UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
[ ] 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
-------
AVSTAR AVIATION GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
COLORADO 76-0635938
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3600 Gessner, Suite 220, Houston, Texas 77063
(Address of principal executive offices)
713-965-7582
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
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 [X]
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 (Check one).
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 Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 469,110,950 common shares as of
November 18, 2011
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEET
AVSTAR AVIATION GROUP, INC.
Period End: September 30, 2011
September 30, December 31,
2011 2010
ASSETS
Current assets
Cash 5,865 5,648
Accounts receivable 189,208 146,826
Prepaid expenses 25,757 4,858
Inventory - 11,008
-----------------------
Total Current Assets 220,830 168,340
Property and equipment: 85,996 9,819
Investment in subsidiary 894,035 781,840
-------------------------
Total Assets 1,200,861 959,999
=========================
BALANCE SHEET
Period End: September 30, 2011
September 30, December 31,
2011 2010
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable 135,402 83,189
Other current liabilities 323,769 -
Accrued interest payable to related parties 132,517 99,197
Notes payable to related parties 226,447 477,336
Notes payable - other 91,148 383,574
-------------------------
Total current liabilities 909,283 1,043,296
Long term debt to related parties 1,123,226 1,057,477
-------------------------
Total liabilities 2,032,509 2,100,773
Stockholders' deficit:
Preferred stock: $.001 par value;
1,000,000 shares authorized,
none issued and outstanding
Common stock: $.001 par value;
500,000,000 shares authorized;
390,197,002 and 176,899,542 shares
issued and outstanding at September 30,
2011 and December 31, 2010,
respectively 390,197 176,900
Additional paid-in capital 21,618,183 21,441,852
Accumulated deficit (22,840,028) (22,759,526)
-----------------------------
Total stockholders' deficit (831,648) (1,140,774)
-----------------------------
Total liabilities and stockholders' deficit 1,200,861 959,999
=============================
AVSTAR AVIATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2011 2010 2011 2010
Oil and gas revenue $997 $- $10,492 $1,231
Income from aviation operations 520,156 516,893 1,741,603 1,121,756
-------------------------------------------
Total revenue 521,153 516,893 1,752,251 1,122,987
Costs and expenses:
Cost of goods sold 449,775 448,692 1,380,461 873,308
Lease operating expenses
Production taxes
Dry hole costs -
Depreciation and depletion 260 2,226 780 8,226
Selling, general and administrative,
expenses 141,159 322,632 417,592 1,245,312
-------------------------------------------
Total costs and expenses 591,194 773,550 1,798,833 2,126,846
-------------------------------------------
Income (Loss) from operations (70,041) (256,657) (46,582) (1,003,859)
Other (expenses):
Interest expense 11,400 33,920
--------------------------------------------
Net income (loss) $(81,441) $(256,657) (80,502) $(1,003,859)
============================================
Basic and diluted net loss per
common share $(0.0002) $ (0.0017) $ (0.003) $ (0.0066)
Weighted average common shares 334,992,772 151,899,542 283,548,272 151,899,542
AVSTAR AVIATION GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2011 and 2010
(Unaudited)
Nine Months Ended
September 30
2011 2010
Cash flows from operating activities:
Net income (loss) $ (80,502) $(131,355)
Adjustments to reconcile net loss to
net cash used in operating activities (221,339) 106,892
-----------------------------------
Net cash used in operating activities (301,841) (24,463)
Cash flows from investing activities (146,396) -
Cash flows from financing activities 440,740 25,000
-----------------------------------
Net increase (decrease) in cash and
cash equivalents (7,974) 537
Cash and cash equivalents at beginning
of period 13,839 8,998
-------------------------------------
Cash and cash equivalents at end of
period $ 5,865 $ 9,535
======================================
AVSTAR AVIATION GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Nine Months ended September 30, 2011
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
Balances as of
December 31,
2010 176,899,542 176,900 21,441,852 (22,759,526)(1,140,774)
Debt conversion 213,297,460 213,297 176,331 389,627
Imputed interest 0
Gain on conversion
Net income (80,502) (80,502
--------------------------------------------------------------
Balance at September
30, 2011 390,197,002 390,197 21,618,183 (22,840,028) (831,648)
==================================================================
AVSTAR AVIATION GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
AvStar Aviation Group, Inc. (the "Company"), a Colorado corporation formerly
known as "Pangea Petroleum Corp.," have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission (the "SEC") and should be read
in conjunction with the audited financial statements and notes thereto contained
in the Company 's latest Annual Report on Form 10-K filed with the SEC. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
Notes to the consolidated financial statements that would substantially
duplicate the disclosure contained in the audited financial statements for the
most recent fiscal year, December 31, 2010, as reported in the Company 's latest
Annual Report on Form 10-K, have been omitted.
