loss) (449,385) $ 1,243,624 $ 261,137 $ 1,055,376
- ------------------- ------------------ ---------------- ----------------- ----------------- ----------------- --------------------
* 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.
Page 6
OFFERING
Securities Being Offered 20,343,215 shares of common stock (1) and up to
10,887,865 shares of common stock upon the
exercise of all warrants (2).
Securities Issued 38,618,215 shares of common stock were issued and
and to be Issued outstanding as of the date of this prospectus and
an additional 10,887,865 shares of common stock
will be issued and outstanding if all warrants are
exercised (3). Also see footnote (2)
Use of Proceeds We will not receive any proceeds from the sale of
the private placement issue of (i) 18,799,000
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.
Page 7
(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).
- --------------------------------------------------------------------------------
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 8
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 9
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
36% of our total revenues and our largest continuing customer accounted for
approximately 25% of total revenues. Five customers accounted for 74% of our
total 2003 revenue. For the year ended December 31, 2004, our 2 largest
continuing customers accounted for 34% of our total revenues and our largest
continuing customer accounted for 21% of total revenues. For the year ended
December 31, 2005, our largest continuing customer accounted for 8.3% of our
revenue. Four customers accounted for 37.6% of our 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 and
strengthen our customer base. 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 whom
the Company subsidiaries relied for 10% or more of its revenue as of the year
ending December 31, 2004 are as follows:
HAT WORLD JET
Percentage
Customer Percentage of Revenue Customer of Revenue
- -------- --------------------- -------- ----------
Jets MD Lease 11% HAT 40%
Aircraft LLC 17%
Jetran 14%
HAT was World Jet's largest customer for the year ended December 31, 2005,
accounting for 40% of World Jet's revenue. Since HAT and World Jet now operate
as wholly owned subsidiaries of Global, any significant adverse events that
affect HAT and Global will also adversely impact World Jet. Likewise, any
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.
LEASE OF PROPERTY
Global's wholly owned subsidiary, HAT is currently conducting operations on
leased property at the Tucson International Airport ("TIA"). The lease is a one
year lease commencing March 1, 2005 and permits HAT to apply for two additional
one year options. On March 1, 2006, HAT signed an amendment to extend the lease
through March 1, 2007. TIA is implementing a Master Plan for airport
development, which precludes issuing a long term lease to HAT, but will not
effect HAT's facilities for at least five years. 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 more than 73% 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 17 %
of Global's total revenue, the repair and maintenance operation of HAT located
at 6901 South Park Avenue, Tucson, Arizona comprises approximately 56% 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 17 % 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 10
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.
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 25,689,715 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. Payment of dividends in the future will depend on our
earnings (if any) and our cash requirements at that time, but we expect to
retain earnings for business expansion over the foreseeable future.
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 barriers to entry in the commercial jet maintenance and modification
business are very high due to the stringency of FAA regulation, the complexity
and sophistication of modern jet aircraft, and the reluctance of operators to
entrust their aircraft maintenance to new, unproven start-up facilities. Even if
a new entrant succeeds in completing the very costly and time consuming process
of obtaining FAA approval for a new repair station, they are then faced with the
difficult task of convincing operators to input aircraft into an unproven
facility that may experience learning curve cost overruns and delays.
Page 11
Given the many billions of aircraft maintenance dollars spent each year, and the
relatively limited number of approved repair stations, much of the meaningful
competition in today's aircraft maintenance industry is not so much competition
for customers as it is for qualified personnel to perform the work. In view of
the importance of employing highly competent personnel in the quality critical
field of commercial aircraft maintenance, HAT's pay scales generally meet or
exceed national standards. Also, HAT has been very successful in recruiting key
personnel by focusing on providing a good quality work environment and due to
the desirability of Tucson's lifestyle.
In the local area, HAT's major competitor for narrow-body aircraft maintenance
work is Evergreen Air Center, which is located in Marana, Arizona and employs
approximately 500 people. Evergreen Air Center services Evergreen Airline's
fleet of Boeing 747 and McDonnell Douglas DC-9 commercial aircraft and provides
services to outside customers.
Nationally, Hamilton Aerospace competes in the narrow-body segment of the market
with Tramco, owned by Goodrich Corporation and located in Seattle, Washington;
AAR Group, Inc., located in Oklahoma City, Oklahoma; Mobile Aerospace, located
in Mobile, Alabama; Timco, located in Greensboro, North Carolina, Macon,
Georgia, Arizona and Lake City, Florida; FlightStar, located in Jacksonville,
Florida; Commercial Jet Miami, located at Miami, Florida and Avborne Heavy
Maintenance, located at Miami, Florida. Internationally, Hamilton Aerospace
competes with Coopesa, located in San Jose, Costa Rica and Aeroman, part of the
Taca Groupa, located in San Salvador, El Salvador.
Because World Jet is a parts broker, the most significant determiner of
competitive advantage for World Jet is parts availability. Major parts' brokers
competing in the marketplace with World Jet include: Pac Air Industries, Unical
Aviation, Pacific Air Industries, Volvo Aero, Aero Controls, AAR-Allen Aircraft,
Kellstrom Industries, Broward Aviation, Memphis Group, ABX-Air, A.J. Walter,
Turbo Resources, Jet Accessory Center, Aero Inventory-UK, American Jet
Industries, Continental A/L and Wencor West.
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 or our ability
to continue as a going concern.
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.
Page 12
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.
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.
Page 13
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 offeredthrough this
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.
Page 14
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.
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.
Page 15
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.
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
Page 16
Name of Shares Total of Total Percent
Selling Shareholder Owned Prior Shares Shares Owned
To This Offered After After
Offering For Sale Offering Offering
- ----------------------------------------------------------------------------------------------------------
Alpha Capital 2,500,000(6) 2,500,000 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
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
Page 17
Name of Shares Total of Total Percent
Selling Shareholder Owned Prior Shares Shares Owned
To This Offered After After
Offering For Sale Offering Offering
- ----------------------------------------------------------------------------------------------------------
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.
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.
Page 18
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.
LEGAL PROCEEDINGS
Global
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.
Page 19
Mr. Corwin Foster is now proceeding pro se. and on or about July 24, 2006 which
was far beyond the procedurally acceptable time within which to file a
counterclaim and without the required leave of court, Corwin Foster filed a pro
se counterclaim against Global, HAT, Hamilton Aviation, Ian Herman, Gordon
Hamilton, John Sawyer, Ronald Clark, Frank Hooper, United Payphone, Financial
Capital, Interwest Transfer and the law offices of Tharpe Howell alleging fraud,
unjust enrichment, breach of contract and constructive trust. All of these
claims are categorically denied and Global has filed a motion to strike this
counterclaim based upon the above referenced defects.
Pretrial statements were filed in August 2006. The matter is expected to proceed
to trial early in 2007.
HAT
HAT is not involved in any legal proceedings.
World Jet
World Jet is not involved in any legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The Directors and Officers of Global, all of whose terms will expire as follows:
Name & Address Age Position Date First Elected Term Expires
or appointed
- -----------------------------------------------------------------------------------------------------
Ian Herman 60 Chairman/CEO /Director 5/02 05/09
John Sawyer 41 Director & President 5/02 05/08
Gordon Hamilton 53 Director 5/02 05/07
Alfredo Mason 44 Director 5/04 05/07
Lawrence Mulcahy 56 Director 5/04 05/08
Seymour Siegel 64 Director 1/06 05/09
Govindarajan Sankar 46 CFO 6/06 N/A
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.
Directors Hamilton and Mason are elected to serve until the next annual meeting
of stockholders and until their successors have been elected and qualified;
directors Sawyer and Mulcahy are elected to serve until the 2008 annual meeting
of stockholders and until their successors have been elected and qualified; and
directors Herman and Siegel are elected to serve until the 2009 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.
Page 20
Resumes
Ian Herman: CEO /Chairman. From June 2006 to the present, Mr. Herman has served
as the CEO and Chairman of Global Aircraft Solutions, Inc. From 2002 until June
2006 Mr. Herman served as the CEO/CFO and Chairman of Global Aircraft Solutions,
Inc. 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.
Govindarajan Sankar: Chief Financial Officer. Mr. Sankar was hired as the Chief
Financial Officer for the Company on June 1, 2006. Prior to his employment with
the Company, Mr. Sankar served as Chief Financial Officer for First Student,
Inc. since 2003. First Student, Inc. is a student transportation company, with a
revenue of $700 million and wholly owned by First plc. Prior to serving as Chief
Financial Officer for First Student, Inc., Mr. Sankar was the Director/VP of
Finance from 1995 through 2003 for DHL Airways, Inc., an international logistics
and distribution company with $6.3 billion in annual revenue and wholly owned by
Deutsche Post AG. From 1989 through 1995 Mr. Sankar was the Controller for USAir
Group (USAir Express). Mr. Sankar also gained public accounting experience at
Deloitte and Touche from 1980 to 1984. Mr. Sankar has an MBA in finance from
Wright State University, a CMA from the Institute of Cost and Works Accountants
of India; and MS in Finance and Tax from Madras university; a CPA from the
institute of Chartered Accountants of India and a BS in Accounting from Madras
University. Mr. Sankar is Chairman of FENG Cincinnati Chapter and an advisory
board member of the College of Business for Wright State University.
Page 21
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 (5%) of the company's issued and
outstanding common stock through the most current date - September 25, 2006:
Title of Class Name Amount and Nature Percent Owned (1)
of beneficial Owner
- ----------------------------------------------------------------------------------------------
Common Barron Partners, LP 7,200,000 (2) 15.4%
730 Fifth Ave., 9th Floor
New York, NY 10019
Common Ewing Partners 5,675,000 14.35%
4514 Cole Ave., Ste. 808
Dallas, TX 75205
Common Officers/Directors as a Group 5,053,500 (3) 12.48%
6901 S. Park Ave.
Tucson, AZ 85706
Common Contrarian Funds , LLC 4,000,000 10.11%
411 West Putnam, Ste. 225
Greenwich, CT 06830
Common Delta Offshore 3,000,000 7.58%
900 Third Ave., 5th Floor
New York, NY 10022
Common Silver Point Capital 2,000,000 5.05%
2 Greenwich Plaza
Greenwich, CT
Common Officers/Directors Individually
Common Ian Herman/Officer & Director 3,080,166 (4) 7.64%
6901 S. Park Ave.
Tucson, AZ 85706
Common John Sawyer/Officer & Director 1,723,334 (5) 4.34%
6901 S. Park Ave.
Tucson, AZ 85706
Common Lawrence Mulcahy, Director 120,000 (6) *
6901 S. Park Ave.
Tucson, AZ 85706
Common Alfredo Mason, Director 110,000 (6) *
6901 S. Park Ave.
Tucson, AZ 85706
Common Seymour Siegel, Director 20,000 (6) *
6901 S. Park Ave.
Tucson, AZ 85706
* Denotes less than 1% ownership
Page 22
(1) In setting forth this information, the Company has relied upon its stock
and transfer records, to the extent available to the Company without
unreasonable effort or expense, and upon Schedule 13D and Schedule 13G
filings of, and other information provided by the persons listed.
Beneficial ownership is reported in accordance with Securities and Exchange
Commission ("SEC") regulations and therefore includes shares of the
Company's Common Stock which may be acquired within 60 days after September
25, 2006, upon the exercise of outstanding warrants or options. Shares of
Common Stock issuable upon the exercise of such warrants are deemed
outstanding for purposes of computing the percentage of Common Stock owned
by the beneficial owner thereof listed in the table, but are not deemed
outstanding for purposes of computing the percentage of outstanding Common
Stock owned by any other stockholder. For each shareholder, Percent of
Class Owned is based on the 39,555,307 shares of Common Stock issued and
outstanding on September 25, 2006 plus any shares which may be acquired by
such beneficial shareholder within 60 days. This calculation does not
include warrants and options held by non-beneficial shareholders holding
less than 5% of the outstanding stock.
(2) Shares of Company common stock underlying a warrant exerciseable at any
time until May 2009 at an exercise price of $1.36 per share.
(3) Includes options to purchase 930,000 shares of Company Common Stock held
among all directors and officers.
(4) Includes options to purchase 766,666 shares of Company Common Stock
(5) Includes options to purchase 133,334 shares of Company Common Stock
(6) Includes options to purchase 10,000 shares of Company Common Stock
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.
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.
Page 23
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.
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 of the Company's aircraft
trading has been done through Global. (the Company's partnership, Jetglobal ,
also did aircraft trading). 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.
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 and profit 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.
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. At the beginning of 2005, it was decided
that in addition to its role as holding company, Global would become active in
aircraft trading, replacing HAT in that arena. The only revenue that was
reported by Global prior to 2005 was revenue derived from a contract with Mesa
Airlines beginning in the third quarter of 2003 and ending in December of 2004.
That revenue represented the first revenue produced by the parent Company
(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 was organized on April 5, 2002 and World Jet was organized on April 22,
1997. 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. HAT was created as 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 24
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 and profit 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 year ended December 31, 2005, 73% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
56% of the Company's revenue and Word Jet which accounted for approximately 17%
of the Company's revenue. The Company's share of Jetglobal 2005 net income was
over $1,000,000. Global contributed 27% of the Company's revenue through its
entrance into the aircraft trading venue. In addition to the operating expenses
incurred by Global 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, Global, beginning in 2005, also reports expenses
generated in the pursuit of aircraft trading.
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
As your jet rolls away from the gate and over the tarmac toward the runway, you
may have noticed at some airports the hangars in which large commercial jets
were being serviced. This is exactly what HAT does. HAT was created to provide
aircraft maintenance, repair, overhaul and modification services to owners and
operators of Transport Category commercial jet aircraft. Its customers are all
aircraft operators or owners, including passenger and cargo air carriers and
aircraft leasing companies.
Page 25
When economic factors adversely affect the airline industry, they tend to reduce
the overall demand for aircraft maintenance and repair services, causing
downward pressure on pricing and increasing the credit risks associated with
doing business within the industry. Additionally, the price of fuel affects the
aircraft maintenance and repair markets, since older aircraft, which consume
more fuel and which account for most of our aircraft maintenance and repair
business, become less viable as the price of fuel increases. We cannot assure
you that economic and other factors that have affected the airline market in the
past and may affect the airline industry in the future will not adversely impact
our business, financial condition or results of operations. However, since
inception, HAT has aggressively increased its market share by focusing on
quality service, turn time and breadth of services offered.
Regulatory Oversight:
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.
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.
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, Limited
Douglas DC-8 - All Series
Douglas DC-9 - All Series
Power Plant Pratt & Whitney JT-3D
Pratt & Whitney JT-8D
General Electric CFM-56
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 26
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
Aircraft Heavy Maintenance and Repair
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. Each airline operator has a governmental-approved and mandated
maintenance schedule for each of its commercial aircraft on the line. Certain
maintenance is typically performed by the operator's maintenance personnel (for
example, daily line checks), while other, more substantial maintenance can be
self-performed or contracted out to certified repair stations such as HAT.
As applied to large commercial jets, the term "maintenance" is a broad one that
includes regular and routine inspections, heavy maintenance ("C-checks"),
scheduled major overhauls ("D-checks"), Airworthiness Directives, Service
Bulletins, Structurally Significant Inspection Documents ("SSIDs"), and other
aging aircraft requirements to assure the continued integrity of commercial
aircraft. All such services are performed under FAA regulations, and only a
licensed facility can provide them.
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, BCI Aircraft Leasing, Q Aviation and Avolar, 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.
Page 27
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 components. Not only do
these activities enjoy high profit margins, but existing and potential customers
also tend to view extensive component back shop capabilities positively.
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. 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.
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. 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 of 727, 737, 757, MD80 and DC9
aircraft.
HAT's customers include Jets MD Lease (11.8%) and MD Leasego, Ltd. (5.3%), both
Daimler Chrysler, division of Aviation, partnerships, Jetran International
(9.4%), an aircraft trading and leasing company, Savanna Aviation, LLC (9.6%), a
leasing company and a subsidiary of Jetran, Aero California (5.9%), a Mexican
airline, Falcon Air Express (5.4%), a 121 United States passenger operator,
Pegasus Aviation (4.5%), a large aircraft leasing company and long-time Hamilton
Aviation customer, as well as a number of smaller customers. HAT is working to
increase and diversify its customer base and expects to sign more 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.
Page 28
o Commission Sales: HAT buys parts on request for customers that don't
maintain parts inventory and charges a commission for that service.
