UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended: March 31, 2008
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number: 333-128758
UTILICRAFT AEROSPACE INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 20-1990623
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7339 Paeso Del Volcan
Albuquerque, New Mexico 87121
(Address of principal executive offices) (Zip Code)
866-654-3721
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. |X| Yes |_|
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). |_| Yes |X| No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at May 5, 2008
- ---------------------------------------- --------------------------------------
Common Stock, par value $.0001 per share 189,454,090 shares
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
FORM 10-Q
CONTENTS
Page
PART I -- FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis 16
Item 3 Quantative And Qualitative Disclosures
About Market Risk 21
Item 4T Controls and Procedures 21
PART II -- OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 21
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits 22
Signatures 22
Certifications Attached
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
Utilicraft Aerospace Industries, Inc.
(UNAUDITED)
Balance Sheet
As of March 31, 2008 and December 31, 2007
March 31, 2008 December 31, 2007
Unaudited Audited
------------- -------------
Assets
------
Current assets:
Cash $ 176 $ 1,025
Accounts Receivable 15,500 11,000
------------- -------------
Total Current Assets 15,676 12,025
Other assets - Investment in Common Stock 1,000 1,000
------------- -------------
Total assets $ 16,676 $ 13,025
------------- -------------
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current Liabilities:
Accounts Payable $ 424,170 $ 424,170
Accrued Expenses 32,781 28,281
Deferred Compensation 2,146,414 2,146,414
Advances from Stockholders 0 384,500
------------- -------------
Total Current Liabilities 2,603,365 2,983,365
------------- -------------
Stockholders' Equity (Deficit):
Preferred Stock, $.0001 par value, 25,000,000 shares authorized, no shares issued -- --
Common Stock, $.0001 par value, 475,000,000 shares authorized, 179,993,552
and 179,493,552 shares issued and outstanding at March 31, 2008 and
December 31, 2007, respectively 17,999 17,949
Additional Paid-in Capital 6,232,574 5,799,659
Accumulated Deficit (8,837,262) (8,787,948)
------------- -------------
Total Stockholders' Equity (Deficit) (2,586,689) (2,970,340)
------------- -------------
Total Liabilities and Stockholders' Equity (Deficit) $ 16,676 $ 13,025
------------- -------------
The accompanying notes are an integral part of these
unaudited financial statements.
3
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Utilicraft Aerospace Industries, Inc.
(UNAUDITED)
Statements of Operations
For the Three Months Ended March 31, 2008 and 2007
Three Months Ended Three Months Ended
March 31, March 31,
2008 2007
------------- -------------
Revenues $ -- $ --
Operating Expenses:
Compensation and Related Costs 43,215 268,600
General and Administrative 6,099 108,934
Engineering, Research and Development 0 17,224
Interest Expense 0 5,446
------------- -------------
49,314 400,204
------------- -------------
Loss Before Provision for Income Taxes (49,314) (400,204)
Provision for Income Taxes -- --
------------- -------------
Net Loss $ (49,314) $ (400,204)
------------- -------------
Basic Net Loss Per Share Based on Weighted Average
Common Shares $ (0.01) $ (0.01)
------------- -------------
Weighted Average Number of Common Shares Outstanding 179,382,730 157,228,752
The accompanying notes are an integral part of these
unaudited financial statements.
4
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Utilicraft Aerospace Industries, Inc.
(UNAUDITED)
Statements of Cash Flows
For the Three Months Ended March 31, 2008 and 2007
Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
--------- ---------
Cash Flows from Operating Activities:
Net loss $ (49,314) $(400,204)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities:
Depreciation 0 1,353
Warrants Issued for Services 13,465 --
Common Stock Issued for Services 35,000 --
Deferred Compensation 0 119,792
Deferred Rent 0 6,000
Changes in Operating Assets and Liabilities:
Accounts Payable and Accrued Expenses 0 63,113
Payroll Taxes Payable 0 28,436
Accrued Interest, Related Party 0 5,446
Accrued Aircraft Rent, Related Party 0 7,500
--------- ---------
Net Cash Used in Operating Activities (849) (168,564)
--------- ---------
Cash Flows from Investing Activities:
Net Cash Used in Investing Activities 0 0
--------- ---------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 0 160,000
Repayment of Advances from Related Party 0 (8,700)
--------- ---------
Net Cash Provided by Financing Activities 0 151,300
--------- ---------
Net Increase in Cash (849) (17,264)
Cash at Beginning of Period 1,025 35,800
--------- ---------
Cash at End of Period $ 176 $ 18,536
--------- ---------
Supplemental Cash Flow Disclosures:
Interest Paid $ -- $ --
Warants Issued for Services 13,465 0
Common Stock Issued for Services 1,025 0
The accompanying notes are an integral part of these
unaudited financial statements.