2. 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 that 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 operation or cash
flows.
ACCOUNTING ESTIMATES
--------------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the country-region place 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.
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
-------------------------------
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 for cash 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.
3. 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 cash resources to sustain its operations. During the three months ended
September 30, 2011 and 2010, the Company reported net losses of $80,502 and
$1,003,859 respectively. These conditions raise substantial doubt about our
ability to continue as a going concern.
The Company has developed a multi-step plan and has taken 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 our common stock, and efforts to raise additional debt financing
or equity investments. There can be no assurance that any of the plans developed
by the Company will produce cash flows sufficient to ensure its long-term
viability as a going concern.
Our long-term viability as a going concern is dependent on certain key
factors, as follows:
* our 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.
* our ability to ultimately achieve adequate profitability and cash
flows to sustain continuing operations.
4. STOCKHOLDERS' EQUITY
During July 2011 the Company issued an aggregate of 29,957,265 shares of
its common stock in five issues to Asher Enterprises for the partial conversion
of a convertible promissory note.
During August 2011 the Company issued 30,791,286 shares of its common stock
in three issues to Asher Enterprises for the partial conversion of a convertible
promissory note.
During September 2011 the Company issued 92,683,508 shares of its common
stock in eight issues to Asher Enterprises, Redwood Management and Fairhills
Capital for the partial conversion of convertible promissory notes.
During October 2011 the Company issued 75,469,504 shares of its common
stock in twenty issues to Fairhills Capital for the partial conversion of a
convertible promissory note.
During November 2011 the Company issued 13,333,333 shares of its common
stock in one issue to Asher Enterprises for the partial conversion of a
convertible promissory note.
5. RECENT EVENTS
In February 2011, the Air Carrier Subsidiary relocated both its passenger
and freight operations to a newly constructed facility at the Sheltair North
complex at the Ft. Lauderdale-Hollywood International Airport. With this move
the passenger and freight facilities are separated, giving the passengers more
of an "airline terminal" atmosphere, while maintaining the perks of free parking
and easy luggage handling, without the "big terminal" inconveniences. The
customer acceptance has been overwhelmingly good and our ground support
operations are operating much more efficiently.
By moving to this new facility we also lowered our fuel costs by
approximately 15%. This reduction was due in part to provisions in our lease
agreement where the landlord would discount our fuel purchases. This price
reduction (along with a fuel surcharge instituted in February) has mitigated the
fuel price increases of the market considerably. With fuel being our largest
single cost by far, the relocation has contributed greatly to our operations
becoming profitable.
While refurbishment of the aircraft has not progressed as quickly as
scheduled, we were able to return one aircraft to service in late March.
Revenues received from the addition of this aircraft will be recognized
beginning in the second quarter. With the addition of this aircraft the second
quarter revenues from airline operations were up in excess of 18%. Currently we
are operating four aircraft and continuing the refurbishment on two others. With
the continuing decline in used aircraft prices we found it better to pursue the
purchase of two newer Navajos rather than refurbish the two currently leased. A
restructure of our lease agreement is currently being negotiated to reflect this
change. Further, this change in direction reduces the amount of unsecured
capital needed for refurbishment. We have identified two prospective aircraft
and our goal is to have them those aircraft operational when the Commuter
Authority is issued.
On August 1, 2011 the Twin Air Calypso Limited, Inc. (TACL) submitted its
application for Commuter Authority, which was posted on the DOT Docket under
file number DOT-OST-2011-0143-0002. This new authority will allow us to increase
our frequency to each destination and advertise our schedule in the traditional
airline venues. We expect this authority to become effective late in 2011 or
early 2012. An approval in late 2011 or early 2012 would allow us to take
advantage of the 2012 winter travel season in the Bahamas. A request from the
DOT for additional information was received by Twin Air Calypso Limited in late
September and our response was filed in late October. We expect to receive our
next communication from the DOT prior to the end of November 2011.
