SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 2, 2011
AVSTAR AVIATION GROUP, INC.
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(Exact name of registrant as specified in its charter)
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Colorado 0-30503 76-0635938
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(State or other jurisdiction (Commission File Number) (IRS Employer ID Number)
of incorporation)
3600 Gessner, Suite 220, Houston, Texas 77063
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 965-7582
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
The information included in Item 2.03 of this Current Report on Form 8-K is
also incorporated by reference into this Item 1.01 of this Current Report on
Form 8-K.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF REGISTRANT
ASHER CONVERTIBLE NOTES
Commencing on April 19, 2010, AvStar Aviation Group, Inc. (the "Company")
entered into a series of transactions in which it issued five convertible
promissory notes (singly a "Asher Note" and collectively the "Asher Notes") to
Asher Enterprises, Inc. ("Asher") in consideration of certain amounts loaned by
Asher to the Company. The following table gives the designations to which the
Asher Notes are referred hereinafter, the dates of the Asher Notes, the original
principal amounts of the Asher Notes, and the scheduled maturity dates of the
Asher Notes:
Designation Issuance Original Principal Maturity
of Note Date of Note Amount of Note Date of Note
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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
Sixth 3/28/2011 $50,000 12/30/2011
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TOTAL $245,000
The Company has previously reported on the first five Asher Notes, and this
Report is being filed (for among other reasons) to report on the Sixth Asher
Note. The Sixth Asher Note is dated March 28, 2011, but it was not funded until
May 2, 2011. While the terms of the Asher Notes vary somewhat, these terms are
generally the same from Note to Note. The following is a description of the
terms of the Asher Notes.
Each of the Asher Notes bears regular interest at a rate of 8% per annum,
with a default rate of 22% per annum. The Asher 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 an Asher Note,
Asher has the option of converting all or any portion of the unpaid balance of
the Asher Note into shares of the Company's common stock at a conversion price
discussed hereafter. Nevertheless, Asher is not entitled to convert any portion
of an Asher Note to the extent that the shares to be issued in connection
therewith would cause Asher's beneficial ownership of the Company's common stock
to exceed 4.99% of the outstanding shares of the Company's common stock. Each
conversion price for the Asher Notes features a "variable" conversion price, and
the First and Second Asher 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 the Company's 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 Asher Notes
range from 42% for the First Asher Note, 50% for the Second, Third, Fourth and
Sixth Asher Notes, and 55% for the Fifth Asher Note. Because of the operation
of the floating conversion price and the limitation on the ability of Asher to
convert as described above, the Company is unable to determine at any time that
number of shares into which Asher could convert one or more of the Asher Notes.
The Asher 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
Asher to accelerate the due date of the unpaid principal amount of, and all
accrued and unpaid interest on, the Asher Notes. A default on any of the Asher
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 Asher Note,
and (b) to issue shares of the Company's common stock to satisfy the amount
computed in accordance with (a) immediately preceding.
Commencing October 25, 2010, Asher began converting some of the Asher
Notes. Between April 25, 2011 through the date of this Report, Asher converted
an aggregate principal amount of the Asher Notes equal to $168,000 into
91,671,551 shares of the Company's common stock, leaving an aggregate
outstanding principal amount of the Asher Notes equal to $77,000 as of August
15, 2011. The First, Second, Third and Fourth Asher Notes have been fully
converted, while the Fifth Asher Note has been partially converted.
INITIAL SCHULLE CONVERTIBLE NOTES
On July 1, 2010, we issued a convertible promissory note in the original
principal amount of $70,000 (the "First Schulle Note") to Henry L. Schulle, a
consultant to us ("Schulle"), in lieu of cash for consulting services provided
by Schulle to us. On January 31, 2011, we issued a second convertible
promissory note in the original principal amount of $60,000 (the "Second Schulle
Note") to Schulle, in lieu of cash for consulting services provided by Schulle
to us. While the terms of the two notes vary somewhat, these terms are
generally the same from note to note. The following is a description of the
terms of the two notes.
