UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-30503
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AVSTAR AVIATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Colorado 76-0635938
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incoroporation or organization)
3600 Gessner, Suite 220, Houston, Texas 77063
(Address of principal executive offices) (Zip Code)
Isuer's telephone number: (713) 965-7582
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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. Yes [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes [ ]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
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 the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently computed second fiscal
quarter: $385,781.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:208,270,834 as of April 14, 2011
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
This Amendment to Form 10-K is being filed solely to include (a) our
auditor's letter for our 2010 financial statements that was inadvertently
omitted from the Form 10-K, (b) revised financial statements to correct certain
incorrect figures that were inadvertently included in the financial statements
contained in the Form 10-K, and (c) revised footnotes to the financial
statements to include additional footnote information that was inadvertently
omitted from the footnotes to the financial statements contained in the Form
10-K. Other than for the preceding, no other changes are being made to the Form
10-K.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in this Annual Report on Form
10-K and in our other Securities and Exchange Commission filings.
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Our company, AvStar Aviation Group, Inc., is a Colorado corporation that
was organized on March 11, 1997. For a number of years, we conducted business
as an independent energy company focused on exploration and development of oil
and natural gas reserves under the name "Pangea Petroleum Corp." For reasons
given hereinafter, in early 2009 we adopted a significant change in our
corporate direction. We decided to focus our efforts on acquiring
aviation-related businesses and developing these businesses to their commercial
potential.
INITIAL AVIATION-RELATED BUSINESS
On February 20, 2009, we entered into our first aviation-related business
when we acquired all of the outstanding common stock in San Diego Airmotive
("SDA"), which (through its predecessor entity) had been providing maintenance,
repair and overhaul ("MRO") services in California since 1987. In connection
with this acquisition, we issued to the prior owner of SDA 1.0 million shares of
our newly-created series A preferred stock. These shares of preferred stock
eventually converted into 50.0 million shares of our common stock, which
constituted in the aggregate over 90% of outstanding shares of our common stock
immediately after the conversion. Furthermore, in connection with the
acquisition of SDA, we expanded our Board of Directors and elected a new slate
of officers. We eventually changed our corporate name from "Pangea Petroleum
Corp." to "AvStar Aviation Group, Inc." to reflect our new business focus, and
effected a one-for-100 reverse split of our common stock to improve our capital
structure.
On March 31, 2010, the Hangar Sublease dated May 1, 2007 between SDA and
French Valley Aviation, Inc. ("French Valley") terminated. The original term of
this Hangar Sublease had already expired, and the parties had continued the
sublease on a month-to-month basis. French Valley decided that it did not want
to continue this arrangement beyond March 31, 2010, and accordingly this
arrangement terminated on such date. We decided not to seek alternative space
to continue SDA's services at French Valley Airport in Southern California, but
continued such services in Florida, per the proposed transaction described
immediately below. We intend to maintain in force and effect SDA's licenses and
permits so that we can return to provide services in California in the future,
if it elects to do so.
FORMATION OF MRO SUBSIDIARY
On April 8, 2010, (a) Twin Air Calypso Services, Inc., a newly-formed,
indirect wholly-owned Florida subsidiary (the "MRO Subsidiary") of ours, and (b)
Miami Aviation Maintenance Co. ("MAMCO") executed a bill of sale whereby MAMCO
assigned to the MRO Subsidiary certain of its assets used to provide aviation
MRO services. At the time of this transaction, MAMCO was owned by Clayton I.
Gamber, Kenneth W. Langston and Robin V. Gamber. Mr. Gamber became a director
and the President of the MRO Subsidiary after the completion of the transaction.
The assigned assets included general shop equipment. No liabilities were assumed
in connection with the transaction. These assets were assigned in consideration
of 750,000 shares of our common stock, which had an aggregate market value of
$20,250 based on the closing price of our common stock on the date of the
transaction. In connection with the organization of the MRO Subsidiary, SDA had
previously assigned all of its assets to the MRO Subsidiary in consideration of
all of the shares of the common stock of the MRO Subsidiary to be outstanding
for the foreseeable future. The MRO Subsidiary was formed to provide aviation
MRO services, as well as airline support services. The services are offered out
of North Perry Field in Pembroke Pines, Florida in Broward County. The impetus
for the transaction was the then recent termination of SDA's Hangar Sublease at
French Valley Airport in Southern California and the perception that the
continuation of the business historically conducted by SDA in Florida was
advisable in view of the perceived greater strength of the local Florida economy
relative to the local California market in which SDA had historically provided
services.
The consideration for the acquisition of the interests in the MAMCO assets
(including the number of shares issued to MAMCO) was determined in arms-length
negotiations between our management and MAMCO's management. The factors
addressed by us in negotiating this consideration included our need to find a
location to continue the business historically conducted by SDA; the perceived
greater strength of the local Florida economy relative to the local California
market in which SDA has historically provided services; the future prospects for
a business using the combined assets of MAMCO and SDA in Florida in terms of
revenues and earnings; an assessment of the ability of a particular member of
MAMCO's management who would serve as the MRO Subsidiary's president to
contribute to the management of the MRO Subsidiary's business; anticipated
ability of our business to grow and take advantage of new business opportunities
using the combined assets of MAMCO and SDA in Florida; and the restricted nature
of the stock consideration issued in connection with the acquisition.
Prior to the consummation of the acquisition of the MAMCO assets, we had
explored with the shareholders of MAMCO our acquisition of all of the
outstanding stock in MAMCO and a brother-sister corporation. In this
connection, we had entered into a stock purchase agreement with the shareholders
of MAMCO in 2007 to acquire the outstanding stock in MAMCO and the
brother-sister corporation. This transaction did not close timely, and the
stock purchase agreement expired.
ACQUISITION OF FAA AIR CARRIER
On August 19, 2010, we completed a transaction in which we acquired all of
the outstanding stock in Twin Air Calypso Limited, Inc. ("TAC Limited"). TAC
Limited operates a charter air service from South Florida to the Bahamas with
access to eight aircrafts. We acquired TAC Limited in exchange for 18.0 million
shares of our common stock and some cash payments in the approximate aggregate
amount of $275,000 to be paid in a small number of future installments in the
fairly near future. Because of amounts previously paid, we were not required to
make a cash payment at closing. The 18.0 million shares of our common stock had
an aggregate market value of $270,000 based on the closing price of our common
stock on the date of the transaction. The stock in TAC Limited was acquired from
Clayton I. Gamber, Kenneth W. Langston and Robin V. Gamber. The acquired assets
consisted primarily of the rights of TAC Limited under an aircraft lease
agreement covering seven aircraft and an FAA Certified Part 135 permit. The only
liabilities in effect assumed in connection with the acquisition were the
liabilities and obligations of the lessee under the preceding aircraft lease
agreement.
The agreement governing the acquisition of TAC Limited (the "Stock
Agreement") contained a non-competition agreement, prohibiting the stockholders
of TAC Limited from competing with us. This non-competition agreement lasts for
a period of five years commencing on the date of closing of the acquisition. The
Stock Agreement also contained fairly customary representations, warranties and
indemnifications, as well as other general terms and conditions typically
governing stock sales and purchases.
In connection with the acquisition of TAC Limited and in order to
effectuate a verbal agreement and understanding that they had made some time
ago, we and the stockholders of TAC Limited entered into certain option
agreements (the "Option Agreements"). The Option Agreements permit us to
repurchase a portion of the 18.0 million shares of common stock issued in
connection with the acquisition for an aggregate purchase price of $1.75
million. The number of shares depends on the per-share "Market Value" of our
common stock, which is basically the 20-day trading average prior to the time of
exercise. The portion of such 18.0 million shares that may be repurchased
generally equals the quotient obtained by dividing $1.25 million by the Market
Value; provided, however, that the stockholders of TAC Limited may retain a
maximum of 7.353 million shares and a minimum of 625,000 shares. Moreover, the
Option Agreements require us to repurchase the portion of shares determined in
accordance with the preceding whenever we complete a private placement of our
securities for an aggregate purchase price of at least $3.0 million.
Prior to the consummation of the acquisition of TAC Limited, Clayton I.
Gamber, a stockholder in, and the chief executive officer of, TAC Limited, was
also serving as a director and the President of the MRO Subsidiary. Other than
for the foregoing, there were no material relationships between TAC Limited, and
its former officers, directors, affiliates, associates or shareholders, and us,
and our officers, directors, affiliates, associates or shareholders.
The consideration for the acquisition of all of the outstanding stock in
TAC Limited assets (including the number of shares issued to the stockholders of
TAC Limited) was determined in arms-length negotiations between our management
and TAC Limited's stockholders. The factors addressed by us in negotiating this
consideration included the financial history of charter flights from South
Florida to the Bahamas; the future prospects for the business of TAC Limited in
terms of revenues and earnings; the synergies that might be realized between the
businesses of TAC Limited and the MRO Subsidiary; an assessment of the ability
of a particular member of TAC Limited's management who would serve as our Chief
Executive Officer and President to contribute to the management of our business;
anticipated ability of our business to grow and expand using TAC Limited as a
base for future acquisitions; and the restricted nature of the stock
consideration issued in connection with the acquisition.
Our Business
General
Our business plan is to acquire, consolidate and grow businesses in the
general aviation industry. Due to acquisitions, we are now in two aviation
sectors, the maintenance, repair and overhaul ("MRO") of aircraft providing
products and services for the general aviation sector, and the charter air
service business. We are primarily focusing on stabilizing our two existing
businesses in view of the difficult economy over the past few years. Once these
are stabilized, our business plan will be to acquire, consolidate and grow
businesses in the general aviation industry, as capital is available to us. We
have adjusted our future goals and will place our primary focus on the
acquisition of a portfolio of fixed base operations ("FBOs") at airports that
support light jet traffic along with turbine powered and piston engine aircraft.
We believe that now is the time to invest in this sector. A combination of the
economic trends, valuation levels, and technological innovations has impacted
this sector, making our prospects of growing a portfolio of FBO businesses
compelling. These facilities will be supported by our existing MRO business. We
believe that after September 11, 2001, both private air transportation and the
number of aircraft owned by both individuals and business dramatically
increased, although such increase has been tempered in recent years due to
unfavorable economic conditions. Each of these sectors, in addition to routine
maintenance, has mandated a number of inspections by the FAA that are commonly
included in traditional MRO services.
MAINTENANCE, REPAIR AND OVERHAUL BUSINESS
Twin Air Calypso Services, Inc., our indirect, wholly-owned Florida
subsidiary (the "MRO Subsidiary") conducts our business of providing
maintenance, repair and overhaul ("MRO") products and services for aircraft in
the general aviation sector. The MRO Subsidiary was the result of the
consolidation on April 8, 2010 of our subsidiary San Diego Airmotive ("SDA") and
Miami Aviation Maintenance Co. ("MAMCO"). SDA (through its predecessor entity)
had been conducting MRO services in California since 1987, while MAMCO commenced
its operations in 2001 and continued them until the time of the consolidation,
but for an approximately 18-month period during which MAMCO ceased providing
services. The services are being offered out of North Perry Airport in Pembroke
Pines, Florida in Broward County.
The MRO Subsidiary has the following features and provides the following
services:
* FAA Certified Part 145 Repair Station including avionics
* Major & Minor Airframe Repairs on all aircraft 12,500 pounds and less
* Annual Inspections
* Computerized Aircraft Weight and Balance
* Engine Maintenance, Repair & Overhaul including custom installations
and refurbishment.
* Aircraft Modifications and STC kit installations
* Routine Maintenance/Insurance and Accident Repairs
* Composite Airframe Repairs
* Pre-purchase Inspections/Log Book Analysis
* Oxygen Service/Nitrogen Service
* Service Parts
* Janitrol/Southwind Heater Service/AD compliance inspections
* Dye/Fluorescent Penetrant Inspection Service
* Aircraft Exterior & Interior Detailing Services
* ACES Dynamic propeller balancing service
* Avionics installations and repairs
* Minor paint repairs and detailing
* Instrument Panel upgrades and Component installs
* Engine Scanners and Monitor installation
* EGT/CHT calibration
After the April move of our MRO business from southern California to the
Florida market, we "jump started" our transition by establishing an exclusive
maintenance, fueling and ground support contract with the Charter Air
Subsidiary, a company discussed in the next section that we eventually acquired
in August 2010. We are in the process of developing new customer relationships,
and thus far we have had limited success.
The MRO Subsidiary recently commenced a focused, direct marketing program
of its services and is starting to see an increased interest from potential
customers. Moreover, the MRO Subsidiary currently has the only avionics shop at
North Perry Field, providing services for the electronic systems on aircraft
that provide communications, navigation and guidance, display systems, flight
management systems, sensors and indicators, weather radars, electrical systems,
and various onboard computers. Finally, the MRO Subsidiary has recently entered
into lease negotiations regarding a fuel truck, pursuant to which the MRO
Subsidiary could offer to sell fuel to third parties. This truck will also
provide fuel to the Charter Air Subsidiary (discussed immediately below) at
discounted rates, enabling the other subsidiary to realize fuel cost savings.
All training regarding the operation of the fuel truck and the fire inspector's
inspection have been completed, and commencement of sales by this truck is
contingent solely upon the completion of negotiations regarding its lease to the
MRO Subsidiary. We have no assurance that we will be able to complete the lease
of the fuel truck and commence sales of fuel with it.
AIR CARRIER SERVICE BUSINESS
Twin Air Calypso Limited, Inc., our wholly-owned Florida subsidiary (the
"Air Carrier Subsidiary"), conducts our air carrier service business. We
acquired the Air Carrier Subsidiary on August 19, 2010. The Air Carrier
Subsidiary operates a air carrier service from South Florida to the Bahamas with
eight leased aircraft. It has regular flights of both passengers and cargo to
two destinations on the island of Abaco and three destinations on the island of
Eleuthera. The Air Carrier Subsidiary also flies to other destinations in the
Bahamas on a chartered basis. Currently, only three of the Air Carrier
Subsidiary's leased aircraft are flying, as five of these aircraft are currently
down for refurbishing. We expect that a fourth aircraft will be in the air by
the end of April 2011. However, we will need to raise about $350,000 to complete
the refurbishing of our remaining aircraft. Our goal is to raise this amount,
and complete the refurbishing, so that all aircraft will be operational by the
fall of 2011. Although we are now seeking to raise this amount, we have no
assurance that we will be able to do so. We are striving to get all eight
aircraft operational in order to fill the voids in the market caused by the
challenging economy in the market. This challenging market has caused some of
our competitors to suspend or cease flying, creating a void in certain routes
that we believe we can fill in a manner positive to our financial performance.
The additional aircraft will allow the West Palm Beach market to be opened and
new destination in the Bahamas started.
We lease seven aircraft pursuant to an aircraft lease agreement (the "Lease
Agreement") with Aircraft Charters, LLC, and entity controlled by Kenneth W.
Langston, who was a equity owner of MAMCO and TAC Limited. The start date on the
Lease Agreement was February 2010, and the Lease Agreement has a term of five
years, subject to earlier termination upon lessee default. Our monthly rental
rate per aircraft is $2,150. The aircraft are being leased on an "AS IS, WHERE
IS" basis. The Lease Agreement contains customary representations and warranties
on our part, customary affirmative and negative covenants on our part, and
customary events of default that entitle the lessor to terminate the Lease
Agreement. We are leasing our eighth aircraft for a one-year term that will end
on June 30, 2011 if the term is not extended. Our monthly rental rate is $2,150,
plus reserves of $35.00 per hour. We have an option to purchase this aircraft at
a price of $315,000, with a credit of $1,000.00 per each month of lease payments
made.
Since August 19, 2010, a review of existing acquisition plans has been
completed, a new "affiliate" program has been developed, and strategies for
obtaining airframe and avionic dealerships have been implemented. Several
companies have been identified as acquisition targets for the first quarter of
2011. The "affiliate" program will expand our capabilities while decreasing
operating costs for the Air Carrier Subsidiary. The Air Carrier Subsidiary
recently moved to a new facility on the Ft Lauderdale-Hollywood International
Airport that will lower rental and fuel costs, while providing a more efficient
operation and better amenities for the passengers.
