January 7, 2008
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attn: Joseph A. Foti, Senior Assistant Chief Accountant
RE: Global Aircraft Solutions, Inc.
Form 10-K for the year ended December 31, 2006
Filed April 23, 2007
File No. 000-28575
Dear Mr. Foti:
Reference is made to the comment letter of the Staff of the Securities and
Exchange Commission (the "Commission") dated October 9, 2007 to Global Aircraft
Solutions, Inc. (the "Company"). On behalf of the Company, we have responded to
the staff's comments as set forth below. Please note that we have reproduced the
Staff's comments, which are itemized by number, and we have responded below to
each comment.
As indicated in the responses, we agree to incorporate the comments applicable
to the Company in future filings with the Commission, and believe that revisions
are not needed to the current filings.
Form 10-K for the year ended December 31, 2006
Audited Financial Statements
- ----------------------------
Consolidated Balance Sheets
- ---------------------------
Comment 1) We note from your response to our prior comment 3 that the first
$688,722 (of the $1,377,444 credit to the equity in net assets of and advances
to affiliates account) is the BCI amount and was deducted from the equity in net
assets account and added to the due from investee partner account. In light of
the fact that this $688,722 receivable remained outstanding as of December 31,
2006, please explain to us why you believe it was appropriate to reclassify this
amount to current receivables for both years December 31, 2006 and 2005. Also,
as previously requested please explain to us why you believe the amounts
recorded as "due from equity investee partner" are recoverable as of December
31, 2006. As part of your response, please provide clear detail of all amounts
received from BCI subsequent to December 31, 2006 and tell us what the balance
of due from equity investee partner should have been as of December 31, 2006 if
the amounts received had been appropriately posted in this account rather than
accounts receivable.
Response 1) The reclassification from the equity in net assets account to the
due from investee partner account was made at the close of 2006. We believe that
the amounts recorded as "due from equity investee partner" were recoverable as
of December 31, 2006 because prior to filing there was an agreement in principal
for a settlement with BCI. This agreement included an understanding that the
amounts due to the Company from its investment in Jetglobal and from the
investee partner, BCI, were to be paid by cash and/or delivery of an aircraft.
The table below shows what has been received from BCI subsequent to December 31,
2006:
- -------------------------- ------------------------ ----------------------------
Aircraft N937AS $1,150,000 2nd Quarter 2007
- -------------------------- ------------------------ ----------------------------
Aircraft N302DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ----------------------------
Aircraft N305DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ----------------------------
Aircraft N306DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ----------------------------
Aircraft N308DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ----------------------------
Aircraft $1,500,000 4th Quarter 2007
- -------------------------- ------------------------ ----------------------------
Wire transfer $ 150,000* 4th Quarter 2007
(12/10/2007)
- -------------------------- ------------------------ ----------------------------
*This is the first installment on the Delta claim. The remaining payments are to
be paid in installments: two equal installments of $150,000 plus a final
installment of $172,000. The installments are due every thirty days with the
first being due January 10, 2008.
The table below shows the results of reclassification of BCI payments to the
accounts receivable account from the due from equity investee partner account:
- -------------------------- ------------------------ ------------------------ -----------------
December 31, 2006 Adjustment Adjusted balances,
balances as filed December 31, 2006
- -------------------------- ------------------------ ------------------------ -----------------
Accounts receivable $7,870,799 $ 1,957,692 $9,828,491
- -------------------------- ------------------------ ------------------------ -----------------
Due from equity investee $3,946,414 $(1,957,692) $1,988,722
partner
- -------------------------- ------------------------ ------------------------ -----------------
In response to the Staff's comment, in future filings the Company will endeavor
to provide a better description of this and similar transactions providing
information that we believe to be relevant and helpful in providing the user
with a clear understanding of the particular transaction.
Summary of Significant Accounting Policies
- ------------------------------------------
Inventory
- ---------
Comment 2) We have reviewed your response to our prior comment number 5 but
continue to have concern that the inventory items that were reclassified from
non-current to current assets in 2006 are not being appropriately classified in
your financial statements. Your response indicates that the nature of the
inventory reclassified consisted primarily of rotable parts and expendables.
While we agree that expendable items such as tape and items of relatively low
cost such as rivets, would appropriately be reflected as inventory and included
in current assets, we continue to believe that more significant and costly
parts, such as engines and other major parts, which have useful lives in excess
of one year, should be reflected as a component of property and equipment.