5
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY:
The unaudited financial statements have been prepared by the Company, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such SEC rules and regulations; nevertheless, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements and the notes hereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 2007, which was filed
April 15, 2008. In the opinion of the Company, all adjustments, including normal
recurring adjustments necessary to present fairly the financial position of
Utilicraft Aerospace Industries, Inc. as of March 31, 2008 and the results of
its operations and cash flows for the three months then ended, have been
included. The results of operations for the interim period are not necessarily
indicative of the results for the full year.
Utilicraft Aerospace Industries, Inc., (the "Company") was incorporated in the
State of Nevada on December 9, 2004 and uses a December 31 year end. Until
December 12, 2007, the Company was engaged in the development and marketing of a
freight forwarding aircraft, and certain information systems relating to the
operation and function of the aircraft and freight management. The goal of the
Company was to implement solutions to the problem of declining capacity in the
short haul (or feeder) route segments of the air cargo hub and spoke system.
Since the strategic sale of its assets and Freight Feeder aircraft technology in
December of 2007, the Company is now focusing its business-plan efforts to
actively seeking new strategic aerospace products for development, particularly
related to the enhancement of the Freight Feeder aircraft in the air-cargo
markets worldwide - to continue to build the asset base, to develop cash-flow,
all aimed at building shareholder value.
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. However, since inception the Company
has a loss from operations of approximately $8,837,000. This is largely
attributable to the reorganization costs associated with American Utilicraft
Corporation ("AMUC") and the costs of sustaining a corporate infrastructure and
the related overhead deemed necessary to support the Company's operations while
raising capital to develop a prototype of the freight feeder aircraft. Although
the Company has a working capital deficiency of $2,587,689 at March 31, 2008,
approximately $2,103,145 of this deficiency is owed to the principal officers of
the Company and will be paid when and if funds are available.
In light of the Company's current financial position and the uncertainty of
raising sufficient capital to achieve its business plan, there is substantial
doubt about the Company's ability to continue as a going concern. The Company
will be dependent on its major shareholders or private placement capital to
provide for its operating expenses while the Company seeks new strategic
aerospace products for development. Despite these activities, there can be no
assurance that management's efforts to adequately capitalize the Company will be
successful.
There have been no changes in accounting policies used by the Company during
the quarter ended March 31, 2008.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management 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 dates of the financial statements and
the reported amounts of operating expenses during the reporting periods. Actual
results could differ from these estimates.
Cash and Cash Flows:
- --------------------
For purposes of the statements of cash flows, cash includes demand deposits and
time deposits with maturities of less than three months. None of the Company's
cash is restricted.
The Company maintains cash accounts, which could exceed federally insured
limits. The Company has not experienced any losses from maintaining cash
accounts in excess of federally insured limits. Management believes that the
Company does not have significant credit risk related to its cash accounts.
6
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Fair Value of Financial Instruments:
- ------------------------------------
In accordance with the reporting requirements of SFAS No. 107, Disclosures About
Fair Value of Financial Instruments, the Company calculates the fair value of
its assets and liabilities which qualify as financial instruments under this
statement and includes this additional information in the notes to the financial
statements when the fair value is different than the carrying value of those
financial instruments. The estimated fair value of the loans from related party
approximate their carrying amounts due to the short maturity of these
instruments. At March 31, 2008, the Company did not have any other financial
instruments.
Stock Based Compensation:
- -------------------------
Prior to December 31, 2005, we accounted for stock based compensation under
Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation (123). As permitted under this standard, compensation cost was
recognized using the intrinsic value method described in Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
Effective December 15, 2005, the Company adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-Based Payment (FAS 123R) and
applied the provisions of the Securities and Exchange Commission Staff
Accounting Bulletin No. 107 using the modified-prospective transition method.