Each of the Schulle Notes bears regular interest at a rate of 8 and 1/2%
per annum. The Schulle Notes are unsecured, and each of them is due and payable
one year after the date of their respective issuances. At any time prior to the
payment in full of the entire balance of a Schulle Note, Schulle has the option,
upon a 65-days notice, of converting all or any portion of the unpaid balance of
the Schulle Note into shares of our common stock at a conversion price discussed
hereafter. Each conversion price for the Schulle Notes features a "variable"
conversion price and also a "fixed" conversion price of $.04, which will apply
if it is less than the related variable conversion price. The variable
conversion price is the closing trading prices of our common stock for the most
recent trading days preceding the date of exercise; provided, however, that the
variable conversion price has a minimum floor of $.005 per share. The Schulle
Notes contain customary representations and warranties, registration rights,
customary anti-dilution provisions, and customary events of default that entitle
Schulle to accelerate the due date of the unpaid principal amount of, and all
accrued and unpaid interest on, the Schulle Notes.
On May 25, 2011, Schulle converted $30,000 of the principal amount of the
First Schulle Note and accrued interest into 7,517,690 shares of our common
stock, leaving only the Second Schulle Note outstanding.
In early August 2011, Schulle assigned the Second Schulle Note to Redwood
Management, LLC ("Redwood"), and the Company and Redwood entered into a new
arrangement (sometimes referred to in legal circles as a novation) to replace
the terms of the Second Schulle Note. The following is a description of the
terms of the new Redwood arrangement, which is referred to hereinafter as the
"Redwood Indebtedness".
The outstanding principal amount of the Redwood Indebtedness is $60,000.
It bears interest at a rate of 12% per annum. The Redwood Indebtedness is
unsecured and is due and payable on or before February 5, 2012. At any time
prior to the payment in full of the entire balance of the Redwood Indebtedness,
Redwood has the option of converting all or any portion of the unpaid balance of
the Redwood Indebtedness into shares of our common stock at a conversion price
equal to 50% of the lowest trading price, determined on the then current trading
market for the Company's common stock, for the 25 trading days prior to
conversion. The documentation memorializing the Redwood Indebtedness contains
customary representations and warranties, registration rights, customary
anti-dilution provisions, and customary events of default that entitle Redwood
to accelerate the due date of the unpaid principal amount of, and all accrued
and unpaid interest on, the Redwood Indebtedness.
ADDITIONAL SCHULLE CONVERTIBLE NOTES
In May 2011, we issued two additional convertible promissory notes in the
aggregate original principal amount of $77,588.45 to Schulle for funds loaned to
us; and,
In July, 2011, we issued an acdditional convertible promissory note in the
original amount of $60,000 to Schulle in lieu of cash for consulting fees
provided to us.
.. These additional convertible promissory notes have terms, provisions and
conditions identical to the First Schulle Note and Second Schulle Note described
above. In view of our most recent closing trading prices and the minimum
variable conversion price, Schulle could convert the two additional convertible
promissory notes into an aggregate of approximately 27 million shares.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
The information included in Item 2.03 of this Current Report on Form 8-K is
also incorporated by reference into this Item 3.02 of this Current Report on
Form 8-K.
The issuances of the Sixth Asher Note, and 91,671,551 shares of our common
stock in connection with the conversion of some of the Asher Notes are claimed
to be exempt pursuant to Section 4(2) of the Securities Act of 1933 (the "Act")
and Rule 506 of Regulation D under the Act. No advertising or general
solicitation was employed in offering these securities. The offering and sale
was made only to Asher, and subsequent transfers were restricted in accordance
with the requirements of the Act.
The issuances of the additional Schulle Convertible Notes, and 7,517,690
shares of our common stock in connection with the conversion of the First
Schulle Note are claimed to be exempt pursuant to Section 4(2) of the Act and
Rule 506 of Regulation D under the Act. No advertising or general solicitation
was employed in offering these securities. The offering and sale was made only
to Schulle, and subsequent transfers were restricted in accordance with the
requirements of the Act.
The securities issued in connection with the acquisition were not
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States in the absence of an effective registration
statement or exemption from registration requirements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AVSTAR AVIATION GROUP, INC.
Date: August 15, 2011 /s/ Clayton I. Gamber
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Clayton I. Gamber,
Chief Executive Officer & President