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:
The principal executive offices for both Global and Hamilton Aerospace are
located at the Hamilton Aerospace 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 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
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 29
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. Additionally, World Jet is leasing 59,000 square
feet adjacent to the HAT complex for the purpose of inventory storage.
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.
Page 30
Employees and Employment
At December 31, 2005 a total of approximately 173 employees were employed by
HAT, 27 of which performed administrative functions. 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.
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.
Page 31
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.
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.
Page 32
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. This certification, audited annually,
is recognized and accepted by the FAA for suppliers of replacement aircraft
parts.
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
Global Aircraft Solutions, Inc., ("Global") formerly Renegade Venture (Nev.)
Corporation 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.OB 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, to create a premier provider of large
aircraft maintenance, repair, overhaul and modification ("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. During 2004, Global acquired 100
percent of the common stock of World Jet Corporation, a privately owned Nevada
Corporation. World Jet, incorporated in 1997, is an aviation parts sales company
servicing aircraft operators, aircraft leasing companies and MRO facilities.
Global was initially 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. However, during fiscal
2005, all of the Company's aircraft trading was assumed by Global. (Jetglobal,
LLC, a limited liabilirty company in which Global is a minority member, also did
aircraft trading). Prior to 2005, all aircraft trading transactions were handled
through HAT and the only revenue that was been reported by Global was revenue
derived from a contract with Mesa Airlines beginning in the third quarter of
2003 and represented the first revenue produced by the parent Company (Global)
since consolidation with HAT. This work was 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). 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.
Page 33
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 and profit 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.
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.
During the year ended December 31, 2005, 73% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
56% of the Company's revenue and Word Jet which accounted for approximately 17%
of the Company's revenue. The Company's share of Jetglobal 2005 net income was
over $1,000,000. Global contributed 27% of the Company's revenue through its
entrance into the aircraft trading venue. In addition to the operating expenses
incurred by Global 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, Global, beginning in 2005, also reports expenses
generated in the pursuit of aircraft trading.
Global's plan of operation for the immediate future includes seeking and
acquiring, if possible, aviation industry related businesses to complement its
HAT and World Jet subsidiaries. Additionally, the Company will seek to expand
HAT and World Jet by organic growth. 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 increase value for Global's shareholders.
Company management has rejected a policy of growth for growth's sake in favor of
focusing on profitability and building a good reputation for the Company and its
subsidiaries by limiting 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; and expedited delivery of parts at a competitive price leads
to greater volume of parts sales. In managing its operations, the Company is
committed to continuously evaluating the adequacy of its management structure
and its existing systems and procedures.
Management is cautiously optimistic that efforts to strengthen the quality of
our customer base, our adeptness at garnering jobs with the likelihood of good
gross profit potential and our continued vigilance at holding down costs will
enhance future results and our profitability will be sustainable for 2006. HAT's
option of being selective in the work booked is due to their growing reputation
for providing quality, on-budget, on-time deliveries to their customers. HAT and
World Jet are experiencing success in securing new customers and securing more
business from existing customers as well.
Global's aircraft trading represents a significant niche in our business.
Successful efforts in this area will go a long way to building our company.
During 2005, aircraft trading accounted for 19% of the Company's revenue. The
considerable impact that can be made through growth of aircraft trading is
evident when you consider that fewer than 10 transactions took place in our
aircraft trading segment, (which excludes any Jetglobal activity), during the
year ended December 31, 2005. Obviously, there is opportunity for a positive
synergistic increase in MRO revenue and part sales revenue related to those
aircraft traded with both new and continuing customers.
Gross profit levels during any particular period are dependent upon the number
and type of aircraft serviced, the contract terms under which services are
performed and the efficiencies that can be obtained in the performance of such
services. Significant changes in any one of these factors could have a material
impact on the amount and percentage of gross profits. Additionally, gross profit
could be impacted in the future by considerations as to the value of our
inventory.
Page 34
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 low overhead. World Jet competes on price competitiveness
and expedited delivery of parts. World Jet has spent years acquiring inventories
at deep discounts and this inventory is the type HAT uses on a daily basis.
World Jet's customer base includes airlines, aircraft leasing companies and MRO
facilities. The large aircraft repair business and the aircraft parts sales
business are 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 and World Jet's services.
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.
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.
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.
Page 35
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")
World Jet is a seller/broker of aircraft parts located across the street from
Global's wholly owned operating subsidiary HAT in Tucson, Arizona. 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. World Jet 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 services
aircraft operators, aircraft leasing companies and MRO facilities such as HAT.
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 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. 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.
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.
Page 36
RESULTS OF OPERATIONS
As a holding company, the bulk of our day-to-day operations are currently and
were as of September 8,2006, 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.
2004 & 2005 Operations
- ----------------------
During 2005, we saw revenues increase to $41,228,648, which is a 33.6% increase
over 2004's $30,851,118. (See following paragraph regarding Jetglobal revenue).
The Company had $2.3 million in net income, before taxes in 2004 compared with
$3.5 million is 2005; and EBITDA increased from $3,108,651 for 2004 to
$4,528,655 in 2005. It should be noted that 2004 net income and EBITDA was aided
by the inclusion of $1,144,502 in extraordinary items while there were no
extraordinary items in 2005. A comparison of the Company's gain from operations
illustrates 80.3% growth from 2004's $1,320,770 to 2005's $2,381,579.
It should be noted that the required accounting treatment for Jetglobal's
results is an entry on the Company's Income Statement for the Company's
percentage of the net income of the Jetglobal partnership. In 2005, the revenues
of Jetglobal were $7,599,000, 30% of which is $2,279,700. This is an important
consideration to keep in mind for 2005 results, and the results of future
periods, since Management believes aircraft trading results for our Jetglobal
partnership will increase over time. Those who look to revenue growth as the
fundamental indication of a company's success and growth need to be aware that
no matter how much revenue is generated by Jetglobals's aircraft trading
activities no increase in revenue will be shown on the Company's results. Net
income, however, will reflect the Company's percentage of the net income of
Jetglobal operations.
Efforts to take advantage of opportunities, as they arose, to grow our aircraft
trading business met with 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 19% of the Company's 2005 annual
revenue. This aircraft trading was done directly by the Company without
Jetglobal participation. Our 2004 revenue included $7.9 million attributable to
aircraft sales compared with $13.6 million in 2005. Gross profit for the fourth
quarter of 2005 was $2,307,561 while gross profit for the fourth quarter of 2004
was $1,554,744, also a substantial increase.
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 $14.3 million and was virtually the same in 2005 at
$14.3 million. Billable hours for each period are essentially the same. The
comparative costs for all direct labor, including work performed by outside
contractors, was $8,428,919 in 2004 compared with $9,190,898 in 2005,
representing a 9% increase in cost. The relationship between direct labor costs
to direct labor revenues rose approximately 5% to about 64% in 2005 as compared
with 59% in 2004. Direct labor percentages will always vary to some degree due
to the nature of flat rate bidding as opposed to billing for all time and
materials. Included in the operating expenses for the Company in the years ended
December 31,2005and December 31, 2004 are $326,594 and $476,613, respectively,
associated with the award of stock and stock options.
Page 37
In order to compare results from one period to the next it should be remembered
that 2005 had no extraordinary gains. There was a reduction in tax expense of
$189,816 resulting from the overexpensing of taxes in our World Jet subsidiary
during a prior period. There was $1,144,502 in gains reported during 2004 that
were the result of several contract renegotiation items. In 2004, 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 in 2004 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 12, Related Party Transactions, in the footnotes of the
Audited Financial Statements included as part of this report. World Jet reported
gains of $449,308 in 2004 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. Additionally, 2005 results include the Company's share
on net income, $1,111,096, from our Jetglobal partnership.
Company SG&A expenses were $4,826,519 for 2004 and as a percentage of revenues
were 16%. In 2005 SG&A expenses were $7,788,047, which was 19% as a percentage
of revenues. During 2004, SG&A expenses included approximately $680,000 due to
commissions related to aircraft sales transactions compared with $1,260,000 in
2005. Other notable increases in SG&A expenses included:
o An increase in rent expense and facility use fees from 2004 to 2005 of
$253,824, mainly attributed to additional warehouse space for
inventory storage and annual increases imposed by our landlord, TAA.
Hangar space in Tijuana, Mexico to facilitate servicing our Avolar
contract was $139,093 and was fully recovered from Avolar.
o An increase in insurance from 2004 to 2005 of $192,215 mainly
attributed to Global's new D&O policy and new coverage related to
aircraft trading, and property coverage on additional space required
by inventory additions.
o An increase in travel from 2004 to 2005 of $156,418 relating to the
Avolar project and also to aircraft trading.
o Interest expense for 2004 was $329,023 and for 2005 was $386,927.
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.
Page 38
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, 2005:
- ---------------- ------------------------ ---------------- ---------------- --------------- ----------------- ----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ---------------- ------------------------ ---------------- ---------------- --------------- ----------------- ----------------
2005 Revenues $11,396,538 $23,505,112 $10,622,681 $ (4,295,683) $41,228,648
- ---------------- ------------------------ ---------------- ---------------- --------------- ----------------- ----------------
Year End Cost of Sales (7,930,337) (19,594,059) (7,829,248) 4,295,683 (31,057,961)
- ---------------- ------------------------ ---------------- ---------------- --------------- ----------------- ----------------
Results Expenses (2,489,347) (3,700,204) (1,599,557) (7,789,108)
- ---------------- ------------------------ ---------------- ---------------- --------------- ----------------- ----------------
Operating Profit (Loss) 976,854 210,849 1,193,876 2,381,579
- ---------------- ------------------------ ---------------- ---------------- --------------- ----------------- ----------------
It should be noted that the Company elected in 2005 to show aircraft trading
revenues under Global as opposed to HAT, which recorded that type of revenue in
2004. In 2004 aircraft trading revenue was 7.9 M and in 2005 was $13.6 M. These
numbers, of course, do not include Jetglobal aircraft trading results.
First Quarter 2006
Operating revenue for the three months ended March 31, 2006 was $11,508,723,
which was bolstered by the inclusion of $2,573,000 in revenue from aircraft
trading operations. Aircraft trading revenues were $1,000,000 higher than in
2005 during the same period. Our operating revenue for the three months ended
March 31, 2006 was approximately 33% more than the $8,652,236 that was earned
during the same period in 2005. The following table indicates the major sources
of these revenues:
Revenue breakdown 1st Quarter, 2006 Revenue breakdown 1st Quarter, 2005
(millions) (millions)
HAT MRO activity $6.005 MRO activity $4.922
Commissions 0 Commissions $ .680
Parts $ .011 Parts $ .082
AC/engine Sales $ .048
Other services $ .175 Other services $ .047
World Jet Part Sales, less Intercompany $2.095 Part Sales, less Intercompany $1.123
Commissions Commissions $ .023
Global AC Sales $2.525 Mesa manpower contract $1.525
Commissions .650 Mesa facility usage fees $ .250
Gross profit for the first quarter of 2005 was $2,297,831 while gross profit for
the first quarter of 2006 was $3,973,314, an 73% increase. During the first
quarter of 2005, 51% of HAT's revenue came from its top five customers, 36% of
Word Jet's revenue, after intercompany eliminations, was derived from its top 4
customers. During the first quarter of 2006, 50.5% of HAT's revenue came from
its top three customers, 32.6% of Word Jet's revenue, after intercompany
eliminations, was derived from its top customer.
Company SG&A expenses were $1,970,463 for the first quarter of 2006 and as a
percentage of revenues were 17%. The same period in 2005 showed SG&A expenses of
$1,628,734, which was 19% as a percentage of revenues. Management's continued
efforts to control costs remain a high priority for the remainder of 2006.
Interest expense for the Company, during the first quarter of 2005, was
$133,791. Interest expense for the company, during the 1st quarter of 2006, was
$84,674.
The following tables depict our results of operations for the first quarter of
2006 and for the first quarter of 2005 on a stand-alone basis and a consolidated
for Global, HAT and World Jet:
Page 39
1st Quarter 2006
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 3,175,000 6,554,442 2,975,124 1,195,843 11,508,723
Less: Cost of sales 1,949,139 4,586,370 2,195,743 1,195,843 7,535,409
Less: Expenses 676,674 777,610 516,179 1,970,463
Pre-tax Operating Profit (Loss) 549,187 1,190,462 263,202 2,002,851
1st Quarter 2005
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 1,775,000 5,730,920 2,255,788 1,109,472 8,652,236
Less: Cost of sales 975,000 4,879,870 1,609,007 1,109,472 6,354,405
Less: Expenses 598,825 677,609 361,300 1,628,734
Pre-tax Operating Profit (Loss) 210,175 173,441 285,481 669,097
Second Quarter 2006
- -------------------
Net sales for the three months ended June 30, 2006 increased $1.4 million, or
15.5%, to $10.2 million from $8.8 million for the three months ended June 30,
2005. The increases were due to increases in the segments of Hamilton Aerospace
Technologies and Global Aircraft Trading.
Net sales for the six months ended June 30, 2006 increased $4.2 million, or
24.2%, to $21.7 million from $17.5 million for the six months ended June 30,
2005. The reasons for the increase in net sales for the six months ended June
30, 2006 compared to the comparable period of the prior year, was due to the
reasons described above.
Cost of sales consists of costs of inventory sold for World Jet, time and
materials for HAT and aircraft purchase price for Global aircraft trading.
Cost of sales for the three months ended June 30, 2006 increased $1.4 million,
or 21.8%, to $7.8 million from $6.4 million for the three months ended June 30,
2005. Cost of sales for the six months ended June 30, 2006 increased $2.6
million, or 20.7%, to $21.7 million from $17.5 million in the prior year period
ended June 30, 2005. Cost of sales for the three and six months ended June 30,
2006 increased compared to the prior year as a result of increase in net sales.
Cost of sales for Global for the six-month period ending June 30, 2006 includes
the cost of an engine in the amount of $686,710. This engine had to be purchased
to replace one damaged during shipping. The company has initiated a suit to
recover this amount from the freight company involved and has made a claim
against our insurance. If the claim is accepted for the full amount, the profit
before tax would have been over $2.0 million.
Gross profit for the three months ended June 30, 2006 of $2.4 million exceeded
the prior year quarter gross profit by $32,000. The sales from Jetglobal are not
reflected in the Net Sales of Global Aircraft Solutions, as Global is 30%
beneficiary of the venture. The income from Jetglobal is shown as " Equity in
income of unconsolidated affiliates". For the quarter ended June 30, 2006 the
"Equity in income of unconsolidated affiliates" from Jetglobal is $968,933.
While the Company aggressively seizes revenue-producing opportunities such as
aircraft sales, management gauges results by looking at what historically has
been the core revenue producing activity, the sale of labor hours. In the first
half of 2005, revenue produced from labor was $7,947,876 as compared with
$8,158,106 the first half of 2006. This represents an increase of 3%. The
comparative costs for all direct labor, including work performed by outside
contractors, was $4,797,509 in the first half of 2005 compared with $5,043,471
for the same period in 2006. All direct labor costs were 45% of total sales in
first half of 2005 compared with 38% in the first half of 2006. The relationship
between direct labor costs and direct labor revenues rose 2% from 2005 to 2006.
Direct labor percentages will always vary to some degree due to the nature of
flat-rate bidding as opposed to billing for all time and materials. Also, a
substantial sudden increase in volume can be expected to have a temporary impact
on efficiencies and are viewed by Management as a temporary consequence of
growth. Management is confident that adjustments to increased volume will be
made and profitability will benefit over time.
Page 40
Selling, general and administrative expenses for the three months ended June 30,
2006 decreased as percentage to sales to 18% from 19.7% in three months ended
June 30, 2005. Selling, general and administrative expenses for the six months
ended June 30, 2006 decreased as percentage to sales to 17.5% from 19.3% in six
months ended June 30, 2005.
Interest expense for the Company, during the first half of 2006, was $231.868.
Management is cautiously optimistic that our adeptness at garnering jobs with
the likelihood of similar high gross profit potential and our continued
vigilance at holding down costs will be sustainable for the remainder of 2006.
HAT's option of being selective in the work booked is due to their growing
reputation for providing quality, on-budget, on-time deliveries to their
customers. HAT and World Jet are experiencing success in securing new customers
and securing more business from existing customers as well. Global has
experienced some success in branching out into the aircraft trading arena and
Management believes this segment will experience increasing growth and profits
during the last half of 2006 and into the future.