The Company had not issued any options to employees in the prior periods thus;
there was no impact of adopting the new standard.
The Company accounts for stock-based compensation arrangements for non-employees
under Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" (EITF 96-18) and SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). As such, those transactions are measured
on the grant date at either the fair value of the equity instruments issued or
the consideration received, whichever is more reliably measurable.
Recent Accounting Pronouncements:
- ---------------------------------
In June 2003, the Securities and Exchange Commission ("SEC") adopted final rules
under Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"), as amended
by SEC Release No. 33-8760 on December 15, 2006. Commencing with the Company's
Annual Report for the year ending December 30, 2008, the Company is required to
include a report of management on the Company's internal control over financial
reporting. The internal control report must include a statement of management's
responsibility for establishing and maintaining adequate internal control over
financial reporting for the Company; of management's assessment of the
effectiveness of the Company's internal control over financial reporting as of
year-end and of the framework used by management to evaluate the effectiveness
of the Company's internal control over financial reporting. Furthermore in the
following year the Company's independent accounting firm has to issue an
attestation report separately on the Company's internal control over financial
reporting on whether it believes that the Company has maintained, in all
material respects, effective internal control over financial reporting.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for income
taxes by prescribing a minimum probability threshold that a tax position must
meet before a financial statement benefit is recognized. The minimum threshold
is defined in FIN 48 as a tax position that is more likely than not to be
sustained upon examination by the applicable taxing authority, including
resolution of any related appeals or litigation processes based on the technical
merits of the position. The tax benefit to be recognized is measured as the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. FIN 48 must be applied to all existing tax
positions upon initial adoption. The cumulative effect of applying FIN 48 at
adoption, if any, is to be reported as an adjustment to opening retained
earnings for the year of adoption. FIN 48 is effective for the Company's
year-end 2007, but is not expected to have a material impact on our consolidated
financial statements, with the possible exception of certain disclosures
relative to our net operating loss carryovers and the related valuation
allowance.
In 2006, the Financial Accounting Standards Board issued the following:
- - SFAS No. 155: Accounting for Certain Hybrid Financial Instruments
7
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
- - SFAS No. 156: Accounting for Servicing of Financial Assets
- - SFAS No. 157: Fair Value Measurements
- - SFAS No. 158: Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans
In 2007, the Financial Accounting Standards Board issued the following:
- - SFAS No. 159: The Fair Value Option for Financial Assets and Financial
Liabilities; Including an amendment of FASB Statement No. 115
- - SFAS No. 141: (Revised 2007), Business Combinations
- - SFAS No. 160: Noncontrolling Interest in Consolidated Financial Statements
Management has reviewed these new standards and believes that they have no
impact on the financial statements of the Company.
Income taxes:
- -------------
The Company employs the asset and liability method in accounting for income
taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on temporary differences between the financial
reporting and tax bases of assets and liabilities and net operating loss
carryforwards, and are measured using enacted tax rates and laws that are
expected to be in effect when the differences are reversed.
Net loss per share:
- ------------------
Basic net loss per share is computed based upon the weighted average number of
common shares outstanding during the periods, adjusted for contingently
returnable shares (see Note 5) and is computed by dividing net loss by the
adjusted weighted average number of shares during the periods. Diluted net loss
per share is based upon the weighted average number of common shares outstanding
during the periods, adjusted for contingently returnable shares, plus the number
of incremental shares of common stock contingently issuable upon the exercise of
the outstanding warrants, (Note 5). No effect has been given to the potential
exercise of the warrants because their effect would be anti-dilutive. The number
of potentially dilutive securities that were not included in the computation of
diluted EPS because to do so would have been antidilutive was 28,560,257 common
stock potentially issuable under outstanding options/warrants.