LOCATION
The business of our MRO Subsidiary is located at North Perry Field in
Hollywood, Florida in Broward County, Florida. The MRO operates from this
facility pursuant to a written lease agreement for a renewable period of one
year. The sub-leased hangar for the MRO business of our MRO Subsidiary is
located on a lease of 10.3 acres and has parking area for over 80 aircraft. The
floor space is approximately 5,000 square feet with an additional 350 square
feet of avionic test benches and parts storage. The hangar is of concrete,
block, and steel construction with a clear span opening of 100' by 20'. The
aircraft population on North Perry Field is approximately 275. There are two
other FAA Part 145 Certified Repair Stations on North Perry Field; one
specializes in rotor-wing aircraft only, and the other is a factory-owned
support facility for Socata Aircraft. We are the only FAA approved Part 145
airframe, engine, and avionics repair facility catering to the local and
transient general aviation fixed-wing owners. Additionally, we can provide
avionics installations for the manufacturers we currently represent, AVIDYNE,
NAT Avionics, and PS Engineering. We expect to apply soon for additional
dealerships, such as GARMIN. We will also be providing AVGAS fueling services
for based and transient customers. There are approximately 20 aircraft
currently based at our facility. With the availability of fuel the number of
based aircraft should increase quickly and significantly. There is only one
other full-service and one self-service fueling facility on North Perry Field.
COMPETITION
AIR CARRIER SERVICES
----------------------
The airline industry is highly competitive, primarily due to the effects of
the Airline Deregulation Act of 1978. The Transportation Act substantially
eliminated government authority to regulate domestic routes and fares, and has
increased the ability of airlines to compete with respect to destination, flight
frequencies and fares. Most of our competitors have a combination of larger
customer bases, greater brand recognition in other airline markets and
significantly greater financial and marketing resources than we do. Competition
is generally based on price, schedule, quality of service and convenience.
Either aggressive marketing tactics or a prolonged fare war initiated by these
competitors could impact our limited financial resources and adversely affect
our ability to compete in these markets. Vigorous price competition exists in
the airline industry, with competitors frequently offering reduced discount
fares and other promotions to stimulate traffic during weaker travel periods,
generate cash flow or increase relative market share in selected markets. The
introduction of widely available, deeply discounted fares by any significant
airline could result in lower yields for the entire industry and could have a
material adverse effect on our financial condition and operating results. The
commencement of or increase in service on our routes by existing or new carriers
could negatively impact our operating results. Where we seek to expand our
service by adding routes or frequency, competing airlines may respond with
intense price and schedule competition. In addition, when other airlines seek to
establish a presence over new routes, they may engage in significant price
discounting. Because of our size and financial resources relative to some of the
major airlines, we are less able to absorb losses from these activities than
many of our competitors. We cannot assure anyone that competitive pressures
will not materially adversely affect our business, financial conditions or
results of operations or that we will ever attain any competitive position
within our market.
MRO SERVICES
-------------
The market for our MRO services is extremely competitive, and we face
competition from a number of sources. Our competitors include aircraft service
companies and other companies providing MRO services. We believe that our
experienced staff, facility amenities, scope of services, availability of parts,
and focus on customer service increase the competitiveness of the MRO
Subsidiary. Most of our competitors, however, have substantially greater
financial and other resources than are available to us. We cannot assure anyone
that competitive pressures will not materially adversely affect our business,
financial conditions or results of operations or that we will ever attain any
competitive position within our market.
GOVERNMENT REGULATION
The Air Carrier Subsidiary is operating pursuant to a Federal Aviation
Administration FAR Part 135 certificate. The MRO Subsidiary is providing
services pursuant to a Federal Aviation Administration FAR Part 145 certificate.
Although not now active from a business perspective, our California subsidiary,
SDA, holds a Federal Aviation Administration FAR Part 145 certificate, which we
will maintain in the event we decide to re-enter the California market.
The aviation industry in the United States is highly regulated by the
Federal Aviation Administration (the "FAA") and the Department of Transportation
(the "DOT"). Specifically, our charter air service business is heavily regulated
by these agencies. Moreover, our operations must comply with numerous security
and environmental laws, ordinances and regulations. We believe that our
operations are in material compliance with all of these laws, rules and
regulations. The remainder of this section briefly discusses some of the
regulations to which we are subject.
FAA REGULATION
---------------
The FAA regulates aircraft safety and flight operations generally,
including equipment, ground facilities, maintenance, repair, flight dispatch,
training, communications, the carriage of hazardous materials and other matters
affecting air safety. 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. The FAA issues operating certificates and
operations specifications to carriers that possess the technical competence to
conduct air carrier operations. In addition, the FAA issues certificates of
airworthiness to each aircraft that meets the requirements for aircraft design
and maintenance. We believe the Air Carrier Subsidiary holds all airworthiness
and other FAA certificates and authorities required for the conduct of its
business and the operation of its aircraft, although the FAA has the power to
suspend, modify or revoke such certificates for cause, or to impose civil
penalties for any failure to comply with federal law and FAA regulations.
In compliance with FAA regulations, the Air Carrier Subsidiary's aircraft
are subject to various levels of scheduled maintenance or "checks" and
periodically go through phased overhauls. 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
using certified technicians. The FAA monitors closely our aircraft maintenance
efforts. It also conducts safety checks on a regular basis.
The FAA has the authority to issue maintenance directives and other
mandatory orders relating to, among other things, the inspection and maintenance
of aircraft and the replacement of aircraft structures, components and parts,
based on the age of the aircraft and other factors. If the FAA were to
determine that the aircraft structures or components are not adequate, it could
order operators to take certain actions, including but not limited to, grounding
aircraft, reducing cargo loads, strengthening any structure or component shown
to be inadequate, or making other modifications to the aircraft. New mandatory
directives could also be issued requiring the Air Carrier Subsidiary to inspect
and replace aircraft components based on their age or condition. In the future,
the Air Carrier Subsidiary could be required to comply at considerable cost with
new mandatory directives as part of its aircraft maintenance program.
DOT REGULATION
---------------
The DOT maintains authority over certain aspects of domestic air
transportation, such as requiring a minimum level of insurance and the
requirement that a person be "fit" to hold a certificate to engage in air
transportation. In addition, the DOT continues to regulate many aspects of
international aviation, including the award of international routes. In reliance
on exemptions, we currently do not maintain any DOT certificates. However, we
are in the process of applying for a Part 298 certificate for commuter air
carrier operations, which will enable us to conduct an unlimited number of
weekly flights to specified locations. Prior to issuing such certificates, and
periodically thereafter, the DOT examines a company's managerial competence,
financial resources and plans, compliance, disposition and citizenship in order
to determine whether the carrier is fit, willing and able to engage in the
transportation services it has proposed to undertake. The DOT has the authority
to impose civil penalties, or to modify, suspend or revoke for cause
certificates issued by it, including failure to comply with federal law or DOT
regulations. No certificate confers proprietary rights on the holder, and the
DOT may impose conditions or restrictions on such certificates. We believe we
possess all necessary DOT-issued certificates and authorities to conduct our
current operations.
SECURITY
--------
The Air Carrier Subsidiary is required to comply with various security
procedures of FAA and TSA regulations and directives outlined in the federal
Domestic Security Integration Program. The airline subsidiaries' customers are
required to inform them in writing of the nature and composition of any freight
which is classified as "Dangerous Goods" by the DOT. In addition, we conduct
background checks on employees of the Air Carrier Subsidiary, restrict access to
aircraft, inspect aircraft for suspicious persons or cargo, and inspect all
dangerous goods. Notwithstanding these procedures, the Air Carrier Subsidiary
could unknowingly transport contraband or undeclared hazardous materials for
customers, which could result in fines and penalties and possible damage to the
aircraft.
SAFETY AND ENVIRONMENTAL
--------------------------
Our operations are also subject to a variety of worker and community safety
laws. The Occupational Safety and Health Act ("OSHA") mandates general
requirements for safe workplaces for all employees. Specific safety standards
have been adopted for workplaces engaged in the treatment, disposal and storage
of hazardous waste. We are also subject to various environmental laws. Under
current federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or clean-up of hazardous or toxic substances on, under, or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of contamination from hazardous or
toxic substances, or the failure to properly clean up such contaminated
property, may adversely affect the ability of the owner of the property to use
such property as collateral for a loan or to sell such property. Environmental
laws also may impose restrictions on the manner in which a property may be used
or transferred or in which businesses may be operated and may impose remediation
or compliance costs.
OTHER REGULATIONS
------------------
Various regulatory authorities have jurisdiction over significant aspects
of our business, and new laws or regulations or changes in existing laws or
regulations or the interpretations thereof could have a material adverse effect
on our operations. In addition to the above, other laws and regulations to which
we are subject, and the agencies responsible for compliance with such laws and
regulations, include the following:
* U.S. Customs and Border Protection inspects cargo imported from
foreign countries;
* We must comply with U.S. Citizenship and Immigration Services
regulations regarding passengers and the citizenship of our
employees;
* We must comply with wage, work conditions and other regulations
of the Department of Labor regarding our employees.
PRODUCT LIABILITY
Our MRO business exposes us to possible claims for personal injury or death
that 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 aircraft part. We do not now carry any product liability insurance
on our MRO business, which we believe is a common practice among smaller shops
with the level of third party business that we are now undertaking. We expect
that, if the volume of our MRO business and funds are available therefor, we
will explore the possibility of procuring product liability insurance on our MRO
business. However, we have no assurance that we will be able to procure or
maintain such insurance at an acceptable cost, or that such insurance will fully
protect us from all claims. Any liability of this type that is not covered by
adequate insurance could materially adversely affect our business and
operations.
EMPLOYEES
As of April 14, 2011, we had eight full-time and four part-time employees.
OUR HISTORICAL BUSINESS
Our historical business involved the exploration and production of oil and
gas. The importance of this segment of business to our business as a whole is
greatly diminished. Management is currently exploring options for the future of
this business, which may include a sale of it or a spin-off of it to
shareholders, so that management can devote its entire attention to our
business.
ITEM 1A. RISK FACTORS.
An investment in shares of our common stock is highly speculative and
involves a high degree of risk. You should carefully consider all of the risks
discussed below, as well as the other information contained in this Annual
Report. If any of the following risks develop into actual events, our business,
financial condition or results of operations could be materially adversely
affected and the trading price of our common stock could decline.
RISKS RELATING TO OUR COMPANY
-----------------------------
WE HAVE LIMITED HISTORY OF OPERATIONS AND WE CANNOT ASSURE YOU THAT OUR BUSINESS
MODEL WILL BE SUCCESSFUL IN THE FUTURE OR THAT OUR OPERATIONS WILL BE
PROFITABLE.
We changed our business focus near the end of February 2009 when we
acquired the operations of San Diego Airmotive ("SDA"). Although SDA (through
its predecessor entity) has been providing maintenance, repair and overhaul
("MRO") services in California since 1987, we are fairly new to this business.
During 2010, we acquired two additional businesses, one offering MRO services
and the other offering air carrier services. Investors have a limited history
of operations upon which to evaluate our business. There can be no assurances
whatsoever that we will be able to successfully implement our business model,
identify and close acquisitions of operating companies, penetrate our target
markets or attain a wide following for our services. We are subject to all the
risks inherent in an early stage enterprise which has experienced rapid growth
through acquisitions and our prospects must be considered in light of the
numerous risks, expenses, delays, problems and difficulties frequently
encountered in those businesses.
WE HAVE HAD A HISTORY OF LOSSES, AND WE HAVE A WORKING CAPITAL DEFICIT AND AN
ACCUMULATED DEFICIT. WE MAY NEVER REPORT PROFITABLE OPERATIONS.
We have incurred net losses since our inception, and we had a working
capital deficit of approximately $847,956, an accumulated deficit of
approximately $21,950,097, and our total liabilities exceeded our total assets
by $1,140,772, all as of December 31, 2010. There can be no assurance that we
will become profitable. Our business has had a history of losses as well. Unless
we are able to raise additional capital to fund our operating expenses, pay our
obligations as they become due and implement our business model, we may not be
able to continue as a going concern, and we could be forced to discontinue some
or all of our operations if our capital resources become exhausted by losses or
expenditures.
WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL WHEN NECESSARY OR ON TERMS THAT
ARE ACCEPTABLE TO US, IF AT ALL. IF WE ARE SUCCESSFUL IN RAISING ADDITIONAL
CAPITAL AS NECESSARY, THESE ADDITIONAL FINANCING TRANSACTIONS WILL BE DILUTIVE
TO OUR SHAREHOLDERS AND COULD INCREASE OUR INTEREST EXPENSE.
We expect that we will need significant additional cash resources to
operate and expand our business in the future. Our future capital requirements
will depend on many factors, including our ability to significantly increase our
revenues, maintain or reduce our operating expenses and execute our business and
strategic plans as currently conceived. If we raise additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of our company held by existing shareholders will be reduced and those
shareholders may experience significant dilution. In addition, new securities
may contain certain rights, preferences or privileges that are senior to those
of our common stock. There can be no assurance that acceptable financing can be
obtained on suitable terms, if at all. If we are unable to raise additional
working capital as needed, our ability to continue our current business will be
adversely affected and may be forced to curtail some or all of our operations.
OUR AUDITOR HAS GIVEN TO US A "GOING CONCERN" QUALIFICATION, WHICH QUESTIONS OUR
ABILITY TO CONTINUE AS A GOING CONCERN WITHOUT ADDITIONAL FINANCING.
Our independent certified public accountant has added an emphasis paragraph
to its report on our consolidated financial statements for the year ended
December 31, 2010 regarding our ability to continue as a going concern. Key to
this determination is our historical losses of $1,106,664 in 2010 and
$988,990 in 2009. Management plans to try to fund our company partially through
the raising of capital through the sale of our equity instruments or issuance of
debt, although there can be no assurance of success in this regard. Moreover,
management plans on additional revenues from operations from our business as a
source to finance our company, although there can be no assurance of that these
revenues will materialize at the expected rates. There can be no assurance that
we will be successful in achieving these objectives, becoming profitable or
continuing our business without either a temporary interruption or a permanent
cessation.
THE GEOGRAPHICAL CONCENTRATION OF OUR MRO OPERATIONS AND OUR FLIGHTS COULD
MATERIALLY HARM OUR BUSINESS.
Our MRO services are provided from a single facility located in south
Florida. If this facility was damaged or our access to it was limited (for
example, due to security concerns, severe weather or natural disaster), our
operations and financial conditions could be adversely affected.
We expect that the growth of our charter air services will focus on,
adding flights to and from our primary base of operations in south Florida
and the Bahamas. Our business would be harmed by any circumstances causing a
reduction in air transportation to or from these two locations, such as adverse
changes in local economic conditions, negative public perceptions of these
destinations, a change in customer preferences in these areas or significant
price increases linked to increases in airport access costs and fees imposed on
passengers.
THE PROFITABILITY OF OUR OPERATIONS IS INFLUENCED BY ECONOMIC CONDITIONS AS
DEMAND FOR LEISURE TRAVEL DIMINISHES DURING ECONOMIC DOWNTURNS.
The profitability of our operations is influenced by the condition of the
United States. A substantial portion of our charter air business is leisure
travel. Because leisure travel is discretionary, we expect to experience
somewhat weaker financial results during economic downturns.
OUR QUARTERLY RESULTS ARE SIGNIFICANTLY AFFECTED BY MANY FACTORS, AND OUR
RESULTS OF OPERATIONS FOR ANY ONE QUARTER ARE NOT NECESSARILY INDICATIVE OF OUR
ANNUAL RESULTS OF OPERATIONS.
Our operations are subject to a variety of factors that frequently cause
considerable volatility in our earnings, including:
* Changes in fuel, security and insurance costs;
* Seasonal variations in demand, affecting revenues earned; and
* Increases in personnel, marketing and other operating expenses.
In addition, seasonal variations in air traffic and expenditures affect our
operating results from quarter to quarter. Historically, we have experienced
reduced demand during the fourth quarter, as demand for leisure airline services
during this period is lower relative to other times of the year. Given our high
proportion of fixed costs, seasonality can affect our profitability from quarter
to quarter. Several of our areas of operations experience bad weather conditions
in the winter, causing increased costs associated with deicing aircraft,
canceled flights and accommodating displaced passengers. Due to the factors
described above, our results of operations in any one quarter are not
necessarily indicative of our annual results of operations.
IF WE GROW OUR BUSINESS AS PLANNED, WE MAY NOT BE ABLE TO MANAGE PROPERLY OUR
GROWTH, AND WE EXPECT OPERATING EXPENSES TO INCREASE, WHICH MAY IMPEDE OUR
ABILITY TO ACHIEVE PROFITABILITY.