The following tables depict our pre-tax operating profit for the second quarter
of 2005 and for the second quarter of 2006 on a stand-alone basis and a
consolidated for Global, HAT and World Jet:
2nd Quarter 2005
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 1,420,000 6,364,608 2,092,211 1,047,441 8,829,378
Less: Cost of sales 750,068 5,169,421 1,558,291 1,047,441 6,430,339
Less: Expenses 373,059 1,124,751 241,237 1,739,047
Pre-tax Operating Profit (Loss) 296,873 70,436 292,683 659,992
2nd Quarter 2006
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 1,300,000 7,788,142 3,187,544 2,077,035 10,198,651
Less: Cost of sales 1,574,485 5,841,501 2,429,094 2,077,035 7,768,045
Less: Expenses 658,864 711,683 471.895 1,842,442
Pre-tax Operating Profit (Loss) (933,349) 1,234,958 286,555 588,164
The cost of sales in Global exceeds the revenues because it includes a one-time
engine purchase of $687K as discussed in the cost of sales comments above.
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.
Page 41
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
On December 9, 2005, Global Aircraft Solutions, Inc ("Global"), Hamilton
Aerospace Technologies, Inc. ("HAT"), a wholly owned subsidiary of Global
Aircraft Solutions, Inc. and World Jet Corporation, ("WJ") a wholly owned
subsidiary of Global Aircraft Solutions, Inc. (collectively the "Borrowers")
closed on a first Modification to the May 5, 2005 Initial Loan Agreement with
M&I Marshall & Ilsley Bank ("M&I Bank"). The modification increased the $2.5
million operating line of credit to $5 million ("Line of Credit"); added a
Guidance Line of Credit in the amount of $7 million ("Guidance Credit") solely
for the acquisition of aircraft and Letter of Credit Facilities in combined
amounts not to exceed $200,000.00. The 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 at December 31, 2005 was 7.39% per annum. 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.
The balance due of the Line of Credit at June 30, 2006 was $4,811,929. The Line
of Credit also secures a Letter of Credit for $128,000 which was issued to TAA
as part of the lease agreement for the HAT facility.
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 June
30, 2006 were as follows:
Total assets increased from $25,031,498 at March 31, 2006 to $28,503,780 at
June 30, 2006. Significant changes for the period were:
Cash on hand decreased $119,329.
Accounts receivable increased $2,927,065.
Notes receivable decreased $843,935 during the second quarter of
2006. Most of this difference was due to Falcon Air Express
returning engines to satisfy the balance of their note in the
amount of $669,428.
Costs and expenses on uncompleted contracts in excess of billings
decreased $984,067.
Page 42
Equity in net assets of or advances to affiliates increased
$2,648,873. During the quarter the Jetglobal partners agreed that
$1,975,000 previously shown as a payment by Jetglobal to Global
should actually be taken as a contra against BCI's account
receivable.
The Company's second quarter Balance Sheet reflects the
reclassification of $2,568,395 of inventory to inventory,
noncurrent. This number largely represents unsold World Jet
inventory acquired as part of the World Jet purchase on January
1, 2004
During the second quarter of 2006, total liabilities increased from
$9,807,548 at March 31, 2006 to $12,000,050 at June 30, 2006, primarily
due to:
Accounts payable increased over the March 31, 2006 balance by
$856,117.
Billings in excess of costs and expenses on uncompleted contracts
increased $906,625.
Accrued liabilities increased $191,027 reflecting the increased
outstanding accrued payroll due to the scheduled timing of check
issuance.
Income taxes payable increased $541,547.
Cash
As of June 30, 2006 we had $176,419 in cash on hand and approximately $8,644,220
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
No short term financing was in place at December 31, 2005.
Long-Term Financing
On December 9, 2005, Global, HAT, a wholly owned subsidiary of Global and World
Jet, a wholly owned subsidiary of Global (collectively the "Borrowers") closed
on a First Modification to the May 5, 2005 Initial Loan Agreement with Global's
existing bank. The modification increased the $2.5 million operating line of
credit to $5 million, added a Guidance Line of Credit in the amount of $7
million solely for the acquisition of aircraft and Letter of Credit Facilities
in combined amounts not to exceed $200,000. The interest rate on the Line of
Credit was reduced from 3.5% 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 Line of Credit and any
Letter of Credit Facility remain secured by a first priory lien on Global's,
HAT's and World Jets 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 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 the Line of Credit, Guidance Credit and Letter of Credit Facility shall be
due on the expiration date. The interest rate applicable to the Line of Credit
on December 31, 2005 was 7.39% per annum.
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 an 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.
At December 31, 2005, the Company was not in compliance with the quick ratio
(defined as cash, liquid cash equivalents and accounts receivable, divided by
current liabilities) covenant of the loan agreement. The ratio is to be at least
..90 to 1. At December 31, 2005 the ratio for the Company was .49 to 1.
Page 43
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
three (3) employment agreements between the Company and officers Ian Herman,
John Sawyer and Govindarajan Sankar which 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.
Govindarajan Sankar
The Company has an employment agreement with Govindarajan Sankar that provides
that he will serve as the Chief Financial Officer of the Company until June
2009. Mr. Sankar will receive a base annual salary of $150,000.00, subject to
annual review. Upon completion of the first year of service, Mr. Sankar will be
awarded 75,000 shares of Global common stock; upon completion of the second year
of service, Mr. Sankar will be awarded 100,000 shares of Global common stock;
and upon completion of the third year of service, Mr. Sankar will be awarded
125,000 shares of Global common stock. Mr. Sankar will also be eligible for
discretionary cash and/or stock bonuses as determined from time to time by
Global's Board of Directors. In addition, Mr. Sankar received a one time payment
of $25,000.00 upon signing the Agreement for any and all relocation costs
incurred.
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.
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.
Page 44
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.
Key Operational Strategies
--------------------------
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 2006.
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 45
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 Global's operations
group by limiting work contracts to those perceived to have a high probability
of success or those that are supportive of Global's aircraft trading activities.
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 Global and it's subsidiaries 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. Global and it's subsidiaries are 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 by identifying and developing
those business opportunities that offer the highest return on investment.
o Optimize 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 Global 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, Global and it's subsidiaries have 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 46
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 and
World Jet facilities 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 and World
Jet are 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 and greater management focus on growing the less
labor-intensive and higher-margin aircraft trading and aircraft parts sales
segments of the Company. Our goal is a growth rate in both the aircraft trading
and parts sales side of the business in the range of at least 25% to 50% per
year over at least the next two years.
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 Company 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 Global. 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 47
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. Additionally, World Jet is leasing 59,000 square
feet adjacent to the HAT complex for the purpose of inventory storage.
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 48
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 through October 26, 2004 , the
Common Shares were quoted under former symbol "RDVN", on the OTC Bulletin Board
maintained by the National Association of Securities Dealers, Inc. Subsequent to
October 26, 2004, and as the result of the Company's name change to Global
Aircraft Solutions, Inc. the common shares were quoted under the symbol "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 June 30, 2006, the approximate number of record
holders of Company common stock was 66 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
2006
First Quarter $ 1.76 $ 1.30
Second Quarter 1.70 1.13
Page 49
HIGH LOW
2005
First Quarter $ .94 $ .73
Second Quarter 1.36 .84
Third Quarter 1.94 1.17
Fourth Quarter 1.57 1.30
2004
First Quarter $ .53 $ .23
Second Quarter .86 .19
Third Quarter .72 .52
Fourth Quarter .85 .45
EXECUTIVE COMPENSATION
Global currently has in place an employee stock compensation plan and two
compensatory stock option plans. 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 Stock Awards Underlying Payouts Compensation
position options &
SAR's
(Shares)
Ian Herman 2005 $125,655 $16,000 None None None None None
Chairman, CEO
2004 $120,012 $13,000 $8,000 (1) 2003award 133,334 None None
vested
2 2003 $109,717 None None 2,500,000 None None None
2002 $ 75,240 None None None $40,000 None None
Page 50
John B. Sawyer 2005 $155,755 $35,000 None None None None None
President, COO
2004 $146,546 $26,000 $46,000(1) 2003award 766,666 None None
vested
2 2003 $142,159 None None 2,500,000 None None None
2002 $ 88,310 None None 400,000 None None None
Gordon 2005 $40,000 None None None None None None
Hamilton,
Director
2004 $46,598 None None None None None None
3 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
4 2002 $ 75,240 $15,000 None None None None None
Randy J. Sasaki 2004 None None None None None None None
Former Director
2003 $0 None None None None None None
5 2002 $0 $22,500 None None None None None
John 2004 None None None None None None None
Brasher
Former Director
2003 $0 None None None None None None
5 2002 $0 None $18,340 None None None None
- ----------------------------------------------------------------------------------------------------------------------
(1) Represents the amount of compensation from options awarded in May 2004 based
up a $.06 discount between the exercise price and the market price at the
measurement date.
Page 51
(2) The Restricted stock awards given to Herman and Sawyer in 2003 are pursuant
to Employment Agreements filed under form DEF 14C on September 26, 2003.
(3) Hamilton became a director September 1, 2003.
(4) The bonus amounts payable in 2002 to Clark consist of awards of common stock
pursuant to the 1997 Employee Stock Compensation Plan. The restricted stock
awards consist of common stock awarded pursuant to the 1997 Employee Stock
Compensation Plan.
(5) Sasaki and Brasher were directors, and Sasaki was an executive officer of
the Company for the years respectively ended December 31, 2001 and 2002. Their
service terminated on May 3, 2002. Other compensation payable to Brasher for
those years consisted of legal fees.
The Company has or intends to implement employee benefits that are or will be
generally available to all its employees and its subsidiary employees, including
medical, dental and life insurance benefits and a 401(k) retirement savings
plan.
None of the Named Officers received any form of non-cash compensation from the
Company or Hamilton Aerospace in the years ended December 31, 2005, 2004, 2003
or 2002, nor currently receives any such compensation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
Name Number of Securities % of Total Exercise or Base Expiration Date
Underlying Options/SAR's Granted Price ($/Sh)
Options/SAR's Granted to Employees in
Fiscal Year
- ----------------------------------------------------------------------------------------------------
NONE
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
Page 52
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 2,540,000 shares of Global
common stock have been granted under the 2002 CSO Plan Options to purchase
900,000 shares were outstanding at December 31, 2005 and 270,000 shares had not
vested and had not been issued under agreements with employees.
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. 3,430,000 shares of Common Stock
available under the ESC Plan have been awarded and 3,330,000 shares had been
issued at December 31, 2005.
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 Mason and 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 100,000 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, 2004
and 2005; the unaudited financial statements for the quarter ended March 31,
2006 and June 30, 2006, 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 Epstein, Weber and
Conover and have been so included in reliance upon the opinion of such
accountants given upon their authority as an expert in auditing and accounting.
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.
Page 53
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 have filed with the SEC, under the Securities Act of 1933, as amended (the
"Securities Act"), a registration statement on Form SB-2 with respect to the
common stock offered by this prospectus. This prospectus, which constitutes part
of the registration statement, does not contain all the information set forth in
the registration statement or the exhibits and schedules which are part of the
registration statement, portions of which are omitted as permitted by the rules
and regulations of the SEC. Statements made in this prospectus regarding the
contents of any contract or other documents are summaries of the material terms
of the contract or document. You should not assume that the information
contained in this prospectus is accurate as of any date other than the date on
the front of this document. Our business, financial condition, results of
operations and prospects may have changed since that date. With respect to each
contract or document filed as an exhibit to the registration statement,
reference is made to the corresponding exhibit.
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 54
Global Aircraft Solutions, Inc.
formerly,
Renegade Venture (NEV.) Corporation
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
DECEMBER 31, 2005
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT F-1 + F-2
CONSOLIDATED BALANCE SHEETS F-3 - F-4
CONSOLIDATED STATEMENT OF OPERATIONS F-5
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY F-6 + F-7
CONSOLIDATED STATEMENT OF CASH FLOWS F-8 + F-9
NOTES TO FINANCIAL STATEMENTS F-10 - F-34
Page 55
F-1
Larry O'Donnell, CPA, P.C.
Telephone (303)745-4545
2228 South Fraser Street Unit 1
Aurora, Colorado 80014
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Global Aircraft Solutions, Inc.
Tucson, Arizona
I have audited the accompanying balance sheet of Global Aircraft Solutions, Inc.
(formerly Renegade Venture (Nev.) Corporation ,as of December 31, 2004, and the
related statements of loss, changes in stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Global Aircraft Solutions, Inc.
(formerly Renegade Venture (Nev.) Corporation as of December 31, 2004, and the
results of its operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
Larry O'Donnell, CPA, P.C.
March 25, 2005
Page 56
F-2
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To the Board of Directors and Shareholders
of Global Aircraft Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Global Aircraft
Solutions, Inc. and subsidiaries as of December 31, 2005 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion of these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Aircraft Solutions, Inc.
and subsidiaries as of December 31, 2005 and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ EPSTEIN, WEBER & CONOVER, PLC
Scottsdale, Arizona
April 3, 2006
Page 57
F-3
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Balance Sheet
December 31, 2004 and 2005
(Audited)
ASSETS
2004 2005
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 549,904 $ 368,013
Accounts receivable 4,766,215 4,993,138
Note receivable 175,642 1,997,868
Inventory 3,507,249 6,580,092
Restricted funds 98,500
Other current assets 380,932 304,987
----------- -----------
TOTAL CURRENT ASSETS $ 9,379,942 $14,342,598
Property, plant and equipment 1,632,134 1,642,141
Investments 25,000 25,000
Equity in net assets of and advances to affiliates 6,333,690
Customer list, net 267,771 133,886
Agreement with vendor, net 56,980 28,490
Goodwill 38,992 38,992
Inventory, non current 212,500 2,187,343
Deferred income taxes 130,000
Other assets 144,693 192,481
----------- -----------
TOTAL ASSETS $11,758,012 $25,054,621
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
Page 58
F-4
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Balance Sheet
December 31, 2004 and 2005
(Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2005
------------ ------------
CURRENT LIABILITIES
Notes payable $ 0 $ 2,564,739
Accounts payable - trade
2,644,593 7,181,397
Due to factor 604,411 0
Customer deposits 280,537
Billings in excess of costs and estimated
earnings on contracts in progress 966,238 23,458
Accrued liabilities 844,709 570,724
Income taxes payable 311,182 685,904
Commitments & contingencies 0 0
------------ ------------
TOTAL CURRENT LIABILITIES $ 5,651,670 $ 11,026,222
TOTAL LIABILITIES $ 5,651,670 $ 11,026,222
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 100,000,000 Shares authorized in 2004 and
2005; 31,030,386 and 38,998,215 issued; 30,650,386 and
38,618,215 outstanding in 2004 and 2005 $ 31,030 $ 38,998
Additional paid-in capital 7,033,950 11,904,683
Deferred compensation (80,000)
Contributed capital 620,289 620,289
Retained earnings (Accumulated deficit) (1,578,927) 1,544,429
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 6,106,342 $ 14,028,399
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,758,012 $ 25,054,621
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
Page 59
F-5
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Statement of Operations
Years ended December 31, 2004 and 2005
(Audited)
2004 2005
------------ ------------
Net sales $ 30,851,118 $ 41,228,648
Cost of sales (24,195,426) (30,842,461)
Inventory write down (212,500) (215,500)
------------ ------------
Gross profit 6,443,192 10,170,687
Selling, general and administrative expenses (4,826,519) (7,788,047)
Penalties (295,903) (1,061)
------------ ------------
Gain (loss) from operations 1,320,770 2,381,579
Other income (expense):
Interest income 85,521 245,610
Interest expense (329,023) (386,927)
Gain on renegotiation of contract 1,144,502
Miscellaneous expense (9,084) (110)
Discounts taken 45,438 7,715
Miscellaneous income 31,162 130,571
Equity in income of unconsolidated affiliate 1,111,096
------------ ------------
Net profit (loss), before income taxes $ 2,291,286 $ 3,489,534
Provision for Income Taxes (366,178)
------------ ------------
Net profit (loss), after taxes $ 2,291,286 $ 3,123,356
============ ============
Net profit (loss) per share (Basic) $ 0.09 $ 0.09
============ ============
Net profit (loss) per share (Fully Diluted) $ 0.09 $ 0.09
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
Page 60
F-6
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 Year Ended December 31, 2005
Additional Contributed Deferred Treasury Accumulated Stockholder
Paid-in Capital Compensation Stock Earnings/Deficit Equity
Capital
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Shares Amount Amount Amount Amount Amount Amount
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Balance 17,480,000 17,860 2,412,373 620,289 (332,000) (3,870,213) (1,151,691)
December 31,
2003
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
1st Qtr, 2004
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Compensation 12,000
expensed
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
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 2,115,386 2,115 946,832
JG Capital, et al
for a cash
consideration or
$.52 per share
- -------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- -----------
Shares issued 55,000 55 17,545
upon 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 320,000
(Herman & Sawyer
employment
agreement, 3rd
Quarter of 2003)
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
4th Qtr, 2004
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Net Income/Loss 2,291,286
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Balance 30,650,386 31,030 7,033,950 620,289 0 (1,578,927) 6,106,342
December 31,
2004
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
1st Qtr, 2005
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Shares issued, 50,000 50 14,950
Options exercised
50,000 @ $0.30
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Page 61
F-7
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
2nd Qtr, 2005
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
No change
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
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 421,812 422 (422)
under non-cash
provision of
warrants.