Basic net loss per share has been computed as follows:
Three Months Three Months
Ended Ended
March 31, 2008 March 31, 2007
------------- -------------
Net loss $ (49,314) $ (400,204)
============= =============
Weighted average common shares outstanding 179,382,730 215,349,545
Less - weighted average contingently returnable
shares 0 (58,120,793)
------------- -------------
Adjusted weighted average for basic net loss 179,382,730 157,228,752
per share computation
============= =============
Basic net loss per share $ (0.01) $ (0.01)
============= =============
8
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Engineering, research and development
- -------------------------------------
The Company incurred no expenses for engineering, research and development for
the three months ended March 31, 2008 as the Company's aircraft development
operations were sold in 2007. During the three months ended March 31, 2007, the
Company's expenses of $17, 224 for engineering, research and development costs
related to new aircraft design were expensed as they were incurred.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consists of amount due from Freight Feeder Aircraft
Corporation towards the accrued fees to the Company's audit firm for the 2007
audit and March 31, 200810Q review. The Company assesses the collectibility of
its accounts receivable regularly. Based on this assessment an allowance for
doubtful accounts was not considered necessary at March 31, 2008.
NOTE 4 - INVESTMENT IN COMMON STOCK
The investment in common stock represents the nominal amount of $1,000 assigned
to the 15,250,000 shares of Freight Feeder Aircraft Corporation (Freight Feeder)
common stock received by the Company in the asset disposition in 2007. The
nominal amount of $1,000 is recorded for the Freight Feeder's common stock as it
did not have a market value or determinable positive book value at March 31,
2008.
NOTE 5 - CAPITAL STRUCTURE DISCLOSURES
The Company's capital structure is not complex. The Company is authorized to
issue 25,000,000 shares of preferred stock with a par value of $.0001 per share.
The Company is authorized to issue 475,000,000 shares of common stock with a par
value of $.0001 per share.
Preferred stock:
- ----------------
No shares of preferred stock have been issued as of March 31, 2008.
Common stock:
- -------------
Each common stock share has one voting right and the right to dividends if and
when declared by the Board of Directors.
Stock options, warrants and other rights:
As of March 31, 2008, the Company has not adopted any employee stock option
plans.
Valuation of stock issued for services:
- ---------------------------------------
In March of 2008, the Company issued 500,000 shares of restricted common stock
to its Vice President and Chief Financial Officer as stipulated in his
employment agreement and valued the shares at $0.07 per share.
Warrants:
- ---------
In March 2008, the Company's Chief Financial Officer earned, by employment
contract terms, the option to purchase 250,000 shares at an exercise price equal
to $0.50 per share. The options vested immediately and expire on March 16, 2011.
We estimated the fair value of these options using the Black Scholes method with
assumptions including: (1) term of 3 years; (2) a computed volatility 208.79%
(3) a discount rate of 1.65% and (4) zero dividends. The fair value of these
options was estimated to be $13,465 and is included in compensation expenses for
the three months ended March 31, 2008.
9
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 5 - CAPITAL STRUCTURE DISCLOSURES - CONTINUED
In 2007, the Company granted warrants to purchase 250,000 shares to the Chief
Financial Officer an exercise price equal to $0.50 per share. The options vested
immediately and expire on March 16, 2010. We estimated the fair value of these
options using the Black Scholes method with assumptions including: (1) term of 3
years; (2) a computed volatility 127% (3) a discount rate of 4.51% and (4) zero
dividends. The fair value of these options was estimated to be $56,787 and is
included in compensation expenses for the year ended December 31, 2007.
In 2007, the Company granted warrants to purchase a total 510,000 shares to the
Vice President - Marketing, a Director and accounting assistant at an exercise
price equal to $3.00. The options vested immediately and expire on November 30,
2010. We estimated the fair value of these options using the Black Scholes
method with assumptions including: (1) term of 3 years; (2) a computed
volatility 170% (3) a discount rate of 3.09% and (4) zero dividends. The fair
value of these options was estimated to be $39,404 and is included in general
and administrative expenses for the year ended December 31, 2007.
A summary of all the Company's warrants outstanding at March 31, 2008 is
presented in the following table.
AMUC PacifiCorp Related
Stockholders Group Party Total
Warrants outstanding, December 31, 2007 17,287,664 -- 1,844,388 19,132,052
Issued 9,178,205 250,000 9,428,205
---------- ---------- ---------- ----------
Warrants outstanding, March 31, 2008 17,287,664 9,178,205 2,094,388 28,560,257
---------- ---------- ---------- ----------
As of March 31, 2008, the Company has outstanding warrants issued to AMUC
stockholders that are exercisable to purchase 17,287,664 shares of the Company's
common stock at prices ranging from $.10 to $5.00 per share. All such warrants
expire in January 2010.
