UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 7 To
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GLOBAL AIRCRAFT SOLUTIONS, INC.
Trading Symbol - GACF.OB (OTCBB Market)
Nevada 4581 84-1108499
------ ---- ----------
(State or jurisdiction (Primary SIC Number) (IRS Employer
of incorporation) Identification No.)
P.O. Box 23009, Tucson, AZ 85734
--------------------------------
(Address and telephone number of principal executive offices)
520-294-3481
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(Telephone)
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
(Do not check if a smaller reporting company)
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
EXPLANATORY NOTE
This Post-Effective Amendment No. 7 to the Form S-1 Registration Statement
further amends our Registration Statement originally declared effective on
February 8, 2006 to include the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2007, as filed with the Securities and Exchange
Commission on April 14 2008; the Registrant's Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on May 15, 2008; and
Registrant's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 14, 2008. This Post-Effective Amendment No. 7 to
the Form S-1 Registration Statement also updates beneficial ownership of
securities and business operations as of the filing date.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Mailing Address: P.O. BOX 23009,
Tucson, Arizona 85734-3009 U.S.A.
Phone (520) 294-3481
Fax (520) 741-1430
www.globalaircraftsolutions.com
PRELIMINARY PROSPECTUS DATED SEPTEMBER 29, 2008
SUBJECT TO COMPLETION
The information in this preliminary prospectus is not complete and may be
changed. The selling shareholders may not sell these securities until the 7th
Post Effective Amendment to the Registration Statement filed with the Securities
and Exchange Commission is effective.
Trading Symbol - GACF.OB (OTCBB Market)
This prospectus relates to the resale by selling shareholders of Global Aircraft
Solutions, Inc. ("Global" or "Company") of a total of 20,343,215 shares of
common stock of the Company issued by us in private transactions exempt from
registration with the SEC pursuant to Rule 506 under Regulation D as promulgated
by the SEC Act 1933 and a total of 10,887,865 shares of common stock of the
Company issueable upon exercise of all issued and outstanding warrants held by
the selling shareholders. The shares of common stock are being offered for sale
by the selling shareholders at prices established on the Over-the-Counter
Bulletin Board during the term of this offering. On July 28, 2008, the last
reported sale price of our common stock was $0.25 per share. These prices will
fluctuate based on the demand for the shares of common stock.
The selling shareholders named in this prospectus are offering all of the
31,348,080 shares of common stock offered through this prospectus. We will not
receive any of the proceeds from the sale of the 12,715,386 shares of common
stock by the selling shareholders. However, the Company may receive proceeds
from the exercise of any of the 18,632,694 warrants issued unless the warrant
holders elect to implement the cashless exercise option that is available for
any warrants exercised prior to the existence of an effective registration
statement with respect to such underlying shares. (See Section entitled "Use of
Proceeds" and "Offering").
This offering and an investment in our shares involves a high degree of risk and
is suitable only for those persons with substantial financial resources in
relation to their investment and who understand the particular risks of this
investment. Please see "Risk Factors" on pages 7-12 to read about factors you
should consider carefully before buying our shares.
This preliminary prospectus is not an offer to sell these securities and it is
not a soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
SUMMARY.................................................................. 1
OFFERING................................................................. 11
RISK FACTORS............................................................. 13
FORWARD LOOKING STATEMENTS............................................... 18
USE OF PROCEEDS.......................................................... 19
DIVIDEND POLICY.......................................................... 20
DILUTION................................................................. 20
SELLING SHAREHOLDERS..................................................... 21
PLAN OF DISTRIBUTION..................................................... 25
LEGAL PROCEEDINGS........................................................ 26
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS............. 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 31
DESCRIPTION OF SECURITIES................................................ 33
INTEREST OF NAMED EXPERTS AND COUNSEL.................................... 33
DISCLOSURE OF COMMISSION POSITION FOR SECURITIES ACT LIABILITY........... 33
ORGANIZATION WITHIN THE LAST FIVE YEARS.................................. 33
DESCRIPTION OF BUSINESS.................................................. 35
MANAGEMENT DISCUSSION AND ANALYSIS....................................... 42
DESCRIPTION OF PROPERTY.................................................. 72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 73
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................. 73
COMPENSATION DISCUSSION & ANALYSIS....................................... 74
FINANCIAL STATEMENTS..................................................... 82
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTANT CONTROL
AND FINANCIAL DISCLOSURE................................................. 83
FURTHER INFORMATION...................................................... 84
i
(PAGE INTENTIONALLY LEFT BLANK)
ii
SUMMARY
Global Aircraft Solutions, Inc. ("Global" or "Company") was incorporated in
Nevada on September 5, 1997. Our principal office is located at 6901 S. Park
Ave., Tucson, AZ 85706. Global is a public company that trades in the U.S.
over-the-counter market. Our common stock is quoted on the OTC Bulletin Board
under symbol GACF. Global was formed as a holding company to establish, maintain
and administer the equity and debt funding of any acquired subsidiaries as well
as maintain such capitalization of any subsidiaries. On April 12, 2002, Global
acquired 100% of the common stock of Johnstone Softmachine Corporation
(Johnstone) pursuant to the Stock Purchase Agreement and Plan of Reorganization
by and between LogiCapital Corporation (the principal shareholder of Johnstone),
an entity controlled by John Brasher who, at that time, was a director of Global
(he has since resigned). Mr. Brasher was also a principal stockholder of Global
prior to the merger. As such, this transaction represented a transfer between
control groups and is reported on a historical cost basis. Johnstone was formed
on May 8, 1996 has had no substantial operations, and is in the development
stage. Johnstone currently lacks the funding necessary to commence operations.
On May 2, 2002, Global acquired newly formed Hamilton Aerospace Technologies,
Inc., a Delaware corporation, located at 6901 S. Park Ave., Tucson, AZ 85706
("HAT") in a stock-for-stock exchange. HAT was formed on April 5, 2002 and
commenced operations on April 15, 2002, to create a premier provider of aircraft
maintenance, repair, and overhaul ("MRO") services to owners and operators of
Transport Category commercial jet aircraft. Its customers are all aircraft
operators, including passenger and cargo air carriers, and aircraft leasing
companies. In conjunction with commencing operations on April 15, 2002, HAT
entered into an agreement to purchase the operating assets and inventory from an
existing MRO, Hamilton Aviation ("Sale of Assets Agreement") as well as entering
into a Lease/Purchase Agreement with Hamilton Aviation for the same assets so
that HAT could commence operations pending a closing of the Sale of Assets
Agreement ("Lease Agreement"). Shortly after entering into this Sale of Assets
Agreement, Hamilton Aviation filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. The Sale of Assets Agreement was submitted to the
Bankruptcy Estate for approval as part of Hamilton Aviation's plan of
reorganization; and pending the Bankruptcy Estate's review and acceptance of the
Sale of Assets Agreement and such plan of reorganization, HAT and Hamilton
entered into an interim agreement whereby HAT agreed to assume Hamilton
Aviation's service contracts pending approval of the Sale of Assets Agreement.
During the Bankruptcy Estate's review of the Sale of Assets Agreement and plan
of reorganization, HAT and Hamilton renegotiated the terms and purchase price of
the Sale of Assets Agreement; and in March 2004, the modified Sale of Assets
Agreement was approved by the Bankruptcy Estate and memorialized and finalized
by the entry of a Settlement Agreement among HAT, Hamilton Aviation and the
Bankruptcy Estate. This Settlement Agreement was then confirmed by Order of the
Bankruptcy Court dated May 6, 2004.
On July 15, 2004, Global acquired World Jet Corporation ("World Jet") a
privately owned Nevada corporation, located at 6900 S. Park Ave., Tucson, AZ
85706 pursuant to a stock purchase agreement whereby Global acquired 100% of the
stock of World Jet for a total purchase price of $2,050,000.00 payable as
follows: 1) $1,250,000.00 in cash, 2) $300,000.00 promissory note, and 3)
1,000,000 shares of Global stock at a price of $0.50 per share as well as
assuming all liabilities of World Jet including the income tax liability for
World Jet fiscal 2003. World Jet is an aircraft parts sales and aircraft parts
brokerage facility servicing aircraft operators, aircraft leasing companies and
MRO facilities. Tucson, Arizona is the only workplace for Global, HAT and World
Jet.
On August 26, 2005, Global together with BCI Aircraft Leasing, ("BCI"), formed a
joint venture Delaware limited liability company called Jetglobal, LLC. This is
a special purpose LLC formed to acquire and remarket commercial jet aircraft.
BCI will be primarily responsible for the marketing aspects of Jetglobal while
Global will be responsible for the technical, repair and maintenance aspects
associated with remarketing purchased aircraft. Global invested an initial
amount of $1,125,000 for a 30% membership and profit interest and BCI invested
an initial amount of $2,625,000 for a 70% membership interest in Jetglobal.
Pursuant to the terms of Jetglobal's Operating Agreement, although the Company
has a 30% membership interest, it is only responsible for 25% of the costs and
expenses associated with Jetglobal including any business transactions.
1
The Company has divided its operations into the following reportable segments:
aircraft maintenance, repair, and overhaul; aircraft trading (i.e. aircraft
brokerage and/or the purchase for resale or lease of aircraft and/or aircraft
engines); and part sales. All aircraft maintenance, repair and overhaul is
performed at HAT. Beginning January 1, 2005, all of the Company's aircraft
trading has been done through Global. (the Company's partnership, Jetglobal ,
also did aircraft trading). Prior to that date all aircraft trading transactions
were handled through HAT. Subsequent to its acquisition in January 2004,
substantially all part sales were done by the Company's wholly owned subsidiary,
World Jet.
During the year ended December 31, 2005, 73% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
56% of the Company's revenue and Word Jet which accounted for approximately 17%
of the Company's revenue. The Company's share of Jetglobal 2005 net income was
over $1,000,000. Global contributed 27% of the Company's revenue through its
entrance into the aircraft trading venue. In addition to the operating expenses
incurred by Global for administrative, legal and accounting functions associated
with Global managing the shares of its wholly owned subsidiaries as well as all
activities related to capitalizing and maintaining adequate capitalization
levels for its subsidiaries, Global, beginning in 2005, also reports expenses
generated in the pursuit of aircraft trading.
During 2006, the Company formed Mexican corporation, Hamilton Aerospace Mexico,
S. A. de C.V. for the purpose of satisfying governmental requirements of the
country of Mexico associated with HAT's Tijuana operation and the servicing of
Mexican airline, Avolar Aerolineas.
Global Aircraft Leasing Partners, LLC, a Delaware limited liability company,
("GALP"), is a start-up aircraft-leasing venture formed to acquire aircraft,
through a combination of debt and equity financing, and lease these commercial
jet aircraft to operators throughout the world. On September 4, 2007, the
Company and GALP entered into an agreement that calls for the company assuming a
40% equity interest in GALP, effective October 1, 2007. Notwithstanding the
effective date of the agreement, the parties have agreed that in return for
marketing and technical support provided to GALP to date, the Company will be
entitled to a commission equal to 40% of the net profits earned on all
transactions entered into by GALP from the date of its inception through October
1, 2007. Under the terms of the agreement, in consideration for its 40% equity
participation in GALP, the company will make a one time capital contribution of
$40,000. As further consideration the Company will provide to GALP ongoing
technical support to facilitate GALP's commercial aircraft purchasing, leasing
and sales activities. All technical services provided to GALP by HAT and World
Jet will be billed at company-standard rates. The Company has made $20,000 in
capital contribution as of December 31, 2007. Final agreement relative to
operations has not yet been finalized and Global has no equity participation in
GALP for the year ended December 31, 2007. Global will not be required to invest
capital in aircraft acquired by GALP, and all debt assumed by GALP as a result
of aircraft acquisitions will be non-recourse with respect to the Company. Other
members of GALP will include equity funding specialists and aircraft leasing
professionals. Global and GALP have also agreed that Global will have first
right of refusal for all aircraft maintenance, aircraft parts and technical
consulting requirements that GALP may have as a result of its aircraft
acquisition and leasing activities.
During the year ended December 31, 2007, 68% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
60% of the Company's revenue and Word Jet which accounted for approximately 8%
of the Company's revenue. The Company's share of Jetglobal 2007 net income was
$214,800. Global contributed 32% of the Company's revenue through its
aircraft-trading activity.
2
The following table graphically depicts the operating performance for Global,
HAT and World Jet subsidiaries on a stand-alone and consolidated basis for the
year ended December 31, 2007:
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
$ $ $ $ $
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
2007 Revenues 7,900,000 14,809,618 5,516,972 (3,483,089) 24,743,501
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Year End Cost of Sales (6,848,337) (11,440,802) (3,872,958) 3,460,372 (18,701,725)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Results Expenses (3,646,290) (5,976,319) (1,311,316) 25,185 (10,908,740)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Operating Profit (Loss) (2,594,627) (2,607,503) 332,698 (2,468) (4,866,964)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
The "Eliminate" column reflects the $ amounts of Inter-Company Sales by World
Jet to HAT in 2007.
On a consolidated basis Revenues and Cost of Sales are reduced to reflect the
Revenues and Cost of Sales for external sales only, with a zero $ impact on
stand alone or consolidated profit (loss) figures. The following table
graphically depicts the operating performance for Global, HAT and World Jet
subsidiaries on a stand-alone and consolidated basis for the year ended December
31, 2006:
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
$ $ $ $ $
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
2006 Revenues 4,475,000 26,058,040 10,591,165 (6,582,010) 34,542,195
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Year End Cost of Sales (3,489,909) (20,929,517) (8,103,408) 6,582,010 (25,940,824)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Results Expenses (3,394,122) (3,342,380) (1,866,978) (8,603,480)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Operating Profit (Loss) (2,409,031) 1,786,143 620,779 (2,109)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
The following table graphically depicts the operating performance for Global,
HAT and World Jet subsidiaries on a stand-alone and consolidated basis for the
year ended December 31, 2005:
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
$ $ $ $ $
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
2005 Revenues 11,396,538 23,505,112 10,622,681 (4,295,683) 41,228,648
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Year End Cost of Sales (7,930,337) (19,594,059) (7,829,248) 4,295,683 (31,057,961)
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Results Expenses (2,489,347) (3,692,489) (1,599,557) (7,781,393)
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Operating Profit 976,854 218,564 1,193,876 2,389,294
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
3
While the Company aggressively seizes revenue-producing opportunities such as
aircraft trading, management gauges results by looking at what has been the core
revenue producing activity to date, the sale of labor hours in our maintenance
segment. In 2007, revenue produced from labor was $8.6 million; in 2006, revenue
produced from labor was $14.3 million and was virtually the same in 2005 at
$14.3 million. Billable hours for 2006 and 2005 were essentially the same at
approximately 240,000. Billable hours for 2007 decreased about 36% or 87,000.
The comparative costs for all direct labor, including work performed by outside
contractors, was $5,005,874 in 2007 compared to $8,945,712 in 2006 and
$9,190,898 in 2005, representing 44% decrease in cost from 2006 to 2007 and a 3%
decrease in cost from 2005 to 2006. The relationship between direct labor costs
to direct labor revenues decreased approximately 4% to 58% during 2007 and 2% to
about 62% in 2006 as compared with 64% in 2005. Direct labor percentages will
always vary to some degree due to the nature of flat rate bidding as opposed to
billing for all time and materials. Included in the operating expenses for the
Company in the years ended December 31, 2007, 2006 and were $1,086,360, $617,459
and $326,594, respectively, associated with the award of stock and stock
options. $581,282 of the 2007 amount was related to the options issued as part
of the debenture transaction discussed earlier.
Due to the fact that World Jet's largest customer is HAT, part sales decrease as
maintenance decreases. Sales by our part sales segment to our maintenance for
2007, 2006 and 2005 were $3.5M, $6.6M and $4.3M respectively. These results
represent 24%, 27% and 23% of the MRO sales for the corresponding periods. This
relationship will vary to a degree due to the particular mix of customers
serviced during the periods. We do have some customers that typically furnish
their own material to jobs. It is certain that the cash crunch experienced
during late 2006 and 2007 made it necessary to curtail efforts to grow the
brokering operations of our parts sales segment. Cost of parts sold were 31%,
43% and 53% of parts revenue for 2007, 2006 and 2005 respectively. The
decreasing percentage indicates an increased use of owned inventory as opposed
to brokered inventory.
The most significant decrease in revenue from 2005 to 2006 was experienced in
aircraft sales, as most aircraft sales took place in Jetglobal. Aircraft trading
in 2006 resulted in a decrease of $10 million in sales when compared to the
prior year. In 2007, the Company sold one aircraft for $7.9, which is an
increase in revenue for that segment of 145% over 2006. Since aircraft trading
is an opportunistic venture, with the value of one type of aircraft varying
substantially from the value of another, sales as well as cost of sales will
vacillate based on the terms of each individual transaction.
Quarter Ending March 31, 2008
- -----------------------------
Net sales for the three months ended March 31, 2008 increased $650K, or 10%, to
$6.879 million from $6.229 million for the three months ended March 31, 2007.
During the first quarter, our maintenance segment revenues decreased 35.5% from
2007's first quarter. The first quarter 2008 maintenance segment revenues showed
a significant increase of 54% over maintenance segment revenues during the
fourth quarter of 2007. This increase reflects HAT marketing efforts to
gradually and consistently recover from the temporary setbacks experienced in
2007. Our parts sales segment increased 75% over the 1st quarter of 2007,
reflecting a marked increase in sales to third parties during 2008's 1st quarter
over the 1st quarter of 2007. Aircraft sales revenues in the first quarter of
2007 consisted of a forfeited deposit in the amount of $50,000 compared with the
sale of an aircraft as a glider, with the Company retaining the engines in
inventory, and $199K in forfeitures during first quarter of 2008. Aircraft sales
tend to vary significantly on a period-to-period basis based on the particular
aircraft sold as well as the time necessary to complete a transaction.
4
Cost of sales consists of costs of inventory sold for World Jet, time and
materials for HAT and aircraft purchase price for Global aircraft trading.
Consolidated cost of sales for the three months ended March 31, 2008 increased
$149K, or 3.6%, to $4.275 million from $4.126 million for the three months ended
March 31, 2007. Consolidated cost of sales, as a percentage of revenue,
decreased in the first quarter of 2008 to 64.6% from 67.8% for the same period
in 2007. Cost of sales for our maintenance segment decreased $1.4 million or
38.5 % from fourth quarter 2007. Cost of sales for our aircraft-trading segment
was 61% of revenue. As mentioned earlier, the first quarter of 2007 had no
aircraft sales. Cost of sales for our part sales segment increased $196K over
the first quarter of 2007. As a percentage of part sales revenue, cost of sales
was 51.5% and 59.3% for the quarters ending March 31, 2008 and 2007,
respectively.
While the Company engages in various revenue-producing activities such as
aircraft sales, management gauges results by looking at what historically has
been the core revenue-producing activity, the sale of labor hours. In the first
three months of 2008, revenue produced from labor was $2,519,061 as compared
with $2,684,643 the first three months of 2007. This represents a decrease of
6%. The comparative costs for all direct labor, including work performed by
outside contractors, was $1,382,104 in the first three months of 2008 compared
with $1,623,317 for the same period in 2007. All direct labor costs were 38.7%
of total maintenance sales in first three months of 2007 compared with 29.3% in
the first three months of 2007. All direct labor costs were 54.9% of labor sales
in first three months of 2008 compared with 60.5% in the first three months of
2007. The relationship between direct labor costs and direct labor revenues saw
relative costs decrease 5.6% from 2008 to 2007. Direct labor percentages will
always vary to some degree due to the nature of flat-rate bidding as opposed to
billing for all time and materials. Additionally, the Company has gradually
increased its labor rate, where possible, during the first quarter of 2008. A
substantial sudden increase in volume can be expected to have a temporary impact
on efficiencies and are viewed by Management as a temporary consequence of
growth. A sudden decrease in volume should have a negative impact due to the
retention of core labor during slower periods. Management is confident that
adjustments to volume changes should be made and profitability will benefit over
time.
Company-wide gross profit for the three months ended March 31, 2008 of $2.6
million was more than the same period in the prior year by $.5 million. Gross
profit levels during any particular period are dependent upon the number and
type of aircraft serviced, the contract terms under which services are performed
and the efficiencies that can be obtained in the performance of such services.
Significant changes in any one of these factors could have a material impact on
the amount and percentage of gross profits. Additionally, gross profit could be
impacted in the future by considerations as to the value of our inventory.
Selling, general and administrative expenses for the three months ended March
31, 2008, as percentage of sales, were 31%, which was 5% greater than for the
same period in 2007. Aircraft trading revenues generated $380K in commission
expense, which represents 5% of revenues.
Interest expense for the Company, during the first three months of 2008, was
$396K.
5
The following tables depict our pre-tax operating profit or (loss) for the first
quarter of 2008 and 2007 on a stand-alone basis and a consolidated basis for
Global, HAT and World Jet:
First three months of 2008
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 2,011,083 4,018,610 1,622,246 (772,954) 6,878,985
Less: Cost of sales 1,220,131 2,738,688 1,089,182 (772,954) 4,275,047
Less: Expenses 1,122,496 696,896 312,196 (617) 2,130,971
Pre-tax Operating Profit (Loss) (331,544) 583,026 220,868 617 472,967
First three months of 2007
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 50,000 5,559,431 2,117,156 (1,497,587) 6,229,000
Less: Cost of sales 234 4,010,966 1,612,345 (1,497,587) 4,125,958
Less: Expenses 588,580 692,888 318,634 (617) 1,599,485
Pre-tax Operating Profit (Loss) (538,814) 855,577 186,177 617 503,557
Quarter Ending June 30, 2008
- ----------------------------
Consolidated net sales for the three months ended June 30, 2008 decreased $3.7
million, or 33%, to $7.483 million from $11.174 million for the three months
ended June 30, 2007. Cost of sales consists of costs of inventory sold for World
Jet, time and materials for HAT and aircraft purchases for Global aircraft
trading. Consolidated cost of sales for the three months ended June 30, 2008
increased $315K, or 3.4%, to $9.623 million from $9.308 million for the three
months ended June 30, 2007. Cost of sales included $3.037 million of inventory
write-down. Consolidated cost of sales, absent the inventory write-down,
decreased 29.2% as compared to the 2nd quarter of 2007. Consolidated cost of
sales, as a percentage of revenue, increased in the second quarter of 2008 to
129% from 83% for the same period in 2007. Absent the inventory write-down,
consolidated cost of sales as a percentage of revenue was 88% in the second
quarter of 2008.
Consolidated net sales for the six months ended June 30, 2008 decreased $3
million, or 17.5%, to $14.362 million from $17.403 million for the six months
ended June 30, 2007. Consolidated cost of sales for the six months ended June
30, 2008 increased $464K, or 3.5%, to $13.898 million from $13.434 million for
the six months ended June 30, 2007. Consolidated cost of sales included $2.925
million of inventory write-downs. Consolidated cost of sales, absent the
inventory write-down, decreased 19.4% as compared to the six months ended June
30, 2007. Consolidated cost of sales, as a percentage of revenue, increased in
the first six months of 2008 to 96.8% from 77.2% for the same period in 2007.