If we are successful in growing our business as we plan, our operations may
expand rapidly and significantly. Any rapid growth could place a significant
strain on our management, operational and financial resources. In order to
manage the growth of our operations, we will be required to improve and expand
existing operations; to implement new operational, financial and inventory
systems, procedures and controls, including improvement of our financial and
other internal management systems; and to train, manage and expand our employee
base. If we are unable to manage growth effectively, our business, results of
operations and financial condition will be materially adversely affected. In
addition, if we are successful in growing our business as we plan, we expect
operating expenses to increase, and as a result, we will need to generate
increased quarterly revenue to achieve and maintain profitability. In
particular, as we grow our business, we would incur additional costs and
expenses related to:
* The expansion of our sales force and distribution channels
* The expansion of our product and services offerings
* Development of relationships with strategic business partners
* The expansion of management and infrastructure
* Brand development, marketing and other promotional activities.
These additional costs and expenses could delay our ability to achieve
profitability.
FUTURE ACQUISITIONS COULD EXPOSE US TO NUMEROUS RISKS.
As part of our business strategy, we may acquire complementary companies,
products, services or technologies. Any acquisition would be accompanied by the
risks commonly encountered in a transaction. Such risks include the following:
* Difficulty of assimilating the operations and personnel of the
acquired companies
* Potential disruption of our ongoing business
* Inability of management to maximize our financial and strategic
position through the successful incorporation of acquired businesses and
technologies
* Additional expenses associated with amortization of acquired
intangible assets
* Maintenance of uniform standards, controls, procedures and policies
* Impairment of relationships with employees, customers, vendors and
advertisers as a result of any integration of new management personnel
* Potential unknown liabilities associated with acquired businesses
There can be no assurance that we would be successful in overcoming these
risks or any other problems encountered in connection with such acquisitions.
Due to all of the foregoing, any future acquisition may materially and adversely
affect our business, results of operations, financial condition and cash flows.
Although we do not expect to use cash for acquisitions, we may be required to
obtain additional financing if we choose to use cash in the future. There can be
no assurance that such financing will be available on acceptable terms. In
addition, if we issue stock to complete any future acquisitions, existing
stockholders will experience further ownership dilution.
RISKS RELATING TO OUR INDUSTRY
------------------------------
THE OPERATION OF AIRCRAFT DEPENDS ON THE PRICE AND AVAILABILITY OF FUEL, AND
CONTINUED PERIODS OF HISTORICALLY HIGH FUEL COSTS MAY MATERIALLY ADVERSELY
AFFECT OUR OPERATING RESULTS.
Fuel is a major expense for all aircraft. Historically, fuel costs have
been subject to wide price fluctuations based on supply and demand, and
geopolitical issues, such as political disruptions or wars involving
oil-producing countries, changes in government policy, changes in fuel
production capacity, environmental concerns and other unpredictable events may
result in fuel supply shortages and additional fuel price increases in the
future. Fuel availability is also subject to periods of market surplus and
shortage and is affected by demand for both home heating oil and gasoline.
Because of the effect of these events on the price and availability of fuel, we
cannot predict the future cost and availability of fuel with any degree of
certainty. In the event of a fuel supply shortage, higher fuel prices or the
curtailment of operations could result. We cannot assure you that we would be
able to offset any increases in the price of fuel by higher fares. We have not
entered into any fuel hedging arrangements to reduce our exposure to
fluctuations in fuel prices. As a result, we have significant exposure to the
risk of increases in the price of fuel due to inadequate fuel supplies or
otherwise, and any such increase could have a material adverse effect on our
financial condition and results of operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A FAILURE TO ATTRACT AND RETAIN
QUALIFIED PILOTS AND OTHER OPERATIONS PERSONNEL.
Our ability to attract and retain qualified pilots, mechanics, and other
highly trained personnel will be an important factor in determining our future
success. The market for experienced and highly trained personnel is extremely
competitive. If we are unable to attract and retain such persons, flight
operations may be disrupted, which could have a negative effect on our operating
and financial results.
AIRCRAFT OWNERSHIP AND OPERATION IS VERY CAPITAL-INTENSIVE.
The airline business is highly capital-intensive. Although we currently
lease our aircraft, we expect that in the future we may need to make significant
capital investments to acquire the aircraft, ground and cargo handling
equipment, and an inventory of spare parts necessary for the operation of our
business. Our aircraft are older and tend to require more maintenance than
newer aircraft. Older aircraft tend to be subject to more Airworthiness
Directives ("ADs") promulgated by the FAA than newer aircraft, and are required
to undergo extensive structural inspections on an ongoing basis. An AD requiring
significant modifications to our aircraft type could require us to invest
significant additional funds in the aircraft or ground our fleet pending
compliance with the AD. We cannot predict when and whether new ADs covering our
aircraft will be promulgated, and there can be no assurance that compliance with
ADs will not adversely affect tour business, financial condition or results of
operations.
WE COULD FACE SHORTAGES OF ADDITIONAL AIRCRAFT AND AIRCRAFT PARTS.
Although we are currently focused on stabilizing our existing businesses,
once we have successfully completed this task (if at all), our growth will
depend in large part upon our ability to acquire additional aircraft to increase
our lift capacity. Our strategy will most likely be the acquisition of used
aircraft. The market for used aircraft can be affected by a number of factors,
including increased demand from other carriers, which could limit the number of
available aircraft and increase the acquisition cost thereof. Moreover, certain
parts and components required for the operation of our existing aircraft may not
be readily available in the marketplace when we require them, and our inability
to obtain necessary components or parts in a timely manner could adversely
affect our operations.
OUR INDUSTRY IS HEAVILY REGULATED AND WE MAY FAIL TO COMPLY WITH ALL SUCH
REGULATIONS. ANY FAILURE BY US COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS IN
COMPLYING WITH SUCH REGULATION, AND WE COULD BE FORCED TO CEASE OUR OPERATIONS.
We are subject to a wide range of governmental regulation by U.S. Federal,
state and foreign governmental agencies, including:
* U.S. Department of Transportation;
* U.S. Federal Aviation Administration (the "FAA");
* U.S. National Mediation Board, with respect to labor matters;
* U.S. Federal Communications Commission, with respect to use of
radio facilities;
* U.S. Environmental Protection Agency and similar state and
local authorities, primarily with respect to the use, discharge
and disposal of hazardous materials at or from our maintenance
and airport facilities; and
* Similar authorities in foreign countries with respect to our
international and charter operations.
Compliance with all applicable laws and regulations could result in
significant costs. Although we believe that we are presently in material
compliance with applicable laws and regulations, there is no assurance that we
are correct or that our operations will be deemed to be in compliance in the
future. Additional laws, regulations and charges have been proposed, from time
to time, that could significantly increase the cost of our operations or reduce
overall revenue. To the extent that new regulations are adopted, we will be
required to conform our activities in order to comply with such regulations. We
may be required to incur substantial costs in order to comply. We cannot provide
assurance that laws or regulations enacted in the future will not adversely
affect our revenue and future profitability. Moreover, we may not be able to
comply with current laws and regulations, or any future laws and regulations.
Our failure to comply with applicable laws and regulations could subject us to
civil remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions which could have a material and adverse effect on
our business operations and finances and we could be forced to cease our
operations.
WE ARE SUBJECT TO ENVIRONMENTAL LAWS THAT COULD IMPOSE SIGNIFICANT COSTS ON US
AND THE FAILURE TO COMPLY WITH SUCH LAWS COULD SUBJECT US TO SANCTIONS AND
MATERIAL FINES AND EXPENSES.
We are subject to a variety of federal, state and local environmental laws
and regulations, including those governing the discharge of pollutants into the
air or water, the management and disposal of hazardous substances and wastes and
the responsibility to investigate and clean-up contaminated sites that are or
were owned, leased, operated or used by us or our predecessors. Some of these
laws and regulations require us to obtain permits, which contain terms and
conditions that impose limitations on our ability to emit and discharge
hazardous materials into the environment and periodically may be subject to
modification, renewal and revocation by issuing authorities. Fines and penalties
may be imposed for non-compliance with applicable environmental laws and
regulations and the failure to have or to comply with the terms and conditions
of required permits. We intend to comply with these laws and regulations,
however, from time to time, our operations may not be in full compliance with
the terms and conditions of our permits. We periodically review our procedures
and policies for compliance with environmental laws and requirements. We believe
that our operations generally are in material compliance with applicable
environmental laws, requirements and permits and that any lapses in compliance
would not be expected to result in us incurring material liability or cost to
achieve compliance. Historically, the costs of achieving and maintaining
compliance with environmental laws, and requirements and permits have not been
material; however, the operation our business entails risks in these areas, and
a failure by us to comply with applicable environmental laws, regulations, or
permits could result in civil or criminal fines, penalties, enforcement actions,
third party claims for property damage and personal injury, requirements to
clean up property or to pay for the costs of cleanup, or regulatory or judicial
orders enjoining or curtailing operations or requiring corrective measures.
Moreover, if applicable environmental laws and regulations, or the
interpretation or enforcement thereof, become more stringent in the future, we
could incur capital or operating costs beyond those currently anticipated.
THE SUSPENSION OR REVOCATION OF FAA CERTIFICATIONS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our airline operations are subject to regulations of the FAA. The FAA can
suspend or revoke the authority of air carriers or their licensed personnel for
failure to comply with its regulations and can ground aircraft if questions
arise concerning airworthiness. The FAA also has power to suspend or revoke for
cause the certificates it issues and to institute proceedings for imposition and
collection of fines for violation of federal aviation regulations. Our airline
subsidiary operates under FAA certifications. The suspension or revocation of
any one of these certifications could have a material adverse effect on our
business, results of operations and financial position. The suspension or
revocation of all of these certifications would have a material adverse effect
on our business, results of operations and financial position.
OUR REPUTATION AND FINANCIAL RESULTS COULD BE HARMED IN THE EVENT OF AN ACCIDENT
OR INCIDENT INVOLVING ONE OF OUR AIRCRAFT, OR AIRCRAFT OF THE SAME TYPE.
We may incur substantial losses in the event of an aircraft accident. These
losses may include the repair or replacement of a damaged aircraft, and the
consequent temporary or permanent loss of the aircraft from service, as well as
claims of injured passengers and other persons. Although we believe our
insurance coverage for our charter air service is adequate, we cannot assure
anyone that the amount of our insurance coverage will not be changed or that we
will not be forced to bear substantial losses from accidents. Substantial claims
resulting from an accident could have a material adverse effect on our business,
operations and financial results. Moreover, any aircraft accident or incident,
even if fully insured, could cause a public perception that we are less safe or
reliable than other airlines, which would materially harm our business. In
addition, any accident involving the type of aircraft that we operate, even if
the aircraft involved is not operated by us, could also cause a public
perception that our aircraft is less safe or reliable than other competitors,
which would harm our business. We do not now carry any product liability
insurance on our MRO business, which we believe is a common practice among
smaller shops with the level of third party business that we are now
undertaking. We expect that, if the volume of our MRO business and funds are
available therefore, we will explore the possibility of procuring product
liability insurance on our MRO business. However, we have no assurance that we
will be able to procure such insurance, or that such insurance will fully
protect us from all claims.
WE MAY NOT HAVE SUFFICIENT INSURANCE COVERAGE TO PROTECT US FROM LIABILITY
CLAIMS.
In addition to the above, our business exposes us to possible claims for
personal injury or death that may result if we were negligent in repairing 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.
Additional, 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 will adversely affect our business, financial
condition and results of operations.
OUR FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED BY COMPETITION.
We expect our market to be intensely competitive. The majority of our
anticipated competitors will be more established, benefit from greater market
recognition and have substantially greater financial, marketing and other
resources than we do. In addition, larger competitors may be able to absorb the
burden of any changes in federal, state and local laws and regulations more
easily than we can, which would adversely affect our competitive position.
Moreover, some of our competitors have been operating in our core area for a
long time and have demonstrated the ability to operate through industry cycles.
Intense competition could materially adversely affect our business, results of
operations and financial condition.
AIRLINES ARE OFTEN AFFECTED BY FACTORS BEYOND THEIR CONTROL, INCLUDING TRAFFIC
CONGESTION AT AIRPORTS, WEATHER CONDITIONS AND INCREASED SECURITY MEASURES, ANY
OF WHICH COULD HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION.
Like other airlines, we are subject to delays caused by factors beyond our
control, including air traffic congestion at airports, adverse weather
conditions and increased security measures. Delays disservice passengers,
reduce aircraft utilization and increase costs, all of which in turn affect
profitability. During periods of fog, snow, rain, storms or other adverse
weather conditions, traffic control problems could harm our operating results
and financial condition.
WE COULD BE LIABLE FOR OUR INADVERTENT TRANSPORTATION OF CONTRABANDS.
Customers may not inform us, despite the requirement to do so, when their
cargo includes hazardous materials. In addition, our own checks and searches
for hazardous materials, weapons, explosive devices and illegal freight may not
reveal the presence of such materials or substances in its customers' cargo.
The transportation of unmanifested hazardous materials or of contraband could
result in fines, penalties, flight bans or possible damage to our aircraft.
There can be no assurance we will not be subject to fines, penalties or flight
bans in the future, any of which could have a material adverse effect on our
business, financial condition and results of operations.
RISKS RELATING TO OUR MANAGEMENT
--------------------------------
WE HIGHLY DEPEND ON OUR CURRENT MANAGEMENT. THE LOSS OF ANY MEMBER OF OUR
CURRENT MANAGEMENT COULD HARM OUR ABILITY TO EXECUTE OUR BUSINESS PLAN.
Our success depends heavily upon the continued contributions of current
management. The loss of the services of one or more of our members of
management could materially adversely affect our business, operating results and
financial condition.
We cannot guarantee that we will be able to retain our key personnel.
Moreover, we currently have no key person insurance on any members of
management.
OUR CURRENT MANAGEMENT RESOURCES MAY NOT BE SUFFICIENT FOR THE FUTURE, AND WE
HAVE NO ASSURANCE THAT WE CAN ATTRACT ADDITIONAL QUALIFIED PERSONNEL.
There can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform. Our future success also depends on our continuing
ability to attract, assimilate and retain highly qualified sales, technical and
managerial personnel. Competition for these individuals is intense, and there
can be no assurance that we can attract, assimilate or retain necessary
personnel in the future.
OUR MANAGEMENT OWNS A LARGE PERCENTAGE OF OUR VOTING STOCK, AND CUMULATIVE
VOTING IS NOT AVAILABLE TO STOCKHOLDERS.
Our management owns approximately 21.1% of our outstanding voting stock.
Cumulative voting in the election of Directors is not provided for. This fairly
large percentage ownership interest could help our management maintain their
positions on our Board of Directors.
WE WILL BE REQUIRED TO COMPLY WITH SECTION 404 OF THE SARBANES OXLEY ACT OF
2002.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, in connection
with this Annual Report and future Annual Reports, we are and will be required
to furnish a report by management on our internal controls over financial
reporting which will contain, among other matters, an assessment of the
effectiveness of our internal control over financial reporting, including a
statement as to whether or not our internal control over financial reporting is
effective. This assessment must include disclosure of any material weaknesses
in our internal control over financial reporting identified by our management.
During the evaluation and testing process, if we identify one or more material
weaknesses in our internal control over financial reporting, we will be unable
to assert that such internal control is effective. If we are unable to assert
that our internal control over financial reporting is effective, we could lose
investor confidence in the accuracy and completeness of our financial reports.
Furthermore, we expect that our compliance with the regulatory requirements
described herein will likely increase our professional expenses.
RISKS RELATING TO OUR COMMON STOCK
----------------------------------
WE HAVE ENTERED INTO LOAN TRANSACTIONS INVOLVING CONVERTIBLE PROMISSORY NOTES,
WHICH HAVE BEEN, AND MAY IN THE FUTURE BE, DILUTIVE.
During 2010, we entered into a series of transactions in which we issued
five convertible promissory notes (the "Notes"). This series of transactions is
described in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Convertible Debt." The Notes have a floating conversion price that entitles the
holder to convert the Notes into a larger number of shares of our common stock
as the trading price of our common stock goes down. As of April 1, 2011, part
of the Notes have been converted into 49,871,292 shares of our common stock.
Because of the floating conversion price and limitations on the holder's ability
to convert the Notes, we are unable to determine at any time that number of
shares into which the remainder of the Notes can be converted. Future issuance
of additional shares upon conversion of the Notes would further dilute the
percentage ownership in our company held by existing stockholders and could
cause immediate and substantial dilution to the net tangible book value of those
shares of common stock that are issued and outstanding immediately prior to such
transaction. Any future decrease in the net tangible book value of such issued
and outstanding shares could have a material effect on the market value of the
shares. The terms on which we could obtain additional capital during the life
of the Notes may be adversely affected because of such potential dilution. For
more information about the Notes, see "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Convertible Debt."
WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges are those that
address board of directors' independence, audit committee oversight, and the
adoption of a code of ethics. Although we have adopted a Code of Ethics, we
have not yet adopted any of these other corporate governance measures and, since
our securities are not yet listed on a national securities exchange, we are not
required to do so. We have not adopted corporate governance measures such as an
audit or other independent committees of our board of directors as we presently
do not have any independent directors. If we expand our board membership in
future periods to include additional independent directors, we may seek to
establish an audit and other committees of our board of directors. It is
possible that if we were to adopt some or all of these corporate governance
measures, shareholders would benefit from somewhat greater assurances that
internal corporate decisions were being made by disinterested directors and that
policies had been implemented to define responsible conduct. For example, in
the absence of audit, nominating and compensation committees comprised of at
least a majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKEOVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR SHAREHOLDERS.
Provisions of our certificate of incorporation and bylaws may be deemed to
have anti-takeover effects, which include when and by whom special meetings of
our shareholders may be called, and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of Colorado law also may be deemed to
have certain anti-takeover effects which include that control of shares acquired
in excess of certain specified thresholds will not possess any voting rights
unless these voting rights are approved by a majority of a corporation's
disinterested shareholders.
In addition, our certificate of incorporation authorizes the issuance of up
to 10,000,000 shares of preferred stock with such rights and preferences, as may
be determined by our board of directors. Of this authorized preferred stock, no
shares are currently issued and outstanding. Our board of directors may,
without shareholder approval, issue up to 10,000,000 preferred stock with
dividends, liquidation, conversion or voting rights that could adversely affect
the voting power or other rights of our common shareholders.
OUR COMMON STOCK HAS EXPERIENCED ONLY EXTREMELY LIMITED TRADING.
During the prior fiscal year, our common stock was quoted and traded on the
Pink Sheets under the symbol "AAVG." Frequently, the volume of trading in our
common stock has been light, and the prices and volumes at which our common
stock has traded have fluctuated fairly widely on a percentage basis. Until
shares of our common stock become more broadly held and orderly markets develop
and even thereafter, the prices of our common stock may fluctuate significantly.
Prices for our common stock will be determined in the marketplace and may be
influenced by many factors, including the following:
* The depth and liquidity of the markets for our common stock;
* Investor perception of us and the industry in which we participate;
* General economic and market conditions;
* Responses to quarter-to-quarter variations in operating results;
* Failure to meet securities analysts' estimates;
* Changes in financial estimates by securities analysts;
* Conditions, trends or announcements in our industry;
* Announcements of significant acquisitions, strategic alliances, joint
ventures or capital commitments by us or our competitors;
* Additions or departures of key personnel;
* Sales of our common stock;
* Accounting pronouncements or changes in accounting rules that affect our
financial statements; and
* Other factors and events beyond our control.
The market price of our common stock could experience significant
fluctuations unrelated to our operating performance. As a result, a stockholder
(due to personal circumstances) may be required to sell such stockholder's
shares of our common stock at a time when our stock price is depressed due to
random fluctuations, possibly based on factors beyond our control.
THE TRADING PRICE OF OUR COMMON STOCK MAY ENTAIL ADDITIONAL REGULATORY
REQUIREMENTS, WHICH MAY NEGATIVELY AFFECT SUCH TRADING PRICE.
The trading price of our common stock historically has been below $5.00
per share. As a result of this price level, trading in our common stock is
subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934. These rules require additional disclosure by
broker-dealers in connection with any trades generally involving any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such rules require the delivery, before any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). For these types of
transactions, the broker-dealer must determine the suitability of the penny
stock for the purchaser and receive the purchaser's written consent to the
transaction before sale. The additional burdens imposed upon broker-dealers by
such requirements may discourage broker-dealers from effecting transactions in
our common stock. As a consequence, the market liquidity of our common stock
could be severely affected or limited by these regulatory requirements.
STOCKHOLDERS HAVE NO GUARANTEE OF DIVIDENDS.
The holders of our Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore. To date, we have paid no cash dividends. The Board of Directors
does not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in our business operations. If
we obtain additional financing, our ability to declare any dividends will
probably be limited contractually.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
Our principal executive offices are located in approximately 1,500 square
feet of executive office space. Persons with whom our management has other
business relationships are providing this space to us on a gratuitous, at-will
basis. If this arrangement were to end, we would be required to start paying
rent, or find alternative space, or both.
For information about our operational facilities, see "Item 1 - Business -
Location."
ITEM 3. LEGAL PROCEEDINGS.
We are not presently a party to any pending legal proceeding.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
During the prior fiscal year, our common stock was quoted and traded on the
Pink Sheets under the symbol "AAVG." The following table sets forth certain
information as to the high and low bid quotations quoted on the Pink Sheets for
the fiscal years ended December 31, 2009 and December 31, 2010. Information
with respect to over-the-counter bid quotations represents prices between
dealers, does not include retail mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions. Prices in the table take into
account the one-for-100 reverse split of our common stock that occurred in the
fall of 2009.
COMMON STOCK
------------
2009 HIGH LOW
---- ---- ---
First Quarter $0.14 $0.05
Second Quarter $0.20 $0.06
Third Quarter $0.12 $0.022
Fourth Quarter $0.13 $0.0125
COMMON STOCK
------------
2010 HIGH LOW
---- ---- ---
First Quarter $.055 $.01
Second Quarter $.055 $.0025
Third Quarter $.021 $.0014
Fourth Quarter $.014 $.0043
As of April 13, 2011, we had approximately 384 common shareholders of
record and 208,270,834 common shares outstanding.
We have not paid any cash dividends on the common stock, and we do not intend to
pay any dividends prior to the consummation of a business combination.
EQUITY COMPENSATION PLANS
We currently do not have any equity compensation plans under which our
equity securities are authorized for issuance.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
We have historically been an independent energy company focused on
exploration and development of oil and natural gas reserves. With the level of
oil prices and our production oil near the beginning of 2009, none of wells were
producing sufficient to support our operations. To that end, in 2009 we adopted
a significant change in our corporate direction. We then decided to focus our
efforts on acquiring aviation related businesses and developing these businesses
to their commercial potential. In this connection, we entered into a Share
Exchange Agreement fully by and between AvStar Aviation Services, Inc. ("AvStar
Services") and us, providing for our acquisition of all of the outstanding
common stock in San Diego Airmotive ("SDA"), which (through its predecessor
entity) has been providing maintenance, repair and overhaul ("MRO") services in
California since 1987.
Our current business plan is to acquire, consolidate and grow businesses in
the general aviation industry. We placed our initial focus on MRO of aircraft
providing products and services for the general aviation sector. We believe that
since September 11, 2001, both private air transportation and the number of
aircraft owned by both individuals and business have dramatically increased.
Each of these sectors, in addition to routine maintenance, has mandated a number
of inspections by the FAA that are commonly included in traditional MRO
services. In 2010, we expanded our business through the acquisition a charter
air service that operates from South Florida to the Bahamas. As capital is
available to us, we intend to grow our business through the expansion of our
existing MRO business as well as by acquisitions of existing MRO's, fixed base
operations (FBO), charter operations and other operational aircraft related
businesses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of its financial condition and results of
operations as of December 31, 2010 are based upon its consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates. We base the estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. These
estimates and assumptions provide a basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions, and these differences may be material.
We believe the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Aviation Revenue Generation
---------------------------
Thru Twin Air Calypso Limited, Inc. AvStar derives revenue from scheduled
and charter passenger and freight air carrier services to 5 destinations in the
"Family Islands" of the Bahamas. The other islands of the Bahamas and
destinations in the United States are provided on a charter basis. At the
present time all of these flights originate form Ft Lauderdale, Florida.
Customers on the scheduled flights are charged on a per seat basis and charter
customers are charged for the entire aircraft. Freight customers are charged on
a per pound basis adjusted by "dimensional weight", an industry wide accepted
policy. Additional charges are levied for priority handling. Other income is
derived form excess luggage, pets and special handling requests.
Fluctuations in this revenue are principally caused by the seasonality of
the vacation tourist. We have taken steps to minimize this effect by heavily
promoting the business of the local resident, second homeowners and local
businesses.
Thru Twin Air Calypso Services, Inc. AvStar derives revenue by providing
the labor and parts needed for the continued maintenance of general aviation
aircraft. Labor is charged on a per-hour basis and parts are charged on a
cost-plus basis.
By providing maintenance services to Twin Air Calypso Limited, Inc.
fluctuations in this revenue is minimized. We are marketing our services heavily
to the retail general aviation community to supplement our income and thereby
lowering the costs to our other operating divisions.
Essentially all of our revenue is either on a COD basis or paid by credit
card. Our risk of bad debt is minimal.
Operating Expenses Overview
---------------------------
Our consolidated cost of sales expenses consist primarily of aircraft
leases, insurance, fuel, parts, repair labor, crew labor, ground logistic
services, and labor for reservation agents. The general and administrative
expenses consist primarily of property rentals, administrative labor,
communication costs and employee associated costs.
Due to the unpredictable nature of the energy industry the cost of fuel is
the most variable of all the expenses. For this reason we have introduced fuel
surcharges in an effort to mitigate the effect of these fluctuations on our
profits. We have not experienced any difficulty in the supply or pricing of the
needed parts for the continued airworthiness of our aircraft. While the market
for aircraft insurance is limited there has not been any significant price
changes for the past several years. We are presently receiving proposals for our
upcoming insurance renewal. The current proposals are consistent with expiring
terms. The availability of skilled and unskilled labor force in South Florida is
adequate to provide stable labor costs.
Estimates, Assumptions, and Judgments
-------------------------------------
The operation of our business requires us to make estimates, assumption,
and judgments that affect our assets, liabilities, revenues and expenses. On an
on-going basis we evaluate our estimates, assumptions, and judgments and their
applicability on our operations. We base our estimates on historical experience
and on various other assumptions we believe to be reasonable under the
circumstances. We consider the following policies and their relation to our
operating results to be most critical:
* The availability of fuel and our ability to control its cost;
* The continued support of the aircraft we operate by its
respective manufacturer,
* The policies of the Bahamian government regarding tourism,
* The policies of the United States government regarding
international travel,
* The ability of management to identify the need to enter new markets
and expand existing ones,
* The ability of management to interrelate with the various
government agencies which effect our operations.
Oil and Gas Producing Activities
--------------------------------
We follow the "successful efforts" method of accounting for our oil and gas
properties. Under this method of accounting, all property acquisition costs
(cost to acquire mineral interests in oil and gas properties) and costs (to
drill and equip) of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves in commercial quantities,
the costs associated with the well are charged to expense. The costs of
development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Management estimates the
future liability for plugging and abandonment of the related wells.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the average holding period. Capitalized costs
of producing oil and gas properties after considering estimated dismantlement
and abandonment costs and estimated salvage values are depreciated and depleted
by the unit-of-production method. On the sale or retirement of a complete unit
of a proved property, the cost and related accumulated depreciation, depletion,
and amortization are eliminated from the property accounts, and the resultant
gain or loss is recognized. On the retirement or sale of a partial unit of
proved property, the cost is charged to accumulated depreciation, depletion, and
amortization with a resulting gain or loss recognized in the statement of
operations.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Oil and Gas Revenues
--------------------
Oil and gas revenues are recorded under the sales method. We recognize oil
and gas revenues as production occurs. As a result, we accrued revenue relating
to production for which we have not received payment.
RESULTS OF OPERATION
Comparison of Year Ended December 31, 2010 to Year Ended December 31, 2009
--------------------------------------------------------------------------
Financial results for the year ended December 31, 2010 are not directly
comparable to financial results for the year ended December 31, 2009. During
August 2010, we completed the acquisition of Twin Air Calypso Limited, Inc.
("TAC Limited"). TAC Limited operates an air carrier service. This acquisition
appreciably affected the financial results for the year ended December 31, 2010
compared to the financial results for the year ended December 31, 2009.
REVENUES. Revenues were $1,480,627 in 2010 consisting of $1,478,273
revenues from aviation operations and $2,354 from oil and gas operations
compared to revenues of $666,196 in 2009 consisting of $660,947 in revenues from
aviation operations from SDA and $5,249 in revenues from oil and gas operations.
These revenues represent an increase from revenues from 2009 to 2010, largely
due to to the acquisition of TAC Limited during August 2010. The decrease in oil
and gas revenues from 2009 to 2010 resulted from a decrease in production.
EXPENSES. Costs and expenses increased to $2,964,736 in 2010 from
$1,609,598 in 2009. This increase in costs and expenses reflects the
following:
* $1,172,565 in costs of goods sold in the 2010 from SDA's
operation compared to $460,581 in costs of goods sold in 2009,
with the substantial increase in costs of goods resulting from the
increase in activity due to the acquisition of TAC Limited
* $1,129,330 in selling, general and administrative expenses in
2010 compared to $380,264 in these expenses in 2009, with the
substantial increase in SGA resulting from the increase in activity
due to the acquisition of TAC Limited
* $31,841 in depletion and depreciation in 2010 compared to
$137,613 in these expenses in 2009, with the substantial decrease
in depletion and depreciation resulting from a lower asset base,
which had been written down in 2009
LOSS FROM OPERATIONS. Because of the increase in activity due to the
acquisition of TAC Limited, the Company's loss from operations increased to
$1,484,109 in 2010 from $943,402 in 2009.
INTEREST EXPENSE. Interest expense declined slightly to $43,840 in 2010
compared to $45,588 in 2009.
NET LOSS. After taking into account interest expense, the Company's net
loss increased to $1,527,949 (or $0.013 per share) in 2010 from $988,990 in
2009 (or $0.042 per share).
KNOWN TRENDS
From our fifty plus years of experience in the Bahamian and general
aviation markets we have observed many trends and customs. The general downturn
of the world economy in 2008 caused many real estate development ventures in the
Bahamas to close operations. At the present time many of these developments are
planning to resume operations in the near future. We will be offering both
passenger and freight services to these companies.
The Bahamas government is making the ownership of real estate and the
building of homes easier and more secure for non-Bahamians than at any time in
their history. This is of great importance to AvStar because it expands the
non-seasonal portion of our market.
The number and nature of competitors in our markets have changed in the
past year. The difficult economic times of the past two years have eliminated
several of our competitors and caused the larger air carriers to reduce their
operations into the small population centers we serve. This gives AvStar a
window of time to reinforce our position in the market.
The price of fuel, our largest operational cost component, will continue to
be volatile and require continual monitoring by management.
We will be submitting our application to the DOT for commuter authority in
early May with expected approval by the 2011 fall/winter season. With this
approval our customer base and marketing exposure will significantly increase.
The general aviation market will continue to be affected by fuel prices and
other increased operating costs. We have positioned ourselves to offer fuel,
labor and parts to the general aviation owner at reduced prices due to our
overhead being shared between two entities.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2010, we had a working capital deficiency of
approximately $874,956. Currently, we have limited financial ability to pursue
our new business plan. In addition to stabilizing our two existing businesses,
our immediate financial goal is to raise approximately $350,000 to complete
the scheduled maintenance and refurbishing of our remaining eight aircraft.
Although we are now seeking to raise this amount, we have no assurance that we
will be able to do so. We believe that, once these aircraft are flying again,
our goal of stabilizing our existing business can be accomplished, and we can
start considering the resumption of our original business plan of acquiring
other businesses. Once the stabilization is accomplished (if at all), we begin
trying to determine the scope of the business activities that we will pursue in
the foreseeable future. The amount of capital that we will need depends on the
scope of the business activities that we ultimately decide to pursue. This scope
is uncertain at this time. However, we know that we must obtain additional
financing to pursue our business plan at any level that we are likely to pursue.
We are currently searching for sources of financing, but we currently do not
have any binding commitments for, or readily available sources of, financing. We
cannot assure anyone that financing will be available to us when needed or, if
available, that such financing can be obtained on commercially reasonably terms.
If we do not obtain financing we will be constrained to contract the scope of
our business plan. Under certain circumstances, we may be constrained to attempt
to sell some of our assets. However, we cannot assure anyone that we will be
able to find interested buyers or that the funds received from any such sale
would be adequate to fund our activities. Under certain circumstances, we could
be forced to cease our operations and liquidate our remaining assets, if any.
Our independent certified public accountant has added an emphasis paragraph
to its report on our consolidated financial statements for the year ended
December 31, 2010 regarding our ability to continue as a going concern. Key to
this determination is our historical losses of $1,016,664 in 2010 and $988,990
in 2009. Management plans to try to fund our company partially through the
raising of capital through the sale of our equity instruments or issuance of
debt, although there can be no assurance of success in this regard. Moreover,
management plans on additional revenues from operations from our business as a
source to finance our company, although there can be no assurance of that these
revenues will materialize at the expected rates. There can be no assurance that
we will be successful in achieving these objectives, becoming profitable or
continuing our business without either a temporary interruption or a permanent
cessation.