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
4th Qtr, 2005
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Shares issued to 200,000 200 156,800 (80,000)
Directors under
Restricted stock
award ar $0.80,
100,000 shares
for 2005; 100,000
shares to be
expensed in 2006
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Shares issued to 15,000 15 19,485
employee under
agreement,
price
at measurement
date of $1.30
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- ------------
Shares issued to 60,000 60 35,940
employees under
agreement, price
at measurement
date of $.60
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- -------------
Shares issued 21,017 21 (21)
under non-cash
provision of
warrants
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- -------------
3,123,356
Net Income/Loss
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- -------------
Balance 36,618,215 38,998 11,904,683 620,289 (80,000) 1,544,429 14,028,399
December 31
2005
- ------------------- ----------- ---------- ----------- ------------- -------------- ---------- --------------- -------------
The accompanying notes are an integral part of these consolidated financial statements.
Page 62
F-8
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (Nev.) Corporation
Consolidated Statement of Cash Flows
Years ended December 31, 2004 and 2005
(Audited)
2004 2005
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net Profit/(Loss) $ 2,291,286 $ 3,123,356
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Equity in income of unconsolidated affiliate (1,111,096)
Depreciation 325,966 489,818
Amortization 162,376 162,376
Write down of inventory 212,500 212,500
Deferred income taxes 6,400
Allowance for Doubtful Accounts 14,944 473,208
Gain from Renegotiation of Contract (1,144,502)
Expenses paid with stock 476,613 326,594
----------- -----------
Net adjustments to reconcile net Profit(Loss) to net cash 47,897 559,800
Changes in Assets and Liabilities:
Accounts receivable (3,584,402) (2,775,131)
Prepaid expenses (75,157) (115,149)
Inventory (1,631,494) (5,260,186)
Investments (25,000)
Restricted funds (409) (98,500)
Other current assets 83,906 56,384
Other non-current assets (212,500) (177,788)
Accounts payable-trade 2,269,999 4,535,546
Accounts payable-related party 16,173 (6,219)
Customer deposits 252,737 (280,537)
Billings in excess of cost and estimated
earnings on contracts in progress 642,552 (942,780)
Income Taxes Payable 208,989 374,722
Accrued liabilities (414,735) (272,908)
----------- -----------
Net cash used by operating activities (130,158) (1,279,390)
Cash flows from investing activities:
Purchase of property, plant and equipment (1,388,070) (499,827)
Purchase of World Jet, net of cash acquired (959,644)
Payments received on notes receivable 196,390
Investment in Jetglobal, LLC (5,222,594)
----------- -----------
Net cash used by investing activities (2,347,714) (5,526,031)
Page 63
F-9
Cash flows from financing activities:
Proceeds from issuance of common stock 4,381,600 4,911,000
Payments related to common stock issued (395,853) (244,800)
Proceeds from bank loans 1,723,686 7,511,373
Repayments of bank loans (1,851,400) (4,949,634)
Due to factor (394,391) (604,409)
Redemption of shares (400,535)
Other financing activities, net (44,011)
----------- -----------
Net cash provided by financing activities 3,019,096 6,623,530
Net increase (decrease) in cash and cash equivalents 541,224 (181,891)
Cash and cash equivalents at beginning of period 8,680 549,904
----------- -----------
Cash and cash equivalents at end of period $ 549,904 $ 368,013
=========== ===========
o Interest paid in 2004 was $329,023 and in 2005, $375,745 was paid.
o No income taxes were paid in 2004 and$121,473 was paid in 2005.
Schedule of non-cash investing and financing activities:
o Common stock issued for World Jet corporation $500,000 in July 2004
o During the 4th quarter of 2005 $1,475,000 in accounts receivable was
transferred to a Note receivable. The Note stipulates weekly payments
of $52,993.76, has an interest rate of 8 % per annum, and is all due
and payable on or before June 9, 2006
o During the 4th quarter of 2005, a note receivable in the amount of
$600,000 was issued to Avolar Aero Lineas SA de CV. The note is all
due and payable on or before June 30, 2006 and bears interest at 6.5%
per annum.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 64
F-10
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
(Formerly Renegade Venture (NEV) Corporation)
Notes to Financial Statements
December 31, 2004 and December 31,2005
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of Global Aircraft
Solutions, Inc., formerly Renegade Venture (NEV.) Corporation and its wholly
owned subsidiaries, Hamilton Aerospace Technologies, Inc. ("HAT") and Johnstone
Softmachine Corporation ("Johnstone"), and World Jet Corporation ("World Jet"),
collectively, the "Company". HAT and Johnstone were acquired by Global on May 2,
2002. For accounting purposes, the transaction has been treated as an
acquisition of Global, formerly Renegade Venture (NEV.) Corporation by HAT and
as a recapitalization of Global, formerly Renegade Venture (NEV.) Corporation.
The acquisition of 100% of World Jet, Inc. was finalized on July 15, 2003, with
an effective date of January 1, 2003. As such, the financial statements reflect
the accounting activity of HAT since its inception date of April 5, 2002 and of
World Jet since January 1, 2004. Johnstone is currently inactive.
All material transactions and accounts with the subsidiaries have been
eliminated from the consolidated financial statements.
2. ORGANIZATION AND NATURE OF OPERATIONS
Global Aircraft Solutions, Inc., formerly Renegade Venture (Nev.) Corporation,
formerly Renegade Venture Corporation, was incorporated on February 13, 1989, as
a Delaware corporation. In 1997, the Company was re-domiciled as a Nevada
Corporation through a merger with a newly formed Nevada Corporation, Renegade
Venture (NEV.) Corporation, a wholly owned subsidiary of Renegade Venture
Corporation.
On May 2, 2002, the Company acquired 100% of the common stock of Hamilton
Aerospace Technologies Inc. ("HAT") pursuant to a Stock Exchange Agreement
whereby the former shareholders of HAT received 12,500,000 common shares of
Renegade Venture (NEV.) Corporation, now Global Aircraft Solutions, Inc.
Subsequent to this reverse merger there were 16,200,000 total common shares
outstanding. HAT was formed on April 5, 2002 and commenced operations on April
15, 2002. HAT provides large aircraft maintenance, repair and modification
services to owners and operators of large transport-category commercial jet
aircraft. Services of this nature are required and needed by passenger and cargo
air carriers, aircraft lessors, and governmental entities. HAT provides services
to both domestic and foreign customers.
On April 12, 2002, Renegade Venture (NEV.) Corporation, now Global aircraft
solutions, Inc., acquired 100% of the common stock of Johnstone Softmachine
Corporation (Johnstone) pursuant to the Stock Purchase Agreement and Plan of
Reorganization by and between LogiCapital Corporation (the principal shareholder
of Johnstone), an entity controlled by John Brasher, who, at that time, was a
director of Renegade Venture (NEV.) Corporation (he has since resigned) and
Renegade Venture (NEV.) Corporation. Mr. Brasher was also a principal
stockholder of Renegade Venture (NEV.) Corporation prior to the merger. As such,
this transaction represented a transfer between control groups and is reported
on a historical cost basis. Johnstone was formed on May 8, 1996 has had no
substantial operations, and is in the development stage. Johnstone currently
lacks the funding necessary to commence operations.
On July 15, 2004, the Company finalized an agreement to buy 100% of the common
stock of World Jet Corporation, a privately held aircraft parts and brokerage
company for $2.05 million payable as follows: $1,250,000 in cash at closing,
$300,000 in the form of a note maturing January 27, 2005, and 1,000,000 shares
of restricted common stock valued at $0.50 per share for the purposes of this
transaction ($500,000). The effective date of this agreement is January 1, 2004.
The shares were issued in July 2004. As a result of the acquisition, the Company
expects to increase its sales to existing customers as well as those serviced by
World Jet by combining the products and services of the two companies. It also
expects to lower its parts costs through World Jet's purchasing abilities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider cash and investments in securities with maturities at the date of
purchase of three months of less to be cash and cash equivalents.
Page 65
F-11
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Trade Accounts Receivable
Trade accounts receivable represent amounts billed but uncollected on both
completed and in-progress aircraft repair and maintenance contracts as well as
amounts billed but uncollected on parts shipped to customers.
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. The allowance is
estimated as a percentage of accounts receivable based on a review of accounts
receivable outstanding and the Company's prior history of uncollectible accounts
receivable. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to trade accounts receivable. Changes in the valuation
allowance were material to the financial statements in 2005. During 2005, the
Company had bad debt expense of $473,000. The Company believes its allowance at
December 31, 2005 is adequate based upon review of our outstanding accounts
receivable at December 31, 3005.
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 "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 value s are less that the
carrying value, a write down is recognized equal to an amount by which the
carrying value exceeds the market value of inventories.
Inventories include used parts and parts stripped from aircraft. These inventory
items are initially carried at original cost basis determined on the pro-rata
fair value of the individual parts based on market or catalog pricing.
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 66
F-12
Revenue and Cost Recognition
Revenues from fixed-fee contracts or portions of contracts for MRO sales are
recognized by employing the percentage-of-completion method, measured by the
cost-to-cost method, commencing when progress reaches a point where experience
is sufficient to estimate final results with reasonable accuracy. The cumulative
catch-up method is used to account for changes in estimates of total revenues,
total costs or extent of progress. Each project is considered complete when the
subject aircraft departs 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, 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, errors in specifications or designs, contract
termination, change orders in dispute or unapproved as to both scope and price,
or other causes of unanticipated additional costs. Revenue from part sales is
recognized when parts are shipped. Revenues from time and material contracts and
all other ancillary services are recognized as the services are performed.
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.
Reconciliation of EPS for 2004 and 2005 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 24,443,256 $0.09
- --------------------------------------------------- ------------------ ------------------- ----------------
- --------------------------------------------------- ------------------ ------------------- ----------------
Warrants 125,656
- --------------------------------------------------- ------------------ ------------------- ----------------
Options 418,073
- --------------------------------------------------- ------------------ ------------------- ----------------
Diluted EPS
- --------------------------------------------------- ------------------ ------------------- ----------------
Income available to common stockholders + assumed $2,291,286 24,986,985 $0.09
conversions
Page 67
F-13
For the Year Ended 2005
- --------------------------------------------------- ---------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- --------------------------------------------------- ------------------ ------------------- ----------------
Net Income $3,123,356
- --------------------------------------------------- ------------------ ------------------- ----------------
Basic EPS
- --------------------------------------------------- ------------------ ------------------- ----------------
Income available to common stockholders $3,123,356 33,848,722 $0.09
- --------------------------------------------------- ------------------ ------------------- ----------------
- --------------------------------------------------- ------------------ ------------------- ----------------
Warrants 639,449
- --------------------------------------------------- ------------------ ------------------- ----------------
Options 772,500
- --------------------------------------------------- ------------------ ------------------- ----------------
Diluted EPS
- --------------------------------------------------- ------------------ ------------------- ----------------
Income available to common stockholders + assumed $3,123,356 35,260,671 $0.09
conversions
- --------------------------------------------------- ------------------ ------------------- ----------------
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 6/01 - 7/07 36 2,663,607
55,000 27,135,000 7/07 - 7/09 2 148,279
400,000 27,535,000 7/09 -7/27 18 1,354,180
1,000,000 28,535,000 7/27 - 9/02 37 2,884,686
2,115,386 30,650,386 9/02 - 1/01 121 10,133,051
----- ------------
TOTALS 24,443,256
366
Page 68
F-14
Calculation of Dilution for 2004
No. of
shares Proceeds IncrementalDifference Date of issue Days to Weighted
Average
12/31/2004 Dilution
Warrants @ $ .34 720,000 $244,800 210,000 5/26/2004 219 125,656
Options @ $ .17 900,000 $153,000 581,250 5/13/2004 232 368,443
Options @ $ .20 100,000 $ 20,000 58,333 5/13/2004 232 36,976
Options @ $ .30 50,000 $ 15,000 18,750 4/28/2004 247 12,654
--------
Total Dilution 543,728
(Average price $0.48)
Calculation of Weighted Average Shares for 2005:
Issues Shares Date Days Weighted shares
30,650,386 1/01 - 1/18 17 1,427,552
50,000 30,700,000 1/18 - 8/03 197 16,569,797
7,200,000 37,900,386 8/03 - 8/30 27 2,803,590
399,000 38,299,386 8/30 - 9/14 15 1,573,947
22,812 38,322,198 9/14 - 11/23 70 7,349,463
275,000 38,597,198 11/23 - 12/27 34 3,595,355
21,017 38,618,215 12/27 - 1/01 5 529,017
------- ----------
TOTALS 365 33,848,722
Calculation of Dilution for 2005
No. of Proceeds Incremental Date of Days to Weighted
shares Issue Average
Difference 12/31/05 Dilution
Warrants @ $0.34 219,000 $ 74,460 159,650 Prior yrs 365 156,650
Warrants @ $0.52 104,111 54,138 58,996 Prior yrs 365 58,996
Warrants @ $0.68 540,000 $ 367,200 234,000 Prior yrs 365 234,000
Warrants @ $1.00 1,137,020 $1,137,020 189,503 Prior yrs 365 189,503
Options @ $0.17 900,000 $ 153,000 772,500 Prior yrs 365 772,500
---------
Total Dilution 1,411,949
Page 69
F-15
(Average price $1.20)
The total weighted average shares outstanding for the diluted earning per share
calculation for the year ended December 31, 2005 is 35,260,671
Equity in Net Assets and Advances to Affiliates
The investment in a 30% interest in Jetgobal, LLC is accounted for using the
equity method since the Company does not control Jetgobal, 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.
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 a undiscounted future cash
flows. If projected future cash flows indicate that the unamortized intangible
asset balances will not be recovered, an adjustment is made to reduce the net
intangible asset to an amount consistent with projected future cash flows
discounted at the Company's incremental borrowing rate.
The Company's amortizable intangibles consisted customer lists and vendor
agreements. Amortization expense on these totaled $162,376 and $162,376 for the
year ended December 31, 2005 and 2004, respectively. Amortization expense
related to customer lists and vendor agreements is expected to be as follows for
years ended December 31:
2006 (the final year of amortization) $162,376
--------
$162,376
========
Goodwill
Effective January 1, 2004, the Company acquired 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
Other assets 47,235
Customer list 401,657
Agreement with vendor 85,470
Goodwill 38,992
3,664,967
Page 70
F-16
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:
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.
Page 71
F-17
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.
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.
There were no options granted in the year ended December 31, 2005 nor was there
vesting of prior year option grants. Therefore, there is no pro-forma effect for
the year ended December 31, 2005.
4. SEGMENT INFORMATION
The company has divided its operations into the following reportable segments:
Aircraft maintenance, repair, and overhaul; Aircraft Brokerage; and Part sales.
Each segment represents distinct product lines, marketing, and management of its
business. Limited other services for each company, which represent a small
percentage of income, have been shown in the aggregate.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies.
Selected information by business segment is presented in the following tables
for the years ended December 31, 2004 and December 31, 2005.