Absent the inventory write-down, consolidated cost of sales as a percentage of
revenue was 75.4% in the first and second quarters of 2008.
Consolidated selling, general and administrative expenses for the three months
ended June 30, 2008, as percentage of sales, were 56.5%, which was 42.8% greater
than for the same period in 2007. For the first half of 2008 consolidated
selling, general and administrative expenses were 44% of sales as compared to
18% in the same period of 2007. The bad debt expense of $1.816M recorded in 2008
impacts the percentages for the first six months by 12.6%.
6
Company-wide gross profit for the six months ended June 30, 2008 of $.464
million was less than the same period in the prior year by $3.5 million.
Consolidated gross profit was impacted during the second quarter by the write
down of our aircraft inventory in the amount of $3.037M. Gross profit levels
during any particular period are dependent upon the number and type of aircraft
serviced, the contract terms under which services are performed and the
efficiencies that can be obtained in the performance of such services.
Significant changes in any one of these factors could have a material impact on
the amount and percentage of gross profits. Additionally, gross profit could be
impacted in the future by considerations as to the value of our inventory.
Consolidated S G &A expense for the six months ended June 30, 2008 was
$6,356,833 a 103% increase over the $3,128,191 recorded in the first six months
of 2007. The 2008 results included bad debt expense of $1.816M resulting from
allowances taken against accounts receivable balances of HAT.
Consolidated interest expense was $380,360 as compared to $378,889 in the second
quarters of 2008 and 2007, respectively.
Aircraft maintenance and repair
During the second quarter of 2008, our maintenance segment revenues were $5.1M
an increase of 86.6% from the second quarter of 2007 which was $2.7M. Cost of
sales for our maintenance segment increased $1.75 million or 79.4% from the
second quarter of 2007amount of $2.2M to $3.96M for the second quarter of 2008.
Cost of sales as a percentage of revenue was 77.4% and 80.5% in the second
quarters of 2008 and 2007, respectively.
The core revenue-producing activity at our aircraft maintenance and repair
segment, HAT, is the sale of labor hours. During the first six months of 2008,
revenue produced from labor was $5.942 million as compared with $4.936 million
the first six months of 2007. This represents an increase of 20.4%. Billable
hours for the 2nd quarter of 2008 were 45,055 compared with 30,703 in the 1st
quarter, a 47% increase. Billable hours for the 2nd quarter of 2007 were 32,057
compared with 45,518 hours in the 1st quarter of 2007.The comparative costs for
all direct labor, including work performed by outside contractors, was $3.875M
in the first six months of 2008 compared with $2.721M for the same period in
2007. All direct labor costs were 37.7% of total maintenance sales in first six
months of 2008 compared with 32.8% in the first six months of 2007. All direct
labor costs were 65.2% of labor sales in first six months of 2008 compared with
55.1% in the first six months of 2007. The relationship between direct labor
costs and direct labor revenues saw relative costs increase 10.1% from 2007 to
2008. Direct labor percentages will always vary to some degree due to the nature
of flat-rate bidding as opposed to billing for all time and materials.
Additionally, the Company gradually increased its labor rate, where possible,
during the first quarter of 2008. A substantial sudden increase in volume can be
expected to have a temporary impact on efficiencies and are viewed by Management
as a temporary consequence of growth. A sudden decrease in volume should have a
negative impact due to the retention of core labor during slower periods.
Management is confident that adjustments to volume changes should be made and
profitability will benefit over time.
S G &A expenses for the 1st and 2nd quarters of 2008 were $3.019M compared with
$1.393M for the 1st and 2nd quarters of 2007. Absent the bad debt expense
recorded during the 2008 period of $1.816M, S G & A expense is about $190K less
in 2008 than in 2007. The bad debt expense consists primarily of increased
allowance for Avolar of $929K, BCI of $1.75M and GALP of $656K as discussed
below:
7
Avolar
------
The progress Avolar made in paying down their balance in 2007 has not
continued in 2008. With the additional reserve taken in 2008, the company
has reserved a total of 75% of the Avolar account receivable.We have
engaged legal counsel in Mexico to pursue collection of the full balance of
$1.658M plus interest.
BCI
---
We have engaged legal counsel, made final demand for payment, and are
preparing a suit for the total amount due of $2,331,149 plus interest, plus
damages that will be served on BCI near term. We have increased our reserve
to 75% of the BCI account receivable.
GALP
----
GALP is claiming that the 737-300 sold to them by Global did not meet the
agreed upon delivery conditions for that aircraft. Management has written
down the GALP account receivable by 50% as a result.
Part sales
Our parts sales segment increased from $1.385M in the second quarter of 2007 to
$2.166M for the same period in 2008, a 56% increase. The Company experienced a
25% increase in sales to third parties during 2008's 2nd quarter over the 2nd
quarter of 2007. As a percentage of part sales revenue, cost of sales was 83%
and 75% for the quarters ending June 30, 2008 and 2007, respectively.
S G & A expenses for our part sales segment remained nearly constant from period
to period, $303K in the second quarter of 2008 as compared to $305K in the
second quarter of 2007.
Aircraft trading
Aircraft sales revenue in the first half of 2008 was $3.550M compared with $7.9M
in the first half of 2007. Aircraft sales tend to vary significantly on a
period-to-period basis based on the particular aircraft sold as well as the time
necessary to complete a transaction.
Cost of sales for our aircraft-trading segment was 86.7% of revenue in the first
half of 2007 compared with 181.5% of revenue in 2008. Cost of sales includes an
inventory write-down of $3.037M, which was 85.6% of revenue. In 2007, Global
received five 737-200s and one MD82 aircraft from the wind down of our Jetglobal
partnership. At the time of the transaction, market conditions supported the
cost recorded for the transaction of $1.5M per aircraft for the 737-200s and
$1.15M for the MD82. The market for these aircraft has fallen and consequently,
the Company reduced the carrying value of its aircraft assets by $2.037M during
the second quarter of 2008.
8
Additionally, impacting the relationship between revenue and cost of sales was
the 2008 transaction with Pamir Airlines. Pamir Airlines was given credit on the
2008 transaction for $1.4M, about 47% of revenue, which had been forfeited on an
earlier transaction dating back to 2007. Management elected to give Pamir
Airlines credit on this new sale (1) in order to enhance cash flow and aid in
paying down our senior debt and (2) to eliminate a potential legal adversarial
situation. Global has also received a deposit of $550,000 from Pamir to be
applied to the purchase of a second aircraft.
S G &A expenses for the first half of 2008 were $2.415M as compared with $1.104M
in the first half of 2007. The major period-to-period increases recorded were
$580K in commissions, $542K in legal professional and director fees, $130K in
salaries and $52K in employee benefit plans,
The following tables depict our pre-tax operating profit or (loss) for the first
six months and the second quarter of 2008 and 2007 on a stand-alone basis and a
consolidated basis for Global, HAT and World Jet:
2nd quarter of 2008
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 956,667 6,257,231 2,123,278 (1,854,213) 7,482,963
Less: Cost of sales 4,904,749 4,990,681 1,575,569 (1,847,750) 9,623,249
Less: Expenses 1,293,031 2,636,593 303,318 (7,080) 4,225,862
Pre-tax Operating Profit (Loss) (5,241,113) (1,370,043) 244,391 617 (6,366,148)
First six months of 2008
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 2,967,750 10,275,841 3,745,524 (2,627,167) 14,361,948
Less: Cost of sales 6,124,880 7,729,369 2,664,751 (2,620,704) 13,898,296
Less: Expenses 2,415,527 3,333,489 615,514 (7,697) 6,356,833
Pre-tax Operating Profit (Loss) (5,572,657) (787,017) 465,259 1,234 (5,893,181)
2nd quarter of 2007
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 7,850,000 2,739,676 1,373,869 (789,655) 11,173,890
Less: Cost of sales 6,846,083 2,347,804 903,667 (789,655) 9,307,899
Less: Expenses 519,666 704,605 305,053 (618) 1,528,706
Pre-tax Operating Profit (Loss) 484,251 (312,733) 165,149 618 337,285
First six months of 2007
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 7,900,000 8,299,107 3,491,025 (2,287,242) 17,402,890
Less: Cost of sales 6,846,317 6,358,770 2,516,012 (2,287,242) 13,433,857
Less: Expenses 1,103,554 1,402,185 623,687 (1,235) 3,128,191
Pre-tax Operating Profit (Loss) (49,871) 538,152 351,326 1,235 840,842
9
The current registration includes 12,715,386 shares of common stock of the
Company that have been issued pursuant to a private placement exempt from
registration with the SEC pursuant to Rule 506 under Regulation D as promulgated
by the SEC pursuant to Section 4(2), and 18,632,694 shares of common stock of
the Company issueable upon exercise of warrants 7,200,000 of which were
exercised by selling shareholder Barron on July 27, 2005; 399,000 of which were
exercised by selling shareholder JG Capital on September 20, 2005 and 22,812
which were exercised by selling shareholder Grushko on September 14, 2005 (2).
If all warrants are exercised, the number of shares of common stock the Company
is registering (31,348,080) will represent 63.6% of the authorized and
outstanding shares of common stock of the Company.
Unless otherwise indicated, "Global Aircraft Solutions, Inc." "we", "us" "our"
"Company" refer to Global Aircraft Solutions, Inc. and its subsidiaries.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
10
OFFERING
Securities Being Offered 20,343,215 shares of common stock (1) and up to
10,887,865 shares of common stock upon the
exercise of all warrants (2).
Securities Issued 40,181,301 shares of common stock were issued and
and to be Issued outstanding as of the date of this prospectus and
an additional 10,887,865 shares of common stock
will be issued and outstanding if all warrants are
exercised (3). Also see footnote (2)
Use of Proceeds We will not receive any proceeds from the sale of
the private placement issue of (i) 18,799,000
shares of common stock by the selling
shareholders, Contrarion Equity Fund, LP ("CEF"),
CRT Capital Group, LLC ("CRT"), Contrarioan Long
Short, L.P. ("CLS"), Silver Point Capital Offshore
Fund, Ltd. ("SPCOF"), Delta Offshore, Ltd.
("DOFS"), Delta Institutional ("DI"), Brencourt
Advisors, LLC ("BA"), Brencourt Distressed
Securities Master, Ltd. ("BDSM"), Loeb Partners
Corporation ("Loeb"), JMG Triton Offshore Fund,
Ltd. LP ("Triton"), JMG Capital Partners, LP
("JMG"), Blackmore Offshore, Ltd. ("BOFS"),
Blackmore Wallace Partners, LP ("BWP"), Delta
Onshore, LP ("DONS"), Blackmore Partners ("BP"),
Delta Pleiades, LP ("DP"), Silver Point Capital
Fund, LP ("SPCF") , AHFP Contrarian ("AHFP"), AF
Capital, LLC ("AFC"), Core Fund, L.P. ("CF"),
Cedarview Opportunities Master Fund ("COMF") and
JG Capital, Inc. ("JG Capital") (ii) 1,000,000
shares of common stock by selling shareholder
Ralph Garcia; and (iii) 1,515,386 shares of common
stock by selling shareholders Alpha Capital
("Alpha"), Stonestreet Limited Partnership
("Stonestreet"), Whalehaven Capital Fund Limited
("Whalehaven") and Greenwich Growth Fund Limited
("Greenwich"). We will receive the proceeds from
the exercise of any of the warrants issued to the
selling shareholders Barron Partners, LP
("Barron"), Whalehaven, Stonestreet, Greenwich,
Alpha, JG Capital, Inc., Heza Holding, Inc. and
Grushko & Mittman, P.C. ("Grushko") ") unless the
cashless exercise feature (which is available to
all warrant holders if the registration of shares
underlying such warrants is not effective at the
time of a warrant exercise), is exercised by the
warrant holder. See section entitled "Use of
Proceeds".
- --------------------------------------------------------------------------------
(1) 9,600,000 shares of common stock were issued to the selling shareholders,
Barron Partners, pursuant to a private placement under Rule 506 of Regulation D
of SEC Act of 1933,7,200,000 shares of common stock were issued to selling
shareholder Barron Partners on July 27, 2005 upon the exercise of $.68 warrants
and stock issueable upon exercise of such warrants pursuant to a private
placement under Rule 506 of Regulation D of SEC Act of 1933 on May 31, 2004,
399,000 shares of common stock were issued to selling shareholder JG Capital on
September 20, 2005 upon the cashless exercise of a $.34 warrant representing
501,000 of 720,000 shares of common stock (discounted to 399,000 shares upon a
cashless exercise) issueable upon exercise of such warrants pursuant to a
private placement under Rule 506 of Regulation D of SEC Act of 1933 on September
2, 2004, 22,812 shares of common stock were issued to selling shareholder
Grushko on September 14, 2005 upon the cashless exercise of a $.52 warrant
(discounted to 22,812 from 31,731 shares upon a cashless exercise) issueable
upon exercise of such warrants pursuant to a private placement under Rule 506 of
Regulation D of SEC Act of 1933 on September 2, 2004; and 21,017 shares of
common stock were issued to selling shareholder Heza on December 27, 2005 upon
the cashless exercise of a $.52 warrant (discounted to 21,017 from 31,731 shares
upon a cashless exercise) issueable upon exercise of such warrants pursuant to a
private placement under Rule 506 of Regulation D of SEC Act of 1933 on September
2, 2004 . All of the 16,800,000 shares of common stock owned by Barron were sold
by Barron in a private placement to Qualified Institutional Buyers CEF, CRT,
CLS, DOFS, DI, BA, BDSM, Loeb, Triton, JMG, BOFS, BWP, DONS, BP DP, SPCOF , SPCF
and AHFP. A total of 2,115,386 shares of common stock were issued to selling
shareholders as follows: Whalehaven Capital Fund Limited ("Whalehaven") 288,462
shares; Stonestreet Limited Partnership ("Stonestreet") 384,616 shares; Alpha
Capital ("Alpha") 1,250,000 shares and Greenwich Growth Fund Limited
("Greenwich") 192,308 shares pursuant to a private placement under Rule 506 of
Regulation D of SEC Act of 1933. 1,000,000 shares of common stock were issued to
selling shareholder Ralph Garcia pursuant to a private placement under Rule 506
of Regulation D of SEC Act of 1933 as partial compensation for the acquisition
of World Jet Corporation.
11
(2) Warrants entitling the selling shareholder Barron Partners, JG Capital,
Inc., Alpha, Stonestreet, Whalehaven, Greenwich, Heza Holding, Inc. and Grushko
& Mittman, P.C. to an additional 10,887,865 shares of common stock upon the
exercise of such warrants as follows: Barron Partners - warrants to purchase
7,200,000 shares of common stock at an exercise price of $1.36 per share; JG
Capital, Inc. - warrants to purchase 219,000 (instead of 321,000 shares due to
the discount of 102,000 shares for a cashless exercise of warrants) shares of
common stock at $0.34 per share, 95,192 shares of common stock at an exercise
price of $0.52 per share, 540,000 shares of common stock at $0.68 per share,
47,597 shares of common stock at $1.00 per share, and 587,597 shares of common
stock at $1.36 per share; ; Alpha- warrants to purchase 625,000 shares of common
stock at an exercise price of $1.00 per share and 625,000 shares of common stock
at an exercise price of $1.36 per share; Stonestreet - warrants to purchase
192,308 shares of common stock at an exercise price of $1.00 per share and
192,308 shares of common stock at an exercise price of $1.36 per share;
Whalehaven - warrants to purchase 144,231 shares of common stock at an exercise
price of $1.00 per share and 144,231 shares of common stock at an exercise price
of $1.36 per share; Greenwich - warrants to purchase 96,154 shares of common
stock at an exercise price of $1.00 per share and 96,154 shares of common stock
at an exercise price of $1.36 per share; Heza Holding, Inc. - warrants to
purchase 15,865 shares of common stock at an exercise price of $1.00 per share,
and 15,865 shares of common stock at an exercise price of $1.36 per share;
Grushko - warrants to purchase 15,865 shares of common stock at an exercise
price of $1.00 per share, and 15,865 shares of common stock at an exercise price
of $1.36 per share. All warrants are subject to a cashless exercise option at
the election of the warrant holder if the shares issueable upon exercise of the
warrants are not registered at the time such warrants are exercised.
(3) The amount of shares issued and outstanding will increase up to a maximum of
49,333,080 upon the exercise of all warrants. The amount of issued and
outstanding shares includes 1.5 million shares of common stock issued to Seajay
Holding which have been voided by the Company and for which the Company has
filed a lawsuit against Seajay Holdings seeking a court order for the return of
the 1.5 million shares (See "Legal Proceedings" section).
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12
RISK FACTORS
Investing in our common stock involves a high degree of risk. Before agreeing to
buy, you should carefully consider the following risk factors, in addition to
the other information contained or incorporated by reference in this prospectus:
PROBLEMS IN THE AIRLINE INDUSTRY
Problems in the airline industry could adversely affect our business. Since our
customers consist primarily of passenger and cargo air carriers and aircraft
leasing companies, the lingering effects of the terrorist events of September
11, 2001 continue to adversely impact the airline industry and consequently
adversely impact our business. However, it does affect our business to a much
lesser extent than it affects MRO firms that rely heavily on major airlines for
business. When economic factors adversely affect the airline industry, they tend
to reduce the overall demand for maintenance and repair services, causing
downward pressure on pricing and increasing the credit risks associated with
doing business with airlines. We cannot assure you that economic and other
factors, which may affect the airline industry, will not adversely impact our
business, financial condition or results of operations. Such adverse effects in
the airline industry, can also adversely affect our aircraft parts sales
business conducted by our wholly owned subsidiary, World Jet. Any event or
occurrence that adversely impacts the aircraft maintenance industry will also
adversely impact the aircraft parts sales industry because aircraft parts sales
are directly related to the demand for maintenance of aircraft.
INCREASING COST OF JET FUEL
The potential for increasing costs in jet fuel prices may adversely affect our
business. The price of jet fuel affects the maintenance and repair markets,
since older aircraft, which consume more fuel and which account for most of our
maintenance and repair services business, become less viable as the price of
fuel increases.
TERRORIST ATTACKS
The events of September 11th have had a negative impact on the airline industry
in general, and thereby indirectly on us. Factors arising (directly or
indirectly) from these terrorist attacks which could affect our business may
include: (i) the impact of these terrorist attacks and the impact in declines in
air travel as a result of these terrorist attacks on the financial condition of
one or more of our airline customers, (ii) possible increases in jet fuel prices
as a result of events relating to these terrorist attacks, (iii) potential
reductions in the need for aircraft maintenance due to declines in airline
travel and cargo business and (iv) the adverse effect these terrorist attacks,
or future events arising as a result of these terrorist attacks, on the economy
in general.
AVIATION INDUSTRY IS SUBJECT TO HEAVY GOVERNMENT REGULATION
As discussed earlier, the aviation industry is highly regulated by the FAA in
the United States and by similar agencies in other countries. We must be
certified by the FAA, and in some cases authorized by the original equipment
manufacturers, in order to repair aircraft components and to perform maintenance
and repair services on aircraft. Commercial jets, like any other complex
vehicles, require periodic maintenance to allow for their safe and economical
operation. Unlike many vehicles, the repair and modification of such aircraft is
highly regulated by the various aviation authorities in each country of
operation around the world.
13
In the United States, the Federal Aviation Administration (FAA) regulates the
manufacture, repair, overhaul and operation of all aircraft and aircraft
equipment operated in the U.S. pursuant to the Federal Aviation Regulations
(FARs). The FAA must certify each authorized repair station, and certified
facilities are issued an Air Agency Certificate. Each certificate contains
ratings and limitations that specifically authorize the repair station to only
perform certain types of services on specific makes and models of aircraft. 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. Similar rules apply in other countries. 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 utilizing certified technicians. Certification and conformance
is required prior to installation of a part on an aircraft. We closely monitor
the FAA and industry trade groups in an attempt to understand how possible
future regulations might impact us.
There is no assurance that new and more stringent government regulations will
not be adopted in the future or that any such new regulations, if enacted, will
not materially adversely affect our business, financial condition or results of
operations. Further, our operations are also subject to a variety of worker and
community safety laws. In the United States, the Occupational Safety and Health
Act mandates general requirements for safe workplaces for all employees.
Specific safety standards have been promulgated for workplaces engaged in the
treatment, disposal or storage of hazardous waste. We believe that our
operations are in material compliance with health and safety requirements under
the Occupational Safety and Health Act. There is no assurance that the company
will retain current regulatory agency certifications or be able to obtain future
required regulatory agency certifications.
DEPENDENCE ON A SMALL NUMBER OF CUSTOMERS
For the year ended December 31, 2007, our largest continuing customer accounted
for 46.5% of our revenue. Three customers accounted for 76.9% or our revenue.
These results were impacted by a one-time aircraft sale to one customer of$7.85
million, which represents 31.7% of revenue. We recognize that any customer
concentration creates risks and efforts are continually being made to broaden
and strengthen our customer base. While the relative significance of customers
varies from period to period, the loss of, or significant curtailments of
purchase of our services by, one or more of our significant customers at any
time could adversely affect our revenue and cash flow. The customers upon whom
the Company subsidiaries relied for 10% or more of their revenue during the year
ending December 31, 2007 are as follows:
HAT WORLD JET
Customer Percentage of Revenue Customer Percentage of Revenue
- -------- --------------------- -------- ---------------------
BCI Aircraft Leasing, Inc. 30.4% HAT 0.4%
GALP 24.6% Total Aircraft Support 1.9%
HAT was World Jet's largest customer for the year ended December 31, 2007,
accounting for 60.4% of World Jet's revenue. Since HAT and World Jet now operate
as wholly owned subsidiaries of Global, any significant adverse events that
affect HAT and Global will also adversely impact World Jet. Likewise, any
significant curtailment in purchases of aircraft parts by one or more of World
Jet's significant customers could adversely affect World Jet's revenues and cash
flow.
14
INABILITY TO COLLECT SIGNIFICANT ACCOUNTS RECEIVABLE
During 2006, Avolar's increasing fleet size resulted in increasing receivables
due HAT. At the same time, Avolar's past due receivables increased
significantly. In order to protect the Company's financial status, in February
2006 Management put Avolar on a COD basis and negotiated a schedule for Avolar
to bring its account current. The parties also agreed that Avolar would obtain
whatever services and credit it could from other maintenance service providers
in order to facilitate Avolar's pay-down of monies due HAT. By the end of 2007,
Avolar had made progress reducing the amount owed HAT, but Avolar is not in full
compliance with the terms of its payment schedule agreed to with HAT. Avolar has
stated its intention to bring its accounts current with HAT and World Jet and
renew its maintenance and support agreements with both companies.
By the end of the fourth quarter 2006 and into the first quarter 2007 the past
due amounts due HAY by BCI Aircraft Leasing, Inc. had also reached unacceptable
levels. Additionally, BCI had failed to provide information legally demanded by
the Company regarding the financial results of its joint venture with BCI,
Jetglobal. On April 20, 2007 the Company entered into a settlement agreement
with Jetglobal and BCI wherein in consideration for the Company's 30% ownership
interest in Jetglobal, the Company received title, free and clear, to five
aircraft valued at $1,500,000 each. A sixth aircraft purchased from Global by
Jetglobal, and which had MRO work performed by HAT, was returned to the Company
in satisfaction of money due to the Company, $1,150,000 for that particular
aircraft. The Company also retains a trailing interest of 18% of any amount paid
Jetglobal under (i) satisfaction of the claim against Delta and (ii) the
Jetglobal claim against AFG for breach of contract.