Additionally, the Air Carrier Subsidiary's personnel have been designing
and implementing a new scheduling and reservation software system. The
scheduling module became operational in March 2011. While we have been testing
the reservation portion of the system we added a "Check-In" module and a program
to track our mail service customers. The system is presently on-line and
operational. We will now be developing the freight module of the system. The
full implementation of these modules will give better internal controls over
yield management and freight management and will allow booking of reservations
over the internet. The final module will be to fully integrate the operational
systems into the accounting system required for the DOT commuter requirements.
During the quarter we introduced the "Twin Bucks" card, a debit type card
that allows our customers to prepay for services and allow us to better track
the usage of our "Twin Packs". The "Twin Bucks" card will also be used for a
Loyalty Program we will introduce early next year.
On August 10, 2011 Twin Air Calypso Limited, Inc. applied to the Office of
Foreign Asset Control for authority to become a Carrier Service Provider, Travel
Service Provider and Remittance Agent for service to Cuba. We expect this
authority to be issued by the end of 2011. These authorities will allow us to
provide services to persons currently approved to travel to the island country
of Cuba and be in a position to provide additional services should the current
government embargo of trade with Cuba be relaxed or lifted. As of this filing we
have not received any communication from OFAC on this application. As a
contingency plan we have made entered into an agreement with one of our partners
to operate under his their authority when until we have obtained our landing
permits rights form from the Cuban authorities. Additionally, we have had
preliminary discussions with an operator of 19 and 30 place aircraft to use for
Cuban charters on a risk sharing basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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,"
"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 our other Securities and
Exchange Commission filings. The following discussion should be read in
conjunction with our Financial Statements and related Notes thereto included
elsewhere in this report.
GENERAL
Until February 2009, we had historically been an independent energy company
focused on exploration and development of oil and natural gas reserves, whose
core business was directed to the development of oil and gas prospects in proven
onshore production areas. In February 2009, we adopted a significant change in
our corporate direction. At that time, we decided to focus our efforts on
acquiring aviation related businesses and developing these businesses to their
commercial potential. 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.
Currently, we are striving to stabilize 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. 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 the time is here 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 the recent unfavorable economy. 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 February 2009, we acquired San Diego Airmotive ("SDA"), which had been
operating (through its predecessor entity) as an MRO since 1987. SDA
historically provided MRO services for single and multi-engine aircraft.
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 we
are continuing such services in Florida, per the 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 we elect to do so.
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. These assets were assigned in consideration of 750,000 shares of
our common stock. 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 being
offered out of North Perry airport in Pembroke Pines, Florida in Broward County,
Florida. 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 in Florida of the business historically
conducted by SDA was advisable in view of the perceived greater strength of the
local Florida economy relative to the local California market in which SDA has
historically provided services.
The MRO Subsidiary has the following features and provides the following
services:
* 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
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.
On August 19, 2010, we completed a transaction in which we acquired all of
the outstanding stock in Twin Air Calypso Limited, Inc. (the "Air Carrier
Subsidiary"), a company related to MAMCO. We acquired the Air Carrier Subsidiary
in exchange for 18.0 million shares of our common stock and some cash payments
in the approximate aggregate amount of $275,000. We have been unable to pay the
cash portion of the purchase price, and we intend to negotiate with the sellers
the possibility of satisfying the cash portion of the purchase price with some
of our equity securities. Because of amounts previously paid, we were not
required to pay any cash down payment at closing. In connection with the
completion of this transaction, Clayton I. Gamber, a stockholder in and the
chief executive officer of the Air Carrier Subsidiary, was elected to our Board
of Directors and as our Chief Executive Officer and President.
The Air Carrier Subsidiary operates a charter and limited scheduled air
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 charter basis.
Currently we are operating four aircraft and continuing refurbishment on two
others. With the continuing decline in used aircraft prices we found it better
to pursue the purchase of two newer Navajos rather than refurbish the two
currently leased. A restructure of our lease agreement is currently being
negotiated to reflect this change. Further, this change in direction reduces the
amount of unsecured capital needed for refurbishment. We have identified two
prospective aircraft and our goal is to have them operational when the Commuter
Authority is issued.