Page 72
F-18
2004 2005
- --------------------------------------------------------- ------------ -------------
($millions) ($millions)
- --------------------------------------------------------- ------------ -------------
Segment sales:
Aircraft maintenance 17.220 19.135
Aircraft trading 7.941 13.551
Part sales 6.546 10.684
Other 1.002 2.153
- --------------------------------------------------------- ------------ -------------
Sub Total 32.709 45.223
Elimination of intersegment sales -1.858 -4.294
Total consolidated sales 30.851 41.229
Operating income:
3.270 2.232
.936 3.531
1.703 2.783
Other .534 1.625
- --------------------------------------------------------- ------------ -------------
Sub total 6.443 10.171
Selling, general, administrative expense -4.827 -7.834
Penalties -.296 -.001
Other, net .971 -.004
2005 share of Jetglobal net income (aircraft trading) 1.111
Consolidated earnings before taxes 2.291 3.489
Interest income by segment
Aircraft maintenance
Aircraft trading
Part sales
Corporate 85,521 245,610
- --------------------------------------------------------- ------------ -------------
Total interest income 85,521 245,610
Interest expense by segment
Aircraft maintenance
Aircraft trading
Part sales
Corporate 329,023 386,927
Total interest expense 329,023 386,927
Page 73
F-19
2004 2005
($) ($)
---------- -----------
Depreciation and amortization by segment:
Aircraft maintenance 411,286 330,334
Aircraft brokerage
Part sales
Corporate 77,056 321,900
Total 488,342 652,194
Net asset values:
Aircraft maintenance 6,633,504 7,154,108
Aircraft trading 1,224,600
Part sales 2,099,485 8,649,250
Corporate 3,025,023 7,918,367
Total 11,758,012 24,946,325
Capital expenditures:
Aircraft maintenance 1,080,173 344,824
Aircraft brokerage
Part sales
Corporate 307,897 155,003
Total 1,388,070 499,827
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, 2004 December 31, 2005
----------------- -----------------
Angola $ $ 62,028
Australia 97,741 1,700
Brazil 5,100
Canada 577 688
Columbia 3,946 24,904
Ecuador 2,207,564
Germany 51,520 28,025
Guam 2,170,778
Hong Kong 890
Indonesia 835
Ireland 224,141
Italy 72,883 62,357
Jordan 4,063,944 2,468,915
Lebanon 264,681
Malawi 868,943
Mexico 1,443,626 2,810,753
Page 74
F-20
Year Year
ended ended
December 31, 2004 December 31, 2005
----------------- -----------------
Nigeria $ 0 $ 308,755
Pakistan 6,510,001 382,795
Peru 19,600
Romania 27,000
Scotland 30,969
South Africa 17,345
Spain 2,200
Tunisia 4,130
UAE 18,600 9,191,462
United Kingdom 55,888 61,654
Venezuela 31,532 39,704
---------------- -----------
TOTALS 16,753,220 16,845,250
5. EQUITY IN NET ASSETS AND ADVANCES TO AFFILIATES
On August 26, 2005, the Company together with BCI Aircraft Leasing, ("BCI"),
formed a joint venture, Jetglobal, LLC, a Delaware limited liability company.
This is a special purpose LLC formed to acquire and remarket commercial jet
aircraft. BCI will be primarily responsible for the marketing aspects of
Jetglobal while the Company will be responsible for the technical, repair and
maintenance aspects associated with remarketing purchased aircraft. The Company
invested an initial amount of $1,125,000 for a 30% membership interest and BCI
invested an initial amount of $2,625,000 for a 70% membership interest in
Jetglobal. Pursuant to the terms of Jetglobal's Operating Agreement, although
the Company has a 30% membership and profit interest, it is only responsible for
25% of the costs and expenses associated with Jetglobal including any business
transactions. As of December 31, 2005, Equity in net assets and advances to
affiliates consisted of the following:
Initial investment in Jetglobal $1,125,000
Payment of 25% share of purchase of 3,846,154
aircraft
Expenses paid on behalf of Jetglobal 251,440
Share of 2005 net income 1,111,096
Balance at December 31, 2005 $6,333,690
Net sales, gross profit and net income within Jetglobal were $7,599, 000,
$4,154,000 and $3,703,000 for the year ended December 31, 2005. The balance
sheet of Jet global has assets of $21,715,000 and no liabilities.
Page 75
F-21
6. INVENTORY
Inventories consisted of the following:
2004 2005
Maintenance Hardware $ 991,206 $ 604,983
Parts for Resale 2,011,269 5,525,109
Aircraft & Engine 450,000
514,774
------------ ------------
$ 3,507,249 $ 6,580,092
Inventory, non-current
Inventory that has been held for more than one year is shown under this
category. At December 31, 2005, the balance of this account was $2,187,343 and
at December 31, 2004, it was $212,500. There were significant inventory
purchases during 2004 namely the World Jet and Hamilton Aviation inventories and
most of those inventories were not sold during 2005 resulting in the significant
difference in year-end account balances. The Company includes Inventory,
non-current in all reviews it does related to the carrying value of inventories.
7. PROPERTY AND EQUIPMENT
2004 2005
---------- ----------
Gross Asset Values
Land and improvements $ 25,094 $ 25,094
Buildings and improvements 183,866 190,479
Vehicles 73,328 79,028
Machinery and equipment 1,568,847 2,023,994
Computer Equipment 289,561 306,164
Other Office Equipment 50,805 59,568
---------- ----------
2,191,501 2,684,327
Less accumulated depreciation 559,367 1,042,186
---------- ----------
Property and equipment, Net $1,632,134 $1,642,141
========== ==========
During 2004 and 2005, depreciation expense was $325,966 and $489,818
respectively. (World Jet had $113,515 in pre-2004 depreciation when acquired.)
Page 76
F-22
8. 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. On June 29, 2004, the Board, through
its attorney, filed suit to recover these 1,500,000 shares. There have been no
entries in the accompanying financial statements related to the voiding of the
Seajay stock and these shares are included in the total of shares issued and
outstanding shown above
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. LogiCapital elected to assign the proceeds of
$100,000 note they received as payment for stock in this transaction to the
Company. The Company has recorded the $100,000 as a note receivable and recorded
$100,000 as contributed capital. 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.
Page 77
F-23
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, Inc.
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.
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.
Page 78
F-24
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 $99,0000
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.
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.
Page 79
F-25
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.
In January 2005, 50,000 options, issued as compensation for outside consultancy
services, were exercised at the option price of $.30 per share.
On August 3, 2005, warrants were converted to 7,200,000 shares of common stock
at $.68 per share.
On August 30, 2005, warrants were converted to 399,000 shares of common stock
under the non-cash conversion terms of the original agreement of issue.
On September 14, 2005, outstanding warrants were converted to 22,812 shares of
common stock under the non-cash conversion terms of the original agreement of
issue.
On November 23, 2005, 60,000 shares were issued to employees pursuant to 2004
employment agreements.
In the year ended December 31, 2005 the Company granted 200,000 shares under
restricted stock awards to two directors. The price at measurement date was $.80
per share 100,000 shares were vested in 2005, $80,000 was expensed in 2005 and
100,000 shares will vest in 2006 and $80,000 will be expensed at a rate of 1/12
per month during 2006.
On November 23, 2005 15,000 share of common stock were issued to an employee as
a bonus. The price per share at measurement date was $1.30 and the Company has
recorded a $19,500 expense in connection with the transaction..
Page 80
F-26
On December 27, 2005, outstanding warrants were converted to 21,017 shares of
common stock under the non-cash conversion terms of the original agreement of
issue.
Share value on Measurement Date Vesting Date
------------------- ------------------------------------- ------------------- -----------------
Common Shares 38,618,215
Issued and
Outstanding at
December 31, 2005
------------------- ------------------------------------- ------------------- -----------------
Unconverted
Warrants Issued:
------------------- ------------------------------------- ------------------- -----------------
@ $0.34 .50 219,000
@ $0.68 .50 540,000
@ $1.36 .50 7,740,000
@ $0.52 .65 104,111
@ $1.00 .65 1,137,020
@ $1.36 .65 1,137,020
------------------- ------------------------------------- ------------------- -----------------
Subtotal 10,877,151
Options Issued:
------------------- ------------------------------------- ------------------- -----------------
@ $0.17 .23 900,000
------------------- ------------------------------------- ------------------- -----------------
Subtotal 900,000
Awards of stock
pending under
employment
contracts
------------------- ------------------------------------- ------------------- -----------------
.60 07/30/2006 270,000
------------------- ------------------------------------- ------------------- -----------------
Subtotal 270,000
------------------- ------------------------------------- ------------------- -----------------
Total 50,665,366
------------------- ------------------------------------- ------------------- -----------------
Page 81
F-27
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
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 and 2005, those options issued to employees
that were not immediately exercised are summarized below : This table also
summarizes the Company's stock option plans as of December 31, 2005 and changes
during the year.
2004
- -------------------------------- -----------------------------------------------------------------------------
Weighted Average
Exercise Price
- -------------------------------- ------------------ ------------------------ ---------------------------------
Options outstanding at 150,000
beginning of year
Granted during year 900,000 $0.17 Exercisable on grant date in 2004
Exercised during year None
Forfeited during year None
Outstanding at 12/31/2004 1,050,000 $0.179 Exercisable on grant date
Options exercisable at year-end 1,050,000 $0.179 Exercisable on grant date
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.
Page 82
F-28
2005
- ----------------------------- ------------------------------------------------------------------------------
Weighted Average
Exercise Price
- ----------------------------- ----------------------- --------------------------- --------------------------
Options outstanding at 1,050,000 $0.179 Exercisable on grant date
beginning of year
Granted during year None
Exercised during year 50,000 $0.30
Cancelled during year 100,000 $0.20
Forfeited during year None
Outstanding at 12/31/2005 900,000 $0.17 Exercisable on grant date
Options exercisable at 900,000 $0.17
year-end
Weighted average fair value $ 0
of options granted during
the year
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.
Renegade 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.
Page 83
F-28
On December 9, 2005, Global Aircraft Solutions, Inc ("Global"), Hamilton
Aerospace Technologies, Inc. ("HAT"), a wholly owned subsidiary of Global
Aircraft Solutions, Inc. and World Jet Corporation, ("WJ") a wholly owned
subsidiary of Global Aircraft Solutions, Inc. (collectively the "Borrowers")
closed on a first Modification to the May 5, 2005 Initial Loan Agreement with
M&I Marshall & Ilsley Bank ("M&I Bank"). The modification increased the $2.5
million operating line of credit to $5 million ("Line of Credit"); added a
Guidance Line of Credit in the amount of $7 million ("Guidance Credit") solely
for the acquisition of aircraft and Letter of Credit Facilities in combined
amounts not to exceed $200,000.00. The interest rate on the Line of Credit was
reduced from 3.50% per annum to 3.00% per annum in excess of the applicable
LIBOR rate. At December the applicable interest rate was 7.39% per annum. The
interest rate 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.
The balance due of the Line of Credit at December 31, 2005 was $2,564,739. The
Line of Credit also secures a Letter of Credit for $128,000, which was issued to
TAA as part of the lease agreement for the HAT facility. The total available
credit facility is $12,000,000 at December 31, 2005 subject to the borrowing
base and the Guidance Credit Line provisions that $7,000,000 be used for
aircraft purchases only.
At December 31, 2005, the Company was not in compliance with the quick ratio
(defined as cash, liquid cash equivalents and accounts receivable, divided by
current liabilities) covenant of the loan agreement. The ratio is to be at least
..90 to 1. At December 31, 2005 the ratio for the Company was .49 to 1.
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. Interest is charged on the
total face value of invoices placed less the payments made. At December 31, 2005
all factored amounts were paid and there are no plans to reopen factoring
agreements in the future.
11. RELATED PARTY TRANSACTIONS
BCI Aircraft Leasing, Inc.
BCI Aircraaft Leasing, Inc., Global's partner in Jetglobal, see Note 6,
accounted for 4% of Company revenue during 2005. The account receivable from BCI
at December 31, 2005 was $241,591.86.
Page 84
F-29
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.
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
$1,500,000 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.
Page 85
F-30
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.
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 were 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, 2004and December 31, 2005, costs and estimated earnings in
excess of billings and billings in excess of costs and estimated earnings on
uncompleted contracts consist of the following:
2004 2005
----------- -----------
Costs incurred on uncompleted contracts $ 1,161,109 $ 1,072,582
Profit earned to date 412,938 1,156,235
----------- -----------
$ 1,574,047 $ 2,228,817
Less: Billings to date (2,855,203) (2,252,275)
----------- -----------
($1,281,156) ($ 23,458)
Included in the accompanying balance sheet at December 31, 2004 and 2005 under
the following caption:
Billings in excess of costs and estimated earnings on uncompleted contracts
2004 2004
----------- -----------
Billings in excess from above $ 1,281,156 $ 23,458
Time and material earnings unbilled (314,918) 0
----------- -----------
Net $ 966,238 $ 23,458
=========== ===========
Billings in excess are the result of amounts due from customers under
contractual terms, which can be, in some cases, in advance of actual work
performed.
Page 86
F-31
13. TRADE ACCOUNTS RECEIVABLE
As of December 31, 2004 and December 31, 2005, trade accounts receivable consist
of the following:
2004 2005
----------- -----------
Contracts in progress $ 1,961,319 $ 769,322
Completed contracts 2,858,045 4,516,323
----------- -----------
$ 4,819,364 $ 5,285,645
Less: allowance for doubtful accounts (53,149) (292,507)
----------- -----------
$ 4,766,215 $ 4,993,138
14. NOTES RECEIVABLE
On September 1, 2003 Global was tendered a $100,000 note receivable. The note
bears interest at 5% and is all due and payable February 28, 2006.
During the 4th quarter of 2005 $1,475,000 in accounts receivable was transferred
to a Note receivable. The Note stipulates weekly payments of $52,993.76, has an
interest rate of 8 % per annum, and is all due and payable on or before June 9,
2006 During the 4th quarter of 2005, a note receivable in the amount of $600,000
was issued to the Company by Avolar Aero Lineas SA de CV. The note is all due
and payable on or before June 30, 2006 and bears interest at 6.5% per annum.
15. INCOME TAXES
The Company had no current State or Federal income tax expense for the years
ended December 31, 2004 and December 31, 2005
2004 2005
--------- ---------
Current provison/(benefit) $ -- $ 372,578
Deferred provision/(benefit) $ -- (6,400)
--------- ---------
$ -- $ 366,178
========= =========
Page 87
F-32
2004 2005
----------- -----------
Federal income tax expense (benefit)
at statutory rate (34%)
$ 855,000 $ 1,186,442
State income tax expense (benefit) net
of federal tax effect 81,000 174,476
Benefit of new operating loss carryover (936,000) (951,200)
Deferred income tax valuation allowance
Surtax exemption and other (43,540)
----------- -----------
Net income tax expense
$ 0 $ 366,178
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, 2004 and December 31, 2005 in
the accompanying balance sheet is summarized below:
2004 2005
Deferred tax assets
Allowance for bad debts 117,200
Impaired goodwill 46,400
Amortization of intangibles 102,000
Net operating loss carry forward 370,000
Less valuation allowance (370,000)
-------- --------
Deferred tax liabilities 0 265,600
Depreciation 78,000
Page 88
F-33
Deferred tax liabilities 78,000
-------- --------
Valuation allowance (57,000)
Deferred tax assets, net 130,000
At December 31, 2004, the Company had approximately $1,000,000 of unused Federal
net operating loss carry forwards.
The valuation allowance decreased by $951,200 during the year ended December 31
2005.
16. CONCENTRATION OF REVENUES
The Company's top four customers accounted for 37.1% of sales during the year
ended December 31, 2005. The Company's top four customers accounted for 56% of
sales during the year ended December 31, 2004. Five customers accounted for 45%
of the Company's accounts receivable at December 31, 2005. The broadening of our
customer base will spread the risk associated with a potential failure of a
significant customer. Efforts are continually being made to broaden our customer
base 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 2004 & 2005 are listed in the table below:
2004-Top Four Customers 2004- % Of Revenues 2005-Top Four Customers 2005- % Of Revenues
- -------------------------- ----------------------- ---------------------------- -----------------------
Customer A 21.3 Customer E 16.7
Customer B 13.2 Customer C 8.3
Customer C 11.7 Customer F 6.6
Customer D 9.8 Customer G 6.0
Top Four-2004 Total % 56 Top Four-2005 Total % 37.6
17. GAIN ON RENEGOTATION OF CONTRACTS
During the quarter ended March 31, 2004, an agreement between the Company and
Hamilton Aviation was negotiated that eliminated an accrued liability for rental
payments resulting in a gain of $88,000. During the first and second quarters of
2004 our World Jet, subsidiary successfully negotiated with creditors reductions
in some liabilities which resulted in gains totaling $449,338.