LEASE OF PROPERTY
Global's wholly owned subsidiary, Hamilton Aerospace Technologies, Inc. ("HAT"),
is currently conducting operations on leased property at the Tucson
International Airport, ("TIA"). Currently, World Jet is also occupying space
under this same lease. The lease is a one-year lease commencing March 1, 2005
and permits HAT to apply for two additional one-year options. We are in the
first year of additional two years of option to renew. The rent has been paid
current to date. TIA is implementing a Master Plan for airport development,
which precludes issuing a long-term lease to HAT, but will not affect HAT's
facilities for at least five years. Until HAT possesses a long-term lease there
remains a risk that HAT will have to relocate operations which could have an
adverse impact on HAT's operations.
RISK OF OPERATING IN ONE LOCATION
During 2007, Global conducted more than 68% of its operations through its two
wholly owned subsidiaries, HAT and World Jet. HAT has been located at 6901 South
Park Avenue, Tucson, Arizona since its inception. During the fourth quarter of
2006, World Jet relocated its sales offices to facilities at this HAT site.
World Jet serves as HAT's parts supply facility for aircraft parts and stores
its inventory at 7001 South Park Avenue, Tucson, Arizona. During 2007, World Jet
accounted for 8% of Global's total revenue. The repair and maintenance operation
of HAT comprised 60% of Global's revenue. By having only one location for
aircraft repair and maintenance for HAT and sales offices for World Jet both are
at risk of temporary or permanent cessation of all operations should they
encounter an event which renders the facility unusable for any period of time or
either encounters any issues or problems related to the use of the facility at
this location.
World Jet stores its inventory in only one location in Tucson, Arizona at 7001
South Park. Cessation of operation at this location due to events, which render
the facility unusable for any period of time or any damage to or destruction of
this facility and/or the inventory, will also adversely impact the Company.
15
STATUS AS A GOING CONCERN
The Company operating through its two wholly owned subsidiaries, HAT and World
Jet, engages in business operations solely related to the aviation industry. Any
problems in the airline/aviation industry may have an adverse impact on our
operations and ability to operate as a going concern. Any terrorist incidents,
increases in the price of Jet fuel, or other economic factors which adversely
impact the airline/aviation industry could effect our ability to operate as a
going concern. Moreover, any events which may adversely impact our ability to
continue operations at our facilities at Tucson, Arizona could also adversely
affect our ability to operate as a going concern.
IMPACT OF BEING AN OTC BULLETIN BOARD STOCK
Global's common stock is quoted on the OTC Bulletin Board under the trading
symbol GACF and is traded in the over-the-counter markets. Unless and until our
common shares become quoted on the NASDAQ system or listed on a national
securities exchange, we may at any time be subject to the "penny stock"
provisions of the Exchange Act and applicable SEC rules. At any time when the
market price of our common stock is below $5.00 per share, our common stock may
be deemed to be a penny stock. In that event, our common stock will be subject
to rules that impose additional sales practices on broker-dealers who sell our
securities. For transactions covered by the penny stock rules, the broker-dealer
must make a suitability determination for each purchaser and receive the
purchaser's written agreement prior to the sale. In addition, the broker-dealer
must make certain mandated disclosures in penny stock transactions, including
the actual sale or purchase price and actual bid and offer quotations, the
compensation to be received by the broker-dealer and certain associated persons,
and deliver certain disclosures required by the SEC. So long as Global's common
shares are considered "penny stocks", many brokers will be reluctant or will
refuse to effect transactions in Global's shares, and many lending institutions
will not permit the use of penny stocks as collateral for any loans. This could
have an adverse effect on the liquidity of our common stock.
OUR COMMON STOCK IS THINLY TRADED AND OUR STOCK PRICE MAY BE MORE VOLATILE THAN
THE MARKET IN GENERAL
Because our common stock is thinly traded, its market price may fluctuate
significantly more than the stock market in general or the stock prices of
similar companies, which are exchanged, listed or quoted on NASDAQ. Our public
float is approximately 35,822,801 shares, thus our common stock will be less
liquid than the stock of companies with broader public ownership, and, as a
result, the trading prices for our common stock may be more volatile. Among
other things, trading of a relatively small volume of our common stock may have
a greater impact on the trading price for our stock than would be the case if
our public float were larger
SINCE BECOMING A PUBLIC COMPANY, WE HAVE NEVER PAID DIVIDENDS.
Since becoming a public company in September of 1997, Global has never paid a
dividend and does not expect to pay a cash dividend upon its capital stock in
the foreseeable future. Payment of dividends in the future will depend on our
earnings (if any) and our cash requirements at that time, but we expect to
retain earnings for business expansion over the foreseeable future.
RELIANCE ON EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our continued success depends significantly upon the services of our executive
officers and upon our ability to attract and retain qualified personnel in all
of our operations. While we have or are issuing employment agreements with each
of our executive officers and certain of our key employees, most of our
employees are employed on an at-will basis. The loss of one or more of our
executive officers and of a significant number of our other employees without
capable replacements could materially adversely affect our business, financial
condition or results of operations.
16
COMPETITION
The airline industry and the markets for our products and services are extremely
competitive, and we face competition from a number of sources. Our competitors
are other companies providing MRO services. Certain of our competitors have in
the past responded to market competition and conditions by reducing prices on
their services to increase or retain market share. Any material deterioration in
our financial condition is likely to affect our ability to compete with
price-cutting by our competitors. Some of our competitors have substantially
greater financial and other resources than us. We cannot assure you that
competitive pressures will not materially adversely affect our business,
financial condition or results of operations.
PRODUCT LIABILITY
Our business exposes us to possible claims for personal injury or death, which
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 an aircraft part. While the Company maintains what we believe to be
adequate liability insurance to protect us from claims of this type, based on
our review of the insurance coverage maintained by similar companies in our
industry, we cannot assure you that claims will not arise in the future or that
our insurance c overage will be adequate. Additionally, there can be no
assurance that insurance coverage can be maintained in the future at an
acceptable cost. Any liability of this type not covered by insurance could
materially adversely affect our business, financial condition, results of
operations or our ability to continue as a going concern.
SUSCEPTIBILITY TO OTHER LIABILITY CLAIMS
Our business exposes us to possible claims for personal injury or death, which
may result if we were negligent in repairing or overhauling 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. Additionally, 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 could materially adversely affect our business, financial condition or
results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and exercise of all warrants, the Company will
have outstanding 49,854,358 shares of Common Stock. Of these shares, the Common
Stock sold in the Offering will be freely tradable without restriction or
limitation under the Securities Act of 1933, as amended (the "Securities Act"),
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. The Company, its executive officers, directors and
stockholders, have agreed that, for a period of 180 days from the date of this
Prospectus, they will not sell, offer to sell, solicit an offer to buy, contract
to sell, grant any option to purchase or otherwise transfer or dispose of, any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock, subject to certain exceptions. The
sale of a substantial number of shares of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock and/or impair the
Company's ability in the future to raise additional capital through the sale of
its equity securities.
PRICE VOLATILITY
The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. From time to time in recent years, the securities markets have
experienced significant price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of the
Common Stock.
17
IMPACT OF WARRANT EXERCISE ON MARKET
In the event of the exercise of a substantial number of warrants within a
reasonably short period of time after the right to exercise commences, the
resulting increase in the amount of our common stock in the trading market could
substantially affect the market price of our common stock.
PREEMPTIVE RIGHTS
The selling shareholders, Barron Partners, Alpha, Stonestreet, Whalehaven and
Greenwich have preemptive rights/rights of first refusal with respect to all
shares they hold or may acquire whereby each such investor shall have the right
to participate in any equity or debt convertible into equity or equivalent
financing, by the Company on a pro rata basis at 100 percent (100%) of the
offering price, provided that the price of such financing is not less than $0.68
per share. If the price is less than $0.68 per share, then each investor shall
have the right to invest at 80% of such price. One risk of such preemptive
rights is that it may make it difficult to attract new capital since new
investors could, in effect, overpay compared to those who possess preemptive
rights that it may make it extremely difficult to obtain new financing unless we
purchase back the issued preemptive rights. Another risk factor of the existing
preemptive rights would be that dilution may occur to the extent that the
selling shareholders exercise their preemptive rights/rights of first refusal
(see section titled "Dilution").
THE MARKET PRICE OF OUR COMMON STOCK COULD BE DEPRESSED BY FUTURE SALES
Future sales of our common stock, or the perception that these sales could
occur, could adversely affect the market price of our common stock. We cannot
assure you as to when, and how many of, the shares of our common stock will be
sold and the effect these sales may have on the market price of our common
stock. In addition, we may issue additional shares of common stock in connection
with possible future acquisitions or other transactions. Although these
securities may be subject to regulatory or contractual resale restrictions, as
these restrictions lapse or if these shares are registered for sale to the
public, they may be sold to the public. In the event we issue a substantial
number of shares of our common stock, which subsequently become available for
unrestricted resale, there could be a material adverse effect on the prevailing
market price of our common stock.
FORWARD LOOKING STATEMENTS
This prospectus contains certain forward-looking statements and information
relating to Global Aircraft Solutions, Inc. "Global" and its wholly owned
subsidiaries Hamilton Aerospace Technologies Inc. ("HAT") and World Jet
Corporation , ("World Jet") that are based on the beliefs of our management as
well as assumptions made by and information currently available to our
management. When used in this report, the words "anticipate", "believe",
"estimate", "expect", "intend", "plan" and similar expressions, as they relate
to Global, HAT, World Jet, or its management, are intended to identify
forward-looking statements. These statements reflect management's current view
of Global, HAT and World Jet concerning future events and are subject to certain
risks, uncertainties and assumptions, including among many others relating to
our results of operations: competitive factors, shifts in market demand, and
other risks and uncertainties (including those described under "Risk Factors"
below and elsewhere in this\report), our ability to generate sufficient working
capital to meet our operating requirements and service our indebtedness, our
ability to refinance our secured debt, or to convert such debt to equity,
maintaining good working relationships with our vendors and customers, our
ability to attract and retain qualified personnel, future terrorist-related
activities, economic factors that affect the aviation industry, changes in
government regulation, increases in fuel prices, and the overall economy.
18
USE OF PROCEEDS
We will not receive any proceeds from the sale of (i) the 3,355,669 shares of
common stock offered through this prospectus by selling shareholder CEF, (ii)
the 2,500,000 shares of common stock offered through this prospectus by selling
shareholder CRT, (iii) the 2,000,000 shares of common stock offered through this
prospectus by Silver Point, (iv) the 1,599,900 shares of common stock offered
through this prospectus by selling shareholder DOFS, (v) the 1,260,000 shares of
common stock offered through this prospectus by selling shareholder SPCOF, (vi)
the 650,000 shares of common stock offered through this prospectus by Alpha,
(vii) the 1,015,500 shares of common stock offered through this prospectus by
selling shareholder DI, , (viii) the 1,000,000 shares of common stock offered
through this prospectus by selling shareholder BA, (ix) the 1,000,000 shares of
common stock offered through this prospectus by selling shareholder BDSM, (x)
the 1,000,000 shares of common stock offered through this prospectus by selling
shareholder Ralph Garcia, (xi) the 800,000 shares of common stock offered
through this prospectus by selling shareholder Loeb (xii) the 750,000 shares of
common stock offered through this prospectus by selling shareholder JMG, (xiii)
the 750,000 shares of common stock offered through this prospectus by selling
shareholder Triton, (xiv) the 740,000 shares of common stock offered through
this prospectus by selling shareholder SPCF (xv) the 534,313 shares of common
stock offered through this prospectus by selling shareholder CLS, (xvi) the
486,763 shares of common stock offered through this prospectus by selling
shareholder BOFS,(xvii) the 384,616 shares of common stock offered through this
prospectus by Stonestreet, (xviii) the 335,038 shares of common stock offered
through this prospectus by selling shareholder BWP, (xix) the 300,000 shares of
common stock offered through this prospectus by selling shareholder AFC; (xx)
the 288, 462 shares of common stock offered through this prospectus by selling
shareholder Whalehaven, (xxi) the 200,100 shares of common stock offered through
this prospectus by selling shareholder DONS (xxii) the 200,000 shares of common
stock offered through this prospectus by selling shareholder CF; (xxiii) the
192, 308 shares of common stock offered through this prospectus by selling
shareholder Greenwich (xxiv) the 184,500 shares of common stock offered through
this prospectus by selling shareholder DP, (xxv) the 178,199 shares of common
stock offered through this prospectus by selling shareholder BP, (xxvi) the
110,018 shares of common stock offered through this prospectus by selling
shareholder AHFP; (xvii) the 100,000 shares of common stock offered through this
prospectus by selling shareholder COMF . We have received the proceeds of
$4,896,000.00 from the exercise by Barron of a $.68 warrant to purchase
7,200,000 shares of common stock. These proceeds will be used as follows:
$3,196,000 - debt reduction (factoring, M&I credit facility and vendor debt)
$1,000,000 - HAT working capital
$700,000 - World Jet working capital
19
We may receive the proceeds from the exercise of any warrants issued to selling
shareholders Barron, JG Capital, Inc. Whalehaven, Alpha, Stonestreet, Greenwich,
Heza Holdings or Grushko. However, all such warrants have a cashless exercise
feature that may be implemented by the warrant holder in the event the shares
underlying any warrants remain unregistered at the time the warrants are
exercised by such shareholder. JG Capital has elected the cashless exercise
option on 501,000 of the 720,000 shares underlying a $.34 warrant issued
pursuant to a private placement on September 2, 2004; however, the total shares
issued to JG Capital upon such exercise on September 20, 2005 was 399,000 as a
consequence of the discount rate applied for exercise of the cashless feature of
the warrant. Grushko has elected the cashless exercise option on 31,731 shares
underlying a $.52 warrant issued pursuant to a private placement on September 2,
2004; however, the total shares issued to Grushko upon such exercise on
September 14, 2005 was 22,812 as a consequence of the discount rate applied for
exercise of the cashless feature of the warrant. Heza has elected the cashless
exercise option on 31,731 shares underlying a $.52 warrant issued pursuant to a
private placement on September 2, 2004; however, the total shares issued to Heza
upon such exercise on December 27, 2005 was 21,017 as a consequence of the
discount rate applied for exercise of the cashless feature of the warrant. If
the remaining warrants are exercised without implementing the cashless exercise
feature, these proceeds will amount to $13,700,926.00. The intended use of these
proceeds will be for working capital, acquisition of assets and acquisitions of
businesses. We have used the proceeds of $3,264,000.00 already received from the
Barron Partners private placement equity funding and the $1,100,000.00 private
placement equity funding received from Stonestreet, Alpha Capital, Whalehaven
and Greenwich as follows: $3,264,000.00 - working capital and acquisition of
World Jet $1,100,000.00 - purchase of operating assets from bankruptcy estate of
Hamilton Aviation.
DIVIDEND POLICY
The Company does not intend to pay any cash dividends with respect to its Common
Stock in the foreseeable future, Rather, the Company intends, after the
consummation of the Offering, to retain its earnings, if any, for use in the
operation of its business.
DILUTION
The Company is a reporting Company. Dilution to our existing shareholders will
occur should the selling shareholders exercise the warrants. If the selling
shareholders exercise any of the warrants dilution may occur to the extent of
such exercise. If all warrants are exercised in addition to any common stock
currently held by any of the selling shareholders, the selling shareholders will
own the following percentages of the issued and outstanding common stock of the
Company:, Barron Partners, will own 14.6%; selling shareholder CEF will own
6.8%; selling shareholder CRT will own 5%; selling shareholder Alpha will own
5%; selling shareholder JG Capital, Inc. will own 4.03%; selling shareholder
DOFS will own 3.2%; selling shareholder SPCOF will own 2.55%; selling
shareholder BA will own 2%; selling shareholder BDSM will own 2%; selling
shareholder DI will own 2%; selling shareholder Loeb will own 1.6%; selling
shareholder Stonestreet will own 1.56%; selling shareholder JMG will own 1.5%;
selling shareholder Triton will own 1.5%; selling shareholder SPCF will own
1.5%; selling shareholder Whalehaven will own 1.16%; selling shareholder AHFP
will own .2%; selling shareholder CLS will own 1%; selling shareholder AFC will
own .6%; selling shareholder CF will own .4%; selling shareholder DONS will own
..4%; selling shareholder DP will own .3%; selling shareholder BP will own .3%;
selling shareholder BWP will own .67%; selling shareholder BOFS will own .98%;
selling shareholder Greenwich will own .77%; selling shareholder COMF will own
..2%; selling shareholder Heza Holdings will own 0.12%; and selling shareholder
Grushko will own 0.12%. The selling shareholders, Barron, Alpha, Stonestreet,
Whalehaven and Greenwich also have preemptive rights/rights of first refusal
with respect to all shares held or acquired whereby each such investor shall
have the right to participate in any equity or debt convertible into equity or
equivalent financing, by the Company on a pro rata basis at 100 percent (100%)
of the offering price, provided that the price of such financing is not less
than $0.68 per share. If the price is less than $0.68 per share, then each
investor shall have the right to invest at 80% of such price. The selling
shareholders, , CEF, CLS, DONS, DP, DI, DOFS, BP, BWP, BOFS, JMG, Triton, Loeb,
BA, BDSM, CRT, Silver Point, AHFP, Heza Holdings, Grushko, Ralph Garcia and JG
Capital, Inc., do not have any such preemptive rights.
20
The Company has also adopted the following stock option and stock compensation
plans for directors, officers and employees of Global and HAT: (i) 2002
Compensatory Stock Option Plan for directors and officers of Global and HAT
which has reserved a maximum of 3,000,000 shares of common stock of which
1,920,000 shares of common stock remain available to be issued; and (ii) 2003
Employee Stock Compensation Plan for employees of HAT which has reserved a
maximum of 5,000,000 shares of common stock of which no shares of common stock
remain available to be issued.
SELLING SHAREHOLDERS
The selling shareholders named in this prospectus are offering all of the
31,348,080 shares of common stock offered through this prospectus. The shares
include the following:
9,600,000 shares of our common stock that selling shareholder, Barron Partners,
acquired from us in an offering that was exempt from registration pursuant to
Section 4(2) as amended of the Securities Act of 1933 and completed on May 31,
2004 and 7,200,000 shares of common stock that were issued to selling
shareholder Barron Partners on July 27, 2005 upon the exercise of a $.68 warrant
and stock issueable upon exercise of such warrant which was issued pursuant to a
private placement under Rule 506 of Regulation D of SEC Act of 1933 on May 31,
2004 for a combined total of 16,800,000 shares all of which such 16,800,000
shares of common stock were sold by Barron in a private placement transaction to
the following qualified institutional buyers who are selling shareholders:
3,355,669 shares of common stock to CEF; 2,500,000 shares of common stock to
CRT; 1,599,900 shares of common stock to DOFS; 1,260,000 shares of common stock
to SPCOF; 1,000,000 shares of common stock to BA; 1,015,500 shares of common
stock to DI; 1,000,000 shares of common stock to BDSM; 800,000 shares of common
stock to Loeb; 750,000 shares of common stock to JMG; 750,000 shares of common
stock to Triton; 740,000 shares of common stock to SPCF; 534,313 shares of
common stock to CLS; 335,038 shares of common stock to BWP; 486,763 shares of
common stock to BOFS; 200,100 shares of common stock to DONS; 184,500 shares of
common stock to DP;178,199 shares of common stock to BP and 110,018 shares of
common stock to AHFP. A total 2,115,386 shares of our common stock that the
selling shareholders Whalehaven (288,462), Stonestreet (384,616), Alpha
(1,250,000; 600,000 of which were sold by Alpha in a private placement
transaction on August 4, 2005 as follows: AFC - 300,000 shares; CF - 200,000
shares; and COMF - 100,000 shares) and Greenwich (192,308) acquired from us in
an offering that was exempt from registration pursuant to Section 4(2) as
amended of the Securities Act of 1933 and completed on September 3, 2004;
1,000,000 shares of our common stock that the selling shareholder Ralph Garcia
acquired from us in an offering that was exempt from registration pursuant to
Section 4(2) as amended of the Securities Act of 1933 as partial consideration
for the purchase of World Jet; 7,200,000 shares of our common stock that selling
shareholder, Barron Partners, may receive pursuant to warrants issued in
conjunction with the private placement of Common Stock, warrants and shares
issueable upon the exercise of warrants on May 31, 2004.
A total of 399,000 shares of our common stock that selling shareholder JG
Capital received upon exercise of a $.34 warrant issued pursuant to a private
placement on September 2, 2004; A total of 22,812 shares of our common stock
that selling shareholder Grushko received upon exercise of a $.52 warrant issued
pursuant to a private placement on September 2, 2004 and the following shares of
common stock issueable upon the exercise of warrants issued pursuant to a
private placement of common stock and warrants under Rule 506 of Regulation D of
SEC Act 1933 on September 2, 2004: A total of 21,017 shares of our common stock
that selling shareholder Heza received upon exercise of a $.52 warrant issued
pursuant to a private placement on September 2, 2004 and the following shares of
common stock issueable upon the exercise of warrants issued pursuant to a
private placement of common stock and warrants under Rule 506 of Regulation D of
SEC Act 1933 on September 2, 2004; 1,489,386 shares of our common stock selling
shareholder, JG Capital, Inc., may receive pursuant to warrants; 1,250,000
shares of our common stock selling shareholder Alpha may receive pursuant to
warrants; 384,616 shares of our common stock selling shareholder Stonestreet may
receive pursuant to warrants; 288,462 shares of our common stock selling
shareholder Whalehaven may receive pursuant to warrants; 192,308 shares of our
common stock selling shareholder Greenwich may receive pursuant to warrants;
31,731 shares of our common stock selling shareholder Heza Holdings may receive
pursuant to warrants; and 31,731 shares of our common stock selling shareholder
Grushko may receive pursuant to warrants.
21
The following table provides as of February 2, 2006, information regarding the
beneficial ownership of our common stock held by each of the selling
shareholders, including:
1. The number of shares owned by each prior to this offering;
2. The total number of shares that are to be offered for each;
3. The total number of shares that will be owned by each upon completion
of the offering;
4. The percentage owned by each; and
5. The identity of the beneficial holder of any entity that owns the
shares.
To the best of our knowledge, the named parties in the table that follows are
the beneficial owners and have the sole voting and investment power over all
shares or rights to the shares reported. In addition, the table assumes that the
selling shareholders do not sell shares of common stock not being offered
through this prospectus and do not purchase additional shares of common stock;
however, all selling shareholders may be deemed underwriters. Based upon
information provided to use by the selling shareholders, CRT Capital Group, LLC
is the only selling shareholder that is a broker-dealer and therefore considered
an underwriter. None of the other selling shareholders are broker-dealers or
affiliates of a broker-dealer. Because the selling shareholders may be deemed to
be "underwriters" within the meaning of the Securities Act, the selling
shareholders will be subject to the prospectus delivery requirements of the
Securities Act and the rules promulgated thereunder and they may be subject to
certain statutory liabilities under the Securities Act, including, but not
limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under
the Exchange Act. We have informed the selling shareholders that the
anti-manipulative provisions of Regulation M promulgated under the Exchange Act
may apply to their sales in the market. With certain exceptions, Regulation M
precludes the selling shareholders, any affiliated purchasers, and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security.