Convertible Debt
----------------
Commencing on April 19, 2010, we entered into a series of transactions in
which we issued five convertible promissory notes (singly a "Note" and
collectively the "Notes") to Asher Enterprises, Inc. ("Holder") in consideration
of certain amounts loaned by Holder to us. The following table gives the
designations to which the Notes are referred hereinafter, the dates of the
Notes, the original principal amounts of the Notes, and the scheduled maturity
dates of the Notes:
DESIGNATION ISSUANCE ORIGINAL PRINCIPAL MATURITY
OF NOTE DATE OF NOTE AMOUNT OF NOTE DATE OF NOTE
------- ------------ -------------- ------------
First 4/19/2010 $50,000 1/21/2011
Second 6/1/2010 $25,000 3/31/2011
Third 8/31/2010 $40,000 6/2/2011
Fourth 10/21/2010 $35,000 7/25/2011
Fifth 12/20/2010 $45,000 9/22/2011
TOTAL $195,000
While the terms of the Notes vary somewhat, these terms are generally the
same from Note to Note. The following is a description of the terms of the
Notes.
Each of the Notes bears regular interest at a rate of 8% per annum, with a
default rate of 22% per annum. The Notes are unsecured, and each of them is due
and payable on or before their respective maturity dates. At any time prior to
the payment in full of the entire balance of a Note, Holder has the option of
converting all or any portion of the unpaid balance of the Note into shares of
our common stock at a conversion price discussed hereafter. Nevertheless,
Holder is not entitled to convert any portion of a Note to the extent that the
shares to be issued in connection therewith would cause Holder's beneficial
ownership of our common stock to exceed 4.99% of the outstanding shares of our
common stock. Each conversion price for the Notes features a "variable"
conversion price, and the First and Second Notes also feature a "fixed"
conversion price of $.002, which will apply if it is less than the related
variable conversion price. The variable conversion price is a percentage
discount from an average of the three lowest closing bid prices of our common
stock for the 10 most recent trading days preceding the date of exercise. The
percentage discounts for the variable conversion prices provided for in the
Notes range from 42% for the First Note, 50% for the Second, Third and Fourth
Notes, and 55% for the Fifth Note. Because of the operation of the floating
conversion price and the limitation on the ability of Holder to convert as
described above, we are unable to determine at any time that number of shares
into which Holder could convert one or more of the Notes.
The Notes (and related documentation) contain customary representations and
warranties, customary affirmative and negative covenants, customary
anti-dilution provisions, and customary events of default that entitle Holder to
accelerate the due date of the unpaid principal amount of, and all accrued and
unpaid interest on, the Notes. A default on any of the Notes could lead to
certain penalties, including an obligation to (a) pay all of the following, plus
an additional 50% of (i) default interest, (ii) other monetary penalties, and
(iii) the outstanding balance on the related Note, and (b) to issue shares of
our common stock to satisfy the amount computed in accordance with (a)
immediately preceding.
Commencing October 25, 2010, Holder began converting some of the Notes. As
of the date of the Report, Holder had converted an aggregate principal amount of
the Notes equal to $87,000 into 49,871,292 shares of our common stock, leaving
an aggregate outstanding principal amount of the Notes equal to $108,000 as of
April 1, 2011. The First and Second Notes have been fully converted, while the
Third Note has been partially converted.
Legacy Debt
-----------
We have outstanding the following notes that became due and payable on
December 1, 2008. These notes have an aggregate principal amount totaling
$624,771 plus aggregate accrued interest of $99,197 as of April 13, 2011.
We are currently exploring ways to satisfy these amounts.
(a) Note payable to Mary Pollock Merritt, daughter of our former chief
executive officer. This note bears interest at rates of 12% per year and became
due on December 31, 2008. This note is not collateralized. The current
outstanding balance on this note as of April 13, 2011 was $111,691, plus
accrued interest.
(b) Note payable to Charles Pollock, our former chief executive officer and
a significant stockholder of ours. This note bears interest of 12% per year and
became due on December 31, 2008. This note is not collateralized. The current
outstanding balance on this note as of April 13, 2011 was $400,911, plus
accrued interest.
(c) Note payable to Mark Weller, our former president and a significant
stockholder of ours. This note bears interest of 12% per year and became due on
December 31, 2008. This note is not collateralized. The outstanding balance on
this note as of April 13, 2011 was $112,169, plus accrued interest.
Off-balance Sheet Arrangements
------------------------------
During the year ended December 31, 2010, we had no off balance sheet
arrangements.
Oil and Gas Assets
------------------
Management is currently exploring options for our remaining oil and gas
assets, which may include a sale of it or a spin-off of them to shareholders, so
that management can devote its entire attention to our current aviation
business.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
AvStar Aviation Group, Inc.
Houston, Texas
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
AvStar Aviation Group, Inc.
Houston, Texas
I have audited the accompanying consolidated statements of financial position of
AvStar Aviation Group, Inc.
as of December 31, 2010 and 2009, and the related consolidated statements of
operations, consolidated statement of shareholders' deficit and consolidated
statements of 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 audit.
I conducted my audit 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. The Company is not required to
have, nor was I engaged to perform, an audit of its internal control over
financial reporting. My audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. 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 audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AvStar Aviation Group,
Inc. as of December 31, 2010 and 2009, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered significant losses and will
require additional capital to develop its business until the Company either (1)
achieves a level of revenues adequate to generate sufficient cash flows from
operations; or (2) obtains additional financing necessary to support its working
capital requirements. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Clay Thomas, P.C.
--------------------
Clay Thomas, P.C.
www.claythomaspc.com
Houston, Texas
April 15, 2011
AVSTAR AVIATION GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the Years Ended December 31, 2010 and 2009
ASSETS 2010 2009
Current Assets
Cash 5,648 4,565
Accounts Receivable 146,826 23,950
Parts and Inventory 4,858 27,916
Prepaid Expenses 11,008 8,301
-----------------------
Total Current Assets 168,340 64,732
Property and Equipment
Proven Oil and Gas Properties, Net of
Accumulated Depletion of $303,794 and
$299,766 in 2010 and 2009, respectively) 5,280 37,121
Unproven Oil and Gas Properties - -
Furniture and Equipment, Net of Accumulated
Depreciation of $43,313 4,540 19,537
Investment in subsidiary 781,841
------------------------
Total Other Assets 791,661 56,658
------------------------
Total Assets 959,999 121,388
========================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable 83,189 163,389
Accrued Interest Payable to Related Parties 99,197 99,197
Notes Payable to Related Parties 477,336 11,900
Accrued Liabilities 383,574 115,978
-------------------------
Total Current Liabilities 1,043,296 390,464
Long-Term Debt to Related Parties 1,057,477 659,771
Asset Retirement Obligation - -
--------------------------
Total Liabilities 2,100,773 1,050,235
Stockholders' Deficit
Common Stock at $.001 par value; 500,000,000
shares authorized; and 176,899,542 and
65,728,490 issued and outstanding in 2010
and 2009, respectively 176,900 65,729
Additional Paid in Capital 21,441,852 20,237,001
Accumulated Deficit (22,759,526) (21,231,577)
-----------------------------
Total Stockholders' Deficit (1,140,774) (928,847)
-----------------------------
Total Liabilities and Stockholders' Deficit 959,999 121,388
=============================
AVSTAR AVIATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
2010 2009
Revenue From Aviation Operations 1,478,273 660,947
Oil and Gas Revenue 2,354 5,249
-----------------------------
1,480,627 666,196
Costs and Expenses:
Costs of Goods Sold 1,172,565 460,581
Production Tax - 140
Selling, General and Administrative 1,129,330 380,264
Depletion and Depreciation 31,841 137,613
Stock Based Compensation 631,000 631,000
------------------------------
Total Costs and Expenses 2,964,736 1,609,598
------------------------------
Loss From Operations (1,484,109) (943,402)
Other Income (and Expenses)
Interest Expense (43,840) (45,588)
------------------------------
Net Loss (1,527,949) (988,990)
==============================
Weighted Average Common Shares Outstanding 116,218,621 23,315,439
Basic and Diluted Net Loss Per Share (0.013) (0.042)
AVSTAR AVIATION GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Common Additional Accumu- Total
Preferred Stock Paid-in lated Stockholders'
Shares Shares Amount Capital Deficit Deficit
------ ------ ------ ------- -------- --------
Balances as of
December 31 2008 365,499,544 365,500 18,521,904 (19,522,753) (635,350)
Stock Issued For
Services 125,000,000 125,000 360,594 - 485,594
Issuance of
Preferred Shares 1,000,000
Reverse Split
100 for 1 (485,594,446)(485,594) - - (485,594)
Stock Issued For
Service Post-Split 235
Conversion of
Preferred
Shares (1,000,000) 50,000,000 50,000 709,907 (719,834) 40,073
Stock issued
for compensation 10,100,000 10,100 482,439 492,439
Stock Issue for
Repayment of loan HLS
issue 12-04-09 723,157 723 136,676 137,399
Imputed Interest 25,481 25,481
Net Income (Loss) (988,990) (988,990)
----------------------------------------------------------------
Balances as of
December 31 2009 - 65,728,490 65,729 20,237,001(21,231,577) (928,847)
Stock issued for
Compensation 15,000,000 15,000 435,500 450,500
Stock issued for
Services 36,721,052 36,721 177,630 214,351
Stock issued for
Forbearance 1,600,000 1,600 37,340 38,940
Stock issued for
Reduction of Debt 14,000,000 14,000 21,000 35,000
Stock issued for
Debt Conversion 25,500,000 25,500 221,500 247,000
Stock issued for
Acquisition 18,350,000 18,350 271,040 289,390
Imputed Interest 40,841 40,841
Net Income (Loss) (1,527,949) (1,527,949)
----------------------------------------------------------------
Balances as of
December 31 2010 - 176,899,542 176,900 21,441,852 (22,759,526) (1,140,774)
=================================================================
AVSTAR AVIATION GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2010 2009
Cash Flows From Operating Activities:
Net Loss (1,527,949) (988,990)
Adjustments to Reconcile Net Loss to Net Cash
(used in) Operating Activities:
Depletion and Depreciation Expense 46,520 137,613
Impairment of Oil and Gas Properties - -
Stock Based Compensation 780,524 655,741
Accrued liabilities 150,411
Accounts Receivable (104,702) 5,694
Accounts Payable and Accrued Liabilities 561,647 141,746
Other (15,241) 38,007
-------------------------
Net Cash (used in ) Operating Activities (108,790) (10,189)
Cash Flows (used in) Investing Activities:
Investment in Subsidiary (739,662)
Capital and Exploratory Expenditures (4,540) 5,726
-------------------------
Net Cash (used in) Investing Activities (744,202) 5,726
Cash Flows From Financing Activities:
Proceeds From Sale of Common Stock - -
Proceeds From Notes Payable 854,075
--------------------------
Net Cash Provided By (used in) Financing
Activities 854,075 -
---------------------------
Net Change in Cash and Cash Equivalents 1,083 (4,463)
Cash and Cash Equivalents at Beginning of Year 4,565 9,028
----------------------------
Cash and Cash Equivalents at End of Year 5,648 4,565
============================
AVSTAR AVIATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
------------
AvStar Aviation Group, Inc. (the "Company") is a Colorado corporation that has
historically engaged in oil and gas exploration and development. The Company was
originally incorporated in 1997 as Zip Top, Inc. and subsequently adopted a name
change to Pangea Petroleum Corporation. On April 26, 2000, the Company was
recapitalized when the Company acquired the non-operating public shell, Segway
II Corporation. Segway II Corporation had no significant assets or liabilities
at the date of acquisition and, accordingly, the transaction was accounted for
as a recapitalization. In February 2009, the Company adopted a significant
change in its corporate direction by deciding to focus its efforts on acquiring
aviation related businesses and developing these businesses to their commercial
potential. The Company subsequently changed its name to AvStar Aviation Group,
Inc. on September 21, 2009.
Our company, AvStar Aviation Group, Inc., is a Colorado Corporation that was
organized on March 11, 1997. For a number of years, we conducted business as an
independent energy company focused on exploration and development of oil and
natural gas reserves. For reasons given hereinafter, in early 2009 we adopted a
significant change in our corporate direction. We decided to focus our efforts
on acquiring aviation related businesses and developing these businesses to
their commercial potential.
In connection with the change in our business focus, we undertook the following
activities:
We entered into a Share Exchange Agreement fully executed on February 20, 2009
(the "Exchange Agreement") by and between us and AvStar Aviation Services, Inc.
("AvStar Services"), providing for our acquisition of all of the outstanding
common stock in San Diego Airmotive ("SDA"), which (through its predecessor
entity) has been providing maintenance, repair and overhaul ("MRO") services in
California since 1987. For more information about the business of SDA, see "Our
Business" below. In connection with this acquisition, we issued to AvStar
Services, the prior owner of SDA, 1.0 million shares of our newly-created series
A preferred stock ("Series A Preferred Stock"), which shares constituted in the
aggregate over 90% of outstanding economic interest and voting power in us.
On April 8, 2010, (a) Twin Air Calypso Services, Inc., a newly-formed, indirect
wholly-owned Florida subsidiary (the "MRO Subsidiary") of ours, and (b) Miami
Aviation Maintenance Co. ("MAMCO") executed a bill of sale whereby MAMCO
assigned to the MRO Subsidiary certain of its assets used to provide aviation
MRO services. The assigned assets included general shop equipment. No
liabilities were assumed in connection with the transaction. These assets were
assigned in consideration of 750,000 shares of our common stock, which had an
aggregate market value of $20,250 based on the closing price of our common stock
on the date of the transaction. In connection with the organization of the MRO
Subsidiary, SDA had previously assigned all of its assets to the MRO Subsidiary
in consideration of all of the shares of the common stock of the MRO Subsidiary
to be outstanding for the foreseeable future. The MRO Subsidiary was formed to
provide aviation MRO services, as well as airline support services. The
services have been offered out of North Perry Field in Pembroke Pines, Florida
in Broward County. The impetus for the transaction was the then recent
termination of SDA's Hangar Sublease at French Valley Airport in Southern
California and the perception that the continuation of the business historically
conducted by SDA in Florida was advisable in view of the perceived greater
strength of the local Florida economy relative to the local California market in
which SDA had historically provided services.
On August 19, 2010, we completed a transaction in which we acquired all of the
outstanding stock in Twin Air Calypso Limited, Inc. ("TAC Limited"). TAC
Limited operates an air carrier service from South Florida to the Bahamas with
access to eight aircraft. We acquired TAC Limited in exchange for 18.0 million
shares of our common stock and some cash payments in the approximate aggregate
amount of $275,000 to be paid in a small number of future installments over the
near future. Because of amounts previously paid, we were not required to pay
any cash at closing. The 18.0 million shares of our common stock had an
aggregate market value of $270,000 based on the closing price of our common
stock on the date of the transaction. The acquired assets consisted primarily
of the rights of TAC Limited under an aircraft lease agreement covering seven
aircraft and an FAA Certified Part 135 permit. The only liabilities in effect
assumed in connection with the acquisition were the liabilities and obligations
of the lessee under the preceding aircraft lease agreement.
The agreement governing the acquisition of TAC Limited (the "Stock Agreement")
contained a non-competition agreement, prohibiting the stockholders of TAC
Limited from competing with us. This non-competition agreement lasts for a
period commencing on the closing of the acquisition and ending on the later to
occur of five years. The Stock Agreement also contained fairly customary
representations, warranties and indemnifications, as well as other general terms
and conditions typically governing stock sales and purchases.