In March of 2008, the Company's Vice President and Chief Financial Officer
earned 250,000 warrants by his employment agreement for the purchase of 250,000
shares of common stock as part of his employment agreement. The warrants are
exercisable at $.50 per share.
In January, 2008, investors who had advanced the Company's $384,500 in 2007
elected to convert their advances to and receive a distribution of shares
previously issued to PacifiCorp and also receive a corresponding 9,178,205 of
warrants previously issued to PacifiCorp in 2005.
In March of 2007, the Company's Vice President and Chief Financial Officer
earned 250,000 warrants by his employment agreement for the purchase of 250,000
shares of common stock as part of his employment agreement. The warrants are
exercisable at $.50 per share.
In November of 2007, the Company issued its Vice President - Marketing 200,000
warrants for the purchase of 200,000 shares of common stock at an exercise price
of $3.00 per share for a period of three years from the date of issuance.
In November of 2007, the Company issued to a director 200,000 warrants for the
purchase of 200,000 shares of common stock at an exercise price of $3.00 per
share for a period of three years from the date of issuance.
In November of 2007, the Company issued, to an employee, 110,000 warrants for
the purchase of 110,000 shares of common stock at an exercise price of $3.00 per
share for a period of three years from the date of issuance.
In January and March 2006, the Company agreed to issue warrants to its President
to purchase 897,416 and 186,972, respectively, shares of common stock in lieu of
paying interest and for consideration of default risk on the additional loans
made to the Company during 2005 and 2006 (Note 8). The warrants are exercisable
at $1.00 per share over three years from January 2006 and March 2006.
10
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 6 - INCOME TAXES
The Company accounts for corporate income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. In addition,
future tax benefits, such as those from net operating loss carry forwards, are
recognized to the extent that realization of such benefits is more likely than
not. 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 be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
At March 31, 2008 and December 31, 2007, the Company's only deferred tax assets,
are offset by a valuation allowance, (there were no deferred tax liabilities)
which totaled approximately $2,945,000 and $2,928,000, respectively (using an
anticipated effective tax rate of 34%) and was attributable to its net operating
tax loss carryforwards of approximately $6,922,000 incurred since inception.
These net operating losses expire from 2024 through 2026.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Legal
- -----
The Company is party to legal action pending in the Utah Fourth Judicial Court,
Utah County, State of Utah. The Company has been served with a summons in a
civil case styled Alpine Aviation, Inc. vs. American Utilicraft Corporation, AUC
X-Press Holdings, LLC, Utilicraft Aerospace Industries, Inc., John J. Dupont and
Darby Boland. The Plaintiff has filed complaint against the defendents to
recover amounts Plaintiff claims under a sale and lease agreement with
AUC-Xpress Holdings, LLC, a wholly-owned subsidiary of American Utilicraft
Corporation, entered into in 2003. Utilicraft Aerospace Industries', Inc.
response is that it was not formed until December of 2004 and thus did not have
the opportunity to have corporate dealings with the plaintiff. The Company
believes that the ultimate disposition will not have a material adverse effect
on the Company's consolidated financial position, results of operations and
liquidity.
The Company is party to legal action pending in the Superior Court of the State
of Washington, in and for the County of King. The Company has been served with a
summons in a civil case styled Analytical Methods, Inc. vs. Utilicraft Aerospace
Industries, Inc. The Plaintiff has filed complaint against the Company to
recover amounts due Plaintiff under a promissory note. The Company recorded this
liability on the Company's financial statements in 2007 and which was
subsequently assumed by Freight Feeder Aircraft Corporation in December 2007
when it purchased the assets of Utilicraft Aerospace Industries, Inc. and
assumed certain liabilities. Assuming that Freight Feeder Aircraft Corporation
complies with its assumption of this liability, the Company believes that the
ultimate disposition will not have a material adverse effect on the Company's
financial position, results of operations and liquidity.