Please explain in further detail the specific nature and amounts of the rotable
parts inventory items that are now being classified as inventory, a current
asset, in your financial statements. We may have further comment upon receipt of
your response.
Response 2) We note your belief that the more significant and costly parts, such
as engines and other major parts, which have useful lives in excess of one year,
should be reflected as a component of property and equipment. This accounting
policy is consistent with the AICPA Industry Guide for airlines. However we are
not an airline, and these inventoriable items are not used by us as part of our
fixed assets. As such, we feel that these items are properly classified as
inventory. These are items that were obtained with a profit motive in mind and
are intended for sale to third parties by our parts sales and brokering segment.
These items are neither used, nor intended to be used, in sustaining our
business operations.
Note 9. Shareholders' Equity
- ------- --------------------
Comment 3) We note from your response to our prior comment 8 that you have
provided detail for the cashless exercises of warrants that have taken place.
However, we do not believe that your response adequately responds to our prior
comment. As previously requested, for each of the non-cash stock transactions,
please tell us, and disclose in the notes to the financial statements in future
filings, the amount of expense, if any, that was recorded for the transaction,
and explain to us how that expense was calculated or determined.
Response 3) First, regarding the cashless exercise of warrants: there was no
expense recorded for any of the cashless exercise of warrants. In response to
the Staff's comment, in future filings the Company will disclose in the notes to
the financial statements the amounts of expense, if any, that is recorded for
cashless exercise of warrants.
Second, other non-cash stock transactions were made up of stock issued under
employment contracts and for services rendered. The following table shows the
shares issued for non-cash transactions, other than warrants, and the expense
recorded in each of the years 2004, 2005, 2006 as well as the total recognizable
expense of each transaction:
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK - SHARE-BASED PAYMENTS
- ------------------------------------------------------------------------------------------------------------------------------
Shares Price of Total Measurement Shares Date of Amount expensed
granted shares Fair date issued Share/Option
(measurement Value/ Issuance
date) Expense
to be
recognized
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
2004 2005 2006
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
Third
parties, for
services:
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
1,200,000 $0.18 $216,000 10/15/2003* 1,200,000 10/23/2003 $40,785 $69,912 $61,233
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
400,000 $0.23 $92,000 07/08/2004 400,000 07/09/2004 $29,288 $46,020 $16,692
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
100,000 $0.70 $70,000 03/09/2006 100,000 03/09/2006 $70,000
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
100,000 $1.53 $153,000 04/04/2006 100,000 04/07/2006 $153,000
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
Third party
options:
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
55,000 shares 55,000 $0.32 $17,600 02/03/2004 55,000 07/07/2004 $17,600
@ $.32 per
share
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
Employees,
employment
agreements:
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
180,000 $0.30 $54,000 12/05/2002* 180,000 08/26/2003 $12,000
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
1,000,000 $0.32 $320,000 10/07/2003* 1,000,000 07/27/2004 $320,000
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
330,000 $0.60 $198,000 07/12/2004 2 issue $114,162 $46,378
dates:
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
60,000 11/23/2005
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
270,000 08/28/2006
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
15,000 $1.30 $19,500 10/24/2005 15,000 11/23/2005 $19,500
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
375,000 $0.95 $356,250 05/03/2006 62,500 12/29/2006 $71,751
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
30,000 $1.23 $36,900 06/01/2006 --- --- $790
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
60,000 $1.20 $72,000 07/01/2006 20,000 08/28/2006 $33,334
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
30,000 $0.97 $29,100 12/01/2006 --- --- $10,781
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
Directors,
under
agreements:
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
200,000 $0.80 $160,000 01/21/2005 200,000 11/23/2005 $77,000 $80,000
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
10,000 $1.39 $13,900 11/21/2005 10,000 03/09/2006 $13,900
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
20,000 $1.35 $27,000 05/13/2006 20,000 09/01/2006 $27,000
- --------------- ------------- --------------- ----------- ------------- ---------- ------------- --------- --------- ---------
*Shares granted in years prior to 2004 that were under multi-year agreements and
expensed in year of grant and applicable succeeding years.
We calculate the expense of these share-based payment transactions by
multiplying the number of shares granted by the closing price of our stock on
the measurement date related to the particular transaction. In response to the
Staff's comment, in future filings the Company will disclose in the notes to the
financial statements the amounts of expense, if any, that is recorded for
non-cash stock transactions and how the expense was calculated.