Prior to the consummation of the Exchange, there were no material relationships
between us, and our former officers, directors, affiliates, associates or
shareholders, and AvStar Services, and its officers, directors, affiliates,
associates or shareholders.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Derivative Values and Hedging. This guidance resolves issues addressed in
Statement 133 Implementation Issue No. D1, "Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets". This Statement permits
fair value re-measurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement 133, establishes a requirement to evaluate interests
in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives, amends Statement 140
to eliminate the prohibition on a qualifying special-purpose entity from holding
a derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. This statement is effective for
fiscal years beginning after September 15, 2006. Its adoption did not have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Fair Value Measurements and Disclosures which establishes a formal framework
for measuring fair value under GAAP. It defines and docifies the many
definitions of fair value included among various other authoritative literature,
clarifies and, in some instances, expands on the guidance for implementing fair
value measurements, and increases the level of disclosure required for fair
value measurements. Although SFAS 157 applies to and amends the provisions of
existing FASB and AICPA pronouncements, it does not, of itself, require any new
fair value measurements, nor does it establish valuation standards. SFAS 157
applies to all other accounting pronouncements requiring or permitting fair
value measurements, except for SFAS No. 123 (F), share-based payment and related
pronouncements, the practicability exceptions to fair value determinations
allowed by various other authoritative pronouncements, and AICPA Statements of
Position 97-2 and 98-9 that deal with software revenue recognition. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. Management does not believe the adoption of SFAS 157 will have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Financial Instruments which is an elective, irrevocable election to measure
eligible financial instruments and certain other assets and liabilities at fair
value on an instrument-by-instrument basis. The election may only be applied at
specified election dates and to instruments in their entirety rather than to
portions of instruments. Upon initial election, the entity reports the
difference between the instruments' carrying value and their fair value as a
cumulative-effect adjustment to the opening balance of retained earnings. At
each subsequent reporting date, an entity reports in earnings, unrealized gains
and losses on items for which the fair value option has been elected. SFAS 159
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and is applied on a prospective basis. Early adoption of
SFAS 159 is permitted provided the entity also elects to adopt the provisions of
SFAS 157 as of the early adoption date selected for SFAS 159. The Company has
elected not to adopt the provisions of SFAS 159 at this time.
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Income Taxes which clarifies the accounting for uncertainty in income
taxes recognized in financial statements in accordance with FASB 109,
"Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The provisions of
FIN 48 are effective for fiscal years beginning after December 15, 2006, with
the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The adoptions of this pronouncement
did not have a material effect on the financial position or results of
operations of the Company.
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Business Combinations to increase the relevance, representational
faithfulness, and comparability of the information a reporting entity provides
in its financial reports about a business combination and its effects. SFAS 141R
replaces SFAS 141, " Business Combinations " but, retains the fundamental
requirements of SFAS 141 that the acquisition method of accounting be used and
an acquirer be identified for all business combinations. SFAS 141R expands the
definition of a business and of a business combination and establishes how the
acquirer is to: (1) recognize and measure in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquired company; (2) recognize and measure the goodwill
acquired in the business combination or a gain from a bargain purchase; and (3)
determine what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141R is applicable to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, and is to be applied
prospectively. Early adoption is prohibited. SFAS 141R will impact the Company
only if it elects to enter into a business combination subsequent to December
31, 2008.
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Non-Controlling Interests to improve the relevance, comparability, and
transparency of the financial information a reporting entity provides in its
consolidated financial statements. SFAS 160 amends ARB 51 to establish
accounting and reporting standards for noncontrolling interests in subsidiaries
and to make certain consolidation procedures consistent with the requirements of
SFAS 141R. It defines a noncontrolling interest in a subsidiary as an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 changes the way the consolidated
income statement is presented by requiring consolidated net income to include
amounts attributable to the parent and the noncontrolling interest. SFAS 160
establishes a single method of accounting for changes in a parent's ownership
interest in a subsidiary which does not result in deconsolidation. SFAS 160 also
requires expanded disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for financial statements issued for fiscal
years beginning on or after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. SFAS 160 shall be applied
prospectively, with the exception of the presentation and disclosure
requirements which shall be applied retrospectively for all periods presented.
The Company does not believe that the adoption of SFAS 160 would have a material
effect on its consolidated financial position, results of operations or cash
flows.
ACCOUNTING ESTIMATES
--------------------
The preparation of consolidated 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 reported
amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. These estimates mainly
involve the useful lives of property and equipment, the impairment of unproved
oil and gas properties, the valuation of deferred tax assets and the
realizability of accounts receivable.
CASH AND CASH EQUIVALENTS
-------------------------
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less when purchased to
be cash equivalents.
MAINTENANCE & REPAIR AND AIR CARRIER ACTIVITIES
-----------------------------------------------
Twin Air Calypso Services, Inc., our indirect, wholly-owned Florida subsidiary
(the "MRO Subsidiary") conducts our business of providing maintenance, repair
and overhaul ("MRO") products and services for aircraft in the general aviation
sector. The MRO Subsidiary was the result of the consolidation on April 8, 2010
of our subsidiary San Diego Airmotive ("SDA") and Miami Aviation Maintenance Co.
("MAMCO"). SDA (through its predecessor entity) had been providing MRO services
in California since 1987, while MAMCO commenced its operations in 2001 and
continued them until the time of the consolidation, but for an approximately
18-month period during which MAMCO ceased providing services. The services are
being offered out of North Perry Airport in Pembroke Pines, Florida in Broward
County.
After the move of our MRO business from southern California to Florida, we "jump
started" our transition by establishing an exclusive maintenance, fueling and
ground support contract with the Air Carrier Subsidiary, a company discussed in
the next section that we eventually acquired in August 2010. We are in the
process of developing new customer relationships, and thus far we have had
limited success.
The MRO Subsidiary recently commenced a focused, direct marketing program of
its services and is starting to see an increased interest from potential
customers. Moreover, the MRO Subsidiary currently has the only avionics shop at
North Perry Field, providing services for the electronic systems on aircraft
that provide communications, navigation and guidance, display systems, flight
management systems, sensors and indicators, weather radars, electrical systems,
and various onboard computers. Finally, the MRO Subsidiary has recently entered
into lease negotiations regarding a fuel truck, pursuant to which the MRO
Subsidiary could offer to sell fuel to third parties. This truck will also
provide fuel to the Air Carrier Subsidiary (discussed immediately below) at
discounted rates, enabling the subsidiary to realize fuel cost savings. All
training regarding the operation of the fuel truck and the fire inspector's
inspection have been completed, and commencement of sales by this truck is
contingent solely upon the completion of negotiations regarding its lease to the
MRO Subsidiary. We have no assurance that we will be able to complete the lease
of the fuel truck and commence sales of fuel with it.
Twin Air Calypso Limited, Inc., our wholly-owned Florida subsidiary (the
"Charter Air Subsidiary"), conducts our charter air service business. We
acquired the Air Carrier Subsidiary on August 19, 2010. The Air Carrier
Subsidiary operates an air carrier service from South Florida to the Bahamas
utilizing eight leased aircraft. It has regular flights of both passengers and
cargo to two destinations on the island of Abaco and three destinations on the
island of Eleuthera. The Air Carrier Subsidiary also flies to other
destinations in the Bahamas on a charter basis.
We lease seven aircraft pursuant to an aircraft lease agreement (the "Lease
Agreement") with Aircraft Charters, LLC, an entity controlled by Kenneth W.
Langston, who was an equity owner of MAMCO and TAC Limited. The start date of
the Lease Agreement was February 2010, and the Lease Agreement has a term of
five years, subject to earlier termination upon lessee default. Our monthly
rental rate per aircraft is $2,150. The aircraft are being leased on an "AS IS,
WHERE IS" basis. The Lease Agreement contains customary representations and
warranties on our part, customary affirmative and negative covenants on our
part, and customary events of default that entitle the lessor to terminate the
Lease Agreement.
OIL AND GAS PRODUCING ACTIVITIES
--------------------------------
The Company follows the "successful efforts" method of accounting for its oil
and gas properties. Under this method of accounting, all property acquisition
costs (cost to acquire mineral interests in oil and gas properties) and costs
(to drill and equip) of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves in commercial quantities,
the costs associated with the well are charged to expense. The costs of
development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred.
OTHER PROPERTY AND EQUIPMENT
----------------------------
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of 3 to 5 years for office
furniture and equipment and transportation and other equipment. Additions or
improvements that increase the value or extend the life of an asset are
capitalized. Expenditures for normal maintenance and repair are expensed as
incurred. Disposals are removed from the accounts at cost less accumulated
depreciation and any gain or loss from disposition is reflected in operations.
OIL AND GAS REVENUES
--------------------
Oil and gas revenues are recorded under the sales method. We recognize oil and
gas revenues as production occurs. As a result, we accrued revenue relating to
production for which we have not received payment.
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In the event facts and circumstances indicate the carrying value of a long-lived
asset, including associated intangibles, may be impaired, an evaluation of
recoverability is performed by comparing the estimated future undiscounted cash
flows associated with the asset to the asset's carrying amount to determine if a
write-down to fair market value or discounted cash flow is required. Based upon
a recent evaluation by management, an impairment write-down of the Company's
long-lived assets was recorded to write such assets down to their estimated net
realizable value resulting in an impairment expense of $137,613 and $42,926 in
2009 and 2008, respectively.
STOCK BASED COMPENSATION
------------------------
Effective January 1, 2009, AvStar Aviation adopted the authoritative guidance
for Stock Compensation which established financial accounting and reporting
standards for stock based employee compensation plans. It defines a fair value
based method of accounting for an employee stock option or similar equity
instrument. In January 2006, the Company implemented SFAS No. 123R, and
accordingly, the Company accounts for compensation cost for stock option plans
in accordance with SFAS No. 123R.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
------------------------------------------------
Financial instruments which subject the Company to concentrations of credit risk
include cash and cash equivalents and accounts receivable. The Company has
concentrated its credit risk by maintaining deposits in a financial institution,
which may at times exceed the amounts covered by insurance provided by the
United States Federal Deposit Insurance Corporation ("FDIC") The Company has not
experienced any losses on deposits.
INCOME TAXES
------------
The Company uses the liability method in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and income tax carrying amounts of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance,
if necessary, is provided against deferred tax assets, based upon management's
assessment as to their realization.
BASIC AND DILUTED NET LOSS PER SHARE
------------------------------------
Basic loss per share is computed using the weighted average number of shares of
common stock outstanding during each period. Diluted loss per share includes the
dilutive effects of common stock equivalents on an "as if converted" basis. For
the years ended December 31, 2010 and 2009, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
2. GOING CONCERN CONSIDERATIONS
Since its inception, the Company has suffered recurring losses from operations
and has been dependent on existing stockholders and new investors to provide the
cash resources to sustain its operations. During the years ended December 31,
2010 and 2009, the Company reported losses of $(1,527,949) and $ (988,990),
respectively. These conditions raise substantial doubt as to the Company's
ability to continue as a going concern.
The Company developed a multi-step plan and during 2009 and 2010 took actions to
improve its financial position and deal with its liquidity problems. The final
steps of the plan are still being developed, but may include additional private
placements of the Company's common stock, and efforts to raise additional debt
financing or equity offerings.
The Company's long-term viability as a going concern is dependent on certain key
factors, as follows:- The Company's ability to obtain adequate sources of
outside financing to support near term operations and to allow the Company to
continue forward with current strategic plans.
The Company's ability to ultimately achieve adequate profitability and cash
flow to sustain operations.
The consolidated financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
3. OIL AND GAS PROPERTIES
Oil and gas properties consist consisted of the following at December 31, 2009:
Oil and gas properties 309,074
Less accumulated depletion (271,953)
---------
Net oil and gas properties $ 37,121
=========
During the years ended December 31, 2009 and 2008, the Company recorded dry
hole, abandonment and impairment charges of $137,613 and $42,926, respectively.
At December 31, 2009, the Company had working interests in two wells.
4. PROPERTY AND EQUIPMENT
-------------------------
Property and equipment consists of the following at December 31, 2009:
Office equipment 3 to 5 years $33,174
Furniture and fixtures 3 to 5 years
-------
33,174
Less accumulated depreciation (13,638)
-------
Net property and equipment $19,536
=======
5. INCOME TAXES
The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 2009, the Company had net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$8,240,528, which expire in various tax years through 2027. Additionally,
because United States tax law limits the time during which NOL carryforwards may
be applied against future taxable income, the Company will, in all likelihood,
be unable to take full advantage of its NOLs for federal income tax purposes
should the Company generate taxable income.
The composition of deferred tax assets and the related tax effects at December
31, 2010 are as follows:
Net operating losses $3,081,173
Less valuation allowance (3,081,173)
----------
Net deferred tax asset $
==========
6. COMMITMENTS AND CONTINGENCIES
LEASE
-----
Our principal executive offices are located in approximately 2,000 square feet
of executive office space. Entities with whom our management has other business
relationships are providing this space to us on a gratuitous, at-will basis. If
this arrangement were to end, we would be required to start paying rent, or find
alternative space, or both.
EMPLOYMENT AGREEMENT
--------------------
The Company currently has employment agreements now in effect with two of
our Named Executive Officers.
We have an employment agreement dated May 5, 2010 between our subsidiary Twin
Air Calypso Limited, Inc. (the "Air Carrier Subsidiary") and Clayton I. Gamber,
our president and Chief Executive Officer (the "Gamber Employment Agreement").
The Gamber Employment Agreement provides for a term of five years that commenced
in May 2010, subject to earlier termination by the MRO Subsidiary upon certain
customary events. It provides that Mr. Gamber will receive a weekly salary of
$1,250, and will be entitled to participate in any and all employee benefit
plans now existing or hereafter established for the MRO Subsidiary's employees,
provided that he meets the eligibility criterion therefor, and provided further
that Mr. Gamber will be entitled to appropriate medical insurance in all cases.
If we are successful in raising additional funds or improving significantly our
financial performance, management expects that Mr. Gamber and the Company will
re-negotiate the Gamber Employment Agreement with a salary closer to market
levels, consistent with any restrictions on salaries imposed by any investors
providing the additional funds.
We have an employment agreement dated September 1, 2010 with Henry A. Schulle, a
Vice President and the Corporate Secretary (the "Schulle Employment Agreement").
The Schulle Employment Agreement Provides for a term of five years that
commenced in September 2010, subject to earlier termination by the Company upon
certain customary events. It provides that Mr. Schulle will receive a monthly
salary of $4,350.00, and will be entitled to participate in any and all employee
benefit plans now existing or hereafter established for the Subsidiary's
employees, provided that he meets the eligibility criterion therefor, and
provided further that Mr. Schulle will be entitled to appropriate medical
insurance in all cases. If we are successful in raising additional funds or
improving significantly our financial performance, management expects that Mr.
Schulle and the Company will re-negotiate the Schulle Employment Agreement with
a salary closer to market levels, consistent with any restrictions on salaries
imposed by any investors providing the additional funds.
During a part of fiscal 2010, we had in effect an employment agreement
dated March 17, 2010 with Russell Ivy, our former president and Chief Executive
Officer (the "Ivy Employment Agreement"). The Ivy Employment Agreement had a
one-year term, possibly subject to earlier termination by either Mr. Ivy or the
Company upon notice to the other. Under the Ivy Employment Agreement, Mr. Ivy
was to receive an annual salary of $37,500, which represented a significant
reduction from a salary that Mr. Ivy had heretofore been receiving pursuant to a
verbal employment agreement. Furthermore, per the Ivy Employment Agreement, we
agreed to issue to Mr. Ivy, 15.0 million shares of our common stock as an
inducement to Mr. Ivy to enter into the written employment agreement. Mr. Ivy
was also entitled to participate in any and all employee benefit plans now
existing or hereafter established for our employees, provided that he met the
eligibility criterion therefor. The Ivy Employment Agreement replaced a verbal
employment agreement with Mr. Ivy, pursuant to which Mr. Ivy was to receive a
salary in the amount of $15,000 per month. Because of our lack of funds, Mr.
Ivy received none of his salary in 2009, but all of his salary was accrued. In
addition, Mr. Ivy received 4.0 million shares of our common stock as a sign-on
bonus at a time when these shares had a value of $240,000 based on the closing
price of our shares on the date of grant. The Ivy Employment Agreement
terminated in September 2010.
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
---------------
The Company's articles of incorporation authorize the issuance of up to
10,000,000 shares of series preferred stock, with a par value of $.001 and other
characteristics determined by the Company's board of directors. As of December
31, 2010, there was no preferred stock issued or outstanding.
COMMON STOCK
------------
During the year ended December 31, 2010, the Company issued shares as
compensation to employees and consultants.
During January 2010 the Company issued 600,000 shares of its common stock to CMS
Capital to resolve temporarily certain disagreements between this firm and the
Company.
During February 2010, the Company issued 521,052 shares of its common stock to
SMT Trust in cancellation of debt in the amount of $99,000 owed by the Company
to Henry L. Schulle.
On March 19, 2010, the Company issued 15.0 million shares of its common stock to
Russell Ivy, then our president and Chief Executive Officer, in connection with
the re-negotiation of this officer's verbal employment agreement (including a
salary reduction) and the memorialization of this agreement in writing. These
shares were issued as an inducement to Mr. Ivy to enter into the written
employment agreement.