Executive compensation:
- -----------------------
Freight Feeder Aircraft Corporation (FFAC), agreed to assume the deferred
compensation, future base salaries and royalty payments of the Company's four
current executive officers. The Company has discontinued accruing their base
salaries. The remaining provisions of their employment agreements are to remain
in effect until the employment agreements expire in accordance with their terms.
The employment agreement for the President of the Company also provides that he
will receive a bonus equal to 4% of the "net profits," as defined, in each
fiscal year.
If there is a change in control, of the Company, as defined, each officer is
subject to significant severance benefits, which provide, among other things,
for ten times then current salary, allowance to surrender stock options, receive
health benefits for two years and to pay legal expenses to defend the officer's
contract up to $250,000 each.
11
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UTILICRAFT AEROSPACE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
NOTE 8 - RELATED PARTY TRANSACTIONS
In March of 2008, the Company issued warrants to its Vice President and Chief
Financial Officer 250,000 warrants for the purchase of 250,000 shares of common
stock as part of his employment agreement. The warrants are exercisable at $.50
per share.
In February 2008, the Company issued 500,000 shares of restricted common stock
to its Vice President and Chief Financial Officer as stipulated in his
employment agreement and valued the shares at $0.07 per share.
In June of 2007, the Company issued 250,000 shares of restricted common stock to
its Vice President and Chief Financial Officer as stipulated in his employment
agreement and valued the shares at $0.15 per share.
In November of 2007, the Company issued its Vice President - Marketing 200,000
warrants for the purchase of 200,000 shares of common stock at an exercise price
of $3.00 per share for a period of three years from the date of issuance.
In November of 2007, the Company issued to a director 200,000 warrants for the
purchase of 200,000 shares of common stock at an exercise price of $3.00 per
share for a period of three years from the date of issuance.
NOTE 9 - FINANCIAL CONDITION AND GOING CONCERN
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. However, since inception the Company
has a loss from operations of approximately $8,837,000. This is largely
attributable to the reorganization costs and the costs of sustaining a corporate
infrastructure and the related overhead deemed necessary to support the
Company's operations while raising capital to develop a prototype of the
aircraft described above. Although the Company has a working capital deficiency
of approximately $2,587,689 at March 31, 2008, approximately $2,146,414 is owed
under employment agreements and will be paid when and if funds are available.
In light of the Company's current financial position and the uncertainty of
raising sufficient capital to achieve its business plan, there is substantial
doubt about the Company's ability to continue as a going concern. The Company
will be dependent on its shareholders are private placement capital to provide
for its operating expenses while the Company seeks new strategic aerospace
products for development. Despite these activities, there can be no assurance
that management's efforts to adequately capitalize the Company will be
successful. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
12
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Item 2. Management's Discussion and Analyses of Financial Condition and Results
of Operation
The following discussion should be read in conjunction with our consolidated
financial statements provided in the annual report on Form 10-KSB filed April
15, 2008. Certain statements contained herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, as discussed more
fully herein.
The forward-looking information set forth in this annual report is as of the
date of this filing, and we undertake no duty to update this information. More
information about potential factors that could affect our business and financial
results is included in the section entitled "Risk Factors" of this annual
report.
Overview
We are a company with no product to sell, no revenue stream, significant
operating losses and negative cash flow from operations. The Company has
incurred net losses from operations of $8,837,262 for the period from inception
to March 31, 2008. Our ability to continue as a going concern is subject to
continued support of our shareholders and sales of stock, the vagaries of the
market for our stock and various other factors. There is no assurance that we
can continue as a going concern.
Our current business plan is to focus look for potential acquisitions or merger
partners, strategic partners for development of aerospace products and to wait
on the maturity of the common stock and royalties received by the Company from
Freight Feeder Aircraft Corporation in conjunction with the Asset Purchase
Agreement executed with Freight Feeder Aircraft Corporation on December 12,
2007.
Results of Operations
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007.
Net sales. The Company has not had any sales since its inception date of
December 9, 2004.