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 fixed base
operations ("FBOs"), expansion of our existing maintenance, repair and overhaul
operations ("MROs"), and charter operations. Several companies have been
identified as acquisition targets as capital is available to us.
RECENT EVENTS
In February 2011, the Air Carrier Subsidiary relocated both its passenger
and freight operations to a newly constructed facility at the Sheltair North
complex at the Ft. Lauderdale-Hollywood International Airport. With this move
the passenger and freight facilities are separated, giving the passengers more
of an "airline terminal" atmosphere, while maintaining the perks of free parking
and easy luggage handling, without the "big terminal" inconveniences. The
customer acceptance has been overwhelmingly good and our ground support
operations are operating much more efficiently.
By moving to this new facility we also lowered our fuel costs by
approximately 15%. This reduction was due in part to provisions in our lease
agreement where the landlord would discount our fuel purchases. This price
reduction (along with a fuel surcharge instituted in February) has mitigated the
fuel price increases of the market considerably. With fuel being our largest
single cost by far, the relocation has contributed greatly to our operations
becoming profitable.
While refurbishment of the aircraft has not progressed as quickly as
scheduled, we were able to return one aircraft to service in late March.
Revenues from the addition of this aircraft began being recognized in the second
quarter 2011. With the addition of this aircraft, the second quarter 2011
revenues from airline operations were up in excess of 18%
On August 1, 2011 the Twin Air Calypso Limited, Inc. (TACL) submitted its
application for Commuter Authority, which was posted on the DOT Docket under
file number DOT-OST-2011-0143-0002. This new authority will allow us to increase
our frequency to each destination and advertise our schedule in the traditional
airline venues. We expect this authority to become effective late in 2011 or
early 2012. An approval in late 2011 or early 2012 would allow us to take
advantage of the 2012 winter travel season in the Bahamas. TACL received a
request from the DOT for additional information in late September, and our
response was filed in late October. We expect to receive our next communication
from the DOT prior to the end of November 2011.
Additionally, the Air Carrier Subsidiary's personnel have been designing
and implementing a new scheduling and reservation software. The scheduling
module became operational in March 2011. While we have been testing the
reservation portion of the system we added a "Check-In" module and a program to
track our mail service customers. The system is presently on-line and
operational. We will now be developing the freight module of the system. The
full implementation of these modules will give better internal controls over
yield management and freight management and will allow booking of reservations
over the internet. The final module will be to fully integrate the operational
systems into the accounting system required for the DOT commuter requirements.
During the quarter we introduced the "Twin Bucks" card, a debit type card
that allow our customers to prepay for services and allow us to better track the
usage of our "Twin Packs". The "Twin Bucks" card will also be used for a Loyalty
Program we will introduce early next year.
On August 10, 2011 Twin Air Calypso Limited, Inc. applied to the Office of
Foreign Asset Control for authority to become a Carrier Service Provider, Travel
Service Provider and Remittance Agent for service to Cuba. We expect this
authority to be issued by the end of 2011. These authorities will allow us to
provide services to persons currently approved to travel to the island country
of Cuba and be in a position to provide additional services should the current
government embargo of trade with Cuba be relaxed or lifted. As of this filing we
have not received any communication from OFAC on this application. As a
contingency plan we have made an agreement with one of our partners to operate
under his their authority when until we have obtained landing permits rights
form the Cuban authorities. Additionally, we have had preliminary discussions
with an operator of 19 and 30 place aircraft to use for Cuban charters on a risk
sharing basis.
With the increased fuel costs of late 2010 and early 2011, the general
aviation segment continues to suffer. We are continuing to search for
opportunities to acquire aviation maintenance and service organizations. At this
time we feel that more favorable opportunities will be available during the fall
and early winter of 2011. We are currently negotiating sources of capital to be
in a position to pursue these opportunities as they are identified.
We are aggressively pursuing the divesture of the oil and gas assets along
with their associated tax loss carry-forward. We have developed a strategy for
the divesture of the assets based upon precedent and using professionals
experienced in such transactions. With this divesture we expect to lessen the
burden of legacy and current debt. We are in active discussions with two
different parties to provide the services needed to facilitate this divesture.
It is our desire to complete this activity as soon as feasible.