Moreover, the Company issued an aggregate of 21.0 million shares of its common
stock to three persons holding interests in a convertible promissory note in
exchange for an aggregate of $52,500 of the indebtedness represented by this
note. Of these shares, 14.0 million were issued near the end of March 2010, and
7.0 million were issued about the third week of April 2010.
During June 2010, the Company issued 750,000 shares of its common stock to Miami
Aviation Maintenance Company in connection with the sale of its assets to Twin
Air Calypso Services, Inc.
During June 2010, the Company issued 4,000,000 shares of its common stock to an
attorney for legal services previously provided having a value to be determined.
During July 2010, the Company issued an aggregate of 10.0 million shares of its
common stock to an investors' relations firm for services to be provided, and
5.0 million shares of our common stock to a person holding interest in a
convertible promissory note in exchange for a deduction of $12,500 of the
indebtedness represented by this note.
During August 2010, the Company issued an aggregate of 23 million shares of its
common stock for the following purposes:
*5 million shares of its common stock to Henry A. Schulle for services as a
founder of the Company and as an incentive for him to sign an employment
agreement
*11.3 million shares of its common stock to Clayton I. Gamber and Robin V.
Gamber JTTEN
in connection with the acquisition of Twin Air Calypso Limited, Inc. and Twin
Air Calypso Services, Inc.
*6.3 million shares of its common stock to Kenneth W. Langston in connection
with the
acquisition of Twin Air Calypso Limited, Inc. and Twin Air Calypso Services,
Inc.
During October 2010, the Company issued 12.0 million shares of its common stock,
to a person holding a convertible note, in exchange for the payment of $12,500
of the indebtedness represented by the note.
STOCK OPTIONS
-------------
The Company periodically issues incentive stock options to key employees,
officers, and directors to provide additional incentives to promote the success
of the Company's business and to enhance the ability to attract and retain the
services of qualified persons. The Board of Directors approves the issuance of
such options. The exercise price of an option granted is determined by the fair
market value of the stock on the date of grant.
A summary of the Company's stock option activity and related information for the
years ended December 31, 2010 and 2009 follows:
NUMBER OF EXERCISE WEIGHTED
SHARES PRICE AVERAGE
UNDER EXERCISE
OPTION PRICE
--------------------------------------------------------------------------------
Balance outstanding at:
December 31, 2009 350,000 $0.20-$1.00 $0.56
Balance outstanding at:
December 31, 2010 1,000 $0.50 $0.50
All outstanding stock options are exercisable at December 31, 2010. A summary of
outstanding stock options at December 31, 2010 follows:
REMAINING EXPIRATION REMAINING EXERCISE
NUMBER OF COMMON DATE CONTRACTED PRICE
STOCK EQUIVALENTS LIFE
(YEARS)
--------------------------------------------------------------------------------
1,000 January 2010 0.08 $0.50
In connection with the acquisition of Twin Air Calypso Limited, Inc. ("TAC
Limited"), and in order to effectuate a verbal agreement and understanding that
they had made some time ago, we and the stockholders of TAC Limited entered into
certain option agreements (the "Option Agreements"). The Option Agreements
permit us to repurchase a portion of the 18.0 million shares of common stock
issued in connection with the acquisition for an aggregate purchase price of
$1.75 million. The number of shares depends on the per-share "Market Value" of
our common stock, which is basically the 20-day trading average prior to the
time of exercise. The portion of such 18.0 million shares that may be
repurchased generally equals the quotient obtained by dividing $1.25 million by
the Market Value; provided, however, that the stockholders of TAC Limited may
retain a maximum of 7.353 million shares and a minimum of 625,000 shares.
Moreover, the Option Agreements require us to repurchase the portion of shares
determined in accordance with the preceding whenever we complete a private
placement of our securities for an aggregate purchase price of at least $3.0
million.
Effective June 1, 2005, the Company adopted the 2005 Equity Compensation Plan
(the "Plan") under which stock in lieu of cash compensation awards may be
granted from time to time to employees and consultants of the Company. The Plan
allows for grants to other individuals contributing to the success of the
Company at the discretion of the Company's board of directors. The purpose of
the Plan is to provide additional incentives to promote the success of the
Company and to enhance the Company's ability to attract and retain the services
of qualified individuals. The Company reserved 25,000,000 shares of stock for
issuance under the Plan. No further shares are currently available for
issuance pursuant to the Plan.
There are no non-vested shares at December 31, 2010.
STOCK WARRANTS
--------------
The Company did not grant any warrants in 2009 or 2010.
STOCK WARRANTS
--------------
A summary of the Company's stock warrant activity and related information for
the years ended December 31, 2010 and 2009 follows:
NUMBER OF SHARES EXERCISE AVERAGE
UNDER WARRANT PRICE WEIGHTED
PRICE
--------------------------------------------------------------------------------
Warrants outstanding at:
December 31, 2008 21,935,387 $0.008-$0.015 $0.01
Issued 0
Exercised 0
Expired 10,910,387
Warrants outstanding at:
December 31, 2009 11,025,000 $0.01-$0.015 $0.014
Issued 0
Exercised 0
Expired 2,025,000
Warrants outstanding at:
December 31, 2010 90,000
All stock warrants are exercisable at December 31, 2010. A summary of
outstanding stock warrants at December 31, 2010 follows:
REMAINING EXPIRATION REMAINING EXERCISE
NUMBER OF COMMON DATE CONTRACTED PRICE
STOCK EQUIVALENTS LIFE
(YEARS)
--------------------------------------------------------------------------------
20,000 January 2012 1.08 $0.01
70,000 February 2012 1.17 $0.015
8. SUBSEQUENT EVENTS
--------------------
In the fourth quarter of 2010 the Company entered discussions with Aircraft
Charters, LLC ("Aircraft Charters") for the acquisition of a thirty-five percent
interest in the LLC. A Letter of Intent has been presented to Aircraft
Charters, and the transaction is proposed for closing in late May 2011.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
ITEM 9A(T). CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period of this report, our principal executive and
principal financial officer carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and Principal Financial
Officer. We have concluded, based on that evaluation, that, as of such date,
the disclosure controls and procedures were not effective to ensure that
information required to be disclosed in reports filed or submitted under the
Exchange Act is accumulated and communicated to our management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Management identified
significant deficiencies with respect to the timely public reporting of events
requiring such reporting. During 2010, these deficiencies caused us to file
late five Current Reports on Form 8-K. Some of these instances resulted from
the failure of relevant company personnel to understand the need for prompt
disclosure. As funds are available therefore, we intend to institute the
following corrective action to ensure that such events are timely reported
publicly:
* Adopting a disclosure policy requiring our personnel to communicate
to a designated committee for evaluation any information
potentially material and thereby requiring public disclosure;
* Developing a basic program to educate management as to the
events requiring expedited disclosure;
* To avoid late disclosure of events requiring expedited
disclosure, adopting certain procedures, such as required
consultation with securities counsel before issuing any equity
shares, entering into any agreement that may be material, taking any
action at a Board of Directors meeting or the like; and
* To avoid late filings of documents having regular due dates
(such as Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q), establishing timelines within which our professional
personnel will strive to work.
Because the implementation of the preceding corrective action will begin after
the end of the period of this report, the significant deficiencies that we
identified still existed as of the end of the period of this report.
Notwithstanding management's assessment that our disclosure controls and
procedures were not effective as of December 31, 2010, and the significant
deficiencies described above, we believe that this Annual Report on Form 10-K
and the consolidated financial statements included in this Annual Report on Form
10-K correctly present our financial condition, results of operations and cash
flows for the fiscal years covered thereby in all material respects.
LIMITATIONS ON EFFECTIVENESS OF CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include, but are not limited to, the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
using accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance of achieving
their control objectives.
There were no adjustments at year-end and so management considers the
controls in place are adequate for us.
Management uss a separation of function approach to insure adequate
controls. There was no material weakness identified during the preparation of
year-end financial statements.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal controls over financial reporting.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the fourth fiscal quarter of 2010, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
Our current directors and executive officers are as follows:
NAME AGE POSITIONS
---- --- ---------
Clayton I. Gamber 61 Chief Executive Officer, President and
director
Henry A. Schulle 46 Vice President, Secretary, and director
Stephen Wood 41 Chief Technology Officer and director
James H. Short 67 Director
Russell Ivy 44 Director
Robert Wilson 53 Vice President and Chief Financial Officer
The following is the background of our officers and directors:
CLAYTON I. GAMBER. Mr. Gamber has served as one of our directors and
our Chief Executive Officer and President since August 2010. He has been
involved in the aviation business in South Florida since 1970, serving in
capacities that have included Director of Maintenance, Director of Operations,
Accountable Manager, executive officer, director and owner. For more than the
past five years, he has served as a director and an executive officer of
aviation companies in which he has been a part owner. One of these companies,
Twin Town Leasing Co., d/b/a "Twin Air Calypso," filed for protection under
Federal bankruptcy laws in June 2010 due to a single liability. Mr. Gamber holds
a Bachelor of Science in Industrial Engineering and Operations Research from
Virginia Tech. He also holds an FAA Airline Transport Pilot License, has over
8000 flight hours and a DC-3 Type Rating, and holds a FAA Airframe and
Powerplant License. Prior to his election as an office and a director, Mr.
Gamber was serving as a director and the President of Twin Air Calypso Services,
Inc., a recently-formed, wholly-owned subsidiary of ours.
HENRY A. SCHULLE. Mr. Schulle has served as one of our directors and our
Vice President and Secretary since February 2009. Mr. Schulle has served as
AvStar Services' Vice President and a member of AvStar Services' Board of
Directors since July 2006; from July 2006 until January 2008 he also served as
AvStar Services' President and Chairman of the Board of Directors. Since
January 8, 2004 he has served as Chairman of the Board of Directors and a
principal of Martex Trading Company, a privately held company active in the oil
and gas industry as well as real estate investments and development. Martex
Trading Company was the controlling member of Aurora Financial Services, LLC, a
FINRA-registered broker dealer that has acted as a placement agent for AvStar
Services. From December 2003 until July 2004 Mr. Schulle served as a member of
the Board of Directors of TexCom, Inc. (Pink Sheets: TEXC). AvStar Services
acquired San Diego Airmotive from TexCom, Inc. From January 1997 to November
2003, he was President and a Director of Texas Commercial Resources, Inc. (Pink
Sheets: TCRI) from its inception as a privately held company that merged with
EZUtilities in 2001. Mr. Schulle continued as an officer and director of Texas
Commercial Resources, Inc. through its subsequent successful combination with
Petrosearch Energy Corporation (OTCBB: PTSG), a Houston based energy company.
He served as Chairman of the Board of Unicorp, Inc., which was quoted on the OTC
Bulletin Board from November 1991 until January 1998. Mr. Schulle negotiated the
merger of Unicorp, Inc. with United States Refining Company, a diversified,
vertically integrated petroleum refining and petrochemical company that was
acquired by Houston American Energy Corp. in April 2001. From January 1998 to
July 2004, Mr. Schulle was employed by Dell Computer Corporation as a database
support specialist working on international assignments.
STEPHEN WOOD. Mr. Wood has served as one of our directors and our Chief
Technology Officer since September 2010. For over the past five years, Mr. Wood
has acted as an entrepreneur. In addition to his work on our behalf, Mr. Wood
will continue to hold positions in three corporations, AmeriMovers Group, Inc.
(CEO), Local Media Group, Inc. (CEO), and AmeriBusiness Products, Inc.
(CFO/COO). In 2001 he launched his first Internet site, AmeriMovers, of more
than 150 presently owned. Shortly thereafter AmeriMovers developed the first
movers bidding tool in the world. During 2006 Local Media Group was formed to
become the marketing arm for AmeriMovers and other Internet ventures. While
continuing to make acquisitions for the AmeriMovers Brand, Mr. Wood established
AmeriBusiness Products in 2007. AmeriBusiness Products, formerly known as
AmeriBusiness Forms, holds a large buyers group contract with more than 20,000
members and clients within major industries. As our CTO, Mr. Wood plans to
incorporate technology into our current business model, streamlining it and
expanding it into our future acquisitions.
JAMES H. SHORT. Mr. Short has served as one of our directors since February
2009. He has been a member of AvStar Services' Board of Directors since July
2006. Since December 2003 he has served as a member of the Board of Directors
of TexCom, Inc. (Pink Sheets: TEXC). AvStar Services acquired San Diego
Airmotive from TexCom, Inc. He also served as a member of the Board of
Directors of Texas Commercial Resources, Inc. (Pink Sheets: TCRI) from 2001
until 2003. Mr. Short is currently a principal and Vice president of Finance &
Administration for Sabine Storage & Operations, Inc., an engineering and a
consulting firm specializing in the design, engineering, permitting,
construction management, and operations of hydrocarbon storage facilities in
subsurface salt dome formations. In addition, he is a principal and Vice
President of Marketing for Sabine Resources, Inc., a surface and mineral owner
of property having hydrocarbon storage potential in a salt dome formation. Mr.
Short was previously associated with Energy Consultants, Inc., a natural gas
marketing entity serving municipalities in South Illinois and Indiana, on an
independent contractor basis, from 1984 until 2001.From 1979 to 1984, he was
Senior Vice President and a director of Coronado Transmission Company with
responsibilities for gas acquisition, transportation, and sales throughout the
Southern States and Rocky Mountain area. Mr. Short served as Vice President of
Corporate Planning and Vice President of Gas Supply, Transportation and Sales of
Lovaca Gathering Company from 1972 to 1979. He was an employee of Cities Service
Oil Company from 1966 to 1972. Mr. Short holds a B.S. degree from the
University of Tennessee
RUSSELL IVY. Mr. Ivy has served as one of our directors since April 2009,
and he was our Chief Executive Officer and President from April 2009 to August
2010. Mr. Ivy served as President and Chief Executive Officer of AvStar
Aviation Services, Inc., our controlling stockholder from January 2009 to August
2010. From January 1996 through the present, he has been a principal of the Ivy
Companies, several companies that provided various merger and acquisition
consulting services for various operating entities both private and public.
From September 2002 to May 2004, Mr. Ivy was a principal of Seafood Anywhere,
LLC., a Houston-based startup seafood distribution company supplying various
types of seafood to restaurants in the Houston, Austin, San Antonio, and Dallas
areas. He earned a Bachelors Degree in International Trade/Economics in 1991
from Texas Tech University.
ROBERT WILSON. Mr. Wilson has served as our Vice President and Chief
Financial Officer since April 2008. He has also served as AvStar Services' Vice
President and Chief Financial Officer since July 2004. Mr. Wilson also serves
as the Chief Financial Officer and Operations Principal for several broker
dealers and investment banking firms where his duties include compliance with
FINRA, SEC and NYSE rules and regulations, the design and implementation of
accounting and operations control procedures, representing firms as an expert
witness and with FINRA examinations. He currently serves as a director and audit
committee chairman for American Security Resources, Inc. and American Enterprise
Development Corporation and as a consultant with The Professional Directors
Institute. Mr. Wilson is a CPA and has over 15 years of experience as the owner
of a certified public accounting firm, was previously a member of the FINRA
Board of Arbitrators and has several FINRA and NYSE licenses. Mr. Wilson has
previously served as operations compliance manager of the AIM Management Group,
Vice President Compliance/Internal Audit of the Kemper Securities Group and an
auditor with Price Waterhouse. Mr. Wilson is a 1977 graduate of Houston Baptist
University and pursued additional studies at Georgetown University.
Our Board of Directors has five members. Each director serves a one-year
term that expires at the following annual meeting of stockholders. Executive
officers are appointed by the Board of Directors and serve until their
successors are appointed. There are no family relationships among our directors
or executive officers.
CORPORATE GOVERNANCE
Our Board of Directors has not established any standing committees,
including an Audit Committee, Compensation Committee or a Nominating Committee.
The Board of Directors as a whole undertakes the functions of those committees.
The Board of Directors may establish one or more of these committees whenever it
believes that doing so would benefit us.