On July 8, 2004, the Estate Administrator, on behalf of Hamilton Aviation, Inc.,
accepted an offer by HAT calling for satisfaction of all of its obligations
under the May 6, 2004 Settlement Agreement by payment of a lump sum of $750,000
on or before September 6, 2004. HAT made this final lump sum payment and the
resulting elimination of accrued liabilities resulted in a gain of $607,194
recorded during the quarter ended September 30, 2004.
Page 89
F-34
Summarized below are the $ amounts recognized on renegotiation of contracts by
quarter and by operating unit:
Quarter Ended: Global Aircraft Hamilton Aerospace World Jet Consolidated
- ------------------------- ---------------- --------------------- -------------- -----------------
March 31, 2004 $ 88,000 $ 224,654 $ 312,654
June 30, 2004 $ 224,654 $ 224,654
September 30, 2004 $ 607,194 $ 607,194
December 31, 2004 $ -0-
- ------------------------- ---------------- --------------------- -------------- ------------------
Totals for Year $ -0- $ 695,194 $ 449,308 $ 1,144,502
18. SUBSEQUENT EVENTS
On February 20, 2006, the Company executed an amendment to the lease with Tucson
Airport Authority, Inc. for the rent of the HAT facility extending the term for
one year until February 28, 2007 and stipulating a rental amount of $318,228.37
per year, payable monthly, commencing March 1, 2006.
On February 20, 2006, the Company executed an amendment to the lease with Tucson
Airport Authority, Inc. for the World Jet inventory storage facility extending
the term for one year until February 28, 2007 and stipulating a rental amount of
$210,911.59 per year, payable monthly, commencing March 1, 2006.
Page 90
F-35
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS F-36 & F-37
CONSOLIDATED STATEMENT OF OPERATIONS F-38
CONSOLOIDATE STATEMENT OF CHANGE IN STOCKHOLDER'S EQUITY F-39 & F-40
CONSOLIDATED STATEMENT OF CASH FLOWS F-41 & F-42
NOTES TO FINANCIAL STATEMENTS F-43 - F-61
Page 91
F-36
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Balance Sheet
December 31, 2005 and June 30, 2006
ASSETS
2005 2006
(audited) (unaudited)
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 368,013 $ 176,419
Accounts receivable 4,993,138 8,644,220
Note receivable 1,997,868 1,026,896
Inventory 6,580,092 5,988,341
Restricted funds 98,500 98,500
Other current assets 304,987 192,999
----------- -----------
TOTAL CURRENT ASSETS $14,342,598 $16,127,375
Property, plant and equipment 1,642,141 1,457,967
Investment 25,000 25,000
Equity in net assets of and advances to affiliates 6,333,690 7,846,089
Customer list, net 133,886 66,943
Agreement with vendor, net 28,490 14,245
Goodwill 38,992 38,992
Inventory, non-current 2,187,343 2,568,395
Deferred income taxes 130,000 297,348
Other assets 192,481 61,426
----------- -----------
TOTAL ASSETS $25,054,621 $28,503,780
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 92
F-37
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Balance Sheet
December 31, 2005 and June 30, 2006
LIABILITIES AND STOCKHOLDERS' EQUITY
2005 2006
(audited) (unaudited)
------------ ------------
CURRENT LIABILITIES
Notes payable - short term $ 2,564,739 $ 4,811,929
Accounts payable - trade 7,181,397 3,438,846
Customer deposits 69,193
Billings in excess of costs and estimated
earnings on contracts in progress 23,458 906,625
Accrued liabilities 570,724 766,369
Income taxes payable 685,904 2,007,088
Commitments and contingencies
------------ ------------
TOTAL CURRENT LIABILITIES $ 11,026,222 $ 12,000,050
------------ ------------
TOTAL LIABILITIES $ 11,026,222 $ 12,000,050
============ ============
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 100,000,000 shares
authorized and 38,998,215 and 39,470,354 shares
issued 2005 and 2006 and 30,650,386 and
39,090,183 shares outstanding 2005
and 2006 $ 38,998 $ 39,470
Additional paid-in capital 11,904,683 12,237,265
Deferred compensation (80,000) (116,500)
Contributed capital 620,289 620,289
Retained earnings 1,544,429 3,723,206
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 14,028,399 $ 16,503,730
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,054,621 $ 28,503,780
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 93
F-38
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Statement of Operations
For the Three Months and Six Months ended June 30, 2005 and 2006
(unaudited)
Three Months Three Months Six Months Six Months
ended June ended June ended June ended June
30, 30, 30, 30,
2005 2006 2005 2006
------------ ------------ ------------ -------------
Net sales $ 8,829,378 10,198,651 17,481,614 21,707,374
Cost of sales (6,375,131) (7,768,045) (12,674,327) (15,303,454)
Inventory write down (55,208) (110,417)
------------ ------------ ------------ ------------
Gross profit $ 2,399,039 $ 2,430,606 $ 4,686,870 $ 6,403,920
Selling, general and administrative expense (1,738,041) (1,831,271) (3,366,775) (3,801,734
Penalties (1,006) (11,171) (1,006) (11,171)
------------ ------------ ------------ ------------
Gain (loss) from operations $ 659,992 $ 588,164 $ 1,329,089 $ 2,591,015
Other income (expense):
Interest income 173,956 24,368 204,019 54,725
Interest expense (170,402) (147,194) (304,391) (231,868)
Discounts taken 17,715
Miscellaneous expense (116)
Miscellaneous income 18,666 18,113 93,917 18,605
Gain (loss) on asset disposal (8,518) (8,518)
Equity in income of unconsolidated affiliates 968,993 923,121
------------ ------------ ------------ ------------
$ 682,212 $ 1,443,926 $ 1,340,349 $ 3,346,964
Net profit (loss), Before taxes
Estimated taxes, State and Federal (45) (388,550) (90) (1,168,187)
------------ ------------ ------------ ------------
Net profit (loss), After taxes $ 682,167 $ 1,055,376 $ 1,340,259 $ 2,178,777
============ ============ ============ ============
Net profit (loss) per share, Basic 2006
2nd Qtr 39,011,179 shares, Year to
date 38,829,760shares; 2005 2nd Qtr 30,700,386 shares,
Year to date 30,695,693 shares $ 0.02 $ 0.03 $ 0.04 $ 0.06
Net profit (loss) per share, Fully diluted 2006
2nd Qtr 40,363,176 shares, Year to date
40,786,236 shares; 2005 2nd Qtr 34,623,863
shares, Year to date 33,980,830 shares $ 0.02 $ 0.03 $ 0.04 $ 0.05
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 94
F-39
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Formerly Renegade Venture (NEV.) Corporation
Consolidated Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 2005 and the Two Quarters Ended June 30, 2006
Additional Contributed Deferred Treasury Accumulated Stockholder
Paid-in Capital Compensation Stock Earnings/Deficit Equity
Capital
- -----------------------------------------------------------------------------------------------------------------------
Shares Amount Amount Amount Amount Amount Amount
------ ------ ------ ------ ------ ------ ------
Balance 30,650,386 31,030 7,033,950 620,289 0 (1,578,927) 6,106,342
December 31,
2004
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
1st Qtr, 2005
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Shares issued, 50,000 50 14,950
Options exercised
50,000 @ $0.30
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
2nd Qtr, 2005
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
No change
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
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 421,812 422 (422)
under non-cash
provision of
warrants.
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
4th Qtr, 2005
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Shares issued to 200,000 200 156,800 (80,000)
Directors under
Restricted stock
award at $0.80,
100,000 shares
for 2005; 100,000
shares to be
expensed in 2006
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Shares issued to 15,000 15 19,485
employee under
agreement,
price
at measurement
date of $1.30
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Shares issued to 60,000 60 35,940
employees under
agreement, price
at measurement
date of $.60
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Shares issued 21,017 21 (21)
under non-cash
provision of
warrants
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
3,123,356
Net Income/Loss
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Balance 38,618,215 38,998 11,904,683 620,289 (80,000) 1,544,429 14,028,399
December 31
2005
- ------------------- ---------- --------- ---------- ------------ -------------- --------- ---------------- -----------
Page 95
F-40
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
1st Qtr, 2006
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Stock issued as a signing bonus to new 10,000 10 13,890
director, price at measurement date $1.39
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Stock issued for services rendered valued 100,000 100 69,900
at $70,000.
Stock price at measurement date 50,000
shares @ $.56 and 50,000 shares @ $.84
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Compensation expensed 58,250
---------------------
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
2nd Qtr, 2006
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Shares issued warrants exercised @1.00 96,154 96 96,058
---------------------------------------
per share for a consideration of $96,154
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Stock issued for consultancy services to 100,000 100 152,900 (153,000)
be rendered in 2006, price at measurement
date $1.53
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Shares issued under non-cash 165,814 166 (166)
----------------------------
provision of warrants
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Net Income/Loss 2,178,777
---------------
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Balance 39,090,183 39,470 12,237,265 620,289 (116,500) 3,723,206 16,503,730
June 30, 2006
- ------------------------------------------- ----------- ------- ---------- -------- ---------- - ---------- ----------
Page 96
F-41
GLOBAL AIRCRAFT SOLUTIONS, INC.
-------------------------------
Condensed Consolidated Statement of Cash Flows
For the Six Months ended June 30, 2005 and 2006
(unaudited)
2005 2006
---------- ----------
Cash flows from operating activities:
Net Profit/(Loss) 1,340,259 2,178,777
Adjustments to reconcile net profit to net cash
provided (used) by operating activities:
Depreciation 231,912 271,655
Amortization 81,188 81,189
Allowance for Doubtful Accounts 110,417 (91,907)
Share of affiliate net income (923,121)
Gain/(loss) on disposal of fixed assets 13,785
Expenses paid with stock 120,497 310,108
Changes in Assets and Liabilities:
Accounts receivable 77,407 (5,534,175)
Prepaid expenses (455,312) 60,280
Costs and estimated earnings in excess of
billings on contracts in progress (337,388)
Inventory 2,264,908 208,688
Inventory, non-current (2,323,820) 2,011
Restricted Funds (98,500)
Other current assets
Other non-current assets (26,782) (36,293)
Accounts payable-trade (695,247) (3,800,551)
Accounts payable-related party (6,219)
Due to factor 290,911
Customer deposits (280,537) 69,193
Billings in excess of cost and estimated
earnings on contracts in progress (966,238) 883,167
Income tax payable 1,321,184
Accrued liabilities (396,315) 195,645
Net cash provided by/(used for) operating activities (1,068,859) (4,790,365)
Page 97
F-42
Cash flows from investing activities:
Purchase of property, plant and equipment (68,081) (101,267)
Notes receivable 973,452
Non-consolidated affiliate (Investment)/receipt 1,385,722
Net cash used for investing activities (68,081) 2,257,907
Cash flows from financing activities:
Proceeds from issuance of common stock 15,000 96,154
Payments related to issuance of common stock
Proceeds from bank loans 750,000 3,166,794
Repayment of bank loans (95,747) (919,604)
Proceeds from short term financing
Other financing activities, net 58,142 (2,480)
Net cash (used for) provided by financing activities 727,395 2,340,864
Net (decrease) in cash and cash equivalents (409,545) (191,594)
Cash and cash equivalents at beginning of period 549,904 368,013
Cash and cash equivalents at end of period 140,359 176,419
During the second quarter of 2006 the Jetglobal partners agreed that the
$1,975,000 recorded in the first quarter as a distribution payment from the
Jetglobal investment would be reclassified and taken as a contra against BCI's
account receivable with HAT. This reclassification is a non-cash transaction.
Inventory held over one year was reclassified to inventory, non-current during
the six months ended June 30, 2006 in the amount of $381,052. This is a non-cash
transaction.
Interest paid for the six months ended June 30, 2006 was $193,807. Interest paid
for the six months ended June 30, 2005 was $304,391.
Taxes paid during the six months ended June 30, 2006 were $0. Taxes paid during
the six months June 30, 2005 were $90.00.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 98
F-43
GLOBAL AIRCRAFT SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared, by
management, in accordance with accounting principles generally accepted in the
United States for interim financial information and the instructions for Form
10-Q and Regulation SK. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. All adjustments that, in the opinion
of management, are necessary for a fair presentation of the results of
operations for the interim periods have been made and are of a recurring nature
unless otherwise disclosed herein. The results of operations for the six months
ended June 30, 2006 are not necessarily indicative of the results that will be
realized for the entire fiscal year. These financial statements should be read
in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2005
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
Cash and Cash Equivalents
We consider cash and investments in securities with maturities at the date of
purchase of three months or less to be cash and cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Trade Accounts Receivable
Trade accounts receivable represent amounts billed but uncollected on both
completed and in-progress aircraft repair and maintenance contracts as well as
amounts billed but uncollected on parts shipped to customers.
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. The allowance is
estimated as a percentage of accounts receivable based on a review of accounts
receivable outstanding and the Company's prior history of uncollectible accounts
receivable. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to trade accounts receivable. During 2005, the Company
had bad debt expense of $473,000. The Company believes its allowance at June 30,
2006 is adequate based upon review of our outstanding accounts receivable at
June 30, 2006.
At June 30 2006, the Company has a receivable of $570,000 from a customer that
has filed Reorganization under Chapter 11 of the Bankruptcy Code. Management
believes that it has a substantial position in the bankruptcy proceeding and
that the Company has adequate collateral, which it will take as payment for this
receivable. The Company has provided a standard allowance for all receivables at
June 30, 2006.
Page 99
F-44
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 "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.
Inventories include used parts and parts stripped from aircraft. These inventory
items are initially carried at original cost basis determined on the pro-rata
fair value of the individual parts based on market or catalog pricing.
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.