Operating expenses. The Company remains in the development stage its operating
expenses consisting of compensation related costs, general and administrative
expenses, engineering, research and development for the three months ended March
31, 2008 and 2007 are comparative for each of the periods as indicated in the
following summary;
Three Months Three Months
Ended Ended
March 31, 2008 March 31, 2007
-------------- --------------
Compensation Related Costs $ 43,215 $268,600
General and Administration 6,099 108,934
Engineering, Research and Development 0 17,224
Interest Expense 0 5,446
-------- --------
Total Operating Expenses $ 49,314 $400,204
======== ========
The Company's operating expenses in all expense categories for the three months
ended March 31, 2008 as compared to the three months ended March 31, 2007 are
significantly less because the Company sold its assets and operations to Freight
Feeder Aircraft Corporation in December of 2007 as disclosed its annual Form
10-KSB filed on April 15, 2008.
Net Result. As the result of the Company not having any sales for the periods,
our net loss for the three months ended March 31, 2008 and 2007, respectively,
equaled the total operating expenses for the periods of $(49,314) and
$(400,204), respectively.
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Liquidity and Future Capital Requirements
Initially, at our inception, we funded operations from proceeds from a private
placement. We were initially capitalized with approximately $2,000,000 raised
from a private placement offering of 20,000,000 shares of common stock on
January 19, 2005, and have received approximately $1,984,000 in additional
subscriptions or for exercise of warrants since then.
We do not believe that inflation has had a material impact on our business or
operations.
Going Concern
Due to our continuing to not generate revenues to fund operations, in the Notes
to our financial statements for the year ended December 31, 2007, our
independent auditors included an explanatory paragraph regarding concerns about
our ability to continue as a going concern.
The continuation of our business is dependent upon support from our major
shareholders and the ability to raise capital from the sale of equity while the
Company seeks new strategic aerospace products for development. The issuance of
additional equity securities by us could result in a significant dilution in the
equity interests of our current or future stockholders.
There are no assurances that we will be able to either (1) achieve a level of
revenues adequate to generate sufficient cash flow from operations; or (2)
obtain additional financing through either private placements, public offerings
and/or bank financing necessary to support our working capital requirements. To
the extent that funds generated from operations and any private placements,
public offerings and/or bank financing are insufficient, we will have to raise
additional working capital. No assurance can be given that additional financing
will be available, or if available, will be on terms acceptable to us. If
adequate working capital is not available we may not increase our operations.
These conditions raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements and do not engage in
trading activities involving non-exchange traded contracts. In addition, we have
no financial guarantees, debt or lease agreements or other arrangements that
could trigger a requirement for an early payment or that could change the value
of our assets.
Description of Property
The Company is being provided office space in Santa Fe, New Mexico by Freight
Feeder Aircraft Corporation, while the Company continues to search out potential
business opportunities.
Risk Factors
We are subject to a high degree of risk as we are considered to be in unsound
financial condition. These risks factors include, but are not limited to, our
limited operating history, history of operating losses, the inability to obtain
for additional capital, the failure to successfully expand our operations, the
competition in the aircraft industry from competitors with substantially greater
resources, the legal and regulatory requirements and uncertainties related to
our industry, the loss of key personnel, adverse economic conditions, the
classification of our common stock as "penny stock," the absence of any right to
dividends, the costs associated with the issuance of and the rights granted to
additional securities, the unpredictability of the trading of our common stock.
If any one or more occurs, it could materially harm our business, financial
condition or future results of operations, and the trading price of our common
stock could decline
For a more detailed discussion as to the risks related to Utilicraft Aerospace
Industries, Inc., our industry and our common stock, please see the section
entitled, "Description of Business - Risk Factors," in our Annual Report on Form
10-KSB, as filed with the Securities and Exchange Commission on April 15, 2008.
Impact of Inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
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Critical Accounting Policies and Estimates
Use of Estimates
The discussion and analysis of the financial condition and results of operations
are based on the financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
Note 2, of the Notes to the financial statements, describes the significant
accounting policies essential to the financial statements. The preparation of
these financial statements requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes, some of which may require revision in future periods. Actual results
could differ materially from those estimates.
We believe the following to be critical accounting policies and estimates. That
is, they are both important to the portrayal of the Company's financial
condition and results, and they require significant management judgment and
estimates about matters that are inherently uncertain. As a result of inherent
uncertainty, there is a likelihood that materially different amounts would be
reported under different conditions or using different assumptions. Although we
believe that our judgments and estimates are reasonable, appropriate and
correct, actual future results may differ materially from our estimates.