CODE OF ETHICS
We adopted a Code of Ethics for our Principal Executive and Senior
Financial Officers on February 6, 2005. Anyone can obtain a copy of the Code of
Ethics by contacting us at the following address: 3600 Gessner, Suite 220,
Houston, Texas 77063, attention: Chief Executive Officer, telephone: (713)
914-9193. The first such copy will be provided without charge.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, executive officers and persons who are the beneficial owners of
more than ten percent of our common stock (collectively, the "Reporting
Persons") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish us with copies of these
reports. To the best of our knowledge based solely on information available to
us, the following persons have failed to file, on a timely basis, the identified
reports required by Section 16(a) of the Exchange Act during fiscal year ended
December 31, 2010: Russell Ivy failed to file a Form 4 regarding a March 2010
grant to him of shares for re-negotiating his employment agreement and a Form 5
to correct the failure to file the Form 4. AvStar Aviation Services, Inc. failed
to file a Form 4 regarding company shares spun-off by it to its shareholders,
and a Form 5 to correct the failure to file the Form 4. Henry A. Schulle failed
to file (i) a Form 4 regarding an August 2010 grant to him of shares for
agreeing to serve as an employee and a Form 5 to correct the failure to file the
Form 4, and (ii) a Form 4 regarding company shares spun-off to him by AvStar
Aviation Services, Inc. and a Form 5 to correct the failure to file the Form 4.
James H. Short failed to file a Form 4 regarding company shares spun-off to him
by AvStar Aviation Services, Inc. and a Form 5 to correct the failure to file
the Form 4. Robert Wilson failed to file a Form 4 regarding an April 2010 grant
to him of shares for services provided and a Form 5 to correct the failure to
file the Form 4. Stephen Wood failed to file a Form 3 regarding when he was
elected to the Board of Directors and a Form 5 to correct the failure to file
the Form 3.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation we paid during the fiscal
years ended December 31, 2010 and 2009 to our principal executive officer and
any other executive officer whose total compensation exceeded $100,000. The
executive officers listed in the table below are referred to as the "Named
Executive Officers."
SUMMARY COMPENSATION TABLE (1)
Name and Year Salary ($) Bonus ($) Stock Total
Principal Position Awards ($)
(a) (b) (c) (d) (e) (j)
Clayton I. Gamber
Chief Executive
Officer (2) 2010 43,750 (3) $-0- $-0-
Russell Ivy,
Chief Executive
Officer (4) 2010 28,125 (5) $345,000(6) $-0-
2009 $120,000 (5) $240,000(7) $6,000(8) $366,000
Gregory H. Noble,
Interim Chief Executive
Officer and Vice
President (9) 2009 $ -0- $ -0- $150,000(10)$150,000
Thomas Mathew,
Chief Executive
Officer (11) 2009 $ -0- $ -0- $ -0- $ -0-
(1) The Columns designated by the Securities and Exchange Commission for the
reporting of option awards, non-equity incentive plan compensation, nonqualified
deferred compensation earnings or all other compensation have been eliminated as
no such awards, compensation or earnings were made to, earned by, or paid to or
with respect to any person named in the table during any fiscal year covered by
the table.
(2) Mr. Gamber was elected Chief Executive Officer and President effective
August 19, 2010.
(3) Of this amount, $30,655.07 was paid, and $13,094.93 was accrued and not
paid.
(4) Mr. Ivy was elected Chief Executive Officer and President effective
April 30, 2009, and he served as such until August 19, 2010.
(5) All of this amount was accrued and not paid.
(6) The figure in the table is based on a contract re-negotiation bonus
comprised of 15.0 million shares of our common stock multiplied by $.023, the
closing price of our common stock on the date of grant. These 15.0 million
shares had a value of $49,500 as of March 18, 2011, based on the $.0033 closing
price of our common stock on that date.
(7) The figure in the table is based on a sign-on bonus comprised of 4.0
million shares of our common stock multiplied by $.06, the closing price of our
common stock on the date of grant. These 4.0 million shares had a value of
$13,200 as of April 12, 2010, based on the $.0033 closing price of our common
stock on that date.
(8) The figure in the table is based on a stock award for services as a
director comprised of 100,000 shares of our common stock multiplied by $.06, the
closing price of our common stock on the date of grant.
(9) Mr. Nobel was elected Interim Chief Executive Officer effective April 3,
2009, and he served as such until April 30, 2009. He was elected Vice President
effective February 20, 2009, and he served as such until October 5, 2009.
(10) The figure in the table is based on an issuance of 2.5 million shares
of our common stock to settle claims for compensation multiplied by $.06, the
closing price of our common stock on the date of grant. These 2.5 million
shares had a value of $87,500 as of April 12, 2010, based on the $.035 closing
price of our common stock on that date.
(11) Mr. Mathew was elected President effective December 31, 2008, and he
served as such until February 27, 2009.
No options or unvested stock awards had been granted in favor of our Named
Executive Officers as of December 31, 2010.
EMPLOYMENT AGREEMENTS
The Company currently has employment agreement in effect with one of our
Named Executive Officers.
We have an employment agreement dated May 5, 2010 between our subsidiary
Twin Air Calypso Limited, Inc. ("TAC Limited") and Clayton I. Gamber,
our president and Chief Executive Officer (the "Gamber Employment Agreement").
The Gamber Employment Agreement provides for a term of five years that commenced
in May 2010, subject to earlier termination by the TAC Limited upon certain
customary events. It provides that Mr. Gamber will receive a weekly salary of
$1,250, and will be entitled to participate in any and all employee benefit
plans now existing or hereafter established for the TAC Limited's employees,
provided that he meets the eligibility criterion therefore, and provided further
that Mr. Gamber will be entitled to appropriate medical insurance in all cases.
If we are successful in raising additional funds or improving significantly our
financial performance, management expects that Mr. Gamber and we will
re-negotiate the Gamber Employment Agreement to pay a salary closer to market
levels, consistent with any restrictions on salaries imposed by any investors
providing the additional funds.
We have an employment agreement dated September 1, 2010 with Henry A.
Schulle, a Vice President and the Corporate Secretary (the "Schulle Employment
Agreement"). The Schulle Employment Acreement Provides for a term of five years
that commenced in September 2010, subject to earlier termination by the Company
upon certain customary events. It provides that Mr. Schulle will receive a
monthly salary of $4,350.00, and will be entitled to participate in any and all
employee benefit plans now existing or hereafter established for the MRO
Subsidiary's employees, provided that he meets the eligibility criterion
therefore, and provided further that Mr. Schulle will be entitled to appropriate
medical insurance in all cases. If we are successful in raising additional funds
or improving significantly our financial performance, management expects that
Mr. Schulle and the Company will re-negotiate the Schulle Employment Agreement
to pay a salary closer to market levels, consistent with any restrictions on
salaries imposed by any investors providing the additional funds.
During a part of fiscal 2010, we had in effect an employment agreement
dated March 17, 2010 with Russell Ivy, our former president and Chief Executive
Officer (the "Ivy Employment Agreement"). The Ivy Employment Agreement had a
one-year term, possibly subject to earlier termination by either Mr. Ivy or us
upon notice to the other. Under the Ivy Employment Agreement, Mr. Ivy was to
receive an annual salary of $37,500, which represented a significant reduction
from a salary that Mr. Ivy had heretofore been receiving pursuant to a verbal
employment agreement. Furthermore, per the Ivy Employment Agreement, we agreed
to issue to Mr. Ivy, 15.0 million shares of our common stock as an inducement to
Mr. Ivy to enter into the written employment agreement. Mr. Ivy was also
entitled to participate in any and all employee benefit plans now existing or
hereafter established for our employees, provided that he met the eligibility
criterion therefor. The Ivy Employment Agreement replaced verbal employment
agreement with Mr. Ivy, pursuant to which Mr. Ivy was to receive a salary in the
amount of $15,000 per month. Because of our lack of funds, Mr. Ivy received
none of his salary in 2009, but all of his salary was accrued. In addition, Mr.
Ivy received 4.0 million shares of our common stock as a sign-on bonus at a time
when these shares had a value of $240,000 based on the closing price of our
shares on the date of grant. The Ivy Employment Agreement terminated in
September 2010.
DIRECTOR COMPENSATION
Our directors received no compensation for their services as such during
the fiscal year ended December 31, 2010.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The table sets forth below contains certain information as of March 13,
2011 concerning the beneficial ownership of our voting stock by:
* each person known by us to be the owner of more than 5% of our
outstanding shares of common stock;
* each of our executive officers and directors; and
* all our executive officers and directors as a group.
We know of no person outside of management who owns more than % of our
outstanding shares of common stock.
Except as otherwise indicated, all persons listed below have (i) sole
voting power and investment power with respect to their shares, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares. Shares not outstanding
but deemed beneficially owned by virtue of the right of a person or member of a
group to acquire them within 60 days of March 13, 2011 are treated as
outstanding only for determination of the number and percent owned by such group
or person. Except as otherwise indicted, the address for all persons indicated
in the table is 3600 Gessner, Suite 220, Houston, Texas 77063.
Amount and Nature of Beneficial Ownership
Name of Beneficial Owner Number Percent
DIRECTORS AND EXECUTIVE OFFICERS
-----------------------------------
Russell Ivy 22,100,000 10.6%
Clayton I. Gamber 11,300,000 (1) 5.4%
Henry A. Schulle 8,643,334 4.2%
Robert Wilson 1,600,000 *
James A. Short 300,000 *
All directors and executive officers
as a group (five persons) 43,943,334 21.1%
------------------------- ---------- -----
(1) These shares are held by Mr. Gamber in his name and in the name of his
wife, Robin V. Gamber, as joint tenants with right of survivorship. Mr. Gamber
disclaims beneficial ownership of one-half these shares to the extent that his
wife has an interest in such one-half. Mr. Gamber holds (with Ms. Gamber)
shared voting power and investment power with respect to these shares.
* Less than one percent
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Except as described below, none of the following persons has any direct or
indirect material interest in any transaction to which we were or are a party
since the beginning of the last fiscal year, or in any proposed transaction to
which we propose to be a party:
(a) any of our directors or executive officers;
(b) any nominee for election as one of our directors;
(c) any person who is known by us to beneficially own,
directly or indirectly, shares carrying more than 5% of the
voting rights attached to our common stock; or
(d) any member of the immediate family (including spouse, parents,
children, siblings and in-laws) of any of the foregoing persons
named in paragraph (a), (b) or (c) above.
On April 8, 2010, (a) Twin Air Calypso Services, Inc., a newly-formed,
indirect wholly-owned Florida subsidiary (the "MRO Subsidiary") of ours, and (b)
Miami Aviation Maintenance Co. ("MAMCO") executed a bill of sale whereby MAMCO
assigned to the MRO Subsidiary certain of its assets used to provide aviation
MRO services. At the time of this transaction, MAMCO was owned in part by
Clayton I. Gamber, who became one of our directors and our Chief Executive
Officer and President in August 2010. After the completion of this transaction,
Mr. Gamber was hired as an officer of the MRO Subsidiary. For more information
about this transaction, see "Item 1. Business - General Development of Business
- Formation of MRO Subsidiary."
On August 19, 2010, we completed a transaction in which we acquired all of the
outstanding stock in Twin Air Calypso Limited, Inc. ("TAC Limited"). At the
time of this transaction, TAC Limited was owned in part by Clayton I. Gamber,
who at the time was an officer of the MRO Subsidiary and as a result of the
transaction became one of our directors and our Chief Executive Officer and
President. For more information about this transaction, see "Item 1. Business
- General Development of Business - Acquisition of FAA Air Carrier."
INDEPENDENCE OF DIRECTORS
The rules of the American Stock Exchange (the "AMEX") generally require
that a listed company's Board of Directors be composed of a majority of
independent directors. However, these rules provide that a "smaller reporting
company" need only maintain a Board of Directors comprised of at least 50%
independent directors. Although we are not listed on the AMEX, we use the
standards established by the AMEX for determining whether or not each of our
directors is "independent." We have determined that, as of April 13, 2011, James
H. Short is an "independent" director in accordance with the AMEX independence
standards.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
During 2010 and 2009, the aggregate fees that we paid to Clay Thomas, P.C., our
independent auditors, for professional services were as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2010 2009
Audit Fees (1) $ 35,000 $ 47,000(2)
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
(1) Fees for audit services include fees associated with the annual audit
and the review of our quarterly reports on Form 10-Q.
(2) Includes $15,000 for the audit of the 2008 financial statements of San
Diego Airmotive, which was acquired during 2009.
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE
NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
We do not have an audit committee, but our entire Board of Directors
functions as such. Our Board of Directors pre-approves the engagement of Clay
Thomas, P.C. for all audit and permissible non-audit services. Our Board of
Directors annually reviews the audit and permissible non-audit services
performed by Clay Thomas, P.C., and reviews and approves the fees charged by
Clay Thomas, P.C. Our Board of Directors has considered the role of Clay
Thomas, P.C. in providing tax and audit services and other permissible non-audit
services to us and has concluded that the provision of such services was
compatible with the maintenance of Clay Thomas, P.C.'s independence in the
conduct of its auditing functions.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed as part of this report.
Exhibit Description
No.
2.1 Stock Acquisition and Reorganization Agreement between us and Segway II
Corp. dated April 26, 2000 is incorporated herein by reference to our
Current Report on Form 8-K (SEC File No. 0-30503) filed with the SEC on
April 28, 2000, Exhibit 2.1.
2.2 Share Exchange Agreement by and between us and AvStar Aviation Services,
Inc. is incorporated herein by reference to our Current Report on Form
8-K (SEC File No. 0-30503) filed with the SEC on February 25,
2009, Exhibit 2.1.
3.1 First Amended and Restated Articles of Incorporation are incorporated
herein by reference to our Current Report on Form 8-K (SEC File No.
0-30503) filed with the SEC on September 22, 2009, Exhibit 3.1.
3.2 By-laws are incorporated herein by reference to our Current Report on
Form 8-K (SEC File No. 0-30503) filed with the SEC on April 28, 2000,
Exhibit 3.2.
10.1 Bill of Sale dated April 8, 2010 by and between Twin Air Calypso
Services, Inc. and Miami Aviation Maintenance Co. is incorporated
herein by reference to our Current Report on Form 8-K (SEC File No.
0-30503) filed with the SEC on April 13, 2010, Exhibit 10.1.
10.2 Modification agreement regarding promissory note dated November 22,
2006 is incorporated herein by reference to our Annual Report on Form
10-K (SEC File No. 0-30503) filed with the SEC on May 15, 2009,
Exhibit 10.2.
10.3 Pledge of Shares of Stock dated November 17, 2006 is incorporated
herein by reference to our Annual Report on Form 10-K (SEC File No.
0-30503) filed with the SEC on May 15, 2009, Exhibit 10.3.
10.4 Employment Agreement dated March 17, 2010 with Russell Ivy is
incorporated herein by reference to our Current Report on Form 8-K (SEC
File No. 0-30503) filed with the SEC on May 19, 2010, Exhibit
10.1.
10.5 Stock Sale and Purchase Agreement dated effective as of June 27, 2010
by and between us, on the one hand, and Clayton I. Gamber, Kenneth W.
Langston and Robin V. Gamber, on the other hand, is incorporated herein
by reference to our Current Report on Form 8-K (SEC File No. 0-30503)
filed with the SEC on August 16, 2010, Exhibit 10.1.
10.6 First Amendment to Stock Sale and Purchase Agreement dated effective as
of July 11, 2010 is incorporated herein by reference to our Current
Report on Form 8-K (SEC File No. 0-30503) filed with the SEC on August
16, 2010, Exhibit 10.2.
10.7 Stock Option Agreement dated August 19, 2010 between us and Clayton I.
Gamber and Robin V. Gamber is incorporated herein by reference to our
Current Report on Form 8-K (SEC File No. 0-30503) filed with the SEC on
August 25, 2010, Exhibit 10.1.
10.8 Stock Option Agreement dated August 19, 2010 between us and Kenneth W.
Langston is incorporated herein by reference to our Current Report on
Form 8-K (SEC File No. 0-30503) filed with the SEC on August 25, 2010,
Exhibit 10.2.
10.9 Employment Agreement dated May 5, 2010 between Twin Air Calypso
Limited, Inc. and Clayton I. Gamber is incorporated herein by reference
to our Current Report on Form 8-K (SEC File No. 0-30503) filed with the
SEC on August 25, 2010, Exhibit 10.3.
10.10 Aircraft Lease dated February 1, 2010 by and between Air Charters, LLC
and Twin Air Calypso Limited - previously filed
14.1 Code of Ethics is incorporated herein by reference to Annual Report on
Form 10-KSB for the year ended December 31, 2005 (SEC File No. 0-30503),
Exhibit 14.1.
21.1 Subsidiaries - filed herewith.
31.01 Sarbanes Oxley Section 302 Certifications - filed herewith
31.02 Sarbanes Oxley Section 906 Certifications - filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AVSTAR AVIATION GROUP, INC.
By: /s/ Clayton I. Gamber
----------------------
Clayton I. Gamber
Chief Executive Officer & President
Date: April 20, 2011
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