Since our inception, we have recurring losses from operations and have
depended on existing stockholders and new investors to provide the cash
resources to sustain its operations. During the nine months ended September 30,
2011, we reported a net loss of $80,502 compared to a loss of $1,003,859
reported for the nine months ended September 30, 2010. The consolidated loss was
generated from expenses of the non-performing oil and gas leases, interest from
legacy debt, and the third quarter traditionally being the slowest period of
activity in the airline operation.
Our long-term viability as a going concern depends on certain key factors,
as follows:
* Our ability to continue to obtain sources of outside financing to
allow us to continue our business operations.
* Our ability to increase profitability and sustain a cash flow level
that will ensure support for continuing operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of the financial condition and results of
operations are based upon our 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 estimates. We base our 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. Critical accounting policies that affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements are discussed in the footnotes to the financial statements comprising
a part of this report.
RESULTS OF OPERATIONS
Quarter Ended September 30, 2011 Compared to the Quarter Ended
September 30,2010
REVENUES. Revenues for the third quarter 2011 were $521,153 (consisting of
$520,156 in revenues from aviation operations and $997 in revenues from oil and
gas operations) compared with revenue of $516,893 for the third quarter 2010
(all from aviation operations).
EXPENSES. Costs and expenses for the third quarter 2011 were $591,194
compared with costs and expenses of $773,550 for the third quarter 2010. This
increase in costs and expenses reflects the following:
* $449,775 in costs of goods sold in the third quarter 2011 from
aviation operations compared with $448,692 in costs of goods sold
in the third quarter 2010
* $260 in depreciation, depletion and amortization in the third quarter
2011 compared with $2,226 in depreciation, depletion and
amortization in the third quarter 2010.
* $141,159 in selling, general and administrative expenses including
stock based compensation in the third quarter 2011 compared to
$322,632 in these expenses in the third quarter 2010.
NET LOSS, As a result of stable revenues and a decline in expenses, the net
loss of $81,441 for the third quarter 2011 represents a decrease of $175,216
from the net loss of $256,657 for the third quarter 2010.
Nine Months Ended September 30, 2011 Compared to the Nine Months Ended
September 30, 2010
REVENUES. Revenues for the first nine months 2011 were $1,752,251,
consisting of $1,741,759 in revenues from aviation operations and $10,492 in oil
and gas revenues. These revenues represent an increase from revenues for the
first nine months 2010 of $1,122,987, consisting of $1,121,756 in revenues from
aviation operations and $1,231 in oil and gas revenues. The increase in revenues
in the first nine months of 2011 resulted from A significant increase in the
volume of sales from aviation operations. The increase in oil and gas revenues
in the first nine months of 2011 from the first nine months of 2010 resulted
from an increase in the price of oil as well as a payment from an operator which
had been held in escrow awaiting proper instructions for payment.
EXPENSES. Costs and expenses increased to $1,798,833 in the first nine
months 2011 from $2,126,846 in the first nine months 2010. This increase in
costs and expenses reflects the following:
* $1,380,461 in costs of goods sold in the first nine months 2011
from aviation operations compared with $873,308 in costs of goods
sold in the first nine months 2010 from aviation operations as
the volume of services provided increased.
* $780 in depreciation, depletion and amortization in the first nine
months 2011 compared with $8,226 in depreciation, depletion and
amortization in the first nine months 2010.
* $417,592 in selling, general and administrative expenses including
stock based compensation in the first nine months 2011 compared
with $1,245,312 in these expenses in the first nine months 2010.
NET LOSS. As a result of the considerable increase in revenues and an
appreciable decline in expenses, the net loss of $80,502 for the first nine
months 2011 represents a decrease of $923,357 from the net loss of $1,003,859
for first nine months 2010.
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.
The approval of the Commuter Authority and the Cuba Authority expected in
late 2011 or early 2012 will have a significant impact on future revenues and
profits.