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 June 30, 2006 there are no
material amounts in excess of the agreed contract price that the Company seeks
to collect from customers or others for customer caused delays, 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 June 30, 2006 and
2005 are as follows:
Page 100
F-45
For the Six Months ended June 30, 2006
- --------------------------------------------------- ------------------ ------------------- ----------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- --------------------------------------------------- ------------------ ------------------- ----------------
Net Income $2,178,777
Basic EPS
Income available to common stockholders $2,178,777 38,829,760 $0.06
- --------------------------------------------------- ------------------ ------------------- ----------------
Warrants 1,162,726
Options 793,750
Diluted EPS
Income available to common stockholders + assumed $2,178,777 40,786,236 $0.05
conversions
For the Quarter ended June 30, 2006
- --------------------------------------------------- --------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- --------------------------------------------------- ------------------ ------------------- ----------------
Net Income $1,055,376
Basic EPS
Income available to common stockholders $1,055,376 39,011,179 $0.03
- --------------------------------------------------- ------------------ ------------------- ----------------
Warrants 568,791
Options 783,206
Diluted EPS
Income available to common stockholders + assumed $1,055,376 40,363,176 $0.03
conversions
Page 101
F-46
For the Six Months ended June 30, 2005
- --------------------------------------------------- ---------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- --------------------------------------------------- ------------------ ------------------- ----------------
Net Income $1,340,259
Basic EPS
Income available to common stockholders $1,340,259 30,695,354 $0.04
- --------------------------------------------------- ------------------ ------------------- ----------------
Warrants 2,475,247
Options 809,890
Diluted EPS
Income available to common stockholders + assumed $1,340,259 33,980,830 $0.04
conversions
For the Quarter ended June 30, 2005
- --------------------------------------------------- ------------------ ------------------- ----------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- --------------------------------------------------- ------------------ ------------------- ----------------
Net Income $682,167
Basic EPS
Income available to common stockholders $682,167 30,700,386 $0.02
- --------------------------------------------------- ------------------ ------------------- ----------------
Warrants 3,094,764
Options 828,713
Diluted EPS
Income available to common stockholders + assumed $682,167 34,623,863 $0.02
conversions
Page 102
F-47
Calculation of Weighted Average Shares for Six Months ended June 30, 2006
- --------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
- ------------ ------------- ---------------------- ------- --------------
38,618,215 01/01/06 - 03/09/06 14,295,140
67
- ------------ ------------- ---------------------- ------- --------------
110,000 38,728,215 03/09/06 - 04/04/06 26 5,563,169
- ------------ ------------- ---------------------- ------- --------------
96,154 38,824,369 04/04/06 - 04/07/06 3 643,498
- ------------ ------------- ---------------------- ------- --------------
100,000 38,924,369 04/07/06 - 05/09/06 32 6,881,656
- ------------ ------------- ---------------------- ------- --------------
165,814 39,090,183 05/09/06 - 07/01/06 53 11,446,297
- ------------ ------------- ---------------------- ------- --------------
Total shares 38,829,760
Calculation of Weighted Average Shares for the Quarter ended June 30, 2006
- --------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
- ------------ -------------- ---------------------- ------- -------------
38,728,215 04/01/06 - 04/04/06 3 1,276,754
- ------------ -------------- ---------------------- ------- -------------
96,154 38,824,369 04/04/06 - 04/07/06 3 1,279,924
- ------------ -------------- ---------------------- ------- -------------
100,000 38,924,369 04/07/06 - 05/09/06 32 13,687,690
- ------------ -------------- ---------------------- ------- -------------
165,814 39,090,183 05/09/06 - 07/01/06 53 22,766,810
- ------------ -------------- ---------------------- ------- -------------
Total shares 39,011,179
Calculation of Dilution for Six Months ended June30,2006
- ---------------------------------------------------------
No. of shares Incremental
shares
Outstanding
- ----------------------- -------------- ------------------
Warrants @ $0.52 104,111 66,515
Warrants @ $0.68 367,200 285,000
Warrants @ $1.00 1,040,866 318,042
Warrants @ $1.36 12,072,747 493,168
- ----------------------- -------------- ------------------
Options @ $.17 900,000 793,750
- ----------------------- -------------- ------------------
Total 1,956,476
dilution
- ----------------------- -------------- ------------------
(Average Price $1.44)
- ----------------------- -------------- ------------------
- ---------------------------------------------------------
Calculation of Dilution for the Quarter ended June 30, 2006
- -----------------------------------------------------------
No. of shares Incremental
shares
Outstanding
- ----------------------- -------------- ------------------
Warrants @ $0.52 104,111 62,784
Warrants @ $0.68 367,200 259,695
Warrants @ $1.00 1,040,866 246,312
- ----------------------- -------------- ------------------
Options @ $0.17 900,000 783,206
- ----------------------- -------------- ------------------
Total 1,351,997
dilution
- ----------------------- -------------- ------------------
(Average Price $1.31)
- ----------------------- -------------- ------------------
Page 103
F-48
Calculation of Weighted Average Shares for Six Months ended June 30, 2005
- -------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
- ----------- -------------- ---------------------- ------- --------------
30,650,386 01/01/05 - 01/18/05 17 2,878,769
50,000 30,700,386 01/18/05 - 06/30/05 164 27,816,924
- ----------- -------------- ---------------------- ------- --------------
Total shares 30,695,693
- ----------- -------------- ---------------------- ------- --------------
Calculation of Weighted Average Shares for Three Months ended June 30, 2005
- ---------------------------------------------------------------------------
Issues Shares O/S Dates Days Average
- ----------- -------------- ----------------------- -------- ---------------
30,700,386 04/01/05 - 06/30/05 91 30,700,386
- ----------- -------------- ----------------------- -------- ---------------
Total shares 30,700,386
- ----------- -------------- ----------------------- -------- ---------------
Calculation of Dilution for Six Months ended June 30, 2005
- ----------------------------------------------------------
No. of shares Incremental
shares
Outstanding
- ----------------------- -------------- ------------------
Warrants @ $.34 720,000 450,989
Warrants @ $.52 158,654 67,995
Warrants @ $.68 7,740,000 1,956,264
Options @ $.17 900,000 731,868
Options @ $.20 100,000 78,022
- ----------------------- -------------- ------------------
Total 3,285,137
dilution
- ----------------------- -------------- ------------------
(Average Price $0.91)
- ----------------------- -------------- ------------------
Calculation of Dilution for Quarter ended June 30, 2005
- ---------------------------------------------------------
No. of shares Incremental
shares
Outstanding
- ----------------------- -------------- ------------------
Warrants @ $0.34 720,000 477,624
Warrants @ $0.52 158,654 76,971
Warrants @ $0.68 7,740,000 2,528,911
Warrants @ $1.00 1,137,020 11,258
Options @ $0.17 900,000 748,515
Options @ $0.20 100,000 80,198
- ----------------------- -------------- ------------------
Total 3,923,476
dilution
- ----------------------- -------------- ------------------
(Average Price $1.01)
- ----------------------- -------------- ------------------
Page 104
F-49
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 income or losses. The Company considers
whether future fair value of its investments has declined below their carrying
value whenever adverse events or changes in circumstances indicate that recorded
values may not be recoverable. If the Company considered any such decline to be
other than temporary, a write-down would be recorded to estimate fair value.
All significant intercompany profits and balances have been eliminated.
Intangible Assets
The amounts assigned to Customer List and Agreement with Vendor are recorded at
the value assigned when they were acquired in a business purchase. The amounts
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.
The company's amortizable intangibles consisted of customer lists and vendor
agreements. Amortization expense on these totaled $162,376 and $162,376 for the
years ended December 31,2004 and 2005, respectively. Amortization expense
related to customer lists and vendor agreements will be fully expensed at
$162,376 during 2006. Amortization for the first half of 2006 was $81,189.
Goodwill
The Company evaluates the carrying value of goodwill annually and between annual
evaluations if events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its goodwill carrying
amount. Such circumstances could include but are not limited to:
1. a significant adverse change in legal factors or in business climate
2. unanticipated competition
3. an adverse action or assessment by a regulator.
When evaluating whether goodwill is impaired, the Company compares the fair
value of the reporting unit to which the goodwill is assigned to that unit's
carrying amount, including goodwill. If the carrying amount of a reporting unit
exceeds its fair value, then the amount of the impairment loss must be measured.
The total of the implied fair value of all 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.
Page 105
F-50
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 was adopted by
the Company beginning in the first quarter of fiscal year 2006. 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 has adopted the modified prospective application
method.
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.
Stock-Based Compensation
- ------------------------
There were no options granted in the first half of 2006, ended June 30, 2006 nor
was there vesting of prior year option grants. Therefore, there is no pro-forma
effect for the six-month period ended June 30, 2006.
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.
Page 106
F-51
Selected information by business segment is presented in the following tables
for the six months ended June 30, 2006 and June 30, 2005.
Three Months Three Months Six Months Six Months
Ended Ended ended Ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
- ------------------------------------------------ --------------- ---------------- --------------- ---------------
($ millions) ($ millions) ($ millions) ($ millions)
Segment sales:
Aircraft maintenance 7.202 4.691 13.523 9.613
Aircraft trading .650 2.470 3.223 3.995
Part sales 3.242 2.093 6.227 4.407
Other 1.182 .623 2.007 1.623
- ------------------------------------------------ --------------- ---------------- --------------- ---------------
Sub Total 12.276 9.877 24.980 19.638
Elimination of intersegment sales -2.077 -1.047 -3.273 -2.156
Total consolidated sales 10.199 8.830 21.707 17.482
Operating income:
Aircraft maintenance 1.813 .586 3.428 .741
Aircraft trading -.924 .710 -.032 1.260
Part sales .765 .534 1.544 1.168
Other .777 .569 1.464 1.528
- ------------------------------------------------ --------------- ---------------- --------------- ---------------
Sub total 2.431 2.399 6.404 4.697
Selling, general, administrative expense -1.842 -1.738 -3.813 -3.367
Other, net -.114 .021 .167 .010
Share of Jetglobal net income (a/c trading) .969 .923
Consolidated earnings before taxes 1.444 .682 3.347 1.340
Interest income by segment
Aircraft maintenance .008 .019 .028 .047
Aircraft trading .007 0 .007 0
Part sales 0 .154 0 .154
Corporate .009 .001 .020 .003
Total interest income by segment .024 .170 .055 .204
Interest expense by segment
Aircraft maintenance .008 .050 .010 .150
Aircraft trading 0 0 0 0
Part sales .001 .120 .001 .154
Corporate .138 0 .221 0
Total interest expense by segment .147 .170 .232 .304
Page 107
F-52
Cost of sales for Global for the six-month period ending June 30, 2006 includes
the cost of an engine in the amount of $686,710. This engine had to be purchased
to replace one damaged during shipping. The company has initiated a suit to
recover this amount from the freight company involved and has made a claim
against our insurance.
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
- ---------------------------------------------- -- ---------------- - ---------------- -- --------------- -- ---------------
($) ($) ($) ($)
Depreciation and amortization by segment:
Aircraft maintenance 96,912 84,287 188,956 166,508
Aircraft trading
Part sales
Corporate 79,380 74,057 163,888 146,592
Total 176,292 158,344 352,844 313,100
Net asset values:
Aircraft maintenance 7,807,592 5,775,717 7,807,592 5,775,717
Aircraft trading 3,422,403 128,400 3,422,403 128,400
Part sales 9,112,905 4,379,254 9,112,905 4,379,254
Corporate 8,160,880 1,736,713 8,160,880 1,736,713
Total 28,503,780 12,020,084 28,503,780 12,020,084
Capital expenditures:
Aircraft maintenance 9,009 18,860 76,211 37,788
Aircraft trading
Part sales
Corporate 18,131 10,821 25,056 30,293
Total 27,140 29,681 101,267 68,081
Page 108
F-53
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:
Six Months Six Months
Ended Ended
June 30, 2006 June 30, 2005
---------------------- ---------------- ---------------
Angola $ 26,880
Australia 1,700
Brazil 5,100
Columbia 11,800
Germany 28,025
Indonesia 835
Italy 891 46,983
Ireland 209,395
Jordan 2,032,460 1,532,471
Korea 154,010
Lebanon 6,403
Malawi 111,000 149,975
Mexico 2,136,979 2,104,486
Pakistan 68,000 459,612
Philippines 128,936
South Africa 17,354
Spain 1,100
UAE 1,722,500
United Kingdom 98,383 30,700
---------------------- ---------------- ---------------
TOTALS $ 4,765,042 $ 6,320,936
---------------------- ---------------- ---------------
4. EQUITY IN NET ASSETS AND ADVANCES TO AFFILIATES
On August 26, 2005, the Company together with BCI Aircraft Leasing, ("BCI"),
formed a joint venture, Jetglobal, LLC, a Delaware limited liability company.
This is a special purpose LLC formed to acquire and remarket commercial jet
aircraft. BCI will be primarily responsible for the marketing aspects of
Jetglobal while the Company will be responsible for the technical, repair and
maintenance aspects associated with remarketing purchased aircraft. The Company
invested an initial amount of $1,125,000 for a 30% membership interest and BCI
invested an initial amount of $2,625,000 for a 70% membership interest in
Jetglobal. Pursuant to the terms of Jetglobal's Operating Agreement, although
the Company has a 30% membership and profit interest, it is only responsible for
25% of the costs and expenses associated with Jetglobal including any business
transactions.
As of June 30, 2006, Equity in net assets and advances to affiliates consisted
of the following:
Initial investment in Jetglobal $1,125,000
Payment of 25% share of purchase of 4,627,404
aircraft
Expenses paid on behalf of Jetglobal 359,468
Share of 2005 net income 1,111,096
Payment of earnings share to Global -300,000
Share of 1st Qtr 2006 expense -45,872
Share of 2nd Qtr 2006 income 968,993
Balance at June 30, 2006 $7,846,089
Page 109
F-54
Net sales, gross profit and net income within Jetglobal were $7,599,000,
$4,154,000 and $3,703,000 for the year ended December 31, 2005. At December 31,
2005, the balance sheet of Jetglobal had assets of $21,715,000 and no
liabilities. Net sales, gross profit and net income within Jetglobal were
$7,291,442, $3,761,828 and $2,977,072 for the six-months ended June 30, 2006. At
June 30, 2006, the balance sheet of Jetglobal had assets of $23,193,916 and
liabilities of $4,848,267.
5. STOCK, STOCK OPTIONS AND WARRANTS
During the first quarter of 2006, 10,000 shares of common stock were issued to a
new director as a signing bonus. The price of the stock at measurement date was
$1.39.
On March 9th of 2006, 100,000 shares of common stock were issued pursuant to the
completion of services contracted for under two separate agreements. The
agreements were entered into on April 1, 2005 and November 18, 2004. The board
determined the value of the services to be $70,000.00. The value of the stock at
the respective measurement dates was $.84 and $.56 per share, respectively.
On April 4, 2006, 96,154 shares of common stock were issued for a consideration
of $96,154. These shares were relative to warrants that had been outstanding at
$1.00 per share.
On April 7, 2006, 100,000 shares of common stock were issued as compensation for
outside consultancy services. The services are to be performed during 2006 and
1/12 of the related expense will be taken monthly during 2006. The value of the
shares at measurement date was $153,000.
On May 9, 2006, 165,814 shares of common stock were issued under the non-cash
provisions of warrants @$.34 per share. The non-cash calculation eliminated all
of the availability of 219,000 shares under the warrants.
Under the terms of a new three-year employment contract, which begins June 1,
2006, 75,000 shares of common stock will vest on May 31, 2007, 100,000 shares of
common stock will vest on May 31, 2008 and 125,000 shares of common stock will
vest on May 31, 2009. The measurement date for this transaction is May 3, 2006.
Share value on Vesting Date
Measurement Date
- ------------------ ----------------------- -------------- -------------------
Common Shares 39,090,183
Issued and
Outstanding
Unconverted
Warrants Issued:
@ $0.68 .50 540,000
@ $1.36 .50 7,740,000
@ $0.52 .65 104,111
@ $1.36 .65 1,137,020
- ------------------ ----------------------- -------------- -------------------
Subtotal 10,561,997
- ------------------ ----------------------- -------------- -------------------
Options Issued:
@ $0.17 .23 900,000
- ------------------ ----------------------- -------------- -------------------
Subtotal 900,000
- ------------------ ----------------------- -------------- -------------------
Page 110
F-55
Awards of stock
pending under
employment
contracts
- ---------------- ----------------------- -------------- -------------------
.60 07/30/2006 270,000
1.30 05/31/2007 75,000
1.30 05/31/2008 100,000
1.30 05/31/2009 125,000
- ---------------- ----------------------- -------------- -------------------
Subtotal 570,000
- ---------------- ----------------------- -------------- -------------------
Total 51,122,180
Pro-forma Stock-based Compensation Disclosure
Stock issued under plans to employees was issued at the value of the stock at
the measurement date. All options issued were immediately exercisable. Until
2004, options issued were immediately exercised. Those options issued to
employees that were not immediately exercised remained outstanding at June 30,
2006 and are summarized below:
Weighted Average
Exercise Price
- ------------------------- ---------------------- ----------------------- -------------------------
Options outstanding at 900,000 $0.17 Exercisable on grant date
beginning of year
Granted during quarters None
1 & 2
Exercised during None
quarters 1 & 2
Forfeited during None
quarters 1 & 2
Outstanding at 6/30/2006 900,000 $0.17 Exercisable on grant date
Options exercisable at 900,000 $0.17
quarter end, June 30,
2006
Page 111
F-56
A summary of the Company's stock option plans as of June 30, 2006 and changes
during the year is presented below:
Weighted Average
Exercise Price
- ------------------------- ---------------------- ----------------------- -------------------------
Options outstanding at 900,000 $0.17 Exercisable on grant date
beginning of year
Granted during quarters None
1 & 2
Exercised during None
quarter 1 & 2
Forfeited during None
quarters 1 & 2
Outstanding at 3/31/2006 900,000 $0.17 Exercisable on grant date
Options exercisable at 900,000 $0.17
quarter end, June 30,
2006
Weighted average fair None
value of options
granted during the year
6. TRADE ACCOUNTS RECEIVABLE
As of June 30, 2006, trade accounts receivable consisted of the following:
7. CONTRACTS IN PROGRESS
At June 30, 2006 costs and estimated earnings in excess of billings and billings
in excess of costs and estimated earnings on uncompleted contracts consisted of
the following:
June 30, December 31,
2006 2005
---------- -------------
Unaudited Audited
Costs incurred on uncompleted $ 3,731,728 $ 1,072,582
contracts
Profit earned to date 1,804,504 1,156,235
----------- -----------
5,536,232 $ 2,228,817
Less: Billings to date (6,061,160) (2,252,275)
----------- -----------
$ (524,928) $ (23,458)
=========== ===========
Page 112
F-57
Included in the accompanying balance sheet at June 30, 2006 and December 31,
2005 under the following caption:
Billings in excess of costs and estimated earnings on uncompleted contracts.
June 30, December 31,
2006 2005
--------- -------------
Unaudited Audited
Billings in excess from above $(524,928) $ (23,458)
Time and material, prebilled (381,697) 0
--------- ---------
Net $(906,625) $ (23,458)
========= =========
Billings in excess are the result of amounts due from customers under
contractual terms, which can be, in some cases, in advance of actual work
performed.