(REMAINDER OF PAGE INTENMTIONALLY LEFT BLANK)
22
The column reporting the percentage owned upon completion assumes that all
shares offered are sold, and is calculated based on 49,854,358 shares
outstanding upon the exercise of all warrants.
Name of Shares Total of Total Percent
Selling Shareholder Owned Prior Shares Shares Owned
to This Offered After After
Offering For Sale Offering Offering
- ------------------------------------------------------------------------------------------------------------------
Barron Partners, LP 7,200,000(4) 7,200,000 0 0
(Andrew Worden
controlling person)
Contrarian Equity Fund, L.P. 3,355,669 3,355,669 0 0
CRT Capital Group, LLC 2,500,000 2,500,000 0 0
Alpha Capital 2,500,000(6) 2,500,000 0 0
Konrad Ackerman
and Rainer Posch
controlling persons)
JG Capital, Inc. 1,888,386(5) 1,888,386 0 0
(Richard Josephberg
controlling person)
Delta Offshore, Ltd. 1,599,900 1,599,900 0 0
Silver Point Capital
Offshore Fund, Ltd. 1,260,000 1,260,000 0 0
Deltal Institutional, LP 1,015,500 1,015,500 0 0
Ralph Garcia 1,000,000 1,000,000 0 0
Brencourt Advisors, LLC 1,000,000 1,000,000 0 0
Brencourt Distressed
Securities Masters, Ltd. 1,000,000 1,000,000 0 0
Loeb Partners Corporation 800,000 800,000 0 0
Stonestreet 769,232(7) 769,232 0 0
JMG Capital Partners, LP 750,000 750,000 0 0
JMG Triton Offshore Fund, Ltd. 750,000 750,000 0 0
Silver Point Capital Fund, L.P. 740,000 740,000 0 0
23
Whalehaven 576,924(8) 576,924 0 0
Contrarian Long Short, L.P. 534,313 534,313 0 0
Blackmore Offshore, Ltd. 486,763 486,763 0 0
Greenwich 384,616(9) 384,616 0 0
Blackmore Wallace Partners 335,038 335,038 0 0
AF Capital, LLC 300,000 300,000 0 0
Delta Onshore, LP 200,100 200,100 0 0
Core Fund, LP 200,000 200,000 0 0
Delta Pleiades, LP 184,500 184,500 0 0
Blackmore Partners 178,199 178,199 0 0
AHFP Contrarian 110,018 110,018 0 0
Cedarview Opportunies
Master Fund 100,000 100,000 0 0
Heza Holding, Inc. 52,748(10) 52,748 0 0
(Ari Kluger
controlling person)
Grushko 54,543(11) 54,543 0 0
(Edward Grushko,
controlling person)
(4) all of which is common stock issueable upon the exercise of warrants (5)
1,489,386 of which is common stock issueable upon the exercise of warrants (6)
1,250,000 of which is common stock issueable upon the exercise of warrants (7)
384,616 of which is common stock issueable upon the exercise of warrants (8)
288,462 of which is common stock issueable upon the exercise of warrants (9)
192,308 of which is common stock issueable upon the exercise of warrants (10)
31,731 of which is common stock issueable upon the exercise of warrants (11)
31,731 of which is common stock issueable upon the exercise of warrants
To our knowledge, none of the selling shareholders:
1. Has had a material relationship with Global or HAT other than as a
shareholder as noted above at any time within the past three years; or
2. Has ever been an officer or director of Global or HAT
Selling Shareholder Ralph Garcia, was the majority shareholder of the acquired
company World Jet Corporation during the past three (3) years.
24
PLAN OF DISTRIBUTION
The selling shareholders have not informed us of how they plan to sell their
shares. However, they may sell some or all of their common stock in one or more
transactions, including block transactions:
1. on such public markets or exchanges as the common stock may from time to
time be trading;
2. in privately negotiated transactions;
3. through the writing of options on the common stock;
4. in short sales; or
5. in any combination of these methods of distribution.
The sales price to the public may be:
1. the market price prevailing at the time of sale;
2. a price related to such prevailing market price; or
3. such other price as the selling shareholders determine from time to time.
The shares may also be sold in compliance with the Securities and Exchange
Commission's Rule 144.
The selling shareholders may also sell their shares directly to market makers
acting as principals or brokers or dealers, who may act as agent or acquire the
common stock as a principal. Any broker or dealer participating in such
transactions as agent may receive a commission from the selling shareholders,
or, if they act as agent for the purchaser of such common stock, from such
purchaser. The selling shareholders will likely pay the usual and customary
brokerage fees for such services. Brokers or dealers may agree with the selling
shareholders to sell a specified number of shares at a stipulated price per
share and, to the extent such broker or dealer is unable to do so acting as
agent for the selling shareholders, to purchase, as principal, any unsold shares
at the price required to fulfill the respective broker's or dealer's commitment
to the selling shareholders.
Brokers or dealers who acquire shares as principals may thereafter resell such
shares from time to time in transactions in a market or on an exchange, in
negotiated transactions or otherwise, at market prices prevailing at the time of
sale or at negotiated prices, and in connection with such re-sales may pay or
receive commissions to or from the purchasers of such shares. These transactions
may involve cross and block transactions that may involve sales to and through
other brokers or dealers. If applicable, the selling shareholders also may have
distributed, or may distribute, shares to one or more of their partners who are
unaffiliated with us. However, only those selling shareholders who are listed in
this prospectus, or added through post-effective amendment or supplement, may
resell through this prospectus. We can provide no assurance that all or any of
the common stock offered will be sold by the selling shareholders.
We are bearing all costs relating to the registration of the common stock. Any
commissions or other fees payable to brokers or dealers in connection with any
sale of the common stock, however, will be borne by the selling shareholders or
other party selling the common stock.
25
The selling shareholders must comply with the requirements of the Securities Act
of 1933 and the Securities Exchange Act of 1934 in the offer and sale of their
common stock. In particular, during times that the selling shareholders may be
deemed to be engaged in a distribution of the common stock, and therefore be
considered to be an underwriter, they must comply with applicable law and may,
among other things:
1. not engage in any stabilization activities in connection with our
common stock;
2. furnish each broker or dealer
3. through which common stock may be offered, such copies of this
prospectus amended from time to time, as may be required by such
broker or dealer; and
4. not bid for or purchase any of our securities or attempt to induce any
person to purchase any of our securities other than as permitted under
the Securities Exchange Act.
LEGAL PROCEEDINGS
Global
As Plaintiff:
On June 29, 2004, the Company initiated a lawsuit against Corwin Foster and Jane
Doe Foster, husband and wife, and Seajay Holdings, LLC a Michigan Limited
Liability Company (the "Defendants") in the United States District Court for the
District of Arizona requesting entry of a judgment for the return of 1,500,000
shares of common stock. Global and HAT have asserted claims that Corwin Foster
(who is the sole shareholder and president of Seajay Holdings) and Seajay
Holdings acquired 1,500,000 shares of common stock of Global as part of a Stock
Exchange Agreement without consideration for the receipt of such common stock.
The Company is pursuing the return of these shares. This lawsuit emanates from a
stock exchange agreement of April 2002 whereby Old Mission Assessment ("OMAC")
agreed to provide HAT financing and capital for its newly established business.
OMAC and its officers Corwin Foster and others, entered into two debenture
related agreements on April 15, 2002 whereby OMAC agreed to pay to HAT the sum
of $1,500,000 under each debenture agreement on or before July 15, 2002. In
consideration of this agreement HAT agreed to provide to various investing
parties, including Corwin Foster's entity Seajay Holdings, shares of stock of
HAT. On May 2, 2002, Global acquired HAT in a stock exchange thereby entitling
the investing parties, including Corwin Foster's entity Seajay Holdings, to
Global stock in consideration for the $3,000,000 investment. Seajay Holdings
acquired 1,500,000 shares of common stock of Global pursuant to this
transaction. Although Global stock was issued to the investors, including Corwin
Foster's entity Seajay Holdings, HAT/Global only received $400,535 of the agreed
upon $3,000,000 to be paid pursuant to the debenture agreements. Since payment
in full was never received by Global for the shares of common stock issued as
consideration for the debenture agreements, Global was able to secure the return
of all common stock issued in connection with the debenture agreements except
the 1,500,000 shares of common stock issued to Corwin Foster's entity Seajay
Holdings. Global agreed to return the $400,535 of the agreed upon $3,000,000
received pursuant to the debenture agreements. This sum was released from escrow
and paid to United Pay Phone, an investor in OMAC, pursuant to an agreed upon
order of the court.
Although Global has made repeated demands upon Corwin Foster and Seajay Holdings
to return the 1,500,000 shares of common stock, Corwin Foster and Seajay
Holdings have failed and refused to return such stock. As a consequence of
Corwin Foster's and Seajay Holdings failure to return the common stock received,
Global initiated legal proceedings for damages in the amount of no less than
$1,000,000 plus interest and fees; the return of the 1,500,000 shares of common
stock; and punitive damages in the amount of $10,000,000.
26
On or about July 24, 2006, which was far beyond the procedurally acceptable time
within which to file a counterclaim and without the required leave of court,
Corwin Foster filed a counterclaim against Global, HAT, Hamilton Aviation, Ian
Herman, Gordon Hamilton, John Sawyer, Ronald Clark, Frank Hooper, United
Payphone, Financial Capital, Interwest Transfer and the law offices of Tharpe
Howell alleging fraud, unjust enrichment, breach of contract and constructive
trust. All of these claims were categorically denied.
This matter is schedule for trial in June 2008
Global is not involved in any material legal proceedings as a Defendant.
HAT
As Defendant
In re Falcon Air Express, Inc. United States Bankruptcy Court, Southern District
of Florida wherein the Trustee of the Bankruptcy Court has asserted a preference
under Section 547 of the Bankruptcy Code against HAT in the amount of $682,931
for payments received by HAT within 90 days of the Debtor Falcon filing for
Bankruptcy under Chapter 11 of the Bankruptcy Code. HAT has asserted an
exception to application of any preference as follows:
Exception to preferences under Section 547 (c) (1) - Transfer was made to be a
contemporaneous exchange for new value; Exception to preferences under Section
547 (c) (2) - Payments made in the ordinary course of business; and Exception to
preferences under Section 547 (c) (4) - Extension of new credit to the debtor,
the value of which offsets any preference claim.
This matter is currently pending discovery.
World Jet
World Jet is not involved in any material legal proceedings.
27
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
Article IV of the By-Laws of the Company provides that the Company's Board of
Directors shall consist of not less than one (1) and not more than seven (7)
Directors and that at least one-fourth in the number of Directors shall be
elected annually. In accordance with this allowance for staggered terms for
Directors, the term of service as a Board Member, as voted on at the 2006 Annual
Meeting, is staggered as follows:
Gordon D. Hamilton was elected to serve a one (1) year term beginning May 2006,
and is nominated for re-election. Alfredo Mason was elected to serve a one (1)
year term beginning May 2006. Mr. Mason resigned 2007 and Michael Hannley was
selected to serve on the Board until such time as he can be voted on at the
annual meeting. John B. Sawyer was elected to serve a two (2) year term
beginning May 2006; Lawrence Mulcahy was elected to serve a two (2) year term
beginning May 2006; Ian Herman was elected to serve a three (3) year term
beginning May 2006; Seymour Siegel was elected to serve a three (3) year term
beginning May 2006;
NAME AGE POSITION DATE FIRST TERM
ELECTED/APPOINTED EXPIRES
- ----------------------------------------------------------------------------------------------------------------
Ian Herman 61 Chairman/CEO/Director 05/02 05/09
John Sawyer 42 President/Director 05/02 05/08
Gordon Hamilton 54 Director 05/02 *
Michael Hannley 58 Director 07/07 **
Brent Dau --- Director 07/08 **
Seymour Siegel 65 Director 01/06 05/09
Kenneth Raff --- Director 07/08 **
* Gordon Hamilton's is serving pending reelection at the 2008 annual meeting.
** Michael Hannley, Brent Dau and Kenneth Raff are serving pending election at
the 2008 annual meeting.
Each of the foregoing persons may be deemed a "promoter" of the company, as that
term is defined in the rules and regulations promulgated under the Securities
and Exchange Act of 1933.
Directors are elected to serve until the expiration of their term and until
their successors have been elected and qualified. Officers are appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
No Executive Officer or Director of the Corporation has been the subject of any
Order, Judgment, or Decree of any Court of competent jurisdiction, or any
regulatory agency permanently or temporarily enjoining, barring suspending or
otherwise limiting him from acting as an investment advisor, underwriter, broker
or dealer in the securities industry, or as an affiliated person, director or
employee of an investment company, bank, savings and loan association, or
insurance company or from engaging in or continuing any conduct or practice in
connection with any such activity or in connection with the purchase or sale of
any securities.
No Executive Officer or Director of the corporation has been convicted in any
criminal proceeding (excluding traffic violations) or is the subject of a
criminal proceeding, which is currently pending.
No Executive Officer or Director of the corporation is the subject of any
pending legal proceedings.
28
Resumes
Ian Herman: CEO/CFO/Chairman. From 2002 through the present, Mr. Herman has
served as the CEO/CFO and Chairman of Global Aircraft Solutions, Inc. and its
subsidiaries. As of June 1, 2006, Mr. Herman resigned from his position as CFO
when the Company hired Mr. Sankar to assume this position. From June 1, 2006
through the present, Mr. Herman has served as CEO and Chairman of the Company.
From 2000 through the present, Mr. Herman has been the President of The
Financial Capital, Inc., which is engaged in financial and business consulting.
From 1995-2000, Mr. Herman was Chairman and a Board Member for the British
government handling major inward investments into the United Kingdom as well as
administering and evaluating projects in diverse industries totaling more than
$200,000,000. During his tenure with the British government, Mr. Herman was
awarded the Freedom of the City of London in recognition of his services. During
the period of 1990-1999, Mr. Herman was the Chief Executive Officer of his own
accounting and business consulting business specializing in publishing,
healthcare, telecommunications, airlines, manufacturing and information
technology. From 1988-1990 Mr. Herman was Chairman and Chief Executive Officer
for British World Airlines Limited.
John B. Sawyer: President, Chief Operating Officer and Director. From May 2002
through the present, Mr. Sawyer has been the President of Global Aircraft
Solutions, Inc. From 1998 through May 6, 2002, John Sawyer was Chief Operating
Officer of Hamilton Aviation, Inc. From 1996 until 1997, Mr. Sawyer was
president of Matrix Aeronautica S.A. de C.V., a Mexican repair station located
in Tijuana, Baja California. John received an A.A. in Aerospace Engineering from
the University of Texas (Austin). In 1986 John joined Pan American World Airways
based in Berlin, Germany. Subsequent to that he worked as a Production Foreman
at Raytheon, a Quality Control Supervisor at TIMCO, a Heavy Maintenance
Representative for World Airways, and Director of Quality Control at Federal
Express Feeder.
Gordon D. Hamilton: Director. Gordon is the son of Hamilton Aviation founder,
Gordon B. Hamilton, and literally grew up in the aviation business. Mr. Hamilton
joined Hamilton Aviation full time as Vice President, Marketing after graduating
with honors from the University of Chicago in 1978 with a BA in Tutorial
Studies. Gordon became President and Chief Executive Officer of Hamilton
Aviation in 1993; a position that he held until joining Hamilton Aerospace in
2003.
Seymour Siegel: Director. Mr. Siegel is a principal in the business consulting
group of Rothstein, Kass & Company, P.C. Rothstein, Kass & Company is a national
firm of accountants and consultants with over 900 members and offices in 8
cities. Mr. Siegel was managing partner and founder of Siegel Rich and Co.,
P.C., which merged into Weiser & Co., LLP, a large regional firm where he was a
senior partner until forming Siegel Rich Inc. in 1994, which in April 2000,
became a division of Rothstein Kass. Mr. Siegel is also currently the Chairman
of the Audit Committee of Hauppauge Digital, Inc., Emerging Vision, Inc., and
Air Industries Group, Inc.
Michael Hannley: Director. Mr. Hannley is a local Tucsonan with 35 years banking
experience and is currently the President and CEO of the Bank of Tucson, which
he founded in 1996. From August 1986 until December 1995, Mr. Hannley was the
Senior Vice President for National Bank of Arizona. From May 1981 until June
1986, Mr. Hannley was employed by Great American Savings, he was the Divisional
Vice President beginning in May 1981 and assumed the duties of Senior Vice
President Administration in June 1986. Prior to his employment with Great
American Savings, Mr. Hannley was employed as the Regional Vice President of
Southern Arizona Bank/First Interstate Bank from July 1972 through May 1981. Mr.
Hannley presently serves on the following corporate and community Boards of
Directors: Capitol Bancorp Limited (a multi-state bank holding company);
University of Arizona Foundation - Vice Chair; Tucson Airport Authority; Bank of
Santa Barbara; American Bankers Association; Pima County Trust Fund Board of
Trustees; University of Arizona Intercollegiate Athletics Rebounders Board Dm
50; the Assistance League of Tucson, Inc. Community Advisory Committee;
University of Arizona Department of Biochemistry and Molecular Biophysics Board.
29
Brent G. Dau: Director. is a managing director at Ewing & Partners, having
joined the firm in mid-1998. Ewing & Partners is the manager of the Endurance
Partnerships, which own approximately 12.5% of GACF's outstanding common shares.
In addition, Mr. Dau is a partner of Endurance General Partners, L.P. Mr. Dau
was employed by American Airlines from 1989 through 1994. At American, Mr. Dau
served as a fleet planning analyst and later moved to AMR's treasury where he
initiated and managed American Airlines' interest rate, foreign exchange, and
fuel price hedging programs. Brent Dau received a B.S.E. in Mechanical
Engineering from Princeton University in 1985 and a M.B.A. in International
Finance from the University of Chicago in 1989. He is a Chartered Financial
Analyst (CFA(TM)), and serves on the Board of Directors of the DFW CFA Society.
Kenneth Raff: Director. is an Executive Director with the Seabury Group, an
aviation advisory services firm, where he has been employed since 2001. Prior to
joining Seabury, Mr. Raff was employed by American Airlines, Inc. for 15 years,
including 7 years as Managing Director Fleet Transactions/Planning. Mr. Raff was
employed by the Boeing Company as a Flight Test Analysis Engineer from 1980
through 1983. Kenneth Raff was awarded a B.S. in Mechanical Engineering from
Georgia Tech University in 1980 and received an M.B.A. in Finance from the
Harvard Business School in 1985.
30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth, as of August 29, 2008, the stock ownership of
each officer and director of Global, of all officers and directors of Global as
a group, and of each person known by Global to be a beneficial owner of 5% or
more of its Common Stock, $.001 par value per share. Except as otherwise noted,
each person listed below is the sole beneficial owner of the shares and has sole
investment and voting power of such shares. No person listed below has any
option, warrant or other right to acquire additional securities of Global,
except as noted. The following calculations are based upon the Company's
authorized, issued and outstanding common stock of 41,156,301 as of August 29,
2008.
NAME AND ADDRESS OF AMOUNT OF COMMON PERCENT OF COMMON STOCK
BENEFICIAL OWNER STOCK OWNED OUTSTANDING (1)
BENEFICIALLY
Ian M. Herman 2,496,834 (2) 6.06%
John B. Sawyer 2,416,666 5.88%
Lawrence Mulcahy 130,000 (3) *
Seymour Siegel 40,000 (4) *
All Directors and Executive Officers as a Group 5,083,500 12.35%
* Represents an individual as the beneficial
owner of less than 1% of the outstanding common
stock
Barron Partners 7,200,000 (5) 14.89%
730 Fifth Ave.
9th Floor
New York, NY 10019
Ewing & Partners 5,031,425 (6) 12.22%
4514 Cole Ave.
Suite 808
Dallas, TX 75205
Contrarian Capital Management, LLC 4,000,000 (7) 9.72%
411 West Putnam Ave.
Suite 225
Greenwich, CT 06830
Delta Offshore 3,000,000 (8) 7.29%
900 Third Ave.
5th Floor
New York, NY 10022
Doucet Capital, LLC 2,706,899 (9) 6.58%
2204 Lakeshore Drive, Suite 218
Birmingham, AL 35209
31
1 Percent of common stock is based on 41,156,301 shares of common stock
issued and outstanding on August 29, 2008 with beneficial ownership being
determined in accordance with the rules of the SEC and including voting or
investment power with respect to securities. Securities "beneficially
owned" by a person may include securities owned by or for, among others,
the spouse, children or certain other relatives residing with such person
as well as other securities as to which the person has or shares voting or
investment power or has the option or right to acquire within 60 days of
August 29, 2008. Percent of Class Owned is based on the 41,1561,301 shares
of common stock issued and outstanding on August 29, 2008 plus any shares
that may be acquired by the stockholders as a result of the exercise of
existing options or warrants within 60 days after August 29, 2008.
2 All shares of common stock are held in trust by Rochdale Investment
Management, LLC as the trustee for the Herman Family Trust. Of the total
shares, Rochdale Investment Management Group has sole voting and
dispositive power over 2,313,500 shares.
3 Includes 10,000 shares of common stock issuable to Mr. Mulcahy upon
exercise of options at $1.03 per share which expires August 24, 2011.
4 Includes 20,000 shares of common stock issuable to Mr. Siegel upon exercise
of options granted. 10,000 shares at an exercise price of $1.03 which
expires August 24, 2011 and 10,000 shares at an exercise price of $1.05 per
share which expires on March 8, 2012
5 All shares of common stock underlying a warrant that may be acquired by the
exercise of a $1.36 warrant which expires May 31, 2009.
6 In setting forth this information, the Company relied upon the February 6,
2008 Schedule 13D filing of Ewing & Partners, Timothy Ewing, Ewing Asset
Management, LLC, Endurance General Partners, LP, Endurance Partners (Q.P.),
L.P. and Endurance Partners, L.P. Of the total shares, Ewing & Partners,
Timothy Ewing, Ewing Asset Management, LLC, Endurance General Partners, LP
had sole voting and dispositive power over all the shares. Endurance
Partners (Q.P.), L.P. had sole voting and dispositive power over 3,594,703
shares, Endurance Partners, L.P. had sole voting and dispositive power over
1,436,722 shares and there is no shared voting or dispositive power.
Timothy Ewing is a director Nominee and if elected, the number of shares
and percent of class held by directors will increase by the number of
shares held by Ewing & Partners and Timothy Ewing.
7 In setting forth this information, the Company relied upon the August 8,
2005 Schedule 13G filing of Contrarian Capital Management,. Of the total
shares, Contrarian Capital management, LLC had shared voting and
dispositive power over all the shares and Contrarian Equity Fund, LP had
shared voting and dispositive power over 3,355,669 shares. No amendments
have been filed to this Schedule 13G.