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
For some time, we have been financing our operations through convertible
promissory notes. Because we have nearly exhausted our supply of authorized but
unissued shares, we almost certainly will not be able to continue to resort to
this financing option. In recent months, we have taken on unsecured debt from
several of our shareholders. Our ability to rely on the continued support of
our shareholders is uncertain. If we do not soon achieve sustained
profitability and eventually run out of funds, we will need to seek additional
funds immediately. If we need to obtain additional financing, we will be
constrained to identify various sources and financing alternatives, including
private sales of equity securities or the incurrence of indebtedness. However,
additional financing may not be available on favorable terms or at all. In
addition, if required financing is not available on acceptable terms, we could
be forced to cease business altogether, which could result in a complete loss of
the value of our outstanding shares. Our future liquidity will depend upon
numerous factors, including the success of our business efforts and our capital
raising activities. Any debt financing undertaken to procure funds may involve
restrictions limiting our operating flexibility. Moreover, if we obtain funds
through the issuance of equity securities, the following results will or may
occur:
* The percentage ownership of our existing members will be
reduced
* The new equity securities may have rights, preferences or
privileges senior to those of the holders of our Interests.
As of September 30, 2011, we had a working capital deficiency of
approximately $688,453. Currently, we have limited financial ability to pursue
our new business plan. 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 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.
Recent Convertible Debt
-----------------------
Asher Notes. We have issued and outstanding one convertible promissory
note (the "Asher Note") to Asher Enterprises, Inc. ("Asher") in consideration of
an amounts loaned by Asher to us. Five notes similar to the Asher Note have
been fully converted. The Asher Note has an outstanding balance of $7,584. It
was issued on March 28, 2011 and will mature on December 30, 2011. The Asher
Note bears regular interest at a rate of 8% per annum, with a default rate of
22% per annum. The Asher Note is unsecured, and it 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 the Asher Note, Asher has the option of converting all
or any portion of the unpaid balance of the Asher Note into shares of our common
stock at a conversion price discussed hereafter. Nevertheless, Asher is not
entitled to convert any portion of the Asher Note to the extent that the shares
to be issued in connection therewith would cause Asher's beneficial ownership of
our common stock to exceed 4.99% of the outstanding shares of our common stock.
The conversion price for the Asher Note features a "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 discount for the
variable conversion prices provided for in the Asher Note is 50%. Because of the
operation of the floating conversion price and the limitation on the ability of
Asher to convert as described above, we are unable to determine at any time that
number of shares into which Asher could convert the Asher Note. The Asher Note
(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 Note. A default on Asher Note 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 Asher Note, and (b) to issue shares of our common
stock to satisfy the amount computed in accordance with (a) immediately
preceding.
Redwood Indebtedness. In early August 2011, Redwood Management, LLC
("Redwood") received an assignment of outstanding convertible indebtedness then
owed by us to Henry L. Schulle. We and Redwood entered into a new arrangement
(sometimes referred to in legal circles as a novation) to modify the terms of
the assigned convertible indebtedness. 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 $20,000. 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
our 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.
Fairhill Capital. In early September 2011, Fairhills Capital received an
assignment of outstanding convertible indebtedness then owed by us to Henry L.
Schulle in the amount of $150,000. Fairhills Capital has already converted
slightly more that $150,000 leaving an outstanding balance of slightly more than
$64,000 in indebtedness still owed to Fairhills Capital. We do not now have
sufficient authorized but unissued shares to permit Fairhills Capital to convert
further the outstanding indebtedness in any meaningful way. The following is a
description of the terms of the remaining indebtedness owed to Fairhills Capital
(the "Fairhills Note").
The Fairhills Note bears regular interest at a rate of 8 % per annum. The
Fairhills Note is unsecured, and it is due and payable one year after the date
of its issuance. At any time prior to the payment in full of the entire balance
of the Fairhills Note, the holder has the option of converting all or any
portion of the unpaid balance of the Fairhills Note into shares of our common
stock at a conversion price discussed hereafter. The conversion price for the
Fairhills Note 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 must be a
minimum of at least $.005 per share. The Fairhills Note contains customary
representations and warranties, registration rights, customary anti-dilution
provisions, and customary events of default that entitle the holder to
accelerate the due date of the unpaid principal amount of, and all accrued and
unpaid interest on, the Fairhills Note. We do not now have sufficient authorized
but unissued shares to permit the further conversion of the Fairhills Notes in
any meaningful way
Schulle Notes.