8. NOTES RECEIVABLE
On September 1, 2003 Global was tendered a $100,000 note receivable. The note
bears interest at 5%. The due date of the note has been amended to September 20,
2006. At June 30, 2006, the note, plus interest, was outstanding in the amount
of $114,151.
During the 4th quarter of 2005, a note receivable in the amount of $600,000 was
issued to the Company by Avolar Aero Lineas SA de CV. The due date of the note
has been extended to September 20, 2006. The note bears interest at 6.5% per
annum. At June 30, 2006, the balance due plus interest was $626,926.
On March 7, 2006, Global accepted a note from Aloha Airlines, Inc. in the amount
of $425,000, payable at $48,622.21 per month commencing April 2, 2006. The note
bears interest at 7.06% per annum. The final payment is due December 2, 2006.
Payments on this note are current and the principal due on this note was
$285,818.98 on June 30, 2006.
9. INVENTORY
Inventories consisted of the following:
June 30, December 31,
2006 2005
--------- ------------
Unaudited Audited
Maintenance Hardware 508,334 $ 604,983
Parts for Resale 4,810,579 5,525,109
Aircraft & Engines 669,428 450,000
---------- ----------
$5,988,341 $6,580,092
========== ==========
Page 113
F-58
Non-current inventories consisted of the following:
June 30, December 31,
2006 2005
--------- ------------
Unaudited Audited
Maintenance Hardware $ 808,155 $ 767,657
Parts for Resale 1,760,240 1,419,686
Aircraft & Engines
---------- ----------
$2,568,395 $2,187,343
========== ==========
10. PROPERTY AND EQUIPMENT
June 30, December 31,
2006 2005
---------- ------------
Unaudited Audited
Land and improvements $ 25,094 $ 25,094
Buildings and improvements 201,079 190,479
Vehicles 71,728 79,028
Computers and Software 312,495 306,164
Other office equipment 57,575 59,568
Machinery and equipment 2,068,449 2,023,994
---------- ----------
Sub Total $2,744,044 $2,684,327
Less accumulated depreciation 1,286,077 1,042,186
---------- ----------
Property and equipment, Net $1,457,967 $1,642,141
========== ==========
During the 2005, depreciation expense was $489,818 and depreciation expense was
$271,655 during the 1st half of 2006.
Page 114
F-59
11. COMMITMENTS AND CONTINGENCIES
On December 9, 2005, Global Aircraft Solutions, Inc ("Global"), Hamilton
Aerospace Technologies, Inc. ("HAT"), a wholly owned subsidiary of Global
Aircraft Solutions, Inc. and World Jet Corporation, ("WJ") a wholly owned
subsidiary of Global Aircraft Solutions, Inc. (collectively the "Borrowers")
closed on a first Modification to the May 5, 2005 Initial Loan Agreement with
M&I Marshall & Ilsley Bank ("M&I Bank"). The modification increased the $2.5
million operating line of credit to $5 million ("Line of Credit"); added a
Guidance Line of Credit in the amount of $7 million ("Guidance Credit") solely
for the acquisition of aircraft and Letter of Credit Facilities in combined
amounts not to exceed $200,000.00. The interest rate on the Line of Credit was
reduced from 3.50% per annum to 3.00% per annum in excess of the applicable
LIBOR rate. At December the applicable interest rate was 7.39% per annum. The
interest rate 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.
The balance due of the Line of Credit at June 30, 2006 was $4,811,929. The Line
of Credit also secures a Letter of Credit for $128,000, which was issued to TAA
as part of the lease agreement for the HAT facility. The total available credit
facility is $12,000,000 at December 31, 2005 subject to the borrowing base and
the Guidance Credit Line provisions that $7,000,000 be used for aircraft
purchases only.
At June 30, 2006, the Company is in compliance with the quick ratio (defined as
cash, liquid cash equivalents and accounts receivable, divided by current
liabilities) as per the new agreement. The ratio is to be at least .60 to 1. At
June 30, 2006 the ratio for the Company was .735 to 1.
12. RELATED PARTY TRANSACTIONS
BCI Aircraft Leasing, Inc., Global's partner in Jetglobal, see Note 4, accounted
for 25% of the Company's revenue during the first half of 2006, ended June 30,
2006. The account receivable balance due from BCI at June 30, 2006 was
$1,463,726. Jetglobal accounted for 6% of the Company's revenue during the first
half of 2006, ended June 30, 2006. The account receivable balance due form
Jetglobal at June 30, 2006 was $2,011,846.
13. SUBSEQUENT EVENTS
On July 6, 2006, Comvest Capital, LLC as "Lender", and Global Aircraft
Solutions, as "Borrower", entered into a subordinated loan agreement. Under the
loan agreement, the Company will be indebted to the Lender in the principal
amount of $2,800,000. The principal amount of the agreement is all due and
payable October 6, 2006 with interest payments due monthly on the last day of
each month in the amount of 15% of the outstanding balance. These funds were
borrowed for potential investment purposes, but as the investment did not
materialize, the company will repay the loan amount by due date.
Page 115
F-60
To facilitate this loan agreement, on July 6, 2006, the Company and its wholly
owned subsidiaries Hamilton and WorldJet entered into a Subordination and
Intercreditor Agreement with M&I Marshall & Ilsley Bank (Lender) and Comvest
Capitlal, LLC, (Creditor).
Interest expense for the Company, during the first half of 2006, was $231.868.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Page 116
F-61
World Jet Corporation
Financial Statements
December 31, 2003 and 2002
Table of Contents
Page
Independent Auditor's Report F-62
Financial Statements
Balance Sheets F-63
Statement of Income F-64
Statements of Retained Earnings F-65
Statements of Cash Flows F-66
Notes to Financial Statements F-67-F-70
Page 117
F-62
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 118
F-63
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 119
F-64
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
=========== ===========
Page 120
F-65
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
===========
Page 121
F-66
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 122
F-67
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 123
F-68
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 124
F-69
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 125
F-70
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
========= =========
Page 126
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Global's By-Laws allow for the indemnification of Company Officers and Directors
in regard to their carrying out the duties of their offices. The Board of
Directors will make determination regarding the indemnification of the director,
officer or employee as is proper under the circumstances if he/she has met the
applicable standard of conduct set forth in subsections (a) and (b) of Section
145 of the Nevada General Corporation Law.
Section 78.751 of the Nevada Business Corporation Act provides that each
corporation shall have the following powers:
"1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of any fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a pleas of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had a reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in sections 1 and 2, or in defense of any claim, issue or
matter therein, he must be indemnified by the corporation against expenses,
including attorneys fees, actually and reasonably incurred by him in connection
with the defense.
4. Any indemnification under sections 1 and 2, unless ordered by a court or
advanced pursuant to section 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(A) By the stockholders;
(B) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(C) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or
(D) If a quorum consisting of directors who were not parties to the act,
suit or proceeding cannot be obtained, by independent legal counsel in
a written opinion.
5. The certificate of articles of incorporation, the bylaws or an agreement made
by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this section do not affect any
rights to advancement of expenses to which corporate personnel other than
director or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this section:
(a) Does not include any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in another capacity while
holding his office, except that indemnification, unless ordered by a
court pursuant to section 2 or for the advancement of expenses made
pursuant to section 5, may not be made to or on behalf of any director
or officer if a final adjudication establishes that his acts or
omission involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer
employee or agent and inures to the benefit of the heirs, executors
and administrators of such a person.
(c) The Company's Articles of Incorporation provides that "the Corporation
shall indemnify its officers, directors, employee and agents to the
fullest extent permitted by the General Corporation Law of Nevada, as
amended from time to time."
As to indemnification for liabilities arising under the Securities Act of 1933
for directors, officers or persons controlling the company, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and unenforceable. See section entitled
"Disclosure of Commission Position on Indemnification for Securities Act
Liabilities".
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of the offering are denoted below. Please note all amounts
are estimates other than the Commission's registration fee.
SEC Registration Fee - $2,998.26
State of New York Registration Fee - $2,250.00
Accounting Fees: - $2,500.00
Global will pay all expenses of the offering listed above. No portion of these
expenses will be borne by the selling shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
On May 31, 2004, the shareholders authorized the issuance of 9,600,000 shares of
common stock and 16,200,000 shares of common stock issueable upon the exercise
of warrants pursuant to a private placement to accredited investors, Barron
Partners and JG Capital. The Company relied upon Section 4(2) of Securities Act
of 1933, as amended (the "Act"). The Company issued the 9,600,000 shares of
common stock and 16,200,000 shares of common stock issueable upon the exercise
of warrants pursuant to an exemption from registration under Regulation D, Rule
506. Barron Partners received a warrant for 7,200,000 shares of common stock at
an exercise price of $.68 and a warrant to receive 7,200,000 shares of common
stock at an exercise price of $1.36. JG Capital received a warrant for 720,000
shares of common stock at an exercise price of $.34; 540,000 shares of common
stock at an exercise price of $.68; and 540,000 shares of common stock at an
exercise price of $1.36 On June 15, 2004, the shareholders authorized the
issuance of 1,000,000 shares of common stock pursuant to a private placement to
accredited investor, Ralph Garcia. The Company relied upon Section 4(2) of
Securities Act of 1933, as amended (the "Act"). The Company issued the 1,000,000
shares of common stock pursuant to an exemption from registration under
Regulation D, Rule 506. On August 15, 2004, the shareholders authorized the
issuance of 2,115,386 shares of common stock and 2,432,694 shares of common
stock issueable upon the exercise of warrants pursuant to a private placement to
accredited investors, Alpha Capital, Stonestreet, Whalehaven , Greenwich, JG
Capital, Heza Holdings and Grusko. The Company relied upon Section 4(2) of
Securities Act of 1933, as amended (the "Act"). The Company issued the 2,115,386
shares of common stock and 2,432,694 shares of common stock issueable upon the
exercise of warrants pursuant to an exemption from registration under Regulation
D, Rule 506. Alpha received a warrant for 625,000 shares of common stock at an
exercise price of $1.00 and 625,000 shares of common stock at an exercise price
of $1.36; Stonestreet received a warrant for 192,308 shares of common stock at
an exercise price of $1.00 and 192,308 shares of common stock at an exercise
price of $1.36; Whalehaven received a warrant for 144,231 shares of common stock
at an exercise price of $1.00 and 144,231 shares of common stock at an exercise
price of $1.36; Greenwich received a warrant for 96,154 shares of common stock
at an exercise price of $1.00 and 96,154 shares of common stock at an exercise
price of $1.36; JG Capital received a warrant for 95,192 shares of common stock
at an exercise price of $.52, 47,597 shares of common stock at an exercise price
of $1.00, and 47,597 shares of common stock at an exercise price of $1.36; Heza
Holdings received a warrant for 31,731 shares of common stock at an exercise
price of $.52, 15,865 shares of common stock at an exercise price of $1.00, and
15,865 shares of common stock at an exercise price of $1.36; and Grushko
received a warrant for 31,731 shares of common stock at an exercise price of
$.52, 15,865 shares of common stock at an exercise price of $1.00, and 15,865
shares of common stock at an exercise price of $1.36. On July 27, 2005,
7,200,000 shares of common stock were issued to selling shareholder Barron
Partners upon the exercise of $.68 warrants and the stock issueable upon
exercise of such warrants was issued pursuant to a private placement under Rule
506 of Regulation D of SEC Act of 1933 on May 31, 2004
The Company relied upon Section 4(2) of the Securities Act of1933, as amended
(the "Act"). Each prospective investor was given a private placement memorandum
designed to disclose all material aspects of an investment in the Company,
including the business, management, offering details, risk factors and financial
statements. Each investor also completed a subscription confirmation letter and
private placement subscription agreement whereby the investors certified that
they were purchasing the shares for their own accounts, with investment intent
and that each investor was either "accredited", or were "sophisticated"
purchasers, having prior investment experience or education, and having adequate
and reasonable opportunity and access to any corporate information necessary to
make an informed investment decision. This offering was not accompanied by
general advertisement or general solicitation and the shares were issued with a
Rule 144 restrictive legend.
Under the Securities Act of 1933, all sales of an issuers' securities or by a
shareholder, must either be made (i) pursuant to an effective registration
statement filed with the SEC, or (ii) pursuant to an exemption from the
registration requirements under the 1933 Act.
Rule 144 under the 1933 Act sets forth conditions which if satisfied, permit
persons holding control securities (affiliated shareholders, i.e., officers,
directors or holders of at least ten percent of the outstanding shares) or
restricted securities (non-affiliated shareholders) to sell such securities
publicly without registration. Rule 144 sets forth a holding period for
restricted securities to establish that the holder did not purchase such
securities with a view to distribute. Under Rule 144, several provisions must be
met with respect to the sales of control securities at any time and sales of
restricted securities held between one and two years. The following is a summary
of the provisions of Rule 144: (a) Rule 144 is available only if the issuer is
current in its filings under the Securities an Exchange Act of 1934. Such
filings include, but are not limited to, the issuer's quarterly reports and
annual reports; (b) Rule 144 allows resale of restricted and control securities
after a one year hold period, subjected to certain volume limitations, and
resales by non-affiliates holders without limitations after two years; ( c ) The
sales of securities made under Rule 144 during any three-month period are
limited to the greater of: (i) 1% of the outstanding common stock of the issuer;
or (ii) the average weekly reported trading volume in the outstanding common
stock reported on all securities exchanges during the four calendar weeks
preceding the filing of the required notice of the sale under Rule 144 with the
SEC.
EXHIBITS
3.1.............Amended and Restated Articles of Incorporation
3.2.............By Laws
4.1.............Stock Purchase Agreement (Barron Partners)
4.2.............2002 Compensatory Stock Option Plan
4.3.............2003 Employee Stock Compensation Plan
4.4.............Common Stock Purchase Warrant Issued May 31, 2004
4.5.............Common Stock Purchase Warrant Issued May 31, 2004
4.6.............Common Stock Purchase Warrant Issued May 31, 2004
4.7.............Form of Subscription Agreement (Alpha, Whalehaven,
Stonestreet., Greenwich)
4.8.............Form of Stock Purchase Agreement (Acquisition of
World Jet Corporation)
4.9.............Loan Agreement American Capital Ventures
4.10 ...........World Jet Factoring Agreement
5.1.............Opinion re: Legality
10.1............Property Lease
10.2............Employment Agreement Dated July 21, 2003 by and
between Ian Herman and Global
10.3............Employment Agreement Dated July 21, 2003 by and between
John B. Sawyer and Global
11.1............Statement re: computation of per share earnings
13.1............2004 Annual report (See also 10KSB & 10QSB Filings)
21.1............Subsidiaries of the registrant
23.1............Consent of experts and counsel (Included in Exhibit 5.1)
99.1............Court Order canceling 8.1 million shares of
common stock and returning the stock to Global
99.2............Lawsuit filed by Global against Corwin Foster, Jane Doe
Foster and Seajay Holdings
99.3............Sale ofAssets Agreement between HAT Hamilton Aviation
99.4............Lease/Purchase Agreement between HAT and Hamilton Aviatioin
99.5............Service Agreement between HAT and Hamilton Aviation
99.6............Settlement Agreement among HAT, Hamilton Aviation and the
Bankruptcy Estate
99.7............Bankruptcy CourtOrder re: Settlement Agreement
99.8............Lawsuit filed by HAT against Aero Micronesia
UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers of sales are being made, a
post-effective amendment to this registration statement to:
A. Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
B. Reflect in the prospectus any facts or events arising after the
effective date of this registration statement, or most recent
post-effective amendment, which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
C. Include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in the registration
statement.
D. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
herein, and that the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
E. To remove from registration by means of a post-effective amendment and
of the securities being registered hereby which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification 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 final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe it meets all of
the requirements for filing Form SB-2A and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Tucson,
state of Arizona, on September 25, 2006.
Registrant /s/ John B. Sawyer
--------------------------------------
John B. Sawyer, President/Director
Date: September 25, 2006
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
/s/ Ian Herman September 25, 2006
- ---------------------------------------- ----------------------------
Ian Herman, Chairman/CEO/ Director Date
/s/ John B. Sawyer September 25, 2006
- ---------------------------------------- ----------------------------
John B. Sawyer, President/Director Date
Principal Executive Officer
/s/ Govindarajan Sankar September 25, 2006
- ---------------------------------------- ----------------------------
Govindarajan Sankar, CFO Date
/s/ Gordon D. Hamilton September 25, 2006
- ---------------------------------------- ----------------------------
Gordon D. Hamilton, Director Date