Form 10-Q for the quarter ended September 30, 2007
- --------------------------------------------------
Note 5. Equity in Net Assets and Advances to Affiliates
- ------- -----------------------------------------------
Comment 4) We note your disclosure that the gain on settlement of $488,441
resulted form allocating the sales price to receivable due from investee partner
of $2,354,664 and to the equity investment of $6,428,895. Please provide us
detail as to how you determined the equity investment amount used in the gain
calculation. Your response should provide a rollforward of the investment
balance at December 31, 2006 through the date of the settlement. Also please
explain why the "due from investee partner balance of $2,122,000 at September
30, 2007 was not included in the calculation of the gain/(loss) on the
settlement transaction. Also, please indicate the nature of the amounts
comprising this $2,122,000 balance and indicate the expected repayment terms for
this remaining receivable due from BCI. In addition, please explain why you
believe this amount is fully collectible.
Response 4)
Rollforward of investment balance at December 31, 2006 through the date of the
settlement:
- -------------------------- ------------------------ ------------------------ ------------------------ ---------------
December 31, 2006
balance as filed Debit Credit Balance
- -------------------------- ------------------------ ------------------------ ------------------------ ---------------
Equity in net assets of 6,063,067 6,063,067
and advances to
affiliates
- -------------------------- ------------------------ ------------------------ ------------------------ ---------------
Global's share of
Jetglobal's net income,
1st Qtr 2007 214,800 6,277,867
- -------------------------- ------------------------ ------------------------ ------------------------ ---------------
Investment in Jetglobal 200,000 6,477,867
- -------------------------- ------------------------ ------------------------ ------------------------ ---------------
Distribution to Global 48,972 6,428,895
- -------------------------- ------------------------ ------------------------ ------------------------ ---------------
Settlement calculation and application is shown below:
- -------------------------- ------------------------ ------------------------ ------------------------
Items/Cash to be
received under
settlement:
- -------------------------- ------------------------ ------------------------ ------------------------
Aircraft N937AS $1,150,000 2nd Quarter 2007
- -------------------------- ------------------------ ------------------------ ------------------------
Aircraft N302DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ------------------------ ------------------------
Aircraft N305DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ------------------------ ------------------------
Aircraft N306DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ------------------------ ------------------------
Aircraft N308DL $1,500,000 2nd Quarter 2007
- -------------------------- ------------------------ ------------------------ ------------------------
Aircraft N312DL $1,500,000* 4th Quarter 2007
- -------------------------- ------------------------ ------------------------ ------------------------
Delta claim $ 622,000*
- -------------------------- ------------------------ ------------------------ ------------------------
Total $9,272,000 $9,272,000
- -------------------------- ------------------------ ------------------------ ------------------------
- -------------------------- ------------------------ ------------------------ ------------------------
Application to:
- -------------------------- ------------------------ ------------------------ ------------------------
Equity in net assets and $6,428,895
advances to affiliates
- -------------------------- ------------------------ ------------------------ ------------------------
Due from equity investee $2,354,664
partner
- -------------------------- ------------------------ ------------------------ ------------------------
Total $8,783,559 $8,783,559
- -------------------------- ------------------------ ------------------------ ------------------------
- -------------------------- ------------------------ ------------------------ ------------------------
GAIN $ 488,441
- -------------------------- ------------------------ ------------------------ ------------------------
*These items comprise the $2,122,000, which was the remaining balance in "Due
from equity investee partner" as of September 30, 2007. This amount was included
in the calculation of the gain on the settlement transaction. Currenlty, the
only outstanding amount is the Delta claim. On December 10, 2007 we received
$150,000. The remaining $472,000 is to be paid in three installments: two equal
installments of $150,000 and a final installment of $172,000. Installments are
due each 30 days, commencing January 10, 2008.
On behalf of the Company, the undersigned hereby acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
our filings; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
We believe that the foregoing is responsive to the letter of comment. Any
additional comments or requests for information should be directed to the
undersigned by telephone at 520-294-3481 or by fax at 520-806-1235.
Respectfully submitted,
/s/ Patricia Graham
- -------------------
Patricia Graham
Chief Accounting Officer
cc:
Claire Erlanger
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Linda Cvrkel
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Patrick Heyn, Daszkal Bolton LLP
4455 Military Trail, Suite 201
Jupiter, Florida 33458
James Fry, Corporate Counsel, In-house