--------------
In May 2011, we issued two convertible promissory notes in the aggregate
original principal amount of $77,588.45 to Henry L. Schulle, a consultant to us
("Schulle"), for funds loaned to us. Other convertible promissory notes
previously issued to Mr. Schulle have been assigned to Fairhills Capital as
discussed above. (The two preceding notes are referred to hereinafter singly a
"Schulle Note" and collectively the "Schulle Notes") While the terms of the
Schulle Notes vary somewhat, these terms are generally the same from note to
note. The following is a description of the terms of the Schulle 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. In view of our
most recent closing trading prices and the minimum variable conversion price,
Schulle could convert the two Schulle Notes into an aggregate of 26.0 million
shares. 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. We do not
now have sufficient authorized but unissued shares to permit the further
conversion of the Schulle Notes in any meaningful way.
Recent Unsecured Debt
---------------------
Commencing near the beginning of August 2011 and continuing through the
present, we have borrowed certain amounts from several of our shareholders. The
following table gives information regarding these borrowings:
Date(s) of Aggregate
Borrowings Lending Shareholder Amount of Debt
---------- ------------------- --------------
Aug. 8, 2011 &
Oct. 3, 2011 H.L. Schulle $60,500
Sept. 13, 2011 Sabinal Trust, Robert Gaidousek, Trustee $19,000
Nov. 9, 2011 THC Trust, Robert Gaidousek, Trustee $87,187
The indebtedness indicated in the table has not yet been memorialized in
written documentation. Accordingly, it must be view as demand indebtedness, of
which the lender can require the repayment thereof at any time. We intend in
the future to negotiate with the lending shareholders the exact terms of the
indebtedness and memorialize those terms in written documentation. Mr. Schulle
also acts as a consultant to us, and we also owe the Sabinal Trust approximately
$23,600 in unreimbursed expenses incurred by it on our behalf.
Legacy Debt
-----------
We have outstanding the following notes that became due and payable on
December 31, 2008. These notes have an aggregate principal amount totaling
$624,771 , plus accrued interest of as of November 18, 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 November 18, 2011 was $111,691,
plus accrued interest.
(b) Note payable to Charles Pollock, our former chief executive
officer. 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 November 18, 2011 was $400,911, plus accrued interest.
(c) Note payable to Mark Weller, our former president. 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 November 18, 2011 was
$112,169, plus accrued interest.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off balance sheet arrangements.
OIL AND GAS ASSETS
We are aggressively pursuing the divesture of the oil and gas assets along
with their associated tax loss carry-forward. We have developed a strategy for
the divesture of the assets based upon precedent and using professionals
experienced in such transactions. With this divesture we expect to lessen the
burden of legacy and current debt. We are in active discussions with two
different parties to provide the services needed to facilitate this divesture.
It is our desire to complete this activity as soon as feasible.
ITEM 4T. 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 Chief 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 Securities
Exchange Act of 1934 (the "Exchange Act") is accumulated and communicated to our
management, including our 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, and during 2011 thus
far they have caused us to file late six Current Reports on Form 8-K. Some of
the late filings resulted from the failure of relevant company personnel to
understand the need for prompt disclosure. We are trying to institute the
following corrective action to ensure that such events are timely reported
publicly:
* The adoption of a disclosure policy requiring our personnel
to communicate to a designated committee for evaluation any
information potentially material and thereby requiring public
disclosure;
* The development of a basic program to educate management as to the
events requiring expedited disclosure;
* To avoid late disclosure of events requiring expedited disclosure,
the adoption of 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), the establishment of timelines within which our
professional personnel will strive to work.
Budget limitations have impaired our ability to institute the corrective
action described above. Because the implementation of such corrective action was
not completed as of 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.
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.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have not been any changes in our internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during the period of this report that have materially affected, or
are reasonably likely to materially affect our internal control over financial
reporting.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS.
(a) The following exhibits are filed with this Quarterly Report or are
incorporated herein by reference:
Exhibit
Number Description
31.01 Certification pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934.
31.02 Certification pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934.
32.01 Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.02 Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* XBRL Instance
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation
101.DEF* XBRL Taxonomy Extension Definition
101.LAB* XBRL Taxonomy Extension Labels
101.PRE* XBRL Taxonomy Extension Presentation
* To be filed by amendment.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AVSTAR AVIATION GROUP, INC.
(Registrant)
By: /s/ Clayton I. Gamber
Clayton I. Gamber,
------------------
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert Wilson
Robert Wilson,
--------------
Vice President and Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
November 21, 2011