8 In setting forth this information, the Company relied upon the August 10,
2005, joint filing of Schedule 13G of Delta Offshore, Ltd. and Trafelet &
Company, LLC. Of the total shares, Trafelet & Company had shared voting and
dispositive power over all the shares and reporting entity Delta Offshore,
Ltd. had shared voting and dispositive power over 1,599,900 shares. No
amendments have been filed to this Schedule 13G.
9 In setting forth this information, the Company relied upon the January 2,
2008 filing of Schedule 13D of Doucet Capital, LLC, Doucet Asset
Management, LLC, Christopher L. Doucet and Suzette A. Doucet. Of the total
shares, Doucet Capital, LLC, Doucet Asset Management, LLC, Christopher
Doucet (managing member of Doucet Capital, LLC and CEO of Doucet Asset
Management) and Suzette Doucet (member of Doucet Capital and CFO of Doucet
Asset Management) had shared voting and dispositive power over all the
shares. Doucet Capital, LLC is listed as a holding company which owns
Doucet Asset Management, LLC, a SEC registered investment advisor firm. No
amendments have been filed to this Schedule 13D.
32
DESCRIPTION OF SECURITIES
The company's Certificate of Incorporation authorizes the issuance of
100,000,000 Shares of Common Stock, .001 par value per share and 5,000,000
shares of preferred stock. On May 17, 2004, the Company cancelled all authorized
shares of preferred stock. There is no preferred stock outstanding. The board of
directors retains the right to issue shares of preferred stock and determine the
rights associated with the preferred stock including, but not limited to rate of
dividends; voting rights; priority; rights in liquidation; and any other
privileges. Holders of shares of Common Stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of Common Stock
have cumulative voting rights. Holders of shares of Common Stock are entitled to
share ratably in dividends, if any, as may be declared, from time to time by the
Board of Directors in its discretion, from funds legally available therefore. In
the event of a liquidation, dissolution, or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Barron Partners, Alpha,
Stonestreet, Whalehaven, and Greenwich are the only holders of Common Stock that
have preemptive or rights of first refusal with respect to such shares.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the legality of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency
basis, or had, or is to receive, in connection with the offering, a substantial
interest, direct or indirect, in the registrant. Nor was any such person
connected with the registrant as a promoter, managing or principal underwriter,
voting trustee, director, officer or employee.
DISCLOSURE OF COMMISSION POSITION FOR SECURITIES ACT LIABILITIES
Global's By-Laws allow for the indemnification of company Officers and Directors
in regard to their carrying out the duties of their offices. We have been
advised that in the opinion of the Securities and Exchange Commission
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act, and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or other controlling
persons in connection with the securities registered, we will, unless in the
opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court's decision.
ORGANIZATION WITHIN LAST FIVE YEARS
Global Aircraft Solutions, Inc. ("Global" or "Company") was incorporated in
Nevada on September 5, 1997. Our principal office is located at 6901 S. Park
Ave., Tucson, AZ 85706. Global is a public company that trades in the U.S.
over-the-counter market. Our common stock is quoted on the OTC Bulletin Board
under symbol GACF. Global was formed as a holding company to establish, maintain
and administer the equity and debt funding of any acquired subsidiaries as well
as maintain such capitalization of any subsidiaries. On April 12, 2002, Global
acquired 100% of the common stock of Johnstone Softmachine Corporation
(Johnstone) pursuant to the Stock Purchase Agreement and Plan of Reorganization
by and between LogiCapital Corporation (the principal shareholder of Johnstone),
an entity controlled by John Brasher who, at that time, was a director of Global
(he has since resigned). Mr. Brasher was also a principal stockholder of Global
prior to the merger. As such, this transaction represented a transfer between
control groups and is reported on a historical cost basis. Johnstone was formed
on May 8, 1996 has had no substantial operations, and is in the development
stage. Johnstone currently lacks the funding necessary to commence operations.
33
On May 2, 2002, Global acquired newly formed Hamilton Aerospace Technologies,
Inc., a Delaware corporation, located at 6901 S. Park Ave., Tucson, AZ 85706
("HAT") in a stock-for-stock exchange. HAT was formed on April 5, 2002 and
commenced operations on April 15, 2002, to create a premier provider of aircraft
maintenance, repair, and overhaul ("MRO") services to owners and operators of
Transport Category commercial jet aircraft. Its customers are all aircraft
operators, including passenger and cargo air carriers, and aircraft leasing
companies. In conjunction with commencing operations on April 15, 2002, HAT
entered into an agreement to purchase the operating assets and inventory from an
existing MRO, Hamilton Aviation ("Sale of Assets Agreement") as well as entering
into a Lease/Purchase Agreement with Hamilton Aviation for the same assets so
that HAT could commence operations pending a closing of the Sale of Assets
Agreement ("Lease Agreement"). Shortly after entering into this Sale of Assets
Agreement, Hamilton Aviation filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. The Sale of Assets Agreement was submitted to the
Bankruptcy Estate for approval as part of Hamilton Aviation's plan of
reorganization; and pending the Bankruptcy Estate's review and acceptance of the
Sale of Assets Agreement and such plan of reorganization, HAT and Hamilton
entered into an interim agreement whereby HAT agreed to assume Hamilton
Aviation's service contracts pending approval of the Sale of Assets Agreement.
During the Bankruptcy Estate's review of the Sale of Assets Agreement and plan
of reorganization, HAT and Hamilton renegotiated the terms and purchase price of
the Sale of Assets Agreement; and in March 2004, the modified Sale of Assets
Agreement was approved by the Bankruptcy Estate and memorialized and finalized
by the entry of a Settlement Agreement among HAT, Hamilton Aviation and the
Bankruptcy Estate. This Settlement Agreement was then confirmed by Order of the
Bankruptcy Court dated May 6, 2004.
On July 15, 2004, Global acquired World Jet Corporation ("World Jet") a
privately owned Nevada corporation, located at 6900 S. Park Ave., Tucson, AZ
85706 pursuant to a stock purchase agreement whereby Global acquired 100% of the
stock of World Jet for a total purchase price of $2,050,000.00 payable as
follows: 1) $1,250,000.00 in cash, 2) $300,000.00 promissory note, and 3)
1,000,000 shares of Global stock at a price of $0.50 per share as well as
assuming all liabilities of World Jet including the income tax liability for
World Jet fiscal 2003. World Jet is an aircraft parts sales and aircraft parts
brokerage facility servicing aircraft operators, aircraft leasing companies and
MRO facilities. Tucson, Arizona is the only workplace for Global, HAT and World
Jet.
On August 26, 2005, Global together with BCI Aircraft Leasing, ("BCI"), formed a
joint venture Delaware limited liability company called Jetglobal, LLC. This is
a special purpose LLC formed to acquire and remarket commercial jet aircraft.
BCI will be primarily responsible for the marketing aspects of Jetglobal while
Global will be responsible for the technical, repair and maintenance aspects
associated with remarketing purchased aircraft. Global invested an initial
amount of $1,125,000 for a 30% membership and profit interest and BCI invested
an initial amount of $2,625,000 for a 70% membership interest in Jetglobal.
Pursuant to the terms of Jetglobal's Operating Agreement, although the Company
has a 30% membership interest, it is only responsible for 25% of the costs and
expenses associated with Jetglobal including any business transactions.
The Company has divided its operations into the following reportable segments:
aircraft maintenance, repair, and overhaul; aircraft trading (i.e. aircraft
brokerage and/or the purchase for resale or lease of aircraft and/or aircraft
engines); and part sales. All aircraft maintenance, repair and overhaul is
performed at HAT. Beginning January 1, 2005, all of the Company's aircraft
trading has been done through Global. (the Company's partnership, Jetglobal ,
also did aircraft trading). Prior to that date all aircraft trading transactions
were handled through HAT. Subsequent to its acquisition in January 2004,
substantially all part sales were done by the Company's wholly owned subsidiary,
World Jet.
34
During the year ended December 31, 2005, 73% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
56% of the Company's revenue and Word Jet which accounted for approximately 17%
of the Company's revenue. The Company's share of Jetglobal 2005 net income was
over $1,000,000. Global contributed 27% of the Company's revenue through its
entrance into the aircraft trading venue. In addition to the operating expenses
incurred by Global for administrative, legal and accounting functions associated
with Global managing the shares of its wholly owned subsidiaries as well as all
activities related to capitalizing and maintaining adequate capitalization
levels for its subsidiaries, Global, beginning in 2005, also reports expenses
generated in the pursuit of aircraft trading.
During 2006, the Company formed Mexican corporation, Hamilton Aerospace Mexico,
S. A. de C.V. for the purpose of satisfying governmental requirements of the
country of Mexico associated with HAT's Tijuana operation and the servicing of
Mexican airline, Avolar Aerolineas.
Global Aircraft Leasing Partners, LLC, a Delaware limited liability company,
("GALP"), is a start-up aircraft-leasing venture formed to acquire aircraft,
through a combination of debt and equity financing, and lease these commercial
jet aircraft to operators throughout the world. On September 4, 2007, the
Company and GALP entered into an agreement that calls for the company assuming a
40% equity interest in GALP, effective October 1, 2007. Notwithstanding the
effective date of the agreement, the parties have agreed that in return for
marketing and technical support provided to GALP to date, the Company will be
entitled to a commission equal to 40% of the net profits earned on all
transactions entered into by GALP from the date of its inception through October
1, 2007. Under the terms of the agreement, in consideration for its 40% equity
participation in GALP, the company will make a one time capital contribution of
$40,000. As further consideration the Company will provide to GALP ongoing
technical support to facilitate GALP's commercial aircraft purchasing, leasing
and sales activities. All technical services provided to GALP by HAT and World
Jet will be billed at company-standard rates. The Company has made $20,000 in
capital contribution as of December 31, 2007. Final agreement relative to
operations has not yet been finalized and Global has no equity participation in
GALP for the year ended December 31, 2007. Global will not be required to invest
capital in aircraft acquired by GALP, and all debt assumed by GALP as a result
of aircraft acquisitions will be non-recourse with respect to the Company. Other
members of GALP will include equity funding specialists and aircraft leasing
professionals. Global and GALP have also agreed that Global will have first
right of refusal for all aircraft maintenance, aircraft parts and technical
consulting requirements that GALP may have as a result of its aircraft
acquisition and leasing activities.
DESCRIPTION OF BUSINESS
Global is a public company that trades in the U.S. over-the-counter market. Our
common stock is quoted on the OTC Bulletin Board under symbol GACF. Global was
formed as a holding company to establish, maintain and administer the equity and
debt funding of any acquired subsidiaries as well as maintain such
capitalization of any subsidiaries.
Global subsidiaries include Hamilton Aerospace Technologies, Inc. ("HAT), which
was organized on April 5, 2002 and World Jet Corporation, ("World Jet"), which
was organized on April 22, 1997. On May 2, 2002, Global acquired newly formed
HAT, a Delaware corporation, in a stock-for-stock exchange. HAT was created as a
provider of aircraft maintenance, repair and overhaul ("MRO") services to owners
and operators of Transport Category commercial jet aircraft. Its customers are
all aircraft operators or owners, including passenger and cargo air carriers,
and aircraft leasing companies. On July 15, 2004, (effective as of January 1,
2004), Global acquired World Jet, a privately owned Nevada corporation pursuant
to a stock purchase agreement whereby Global acquired 100% of the stock of World
Jet for a total purchase price of $2,050,000.00 payable as follows: 1)
$1,250,000.00 in cash, 2) $300,000.00 promissory note, and 3) 1,000,000 shares
of Global stock at a price of $0.50 per share as well as assuming all
liabilities of World Jet. World Jet is an aircraft parts sales and aircraft
parts brokerage facility servicing aircraft operators, aircraft leasing
companies and MRO facilities.
35
On August 26, 2005, Global together with BCI Aircraft Leasing, ("BCI"), formed a
joint venture Delaware limited liability company called Jetglobal, LLC,
("Jetglobal"). This was a special purpose LLC formed to acquire and remarket
commercial jet aircraft. BCI was primarily responsible for the marketing aspects
of Jetglobal while Global was responsible for the technical, repair and
maintenance aspects associated with remarketing purchased aircraft. Global
invested an initial amount of $1,125,000 for a 30% membership and profit
interest and BCI invested an initial amount of $2,625,000 for a 70% membership
interest in Jetglobal. Pursuant to the terms of Jetglobal's Operating Agreement,
although the Company had a 30% membership interest, it was only responsible for
25% of the costs and expenses associated with Jetglobal During 2007, the Company
transferred its ownership interest in Jetglobal to BCI Aircraft Leasing in
consideration for aircraft inventory and trailing interest in certain Jetglobal
claims against third parties. The Company and BCI executed a final agreement and
a settlement on April 20, 2007, and revised it on June 29, 2007. The terms of
the final agreement with BCI did not result in any impairment to the company.
During 2006, the Company formed a Mexican corporation, Hamilton Aerospace
Mexico, S. A. de C.V. for the purpose of satisfying the Mexican government
requirements associated with HAT's Tijuana operation and the servicing of
Mexican airline, Avolar Aerolineas.
Global Aircraft Leasing Partners, LLC, a Delaware limited liability company,
("GALP"), is a start-up aircraft-leasing venture formed to acquire aircraft,
through a combination of debt and equity financing, and lease these commercial
jet aircraft to operators throughout the world. On September 4, 2007, the
Company and GALP entered into an agreement that calls for the company assuming a
40% equity interest in GALP, effective October 1, 2007. Notwithstanding the
effective date of the agreement, the parties have agreed that in return for
marketing and technical support provided to GALP to date, the Company will be
entitled to a commission equal to 40% of the net profits earned on all
transactions entered into by GALP from the date of its inception through October
1, 2007. Under the terms of the agreement, in consideration for its 40% equity
participation in GALP, the company will make a one time capital contribution of
$40,000. As further consideration the Company will provide to GALP ongoing
technical support to facilitate GALP's commercial aircraft purchasing, leasing
and sales activities. All technical services provided to GALP by HAT and World
Jet will be billed at company-standard rates. The Company has made $20,000 in
capital contribution as of December 31, 2007. Final agreement relative to
operations has not yet been finalized and Global has no equity participation in
GALP for the year ended December 31, 2007. Global will not be required to invest
capital in aircraft acquired by GALP, and all debt assumed by GALP as a result
of aircraft acquisitions will be non-recourse with respect to the Company. Other
members of GALP will include equity funding specialists and aircraft leasing
professionals. Global and GALP have also agreed that Global will have first
right of refusal for all aircraft maintenance, aircraft parts and technical
consulting requirements that GALP may have as a result of its aircraft
acquisition and leasing activities.
During the year ended December 31, 2007, 68% of the Company's operations were
conducted by two operating subsidiaries: HAT which accounted for approximately
60% of the Company's revenue and Word Jet which accounted for approximately 8%
of the Company's revenue. The Company's share of Jetglobal 2007 net income was
$214,800. Global contributed 32% of the Company's revenue through its
aircraft-trading activity.
36
HAMILTON AEROPSACE TECHNOLOGIES, INC.
HAT is an aircraft repair station, licensed by the Federal Aviation
Administration (FAA) and by the European Aviation Safety Agency (EASA), and is
known as an "Air Agency" in FAA parlance. Its MRO services include maintenance,
repair, overhaul and modification services for narrow-body Transport Category
aircraft, repair and overhaul services on a wide range of aircraft components
and aircraft interiors. Our major modification services include the conversion
of passenger aircraft to freighter configuration and technical support for third
party modification programs.
While the airlines and large leasing operators get the lion's share of
attention, aircraft repair stations, such as HAT, occupy a truly pivotal role
for the following reasons:
First, no modification, service or repair can be made to any aircraft, nor can
any parts be installed, inspected or certified, except by FAA-certified
maintenance facilities including repair stations.
Second, aircraft require regular inspection and maintenance in accordance with
FAA regulations and must regularly visit FAA-certified maintenance facilities
including repair stations. Third, most operators must as a matter of economics
rely on repair stations to obtain parts for them, and many operators rely on
repair stations entirely to manage their parts usage and even their line fleet.
Fourth, when operator customers have parts inventories to be disposed of or
planes to be torn down and parted out, repair stations are often called upon to
do the work and find buyers for the parts.
Fifth, because of their closeness to their operator customers, repair stations
frequently are the first to learn of bargains on parts inventories and aircraft
and frequently have first crack at finding a buyer or lessee for a customer
aircraft.
Sixth, repair stations can avoid many of the effects of aviation downturns
because air fleets still must undergo scheduled maintenance irrespective of
industry conditions. Even in a severe downturn when large numbers of aircraft
are parked, aircraft storage can still be a profit center for repair stations.
Operations
As your jet rolls away from the gate and over the tarmac toward the runway, you
may have noticed at some airports the hangars in which large commercial jets
were being serviced. This is exactly what HAT does. HAT was created to provide
aircraft maintenance, repair, overhaul and modification services to owners and
operators of Transport Category commercial jet aircraft. Its customers are all
aircraft operators or owners, including passenger and cargo air carriers and
aircraft leasing companies.
When economic factors adversely affect the airline industry, they tend to reduce
the overall demand for aircraft maintenance and repair services, causing
downward pressure on pricing and increasing the credit risks associated with
doing business within the industry. Additionally, the price of fuel affects the
aircraft maintenance and repair markets, since older aircraft, which consume
more fuel and which account for most of our aircraft maintenance and repair
business, become less viable as the price of fuel increases. We cannot assure
you that economic and other factors that have affected the airline market in the
past and may affect the airline industry in the future will not adversely impact
our business, financial condition or results of operations. However, since
inception, HAT has aggressively increased its market share by focusing on
quality service, turn around time and breadth of services offered.
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MRO Services
HAT is a full service aviation maintenance and modification repair facility that
primarily performs heavy maintenance and component overhaul of large narrow body
jets, such as the Boeing 727, 737, 757, DC9 and MD80 series aircraft. HAT
provides airport terminal "turn around" maintenance for most of the airlines
operating into Tucson International Airport. Below is a brief description of
HAT's core services:
Routine minor and major maintenance (phase checks A, B, C and D)
Line maintenance for carriers landing and taking off from Tucson
International Airport Corrosion control and prevention programs
Structural inspections
Avionic upgrades and modifications
Interior reconfiguration and refurbishment
Strip and paint services to operators' livery requirements
Comprehensive systems and structural modifications
Flight test support
Component overhaul
Installation of stage 3 hush-kits (Fed Ex, Raisbeck, ABX, Nordam and Av Aero)
Regulatory Oversight
Regulation
In the United States, the Federal Aviation Administration (FAA) regulates the
manufacture, repair, overhaul and operation of all aircraft and aircraft
equipment operated in the U.S. pursuant to the Federal Aviation Regulations
(FARs). The FAA must certify each authorized repair station, and certified
facilities are issued an Air Agency Certificate. Each certificate contains
ratings and limitations that specifically authorize the repair station to only
perform certain types of services on specific makes and models of aircraft. 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. Similar rules apply in other countries. 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 utilizing certified technicians. Certification and conformance
is required prior to installation of a part on an aircraft. We closely monitor
the FAA and industry trade groups in an attempt to understand how possible
future regulations might impact us.
A good working relationship with the FAA is essential to the successful
operation of an FAA-approved Repair Station such as HAT. The policy of HAT
management is to work closely and proactively with the FAA, which has resulted
in the relationship needed to insure that when significant issues do
occasionally arise between HAT and the FAA they are addressed in a reasonable
and constructive nature.
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HAT holds FAA Air Agency Certificate #HOCR426X ("FAA Certificate") as an
authorized and approved FAA repair station, which permits HAT to service narrow
body large commercial jet aircraft. This certificate grants HAT the following
ratings: Instrument, Accessory, Limited Airframe, and Limited Engine for the
following aircraft (with certain limitations for each rating and aircraft):
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RATING MANUFACTURER MAKE/MODEL
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Airframe Boeing B-727-100-200 - All series
Boeing B-737-100-200-300-400-500 - All series
Boeing B-757 - All series, Limited
Douglas DC-8 - All series
Douglas DC-9 - All series
McDonnell Douglas MD - 80 - All series
Power Plant Pratt & Whitney JT - 3D
Pratt & Whitney JT - 8D
General Electric CFM -56
HAT is inspected regularly by the FAA for conformity to federal regulations and
consistently passes those inspections with no significant discrepancies. Weekly
visits by the primary maintenance inspector (PMI) from the FAA provide
continuous monitoring of all HAT activities. HAT maintains a working
relationship with the FAA staff and all work is carried out according to the
standards and requirements of the FARs.
HAT also holds an equivalent certificate in the European Economic Community.
Without the EASA certificate, HAT would not be allowed to work on aircraft that
operate in European Economic Community ("EEC") airspace.
Both certificates are in good standing. Licensure and regulation of aviation
companies is almost exclusively federal in nature.
Quality Assurance (which includes Quality Control and Inspection) and Production
functions are separate and distinct at HAT, as required by the FAA, and the
management of each is autonomous from the other, as federal law requires. Upon
completion, all work will have been fully documented as to the materials used,
parts and labor applied, and conformity to the approved data and FARs.
Aircraft Heavy Maintenance and Repair
Maintenance and repairs for narrow body commercial jet aircraft constitutes
HAT's core business. These services include simple repairs and servicing, heavy
maintenance referred to as a "C-check" and complete overhaul referred to as a
"D-check." In addition, HAT performs major configuration changes of commercial
aircraft, such as interior reconfiguration and conversion from passenger service
to cargo service. Each airline operator has a governmental-approved and mandated
maintenance schedule for each of its commercial aircraft on the line. Certain
maintenance is typically performed by the operator's maintenance personnel (for
example, daily line checks), while other, more substantial maintenance can be
self-performed or contracted out to certified repair stations. HAT provides
services for each aircraft under a Maintenance and Service Agreement (MSA) with
each operator. These contracts are generally fixed-price labor-only, with a cap
on hours expended on unforeseen repairs. Parts are either provided by the
operator or can be procured by HAT and resold to the operator. Delivery of the
aircraft to and from HAT's facility are at the operator's cost and risk, and HAT
requires each operator to execute a Final Acceptance and Release which
acknowledges that the services have been performed properly, that the commercial
aircraft is airworthy, and which, apart from contractual warrantees, releases
HAT from any financial or legal responsibility with respect to the aircraft and
services. With certain long-term customers HAT has entered into a General Terms
Agreement, which is an umbrella agreement that covers the general framework for
all services HAT expects to render to the customer.
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In addition to scheduled maintenance services, HAT also offers refinishing,
painting and return-to-service maintenance. HAT also offers numerous related
services, such as worldwide commercial aircraft pre-purchase inspection and
appraisal services, post-purchase configuration, maintenance and operational
program development, post-contract and post-lease condition assessment,
commercial aircraft accident assessment and recovery, flight line maintenance,
termination of lease recovery, and aircraft storage and storage maintenance.
Modification Services
HAT modification services include passenger to cargo conversions, engine noise
suppression, power plant retrofits, and avionics upgrades to the latest in
navigation, communication, and digital technology. HAT also provides interior
replacement and refurbishment services as well variety of custom seating
arrangements to meet operators' requirements, including all types of commercial
configurations and special purpose interiors for sports teams, humanitarian
missions or VIP aircraft.
HAT plans to opportunistically grow its modification services. However, HAT
intends at this time to concentrate its business-building efforts on its primary
maintenance services.