Stock Based Compensation
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable. The determined value is recognized as an expense in
the accompanying statements of operations.
Contingencies
In the normal course of business, the Company is subject to certain claims and
legal proceedings. The Company records an accrued liability for these matters
when an adverse outcome is probable and the amount of the potential liability is
reasonably estimable. The Company does not believe that the resolution of these
matters will have a material effect upon its financial condition, results of
operations or cash flows for an interim or annual period.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements and their effect on us are discussed
in the notes to the financial statements in our December 31, 2007 audited
financial statements that can be found in our Annual Report on Form 10-KSB, as
filed with the Securities and Exchange Commission on April 15, 2008.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information required
by this Item.
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of
management, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures as defined in rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
("Exchange Act") were effective as of March 31, 2008 to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission rules and forms and
(ii) accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during
the first quarter of 2008, which were identified in connection with management's
evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the
Exchange Act, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to legal action pending in the Utah Fourth Judicial Court,
Utah County, State of Utah. The Company has been served with a summons in a
civil case styled Alpine Aviation, Inc. vs. American Utilicraft Corporation, AUC
X-Press Holdings, LLC, Utilicraft Aerospace Industries, Inc., John J. Dupont and
Darby Boland. The Plaintiff has filed complaint against the defendents to
recover amounts Plaintiff claims under a sale and lease agreement with
AUC-Xpress Holdings, LLC, a wholly-owned subsidiary of American Utilicraft
Corporation, entered into in 2003. Utilicraft Aerospace Industries', Inc.
response is that it was not formed until December of 2004 and thus did not have
the opportunity to have corporate dealings with the plaintiff. The Company
believes that the ultimate disposition will not have a material adverse effect
on the Company's consolidated financial position, results of operations and
liquidity.
The Company is party to legal action pending in the Superior Court of the State
of Washington, in and for the County of King. The Company has been served with a
summons in a civil case styled Analytical Methods, Inc. vs. Utilicraft Aerospace
Industries, Inc. The Plaintiff has filed complaint against the Company to
Recover amounts due Plaintiff under a promissory note. The Company recorded this
liability on the Company's financial statements in 2007 and which was
subsequently assumed by Freight Feeders Aircraft Corporation in December 2007
when it purchased the assets of Utilicraft Aerospace Industries, Inc. and
assumed certain liabilities. Assuming that Freight Feeder Aircraft Corporation
complies with its assumption of this liability, the Company believes that the
ultimate disposition will not have a material adverse effect on the Company's
financial position, results of operations and liquidity.
The Company did not make adequate provisions for withholding FICA and other
taxes from employee compensation during 2005, 2006 and 2007. This liability of
approximately $520,000 in taxes, interest and penalties was assumed by Freight
Feeders Aircraft Corporation as discussed in the Company's 10-KSB filed on April
15, 2008. There are possible civil and criminal penalties that may be assessed
against the Company and its officers unless this shortfall is promptly funded.
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information required
by this Item.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities.
During the quarter ending March 31, 2008, the Company offered and sold the
following securities pursuant to securities transaction exemption from the
registration requirements of the Securities Act of 1933, as amended.
The Company issued 500,000 shares of its restricted common stock to management
for services rendered and were valued at $35,000.
These securities that have been and will be issued above were issued in a
private transaction pursuant to Section 4(2) of the Securities Act of 1933, as
amended, (the "Securities Act"). These convertible securities are considered
restricted securities and may not be publicly resold unless registered for
resale with appropriate governmental agencies or unless exempt from any
applicable registration requirements.
Item 3 - Defaults Upon Senior Securities.
No Response required.
Item 4 - Submission of Matters to a Vote of Security Holders.
No response required.
Item 5 - Other Information.
No response required.
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Item 6 - Exhibits and Reports on Form 8K.
31.1 Certification by Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *
31.2 Certification by Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 *
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 *
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* Filed herewith
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Utilicraft Aerospace Industries, Inc. Aal, Inc.
Dated: May 20, 2008 By: /s/ John Dupont
------------------------------
John Dupont
Chief Executive Officer
Dated: May 20, 2008 By: /s/ Randy Moseley
------------------------------
Randy Moseley
Chief Financial Officer
17
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