Market
Narrow body commercial airliners (Boeing 727s, 737s, 757s, DC9s, MD80s) are
HAT's primary market for selling aircraft maintenance, repair, and component
overhaul services. Major commercial airlines, lower-tier airlines, package
carriers, and charter operators operate these aircraft. The summer 2007 edition
of MRO Management cites the industry consultancy 2007 AeroStrategy Annual
Industry Forecast as projecting 3.6% annual MRO growth over the ten years from
2006 to 2016 rising from $41 billion to $58 billion, respectively. Of those
numbers 14% is classified aircraft heavy maintenance, 21% modifications, 21%
line maintenance, 21% component maintenance and 35% engine maintenance. HAT's
target market of specific narrow body commercial jet aircraft constitutes an
estimated 25% of the worldwide commercial aircraft maintenance market. Due to
the relatively small portion of its revenues that come from activities other
than its core MRO services, HAT has not examined the markets for those other
activities.
Customers and Revenue Streams
When it was first launched, HAT concentrated its marketing efforts on so-called
"Tier 2" operators of older, narrow-body commercial jets, particularly Boeing
727 aircraft. HAT has expanded those efforts and now pursues both Tier 1 and
Tier 2 narrow-body operators of 727, 737, 757, MD80 and DC9 aircraft.
HAT's customers include: BCI Aircraft Leasing (22%), an aircraft leasing
company; Global Aircraft Leasing Partners (25%); Avolar Aerolineas, S.A. de C.
..V (13%), a Mexican airline; Enterprise Aviation (5.2%); Pratt and Whitney
(3.8%); United Breweries Holding, Ltd. (5.0%); ART Portfolio (3.7%); Pegasus
Aviation (1.9%), a large aircraft leasing company and long-time Hamilton
Aviation customer; as well as a number of smaller customers. HAT also does line
maintenance at Tucson International Airport for Alaska Airlines, American
Airlines, Contintental Airlines, Delta Airlines, Frontier Airlines, Jet Blue
Airlines, Northwest Airlines and United Airlines. HAT is working to increase and
diversify its customer base and expects to sign more maintenance contracts.
Ancillary Activities and Services
In addition to its core maintenance, repair, component overhaul and modification
services, HAT opportunistically generates additional income from the following
revenue sources encountered in the course of the company's day-to-day business
activities: Distress purchases: HAT is able to buy planes and parts at pennies
on the dollar, re-certify parts, engines and airframes and resell them at a
profit.
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Parts Sales: HAT generates revenue on all parts it installs in customer aircraft.
Commission Sales: HAT buys parts on request for customers that don't maintain
parts inventory and charges a commission for that service.
Aircraft storage: HAT offers environmentally favorable aircraft storage to
aircraft operators and has some 40 aircraft parked on its ramp for which the
customers are paying both tarmac space rental and storage maintenance labor and
components charges. Because it costs tens of thousands of dollars to fly them to
another comparable facility, most of these aircraft will be returned to service
at a cost of hundreds of thousands of dollars each in new work for Hamilton.
Inspection and Certification: HAT charges a service to inspect and to re-certify
parts, engines and airframes for customers.
Aircraft Sales and Leasing Commissions: HAT takes full advantage of its position
as a maintenance provider to earn commissions on aircraft sales or leases.
Aircraft Ferry and Flight Crew Services: HAT offers aircraft ferry service and
flight crew operations, to shuttle aircraft for maintenance or repositioning.
Contract crews are used in order not to create additional overhead.
These other services are synergistic in that each can generate additional
services and opportunities. For example, as described above HAT typically gets
the maintenance and overhaul work on aircraft stored on its tarmac, due to the
tens of thousands of dollars often required to relocate such aircraft. HAT also
frequently gets the first offer to buy or broker aircraft due to knowledge of
the industry and its ability inspect, appraise, and return the aircraft to
service on a turn-key basis in accordance with the new operator's
specifications. These opportunities exist due to the strategic market position
that aircraft repair stations, such as HAT, occupy at the center of the aviation
industry.
WORLD JET CORPORATION, INC.
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Operations and Services
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World Jet sells and brokers the sale of aircraft parts, airframe components,
engines and engine materials including Expendables, Rotables and Consumables.
Expendables are miscellaneous hardware items such as nuts, bolts, rivets,
screws, etc. used as part of the aircraft part installation and service process.
Rotables are serialized aircraft parts and components that are FAA certificated
and tracked as FAA certified parts. Consumables are miscellaneous supplies such
as sealants, grease, oil, lubricants, tape, etc. that are used and consumed in
conjunction with the installation of Expendables and Rotables. World Jet brokers
the sale of aircraft parts, airframe components, engines and engine materials
and also maintains an inventory of it's own overhauled aircraft parts, airframe
components, engines and engine materials for re-sale. When brokering such
materials and parts, World Jet introduces other aircraft parts sellers with
aircraft parts consumers who are in need of certain aircraft parts and receives
a brokerage commission for arranging such sale. World Jet also maintains an
inventory of aircraft parts, airframe components, engines and engine materials
for resale that World Jet obtains from distressed companies and by purchasing
aircraft and salvaging and overhauling parts removed there from.
If any parts purchased by World Jet from distressed companies or removed and
salvaged from aircraft purchased by World Jet require any repairs or overhaul,
World Jet out-sources such repair and/or overhaul work to an FAA approved repair
and overhaul facility which must comply with FAA regulations regarding the
traceability of certificated aircraft parts. World Jet services aircraft
operators, aircraft leasing companies and MRO facilities such as HAT.
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MANAGEMENT DISCUSSION AND ANALYSIS
Global Aircraft Solutions, Inc., ("Global") formerly Renegade Venture (Nev.)
Corporation is a public company that trades in the U.S. over-the-counter market.
Our common stock is quoted on the OTC Bulletin board under the symbol GACF. On
May 2, 2002, Global acquired newly formed aviation company Hamilton Aerospace
Technologies, Inc., a Delaware corporation ("HAT") in a stock-for-stock
exchange. HAT was formed on April 5, 2002, to create a premier provider of large
aircraft maintenance, repair, overhaul and modification ("MRO") services to
owners and operations of certain Transport Category commercial jet aircraft. Its
customers are all aircraft operators, including passenger and cargo air
carriers, and aircraft leasing companies. During 2004, Global acquired 100
percent of the common stock of World Jet Corporation, a privately owned Nevada
Corporation. World Jet, incorporated in 1997, is an aviation parts sales company
servicing aircraft operators, aircraft leasing companies and MRO facilities.
Global's plan of operation for the immediate future includes seeking and
acquiring, if possible, aviation industry related businesses to complement its
HAT and World Jet subsidiaries. Additionally, the Company will seek to expand
HAT and World Jet by organic growth. Global will not limit its search for
business combination candidates to any particular geographical area. Management
of Global will seek combination candidates in the United States and other
countries, as available time and resources permit, through existing associations
and by word of mouth. This plan of operation has been adopted in order to
attempt to increase value for Global's shareholders.
Company management has rejected a policy of growth for growth's sake in favor of
focusing on profitability and building a good reputation for the Company and its
subsidiaries by limiting contracts to those perceived to have a high probability
of success. This strategy is also beneficial to the Company's marketing efforts
in that a good track record of maintenance and modification contracts, delivered
successfully on-time and on-budget, is by far the most potent tool for securing
new work contracts; and expedited delivery of parts at a competitive price leads
to greater volume of parts sales. In managing its operations, the Company is
committed to continuously evaluating the adequacy of its management structure
and its existing systems and procedures.
Management is cautiously optimistic that efforts to strengthen the quality of
our customer base, our adeptness at garnering jobs with the likelihood of good
gross profit potential and our continued vigilance at holding down costs may
enhance future results and our profitability will increase in 2007. HAT's option
of being selective in the work booked is due to their growing reputation for
providing quality, on-budget, on-time deliveries to their customers. HAT and
World Jet are experiencing success in securing new customers and securing more
business from existing customers as well.
Global's aircraft trading represents a significant niche in our business.
Successful efforts in this area will go a long way to building our company.
During 2005, aircraft trading accounted for 19% of the Company's revenue. This
trading decreased in 2006 and was 9% of total revenue for the Company. The
considerable impact that can be made through growth of aircraft trading is
evident when you consider that fewer than 10 transactions took place in our
aircraft trading segment, (which excludes any Jetglobal activity), during the
year ended December 31, 2005 and fewer than 5 during the year ended December 31,
2006. Obviously, there is opportunity for a positive synergistic increase in MRO
revenue and part sales revenue related to those aircraft traded with both new
and continuing customers.
Gross profit levels during any particular period are dependent upon the number
and type of aircraft serviced, the contract terms under which services are
performed, cash availability and the efficiencies that can be obtained in the
performance of such services. Significant changes in any one of these factors
could have a material impact on the amount and percentage of gross profits.
Additionally, gross profit could be impacted in the future by considerations as
to the value of our inventory.
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HAT competes principally on the high quality of its services and its price
competitiveness due to its location in the Southwest. Location related benefits
include low labor rates; a dry, mild climate enabling HAT to do many MRO
projects outdoors; and low overhead. World Jet competes on price competitiveness
and expedited delivery of parts. World Jet has spent years acquiring inventories
at deep discounts and this inventory is the type HAT uses on a daily basis.
World Jet's customer base includes airlines, aircraft leasing companies and MRO
facilities. The large aircraft repair business and the aircraft parts sales
business are highly competitive. Revenues are sensitive to adverse changes in
the air carrier business, with factors such as airline profit levels, changes in
fuel costs, average fare levels, and passenger demand. The heavily regulated
airline industry, however, requires scheduled maintenance and repair services
irrespective of industry economics, thus providing a reasonably steady market
for HAT's and World Jet's services.
World Jet is a seller/broker of aircraft parts which is not an operation or
activity which is regulated by the FAA or any other governing body or
governmental agency; however, any aircraft parts sold by World Jet must be
accompanied by documentation verifying that such part is traceable to either an
FAA approved manufacturer, overhaul or repair facility, or an FAA certificated
operator. In furtherance of satisfying customers that World Jet does sell and
broker parts that are traceable to FAA certification, World Jet voluntarily
participates in the Airline Suppliers Association which requires an annual audit
of suppliers of aircraft parts to verify that such supplier maintains the proper
traceability documents, properly tags aircraft parts in support of such
traceability and maintains proper packaging and storage of aircraft parts. In
addition to the foregoing, World Jet also certifies to each customer that any
part or material sold was not involved in any incident and is not government
surplus.
Aircraft maintenance and modification is a highly regulated industry, and a good
working relationship with the FAA is essential to the successful operation of an
FAA-approved Repair Station such as HAT. The policy of HAT management is to work
closely and proactively with the FAA, which has resulted in the very positive
relationship needed to insure that when significant issues do occasionally arise
between HAT and the FAA they are addressed in a reasonable and constructive
nature.
RECENT DEVELOPMENTS AFFECTING OUR OPERATIONS
The continued alerts by the U.S. Department of Homeland Security and fears of
new terrorist attacks, the U.S.-led invasion of Iraq, high fuel costs and the
general state of the economy could quite possibly produce negative impact on the
aviation industry.
On March 13, 2007, the Company announced that they had entered into an exclusive
service agreement with, Global Aircraft Leasing Partners ("GALP"). GALP is a
start-up aircraft-leasing venture formed to acquire aircraft, through a
combination of debt and equity financing, and lease these commercial jet
aircraft to operators throughout the world. GACF and GALP have entered into a
strategic alliance wherein Global would initially acquire a 20% or 40% interest
in GALP in exchange for a capital contribution of $20,000 or $40,000, together
with infrastructure, industry expertise, management assistance, and other
non-monetary contributions. At June 30, 2007, negotiations were still being
conducted to establish an operating agreement for GALP, as well as to make final
determination as to the Company's percentage of interest, which may be finalized
at either the initial 20% or at 40%, depending on the result of those
negotiations. The Company had not made any capital contribution as of June 30,
2007 and consequently was not a participating member of GALP during the period
covered by these financial statements. Global will specifically not be required
to invest capital in aircraft acquired by GALP. Other members of GALP will
include equity funding specialists and aircraft leasing professionals. Global
and GALP have also agreed that Global will have first right of refusal for all
aircraft maintenance, aircraft parts and technical consulting requirements that
GALP may have as a result of its aircraft acquisition and leasing activities.
Global expects that its strategic partnership with GALP will have a positive
effect upon the volume of its MRO and parts sales businesses.
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Since the formation of the Jetglobal LLC, Management has been unable to obtain
timely and accurate financial information legally demanded by the Company form
Jetglobal. As a consequence, during the first quarter 2007, Management decided
to transfer its ownership interest in Jetglobal , LLC, an entity in which the
Company had a 30% ownership interest, to the other partner in Jetglobal, LLC,
BCI Aircraft Leasing. The parties executed a final agreement and settlement on
April 20, 2007 which was revised on June 29, 2007. Under the terms of the final
agreement and settlement, in consideration for the Company's 30% ownership
interest in Jetglobal, the Company will receive title, free and clear, to five
aircraft valued at $1,500,000 each. A sixth aircraft purchased from Global by
Jetglobal and which had MRO work performed by HAT, was returned to the Company
in satisfaction of the $1,150,000 unpaid purchase price of the aircraft. The
Company also retained a trailing interest of 18% of any amount paid Jetglobal
under (i) satisfaction of the claim against the Delta Bankruptcy Estate,
estimated at $2,118,461and (ii) the Jetglobal claim against AFG for breach of
contract
Avolar's increasing fleet size resulted in increasing receivables due Hamilton
Aerospace. At the same time, Avolar's past due receivables increased
significantly. In order to protect the Company's financial status, late in
February Management put Avolar on a COD basis and negotiated a schedule for
Avolar to bring its account current. The parties also agreed that Avolar would
obtain whatever services and credit it could from other maintenance service
providers in order to facilitate Avolar's pay-down of monies due Hamilton
Aerospace. During the second quarter, Avolar and the Company reassessed Avolar's
payment plan and by the end of June 2007, Avolar had made progress reducing the
amount owed Hamilton Aerospace, and was in full compliance with the terms of its
new payment schedule. Avolar has stated its intention to bring its accounts
current with Hamilton Aerospace and World Jet and continue its maintenance and
support agreements with both companies. However, it remains unlikely that the
income and profit contributions from Avolar to Hamilton Aerospace and World Jet
in 2007 will reach the amounts previously indicated by Management.
RESULTS OF OPERATIONS
HAT operating revenues consist primarily of service revenues and sales of
materials consumed while providing services. World Jet revenues consist
primarily of sales of aircraft parts. Cost of sales consists primarily of labor
and materials, cost of parts and freight charges. Operating results have
fluctuated in the past and may fluctuate significantly in the future. Many
factors affect our operating results, including timing of repair orders and
payments from large customers, competition from other third-party MRO service
providers, the state of the aviation industry and the number of customers
seeking services, the impact of fixed pricing on gross margins and our ability
to accurately project our costs, our ability to obtain financing and other
factors.
Significant portions of our operating expenses, such as insurance, rent, debt
payments, certain salaries and such, are relatively fixed. Since we typically do
not obtain long-term commitments from our customers, we must anticipate the
future volume of orders based upon the historic patterns of our customers and
upon discussions with our customers as to their future requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on our business, financial
condition and results of operations.
During 2007, revenues were $24,743,501which represents a decrease of 28.4% from
2006's figure of $34,542.195. Revenues for 2006 decreased 16.2% from 2005's
figure of $41,228,648. The Company had a net loss of $3 million in 2007, net
income of $.826 million in 2006 and net income of $3.123 million in 2005. In
2006, profit from operations declined from 2005's $2.4 million to a loss from
operations of $2,109. In 2007, the loss from operations was $4.9 million.
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To understand the Company's path from 2005 profits to 2007 losses some of the
major events that occurred during each year are as follows:
2005
In early July of 2005, The Company's subsidiary HAT, on behalf of subsidiary
World Jet, agreed to purchase the inventory held on consignment belonging to
Jetran International, Ltd. plus one DC9-82, serial number 48092 for a price of
$2,900,000.
On August 12, 2005, HAT entered into a five-year maintenance contract with the
new Mexican airline, Avolar. Potential value of this agreement was linked to the
planned growth of Avolar. The business plan of Avolar called for a thirty
aircraft fleet by mid 2008.
On August 26, 2005, Global together with BCI formed Jetglobal to acquire
and remarket commercial jet aircraft. On September 1, 2005, Jetglobal entered
into an agreement to acquire a fleet of 26 Boeing 737-200 aircraft from Jetran
International.
2006
The most significant event of 2006 was the erosion of the Company's cash
position due to unpaid accounts receivable balances of Avolar and BCI.
Outstanding accounts receivable rose from $5 M to 7.9 M during the first nine
months of 2006. Our investment in Jetglobal grew about $2 million during the
same period. Our partner in Jetglobal, BCI, preferred to hold the aircraft
assets rather than sell them. By the end of 2007, the parties had reached an
agreement in principal wherein BCI would pay the Company cash plus transfer,
free and clear, ownership to the Company of enough aircraft out of the Jetglobal
assets to settle in full all amounts due the Company for services provided to
BCI and from the Company's ownership in Jetglobal.
2007
Avolar's increasing fleet size resulted in increasing receivables due HAT. At
the same time, Avolar's past due receivables increased significantly. In order
to protect the Company's financial status, late in February Management put
Avolar on a COD basis and negotiated a schedule for Avolar to bring its account
current. The parties also agreed that Avolar would obtain whatever services and
credit it could from other maintenance service providers in order to facilitate
Avolar's pay-down of monies due HAT. By the end of 2007, Avolar had made
progress reducing the amount owed Hamilton Aerospace, but Avolar was not in full
compliance with the terms of its payment schedule agreed to with HAT.
By the end of the second quarter of 2007, the Company had received all but one
of the aircraft covered by the settlement agreement with BCI, which was
finalized on June 29, 2007. The book value of the aircraft to be received under
this agreement was over $8.6 million.
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On September 4, 2007, the Company and Global Aircraft Leasing Partners, LLC, a
Delaware limited liability company, ("GALP") reached a tentative agreement that
Global would assume a 40% equity interest in GALP. GALP is a start-up
aircraft-leasing venture formed to acquire aircraft, through a combination of
debt and equity financing, and lease these commercial jet aircraft to operators
throughout the world. It has been mutually agreed by the parties that in
consideration for a 40% equity participation in GALP, the company will make a
one time capital contribution of $40,000. As further consideration the Company
will provide to GALP ongoing technical support to facilitate GALP's commercial
aircraft purchasing, leasing and sales activities. All technical services
provided to GALP by HAT and World Jet will be billed at Company-standard rates.
The Company had made $20,000 in capital contribution as of December 31, 2007. A
final operating agreement has not yet been finalized and Global had no equity
participation in GALP for the year ended December 31, 2007. Global will make an
additional capital contribution or $20,000 upon the parties reaching a final
operating agreement. Global will not be required to invest capital in aircraft
acquired by GALP, and all debt assumed by GALP as a result of aircraft
acquisitions will be non-recourse with respect to the Company. Other members of
GALP will include equity funding specialists and aircraft leasing professionals.
Global and GALP have also agreed that Global will have first right of refusal
for all aircraft maintenance, aircraft parts and technical consulting
requirements that GALP may have as a result of its aircraft acquisition and
leasing activities.
On October 11, 2007, BCI presented the Company with title to the final aircraft
due from the settlement agreement.
On November 1, 2007, our primary lender M&I Bank extended the matruity date of
our $5 million line of credit until January 31,2008.
On December 20, 2007, the Company entered into and closed on three
non-convertible secured debenture financing agreements in the total amount of
$10 million (See the Liquidity section of this document for further details).
The debentures carry an interest rate of 15% per annum. The Debentures also
provide for a cash flow recapture to the Holders equal to 60% of any proceeds
related to the sale of Global's aircraft inventory and certain receivables. The
Debentures mature on December 19, 2008. Funds from this transaction were used to
pay-off our primary lender, M&I Bank, as well as, all other short-term debt.
Additionally, the balance provides operating capital to enable us the time to
sell our aircraft inventory and ramp-up operations of our HAT facility to
capacities prior to the stoppage of work for Avolar and BCI.
The table below shows the sales and cost of sales for each of our operation
segments for the years ended December 31, 2007, 2006 and 2005, respectively. The
2006 increase in maintenance reflects about $4.7 million in sales related to
work done on Avolar in Tijuana, which began in late 2005. In 2007, sales related
to our Tijuana operation fell to $2.3 million due to our temporary suspension of
work due to non-payment. This only partially accounts for the 49% drop in
revenue in our maintenance segment. Maintenance felt the effects of the
substantial cash problems created in 2006 by the non-payment of invoicing by
customers, Avolar and BCI. Our partner in Jetglobal, BCI, desired that the
partnership hold aircraft assets rather than sell them. Our membership in
Jetglobal had been undertaken to increase revenue and we had a sizable equity
position of over $6M. Additionally, the resulting settlement reached with BCI to
take-over our membership in Jetglobal, which was not finalized until mid-year,
netted us an inventory of aircraft but no cash.
46
2007 2006 2005
- ------------------------------------------- ------------ ------------ ------------
Sales, maintenance, repair, overhaul $ 14,364,784 $ 24,331,466 $ 19,134,757
Sales, aircraft trading 7,900,000 3,223,000 13,550,500
Sales, parts 2,239,641 4,634,155 6,388,380
Sales, other 239,076 2,353,574 2,155,011
Total sales $ 24,743,501 $ 34,542,195 $ 41,228,648
Cost of sales $(10,758,759) $(19,776,552) $(16,903,015)
Cost of sales, aircraft trading (6,848,254) (3,190,369) (10,019,728)
Cost of sales, parts (693,607) (2,012,101) (3,389,964)
Cost of sales, other (7,353) (769,027) (529,754)
Inventory write down (393,752) (192,775) (215,500)
Total cost of sales $(18,701,725) $(25,940,824) $(31,057,961)
Those who look to revenue growth as the fundamental indication of a company's
success and growth need to be aware that no matter how much revenue is generated
by trading partners in which we have minority interest and no control over
management, no increase in revenue will be shown on the Company's results. Net
income, however, will reflect the Company's percentage of the net income of
trading partners. Revenues derived from aircraft sales made by our Jetglobal
partnership were $214,800 in 2007, in 2006 were $1,808,744 and in 2005 our share
of the Jetglobal loss was $157,874.
Company SG&A expenses in 2007 were $10,908,740 and as a percentage of revenue
were 44%. In 2006 were SG&A expenses were $8,591,738 and as a percentage of
revenue were 25%. In 2005, SG&A expenses were $7,780,332, which was 19% as a
percentage of revenues.
During 2007, SG&A expenses included several unusual items:
The expense related to the warrants issued as part of the December, 2007
Debenture agreement was $581,282. The issuance of these warrants triggered a
provision in some of our existing warrants that required they be repriced. The
expense recorded due to the repricing was $69,241.
The Company paid $130,528 in various expenses to extend the M&I loan and to
locate and secure another financing vehicle.
Bad Debt expense for 2007 was $3,610,776 as compared to $338,000 in 2006. This
amount included the write-off of amounts due from the Falcon bankruptcy in the
amount of $283,940, a portion of the receivable balance due from BCI, $562,384,
approximately $929,000 for Avolar, approximately $775,000 in aged receivables
from various customers that the Company has determined to be uncollectible and
an increase to our reserve balance of about $950,000 for accounts over 90 days
and another $54,000 reserve for current accounts.
During 2007, SG&A expenses included approximately $175,000 in commission expense
compared with $669,500 in 2006 and $1,260,000 in 2005. Other notable increases
in 2006 SG&A expenses included:
Our World Jet subsidiary had an increase in SG&A of $267,421 the largest part of
which was associated with the movement of inventory to its new location at 7001
South Park coupled with the counting and classification, prior to the 2007 audit
of the balance of the inventory purchased from Jetglobal.
47
Global had a significant increase in professional fees in the amount of $618,000
over the 2005 amount. Approximately $96,900 was related to auditing and
accounting fees, $179,000 increase in legal fees, $132,000 increase in outside
professional services.
Interest expense for 2007 was $1,261,813, in 2006 was $587,183 and in 2005 was
$386,927. This significant increase in interest expense is directly linked to
the severe cash shortages the Company experienced. Funds to operate were
borrowed at higher rates.
The following table graphically depicts the operating performance for Global,
HAT and World Jet subsidiaries on a stand-alone and consolidated basis for the
year ended December 31, 2007:
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
$ $ $ $ $
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
2007 Revenues 7,900,000 14,809,618 5,516,972 (3,483,089) 24,743,501
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Year End Cost of Sales (6,848,337) (11,440,802) (3,872,958) 3,460,372 (18,701,725)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Results Expenses (3,646,290) (5,976,319) (1,311,316) 25,185 (10,908,740)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Operating Profit (Loss) (2,594,627) (2,607,503) 332,698 (2,468) (4,866,964)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
o The "Eliminate" column reflects the $ amounts of Inter-Company Sales
by World Jet to HAT in 2007.
o On a consolidated basis Revenues and Cost of Sales are reduced to
reflect the Revenues and Cost of Sales for external sales only, with a
zero $ impact on stand alone or consolidated profit (loss) figures.
The following table graphically depicts the operating performance for Global,
HAT and World Jet subsidiaries on a stand-alone and consolidated basis for the
year ended December 31, 2006:
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
$ $ $ $ $
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
2006 Revenues 4,475,000 26,058,040 10,591,165 (6,582,010) 34,542,195
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Year End Cost of Sales (3,489,909) (20,929,517) (8,103,408) 6,582,010 (25,940,824)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Results Expenses (3,394,122) (3,342,380) (1,866,978) (8,603,480)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
Operating Profit (Loss) (2,409,031) 1,786,143 620,779 (2,109)
- ------------------ -------------------------- --------------- ---------------- --------------- ----------------- ----------------
48
The following table graphically depicts the operating performance for Global,
HAT and World Jet subsidiaries on a stand-alone and consolidated basis for the
year ended December 31, 2005:
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Period Global HAT World Jet * Eliminate Consolidated
Stand Alone Stand Alone Stand Alone Intercompany
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
$ $ $ $ $
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
2005 Revenues 11,396,538 23,505,112 10,622,681 (4,295,683) 41,228,648
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Year End Cost of Sales (7,930,337) (19,594,059) (7,829,248) 4,295,683 (31,057,961)
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Results Expenses (2,489,347) (3,692,489) (1,599,557) (7,781,393)
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
Operating Profit 976,854 218,564 1,193,876 2,389,294
- ------------------ ------------------- --------------- ---------------- --------------- ---------------- -----------------
While the Company aggressively seizes revenue-producing opportunities such as
aircraft trading, management gauges results by looking at what has been the core
revenue producing activity to date, the sale of labor hours in our maintenance
segment. In 2007, revenue produced from labor was $8.6 million; in 2006, revenue
produced from labor was $14.3 million and was virtually the same in 2005 at
$14.3 million. Billable hours for 2006 and 2005 were essentially the same at
approximately 240,000. Billable hours for 2007 decreased about 36% or 87,000.
The comparative costs for all direct labor, including work performed by outside
contractors, was $5,005,874 in 2007 compared to $8,945,712 in 2006 and
$9,190,898 in 2005, representing 44% decrease in cost from 2006 to 2007 and a 3%
decrease in cost from 2005 to 2006. The relationship between direct labor costs
to direct labor revenues decreased approximately 4% to 58% during 2007 and 2% to
about 62% in 2006 as compared with 64% in 2005. Direct labor percentages will
always vary to some degree due to the nature of flat rate bidding as opposed to
billing for all time and materials. Included in the operating expenses for the
Company in the years ended December 31, 2007, 2006 and were $1,086,360, $617,459
and $326,594, respectively, associated with the award of stock and stock
options. $581,282 of the 2007 amount was related to the options issued as part
of the debenture transaction discussed earlier.
Due to the fact that World Jet's largest customer is HAT, part sales decrease as
maintenance decreases. Sales by our part sales segment to our maintenance for
2007, 2006 and 2005 were $3.5M, $6.6M and $4.3M respectively. These results
represent 24%, 27% and 23% of the MRO sales for the corresponding periods. This
relationship will vary to a degree due to the particular mix of customers
serviced during the periods. We do have some customers that typically furnish
their own material to jobs. It is certain that the cash crunch experienced
during late 2006 and 2007 made it necessary to curtail efforts to grow the
brokering operations of our parts sales segment. Cost of parts sold were 31%,
43% and 53% of parts revenue for 2007, 2006 and 2005 respectively. The
decreasing percentage indicates an increased use of owned inventory as opposed
to brokered inventory.
The most significant decrease in revenue from 2005 to 2006 was experienced in
aircraft sales, as most aircraft sales took place in Jetglobal. Aircraft trading
in 2006 resulted in a decrease of $10 million in sales when compared to the
prior year. In 2007, the Company sold one aircraft for $7.9, which is an
increase in revenue for that segment of 145% over 2006. Since aircraft trading
is an opportunistic venture, with the value of one type of aircraft varying
substantially from the value of another, sales as well as cost of sales will
vacillate based on the terms of each individual transaction.
49
Quarter Ending March 31, 2008
- -----------------------------
Net sales for the three months ended March 31, 2008 increased $650K, or 10%, to
$6.879 million from $6.229 million for the three months ended March 31, 2007.
During the first quarter, our maintenance segment revenues decreased 35.5% from
2007's first quarter. The first quarter 2008 maintenance segment revenues showed
a significant increase of 54% over maintenance segment revenues during the
fourth quarter of 2007. This increase reflects HAT marketing efforts to
gradually and consistently recover from the temporary setbacks experienced in
2007. Our parts sales segment increased 75% over the 1st quarter of 2007,
reflecting a marked increase in sales to third parties during 2008's 1st quarter
over the 1st quarter of 2007. Aircraft sales revenues in the first quarter of
2007 consisted of a forfeited deposit in the amount of $50,000 compared with the
sale of an aircraft as a glider, with the Company retaining the engines in
inventory, and $199K in forfeitures during first quarter of 2008. Aircraft sales
tend to vary significantly on a period-to-period basis based on the particular
aircraft sold as well as the time necessary to complete a transaction.
Cost of sales consists of costs of inventory sold for World Jet, time and
materials for HAT and aircraft purchase price for Global aircraft trading.
Consolidated cost of sales for the three months ended March 31, 2008 increased
$149K, or 3.6%, to $4.275 million from $4.126 million for the three months ended
March 31, 2007. Consolidated cost of sales, as a percentage of revenue,
decreased in the first quarter of 2008 to 64.6% from 67.8% for the same period
in 2007. Cost of sales for our maintenance segment decreased $1.4 million or
38.5 % from fourth quarter 2007. Cost of sales for our aircraft-trading segment
was 61% of revenue. As mentioned earlier, the first quarter of 2007 had no
aircraft sales. Cost of sales for our part sales segment increased $196K over
the first quarter of 2007. As a percentage of part sales revenue, cost of sales
was 51.5% and 59.3% for the quarters ending March 31, 2008 and 2007,
respectively.
While the Company engages in various revenue-producing activities such as
aircraft sales, management gauges results by looking at what historically has
been the core revenue-producing activity, the sale of labor hours. In the first
three months of 2008, revenue produced from labor was $2,519,061 as compared
with $2,684,643 the first three months of 2007. This represents a decrease of
6%. The comparative costs for all direct labor, including work performed by
outside contractors, was $1,382,104 in the first three months of 2008 compared
with $1,623,317 for the same period in 2007. All direct labor costs were 38.7%
of total maintenance sales in first three months of 2007 compared with 29.3% in
the first three months of 2007. All direct labor costs were 54.9% of labor sales
in first three months of 2008 compared with 60.5% in the first three months of
2007. The relationship between direct labor costs and direct labor revenues saw
relative costs decrease 5.6% from 2008 to 2007. Direct labor percentages will
always vary to some degree due to the nature of flat-rate bidding as opposed to
billing for all time and materials. Additionally, the Company has gradually
increased its labor rate, where possible, during the first quarter of 2008. A
substantial sudden increase in volume can be expected to have a temporary impact
on efficiencies and are viewed by Management as a temporary consequence of
growth. A sudden decrease in volume should have a negative impact due to the
retention of core labor during slower periods. Management is confident that
adjustments to volume changes should be made and profitability will benefit over
time.
Company-wide gross profit for the three months ended March 31, 2008 of $2.6
million was more than the same period in the prior year by $.5 million. Gross
profit levels during any particular period are dependent upon the number and
type of aircraft serviced, the contract terms under which services are performed
and the efficiencies that can be obtained in the performance of such services.
Significant changes in any one of these factors could have a material impact on
the amount and percentage of gross profits. Additionally, gross profit could be
impacted in the future by considerations as to the value of our inventory.
50
Selling, general and administrative expenses for the three months ended March
31, 2008, as percentage of sales, were 31%, which was 5% greater than for the
same period in 2007. Aircraft trading revenues generated $380K in commission
expense, which represents 5% of revenues.
Interest expense for the Company, during the first three months of 2008, was
$396K.
The following tables depict our pre-tax operating profit or (loss) for the first
quarter of 2008 and 2007 on a stand-alone basis and a consolidated basis for
Global, HAT and World Jet:
First three months of 2008
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 2,011,083 4,018,610 1,622,246 (772,954) 6,878,985
Less: Cost of sales 1,220,131 2,738,688 1,089,182 (772,954) 4,275,047
Less: Expenses 1,122,496 696,896 312,196 (617) 2,130,971
Pre-tax Operating Profit (Loss) (331,544) 583,026 220,868 617 472,967
First three months of 2007
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 50,000 5,559,431 2,117,156 (1,497,587) 6,229,000
Less: Cost of sales 234 4,010,966 1,612,345 (1,497,587) 4,125,958
Less: Expenses 588,580 692,888 318,634 (617) 1,599,485
Pre-tax Operating Profit (Loss) (538,814) 855,577 186,177 617 503,557
Quarter Ending June 30, 2008
- ----------------------------
Consolidated net sales for the three months ended June 30, 2008 decreased $3.7
million, or 33%, to $7.483 million from $11.174 million for the three months
ended June 30, 2007. Cost of sales consists of costs of inventory sold for World
Jet, time and materials for HAT and aircraft purchases for Global aircraft
trading. Consolidated cost of sales for the three months ended June 30, 2008
increased $315K, or 3.4%, to $9.623 million from $9.308 million for the three
months ended June 30, 2007. Cost of sales included $3.037 million of inventory
write-down. Consolidated cost of sales, absent the inventory write-down,
decreased 29.2% as compared to the 2nd quarter of 2007. Consolidated cost of
sales, as a percentage of revenue, increased in the second quarter of 2008 to
129% from 83% for the same period in 2007. Absent the inventory write-down,
consolidated cost of sales as a percentage of revenue was 88% in the second
quarter of 2008.
Consolidated net sales for the six months ended June 30, 2008 decreased $3
million, or 17.5%, to $14.362 million from $17.403 million for the six months
ended June 30, 2007. Consolidated cost of sales for the six months ended June
30, 2008 increased $464K, or 3.5%, to $13.898 million from $13.434 million for
the six months ended June 30, 2007. Consolidated cost of sales included $2.925
million of inventory write-downs. Consolidated cost of sales, absent the
inventory write-down, decreased 19.4% as compared to the six months ended June
30, 2007. Consolidated cost of sales, as a percentage of revenue, increased in
the first six months of 2008 to 96.8% from 77.2% for the same period in 2007.
Absent the inventory write-down, consolidated cost of sales as a percentage of
revenue was 75.4% in the first and second quarters of 2008.
51
Consolidated selling, general and administrative expenses for the three months
ended June 30, 2008, as percentage of sales, were 56.5%, which was 42.8% greater
than for the same period in 2007. For the first half of 2008 consolidated
selling, general and administrative expenses were 44% of sales as compared to
18% in the same period of 2007. The bad debt expense of $1.816M recorded in 2008
impacts the percentages for the first six months by 12.6%.
Company-wide gross profit for the six months ended June 30, 2008 of $.464
million was less than the same period in the prior year by $3.5 million.
Consolidated gross profit was impacted during the second quarter by the write
down of our aircraft inventory in the amount of $3.037M. Gross profit levels
during any particular period are dependent upon the number and type of aircraft
serviced, the contract terms under which services are performed and the
efficiencies that can be obtained in the performance of such services.
Significant changes in any one of these factors could have a material impact on
the amount and percentage of gross profits. Additionally, gross profit could be
impacted in the future by considerations as to the value of our inventory.
Consolidated S G &A expense for the six months ended June 30, 2008 was
$6,356,833 a 103% increase over the $3,128,191 recorded in the first six months
of 2007. The 2008 results included bad debt expense of $1.816M resulting from
allowances taken against accounts receivable balances of HAT.
Consolidated interest expense was $380,360 as compared to $378,889 in the second
quarters of 2008 and 2007, respectively.
Aircraft maintenance and repair
During the second quarter of 2008, our maintenance segment revenues were $5.1M
an increase of 86.6% from the second quarter of 2007 which was $2.7M. Cost of
sales for our maintenance segment increased $1.75 million or 79.4% from the
second quarter of 2007amount of $2.2M to $3.96M for the second quarter of 2008.
Cost of sales as a percentage of revenue was 77.4% and 80.5% in the second
quarters of 2008 and 2007, respectively.
The core revenue-producing activity at our aircraft maintenance and repair
segment, HAT, is the sale of labor hours. During the first six months of 2008,
revenue produced from labor was $5.942 million as compared with $4.936 million
the first six months of 2007. This represents an increase of 20.4%. Billable
hours for the 2nd quarter of 2008 were 45,055 compared with 30,703 in the 1st
quarter, a 47% increase. Billable hours for the 2nd quarter of 2007 were 32,057
compared with 45,518 hours in the 1st quarter of 2007.The comparative costs for
all direct labor, including work performed by outside contractors, was $3.875M
in the first six months of 2008 compared with $2.721M for the same period in
2007. All direct labor costs were 37.7% of total maintenance sales in first six
months of 2008 compared with 32.8% in the first six months of 2007. All direct
labor costs were 65.2% of labor sales in first six months of 2008 compared with
55.1% in the first six months of 2007. The relationship between direct labor
costs and direct labor revenues saw relative costs increase 10.1% from 2007 to
2008. Direct labor percentages will always vary to some degree due to the nature
of flat-rate bidding as opposed to billing for all time and materials.
Additionally, the Company gradually increased its labor rate, where possible,
during the first quarter of 2008. A substantial sudden increase in volume can be
expected to have a temporary impact on efficiencies and are viewed by Management
as a temporary consequence of growth. A sudden decrease in volume should have a
negative impact due to the retention of core labor during slower periods.
Management is confident that adjustments to volume changes should be made and
profitability will benefit over time.
S G &A expenses for the 1st and 2nd quarters of 2008 were $3.019M compared with
$1.393M for the 1st and 2nd quarters of 2007. Absent the bad debt expense
recorded during the 2008 period of $1.816M, S G & A expense is about $190K less
in 2008 than in 2007. The bad debt expense consists primarily of increased
allowance for Avolar of $929K, BCI of $1.75M and GALP of $656K as discussed
below:
52
Avolar
------
The progress Avolar made in paying down their balance in 2007 has not
continued in 2008. With the additional reserve taken in 2008, the company
has reserved a total of 75% of the Avolar account receivable.We have
engaged legal counsel in Mexico to pursue collection of the full balance of
$1.658M plus interest.
BCI
---
We have engaged legal counsel, made final demand for payment, and are
preparing a suit for the total amount due of $2,331,149 plus interest, plus
damages that will be served on BCI near term. We have increased our reserve
to 75% of the BCI account receivable.
GALP
----
GALP is claiming that the 737-300 sold to them by Global did not meet the
agreed upon delivery conditions for that aircraft. Management has written
down the GALP account receivable by 50% as a result.
Part sales
Our parts sales segment increased from $1.385M in the second quarter of 2007 to
$2.166M for the same period in 2008, a 56% increase. The Company experienced a
25% increase in sales to third parties during 2008's 2nd quarter over the 2nd
quarter of 2007. As a percentage of part sales revenue, cost of sales was 83%
and 75% for the quarters ending June 30, 2008 and 2007, respectively.
S G & A expenses for our part sales segment remained nearly constant from period
to period, $303K in the second quarter of 2008 as compared to $305K in the
second quarter of 2007.
Aircraft trading
Aircraft sales revenue in the first half of 2008 was $3.550M compared with $7.9M
in the first half of 2007. Aircraft sales tend to vary significantly on a
period-to-period basis based on the particular aircraft sold as well as the time
necessary to complete a transaction.
Cost of sales for our aircraft-trading segment was 86.7% of revenue in the first
half of 2007 compared with 181.5% of revenue in 2008. Cost of sales includes an
inventory write-down of $3.037M, which was 85.6% of revenue. In 2007, Global
received five 737-200s and one MD82 aircraft from the wind down of our Jetglobal
partnership. At the time of the transaction, market conditions supported the
cost recorded for the transaction of $1.5M per aircraft for the 737-200s and
$1.15M for the MD82. The market for these aircraft has fallen and consequently,
the Company reduced the carrying value of its aircraft assets by $2.037M during
the second quarter of 2008.
53
Additionally, impacting the relationship between revenue and cost of sales was
the 2008 transaction with Pamir Airlines. Pamir Airlines was given credit on the
2008 transaction for $1.4M, about 47% of revenue, which had been forfeited on an
earlier transaction dating back to 2007. Management elected to give Pamir
Airlines credit on this new sale (1) in order to enhance cash flow and aid in
paying down our senior debt and (2) to eliminate a potential legal adversarial
situation. Global has also received a deposit of $550,000 from Pamir to be
applied to the purchase of a second aircraft.
S G &A expenses for the first half of 2008 were $2.415M as compared with $1.104M
in the first half of 2007. The major period-to-period increases recorded were
$580K in commissions, $542K in legal professional and director fees, $130K in
salaries and $52K in employee benefit plans,
The following tables depict our pre-tax operating profit or (loss) for the first
six months and the second quarter of 2008 and 2007 on a stand-alone basis and a
consolidated basis for Global, HAT and World Jet:
2nd quarter of 2008
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 956,667 6,257,231 2,123,278 (1,854,213) 7,482,963
Less: Cost of sales 4,904,749 4,990,681 1,575,569 (1,847,750) 9,623,249
Less: Expenses 1,293,031 2,636,593 303,318 (7,080) 4,225,862
Pre-tax Operating Profit (Loss) (5,241,113) (1,370,043) 244,391 617 (6,366,148)
First six months of 2008
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 2,967,750 10,275,841 3,745,524 (2,627,167) 14,361,948
Less: Cost of sales 6,124,880 7,729,369 2,664,751 (2,620,704) 13,898,296
Less: Expenses 2,415,527 3,333,489 615,514 (7,697) 6,356,833
Pre-tax Operating Profit (Loss) (5,572,657) (787,017) 465,259 1,234 (5,893,181)
2nd quarter of 2007
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 7,850,000 2,739,676 1,373,869 (789,655) 11,173,890
Less: Cost of sales 6,846,083 2,347,804 903,667 (789,655) 9,307,899
Less: Expenses 519,666 704,605 305,053 (618) 1,528,706
Pre-tax Operating Profit (Loss) 484,251 (312,733) 165,149 618 337,285
First six months of 2007
Global HAT World Jet Intercompany Consolidated
Stand-Alone Stand-Alone Stand-Alone Eliminations
Revenues 7,900,000 8,299,107 3,491,025 (2,287,242) 17,402,890
Less: Cost of sales 6,846,317 6,358,770 2,516,012 (2,287,242) 13,433,857
Less: Expenses 1,103,554 1,402,185 623,687 (1,235) 3,128,191
Pre-tax Operating Profit (Loss) (49,871) 538,152 351,326 1,235 840,842
54
The current registration includes 12,715,386 shares of common stock of the
Company that have been issued pursuant to a private placement exempt from
registration with the SEC pursuant to Rule 506 under Regulation D as promulgated
by the SEC pursuant to Section 4(2), and 18,632,694 shares of common stock of
the Company issueable upon exercise of warrants 7,200,000 of which were
exercised by selling shareholder Barron on July 27, 2005; 399,000 of which were
exercised by selling shareholder JG Capital on September 20, 2005 and 22,812
which were exercised by selling shareholder Grushko on September 14, 2005 (2).
If all warrants are exercised, the number of shares of common stock the Company
is registering (31,348,080) will represent 63.6% of the authorized and
outstanding shares of common stock of the Company.
Unless otherwise indicated, "Global Aircraft Solutions, Inc." "we", "us" "our"
"Company" refer to Global Aircraft Solutions, Inc. and its subsidiaries.
Key Operational Strategies
Business Philosophy
- -------------------
Management has rejected a policy of growth for growth's sake in favor of
focusing on profitability and building a good reputation for Global's operations
group by limiting work contracts to those perceived to have a high probability
of success, or those that are supportive of Global's aircraft trading
activities. This strategy is also very beneficial to the company's marketing
efforts in that a good track record of maintenance and modification contracts
delivered successfully on-time and on-budget is by far the most potent tool for
securing new work contracts.
The principal focus of the operations group at Global is the implementation of
strategies to enhance worker productivity, which include assigning dedicated
crews and dedicated project managers to each aircraft in work, ongoing training
for supervisors, project managers and quality control personnel, and improving
material flow to each job site.
In managing its operations, the Company is committed to continuously evaluating
the adequacy of its management structure and its existing systems and
procedures; including its quality control, financial, and internal controls
systems. Global is focused on maintaining a small, but tightly knit and
multi-tasking, highly experienced management team.
Goals
- -----
Corporate goals are very narrow and focused. They are:
Maximize the profitability of the Company by identifying and developing those
business opportunities that offer the highest return on investment.
Optimize the Company's debt and capital structure.
Cautiously build Company value through the strategic exploitation of synergistic
arbitrage and acquisition opportunities.
55
Marketing Strategies
- --------------------
HAT has identified maintenance and modification of the Boeing 727, 737 and 757
and the DC-9/MD80 jet aircraft as its major target markets through at least
2008. Although aircraft maintenance is a multi-billion dollar annual industry,
in many ways it is a very tightly knit community in which many key players are
well known to one another. As a result, there exists a surprisingly efficient
flow of information throughout the industry that makes a company's reputation by
far its most important marketing asset. The market for HAT's aircraft
maintenance and modification services, although global in scope, is made up of a
relatively small number of aircraft owners and operators. As such, HAT does not
rely on media advertising, but rather focuses its marketing efforts on building
personal relationships with the aircraft owners, operators, operations managers,
consultants, customer representatives and key industry vendors that make up this
surprisingly tight knit international aviation community.
World Jet's marketing plan centers around building a loyal base of customers by
providing quality service. World Jet strives to broaden its customer base by
building inventories, through bargain purchases and securing consignment
arrangements for large inventories, which provide customers with a broad range
of parts availability.
While Global does provide press releases to industry trade journals, the
majority of its advertising budget is spent on educating and marketing to
customers and customer representatives on a face-to-face basis. Some of these
meetings are made at industry trade conferences or at the customer's offices.
More frequently, these meetings take place in Tucson when the customer or its
representative visits to inspect the Company's facilities or aircraft stored at
the HAT facility. Since the most potent marketing tool available to any repair
station is a good reputation for delivering aircraft back to its customers on
time and on budget, much of HAT's "marketing" really consists of maintaining
good communication, performing well and otherwise making sure that each
maintenance visit is an enjoyable experience for the customer and his on-site
representatives or consultants. Global regularly provides press releases on
major jobs and provides interviews for trade journals as a method for
maintaining visibility in the industry. Global also maintains a web site that
describes its facilities, personnel and capabilities at
http://www.globalaircraftsolutions.com/ .
Competition
- -----------
The barriers to entry in the commercial jet maintenance and modification
business are very high due to the stringency of FAA regulation, the complexity
and sophistication of modern jet aircraft, and the reluctance of operators to
entrust their aircraft maintenance to new, unproven start-up facilities. Even if
a new entrant succeeds in completing the very costly and time consuming process
of obtaining FAA approval for a new repair station, they are then faced with the
difficult task of convincing operators to input aircraft into an unproven
facility that may experience learning curve cost overruns and delays.
Given the many billions of aircraft maintenance dollars spent each year, and the
relatively limited number of approved repair stations, much of the meaningful
competition in today's aircraft maintenance industry is not so much competition
for customers as it is for qualified personnel to perform the work. In view of
the importance of employing highly competent personnel in the quality critical
field of commercial aircraft maintenance, HAT's pay scales generally meet or
exceed national standards. Also, HAT has been very successful in recruiting key
personnel by focusing on providing a good quality work environment and due to
the desirability of Tucson's lifestyle.
In the local area, HAT's major competitor for narrow-body aircraft maintenance
work is Evergreen Air Center, which is located in Marana, Arizona and employs
approximately 500 people. Evergreen Air Center services Evergreen Airline's
fleet of Boeing 747 and McDonnell Douglas DC-9 commercial aircraft and provides
services to outside customers.
56
Nationally, HAT competes in the narrow-body segment of the market with Tramco,
owned by Goodrich Corporation and located in Seattle, Washington; AAR Group,
Inc., located in Oklahoma City, Oklahoma; Mobile Aerospace, located in Mobile,
Alabama; Timco, located in Greensboro, North Carolina, Macon, Georgia and Lake
City, Florida; and FlightStar, located in Jacksonville, Florida.
Internationally, HAT competes with Coopesa, located in San Jose, Costa Rica and
Aeromar, part of the Taca Groupa, located in San Salvador, El Salvador.
Because World Jet is a parts broker, the most significant determiner of
competitive advantage for World Jet is parts availability. Major parts' brokers
competing in the marketplace with World Jet include: Pac Air Industries, Unical
Aviation, Pacific Air Industries, Volvo Aero, Aero Controls, AAR-Allen Aircraft,
Kellstrom Industries, Broward Aviation, Memphis Group, ABX-Air, A.J. Walter,
Turbo Resources, Jet Accessory Center, Aero Inventory-UK, American Jet
Industries, Continental A/L and Wencor West.
Operations Strategies
- ---------------------
Through experience, the management team at HAT has learned that, in the aircraft
maintenance business, taking on too much work results in reduced profit margins,
dissatisfied customers and, ultimately, the loss of future business. On the
other hand, limiting work contracts to the number and type that can be performed
effectively results in improved profit margins and increased future business
opportunities.
Also, for budgetary purposes, most aircraft maintenance customers today prefer
fixed-bid contracts on their scheduled maintenance checks. This offers efficient
well-managed repair stations the opportunity to significantly improve their
profit margins, while still maintaining customer satisfaction.
By maintaining small, tightly knit work crews, retaining experienced crew chiefs
and carefully screening work contracts, HAT has found that it can routinely come
under budget on scheduled aircraft maintenance contracts fix-priced at rates
widely accepted by the industry. Accordingly, while mindful of the need for
long-term growth by the Company, Management is presently focused on pursuing a
strategy of maximizing operations profitability and customer satisfaction rather
than rapid growth.
Financial Strategies
- --------------------
The principle financial strategy of Global is to secure debt financing
sufficient to insure the efficient day-to-day operation of the HAT and World Jet
facilities and enable the Company to provide reasonable payment terms to
creditworthy customers. Management is also interested in securing additional
funding for the purpose of certain productivity-improving or synergistic
acquisitions and other asset-based business opportunities.
Business Development Strategies
- -------------------------------
As described in Operations Strategies above, Management is, for the foreseeable
future, taking a conservative approach to growing the core aircraft maintenance
services business and is focusing aggressively on seeking to increase operating
profit margins and customer satisfaction. In practical terms, this translates
into annual sales revenue growth rates of no more than 20% in the Company's core
aircraft maintenance business and greater management focus on growing the less
labor-intensive and higher-margin aircraft trading and aircraft parts sales
segments of the Company. Our goal is a growth rate in both the aircraft trading
and parts sales side of the business in the range of at least 10% to 25% per
year over at least the next two years.
57
Distressed aviation assets often come to the attention of HAT, as a maintenance
service provider and aircraft storage facility, prior to becoming known to the
market at large. Frequently, such assets can be placed with end-users known to
HAT. These arbitrage opportunities can involve distressed parts inventories,
distressed aircraft that can be torn-down for parts, or distressed aircraft that
can be purchased, repaired and sold or leased at a profit. These types of
arbitrage opportunities annually represent potentially tens of millions of
dollars of additional lucrative potential business available to HAT. As Global
gains more access to capital from outside sources or as a result of Company
operating profits, management anticipates the revenue to Global from these types
of opportunistic arbitrage transactions may become a significant portion of
Global's future growth.
The large aircraft repair business is highly competitive. Revenues are sensitive
to adverse changes in the air carrier business. The heavily regulated airline
industry, however, requires scheduled maintenance and repair services
irrespective of industry economics, thus providing a reasonably steady market
for HAT's services and for World Jet's parts. HAT competes principally on the
high quality of its services, its price competitiveness due to its location in
the Southwest with its dry, mild climate and ability to do many MRO projects
outdoors, and the low cost of its Tucson facility. World Jet competes on parts
availability, time of delivery, and competitive pricing.
Employees and Employment
At December 31, 2007, a total of approximately 112 employees were employed by
HAT, 20 of which performed administrative functions. World Jet had approximately
20 employees consisting of sales staff and administrative personnel. Global had
a staff of 6.
All employees are highly trained and qualified. During the last quarter of 2003,
a reassessment of the HAT business plan resulted in the decision to employ a
work force whose number would be adequate to handle the workflow without
downtime in slower periods. This decision was focused on increased efficiency
and profitability. The employment capacity of the facilities currently occupied
by HAT is estimated to be at least up to 500 full-time employees working two
staggered shifts, which allows for considerable growth in the future. Global,
World Jet and HAT are non-union and believe that their relationships with
employees are good. HAT's management is also experienced in the hiring,
training, and retention of people necessary to operate its repair, maintenance
and modification facilities.
Based upon the available talent pool, Global, World Jet, and HAT believe that
their needs for labor will be addressed in the future. This includes the key
technical positions that require licensure by the FAA. The Company does not
expect that identifying; attracting and retaining qualified personnel in any of
the key areas will be difficult.
In addition, Pima Community College, located in Tucson, has been training
mechanics since 1991. Pima operates a major new training facility adjacent to
HAT's facility. HAT works closely with Pima to apprentice new Pima students to
work at HAT and to hire experienced Pima alumni.
Due to complexity of aircraft maintenance operations, it is essential that HAT
employ highly experienced and highly competent people in key management
positions. This is necessary both to attract and keep business and to maintain
HAT's good standing with the FAA. Accordingly, HAT has found it most cost
effective to attract and keep key personnel by offering attractive salaries,
while aggressively replacing those key employees who, after given a reasonable
opportunity to do so, fail to successfully meet their job requirements. The
critical public safety issues associated with commercial aircraft maintenance
require that HAT quickly identify and address any shortcomings in the oversight
of its activities.
Similarly, in an industry where aircraft down time represents tens of thousands
of dollars a day in lost revenue, and a misdrilled hole or a bolt left in an
engine inlet can cost tens of thousands of dollars to address, HAT has found it
most cost effective to pay its production personnel wages at the higher end of
national standards while demanding in return a high level of professionalism
from its employees. To insure that a good level of communication is maintained
with all employees, HAT provides regular written evaluations to all employees.
58
Product liability
Our business exposes us to possible claims for personal injury or death, which
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 an aircraft part. While HAT maintains what we believe to be adequate
liability insurance to protect us from claims of this type, based on our review
of the insurance coverage maintained by similar companies in our industry, we
cannot assure you that claims will not arise in the future or that our insurance
coverage will be adequate. Additionally, there can be no assurance that
insurance coverage can be maintained in the future at an acceptable cost. Any
liability of this type not covered by insurance could materially adversely
affect our business, financial condition, results of operations or ability to
operate as a going concern.
Industry Overview
As is the case in most industries, the aviation industry is cyclical in nature.
Historical evidence suggests that the typical business cycle in the aviation
industry has duration of approximately 10 years peak to peak. The recession in
the aviation industry which was triggered by terrorist activity seems to have
bottomed out and the industry is rebounding evidenced by a SpeedNews report that
the past two years shows the first consecutive years profit for U.S. Airlines
since 1999-2000. We believe that the following trends are currently affecting
the aviation industry and our operations in particular:
National Economy
The national economy appears to be trending towards recession. If this trend
continues, then within two years or less, it will materially effect our
business, with aircraft being withdrawn from service by the major airlines and
becoming available in the secondary market. This gives rise to potential
opportunity for the Company, in both aircraft trading and heavy maintenance
return-to-service work.
Growth in the Market for Aircraft MRO Services
The summer 2007 edition of MRO Management cites the industry consultancy 2007
AeroStrategy Annual Industry Forecast as projecting 3.6% annual MRO growth over
the ten years from 2006 to 2016 rising from $41 billion to $58 billion,
respectively. Of those numbers 14% is classified aircraft heavy maintenance, 21%
modifications, 21% line maintenance, 21% component maintenance and 35% engine
maintenance. HAT's target market of specific narrow body commercial jet aircraft
constitutes an estimated 25% of the worldwide commercial aircraft maintenance
market.
We anticipate that these factors will in the long term increase the demand for
maintenance and repair services. Based on this and other data, HAT estimates the
worldwide market for MRO services in 2008 at over $40 billion annually and that
approximately $5 billion of that amount will be provided in North America. We
believe airlines perform approximately well over half of the North American
services and that the balance is performed by independent facilities such as
HAT.
Diversified Services and Strong Competitive Position
Our services include a wide range of aircraft maintenance and repair services
across a number of different airframes. The breadth of our services allows us to
be a vendor of choice to our customers in a highly fragmented industry. HAT
competes principally on the high quality of its services, its price
competitiveness due to its location in the Southwest with its dry, mild climate
that allows services to be performed with only rare weather interruptions and to
do much of its service out of doors, and the low cost of its Tucson facility.
59
Emphasis on Quality
The FAA and EASA license our MRO facility. We emphasize quality and on-time
delivery to our customers. We are focused on meeting and exceeding FAA and EASA
requirements. As industry, regulatory and public awareness have focused on
safety, our ability to meet and exceed these requirements on a consistent basis
has become important to customers.
LIQUIDITY AND CAPITAL RESOURCES
On December 9, 2005, Global, HAT and World Jet, (collectively the "Borrowers")
closed on a first Modification to the May 5, 2005 Initial Loan Agreement with
M&I Marshall & Ilsley Bank ("M&I Bank"). The modification increased the $2.5
million operating line of credit to $5 million ("Line of Credit"); added a
Guidance Line of Credit in the amount of $7 million ("Guidance Credit") solely
for the acquisition of aircraft and Letter of Credit Facilities in combined
amounts not to exceed $200,000. The Guidance Credit portion of the agreement
expired mid 2007. The Letter of Credit Facility expired mid-2007 and the total
amount of the Line of Credit was amended to $4,872,000. The interest rate on the
Line of Credit was reduced from 3.50% per annum to 3.00% per annum in excess of
the applicable LIBOR rate. At September 30, 2007 the applicable interest rate
was 8.72% per annum. The Line of Credit was secured by a first priority lien on
Global's, HAT's and WJ's personal property. The original term of the Line of
Credit expired on October 31, 2007 and the entire outstanding principal balance,
all accrued and unpaid interest, and all other sums due and payable under the
Line of Credit were due on the expiration date. During the fourth quarter of
2007, M&I extended this expiration date 90 days until Jaunary 31, 2008.
On December 20, 2007, the Company secured other financing, (see Short-Term
Financing below), and satisfied the M&I obligation in full. The proceeds of this
new financing also were used to satisfy the following obligations:
On June 21, 2007, the company secured a line of credit with the Frank and Maxine
Smith Family Trust in the amount of $1,000,000. The terms of the line of credit
include an initial $25,000 fee, 10% of each draw-down amount as fees and simple
interest on the unpaid balance at 15% per annum. The note was all due and
payable November 20, 2007. John B. Sawyer was guarantor on the line of credit.
On June 30, 2007, the company entered into a note agreement with Jeffrey Ervine,
a related party pursuant to the GALP partnership. The principal amount of the
note was $800,000 with simple interest at 12% per annum plus a fee of $80,000.
The term of the note was six months.
During the second quarter of 2007, the Company received $100,000 from Raymon C.
Flores ("Flores"). On July 17, 2007, the Company and Flores entered into a note
for $300,000. The Company received an additional $200,000 during July 2007. The
interest on the note was payable at $8,000 per week and the unsecured note was
due October 27, 2007. Prior to the formal agreement on July 17, 2007, the
Company had agreed to pay interest on the $100,000 received during the second
quarter of 2007 at a rate of $4,000 per week. On October 31, the Company paid
$200,000, plus accrued interest, and the due date for the remaining balance of
$100,000 was extended sixty days.
During 2006, Avolar's increasing fleet size resulted in increasing receivables
due HAT. At the same time, Avolar's past due receivables increased
significantly. In order to protect the Company's financial status, late in
February 2007, Management put Avolar on a COD basis and negotiated a schedule
for Avolar to bring its account current. The parties also agreed that Avolar
would obtain whatever services and credit it could from other maintenance
service providers in order to facilitate Avolar's pay-down of monies due HAT.
The payment amount due each week on Avolar's payment schedule was reduced during
the second quarter and currently Avolar is in compliance with their payment
agreement. Avolar has stated its intention to bring its accounts current with
HAT and World Jet and renew its maintenance and support agreements with both
companies.
60
By the end of the fourth quarter 2006 and into the first quarter 2007, the past
due amounts due HAT by BCI had also reached unacceptable levels. The parties
negotiated a settlement, which was discussed earlier, related to the transfer of
certain aircraft to eliminate the Company's ownership in Jetglobal. Although BCI
is presently cooperating with the Company to resolve payment issues equitably, a
final agreement relative to a cash payment to settle the amounts due by BCI has
not at this time been reached between the companies. Management believes that
the receivable amounts reflected on the financial statements, presented herein,
are recoverable
At this time, the HAT plans to expand its capabilities to include MRO servicing
of new-generation aircraft. It is estimated that the necessary tooling to
accomplish this expansion will cost between $200,000 and 250,000. The Company
has no plans to make any other significant capital expenditures during 2008.
Our ability to make payments of principal and interest on outstanding debt will
depend upon our future operating performance, which will be subject to economic,
financial, competitive and other factors, some of which are beyond our control.
Our ability to repay our indebtedness is dependent on several factors: our
continued ability to secure high profit margin jobs, more fully utilizing our
capacities, creating a higher bottom line and consequently more cash; and our
ability to establish revolving credit lines, which we can draw on as needed.
Changes in the Company's Balance Sheet for the year ended December 31, 2007
reflected several events. Total assets increased from $28,474,276 at December
31, 2006 to $29,694,148. Significant changes for the period were:
Cash on hand increased $1,117,158 due to the funding from the debenture
transaction, (see Short-Term Financing below).
Accounts receivable decreased $458,679.
Total inventory increased $8,576,810, largely as a result of Global receiving
aircraft valued at $8,650,000 under the settlement agreement with BCI.
The notes receivable balance of $455,859 decreased to $0 as all notes due to the
company were paid off.
Due from equity investee partner decreased from the 2006 balance of $3,949,419
to $472,000 as a result of the Jetglobal settlement with BCI.
Equity in net assets of and advances to affiliates decreased $6,063,067 due to
the Jetglobal Settlement Agreement.
During the year ended December 31, 2007 total liabilities increased from
$12,720,070 at December 31, 2006 to $15,952,315 primarily due to:
Notes payable increased from $5,101,568 at December 31, 2006 to $10,268,091 at
December 31, 2007 as a result of an additional $10,000,000 debenture agreement,
(see Short-Term Financing below), and the paying off of all prior debt, with the
exception of insurance financing.
Accounts Payable decreased $1,949,791.
Billings in excess of costs and estimated earnings on contracts in progress
increased $598,736.
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Cash
As of December 31, 2007, we had $1,221,598 in cash on hand and approximately
$7,412,120 in accounts receivables.
During 2007, the Company experienced a major cash deficit. In December of 2007
the Company was able to find the source of funding detailed under Short-Term
Financing below. This funding was used to (i) eliminate the expensive short-term
debt the Company had acquired to provide the cash necessary for day-to-day
operations and (ii) pay off a $5,00,000 loan from M&I Marshall & Ilsley Bank.
The Company believes that it will fully recover from the effects of the cash
shortage which they experienced for most of 2007. Management bases its
assessment on several factors: The Company will continue efforts to sell the
aircraft received due to the termination of its partnership in Jetglobal.
Management believes that a conservative estimate of cash realized from the sale
of these aircraft will be in excess of $8.6 million.
The Company will continue to aggressively collect on our older outstanding
receivable balances from Avolar and BCI.
Our HAT operation will increase its marketing effort in order to secure new
customers to fill the void left by our withdrawal from Jetglobal and our
temporary cessation of work for Avolar. HAT is being successful in securing
profitable maintenance contracts with new customers.
Our HAT subsidiary has completed and billed over $2 million in work contracted
by BCI on aircraft owned by BCI and still located in disabled condition on HAT's
facility. These aircraft have been repossessed by GMAC, who plans to place them
with another operator. Management has taken a firm position that all money
improvements made to the aircraft will be received prior to the departure of the
aircraft.
Management believes that anticipated cash flows from the operations of HAT and
World Jet and from the anticipated sale of our aircraft inventory will be
adequate to sufficiently provide working capital and satisfy the requirements of
our short-term debt. We cannot assure you that financing alternatives will be
available to us in the future to support our working capital requirements should
they be needed.
Short-Term Financing
On December 20, 2007, Global and its subsidiaries HAT, World Jet and Hamilton
Aerospace S.A. de C.V. ("HATMEX") (collectively the "Companies") entered into
and closed on three non-convertible secured debenture financing agreements with
two accredited institutional investors ("Holders") in the total amount of $10
million (collectively the "Debentures"). These Debentures consist of (i) one
non-convertible senior secured debenture in the amount of $5 million; (ii) one
non-convertible senior secured debenture in the amount of $3 million; and (iii)
one non-convertible junior secured debenture in the amount of $2 million. The
Debentures accrue interest at the rate of 15% per annum which is payable
quarterly in arrears beginning April 1, 2008. The Debentures also provide for a
cash flow recapture to the Holders equal to 60% of any proceeds related to the
sale of Global's aircraft inventory. The Debentures mature on December 19, 2008.
62
In connection with the Debentures, the Companies and Holders executed a Pledge
and Security Agreement, Aircraft Security Agreements, Securities Purchase
Agreement, Registration Rights Agreement, and a Post Closing Agreement.
Additionally, Global issued a Warrant (as defined and detailed below) to one
Holder as an inducement to purchase a Debenture. Mr. John B. Sawyer, President
of the Companies, also executed a personal guaranty for $2 million of the
Debentures ("Personal Guaranty"). These transaction documents are attached
hereto as Exhibits to this Form 8-K. Mr. Ian Herman, CEO of the Companies,
executed an identical personal guaranty to Mr. Sawyer for $1 million of the
Personal Guaranty.
Pursuant to the Pledge and Security Agreement and Aircraft Security Agreements,
the Debentures are secured by (a) a first lien on all the current and future
assets of the Companies including any owned aircraft; (b) the equity interests
currently held by Global in HAT, WJ and HATMEX; and (c) the 40% membership
interest of Global in Global Aircraft Leasing Partners, LLC. However, in the
event of default, foreclosure of the foregoing equity and membership interests
held by Global can only be enforced if the foreclosure on all other assets of
the Companies is insufficient to satisfy repayment of the Debentures.
Similar to the foreclosure conditions set forth in the preceding paragraph,
enforcement of the Personal Guaranty cannot occur until and unless the
foreclosure on all other assets of the Companies is insufficient to satisfy
repayment of the Debentures.
As an inducement for Holder Victory Park Master Fund, Ltd. ("Victory Park") to
purchase a Debenture, Global issued Victory Park a 5-year warrant exercisable
into 1,500,000 shares of Global common stock ("Common Stock") at an exercise
price of $0.45 per share ("Warrant"). However, if Victory Park should choose to
exercise the Warrant then it would receive a reduced number of Common Stock
shares based upon the cashless exercise formula.
The Warrant also contains a contingent obligation which shall be determined
pursuant to a one-time value test on December 20, 2008 ("Test Date"). In the
event that the difference between the Common Stock VWAP (for the 20 trading days
prior to such Test Date) and the exercise price multiplied by the number of
Warrant shares is not at least equal to $750,000 ("Target Value"), then Global
will be obligated to issue an additional warrant to Victory Park. If Global is
obligated to issue an additional warrant (such warrant will contain identical
terms and provisions as the Warrant set forth above), that warrant shall be
exercisable into that number of Common Stock shares that would cause the
additional warrant and the Warrant combined to equal the Target Value, but in no
event shall the additional warrant be exercisable into more than 500,000 warrant
shares.
Under the Registration Rights Agreement, Victory Park cannot request Global to
register the underlying warrant shares for at least six months after the closing
date. After June 20, 2008, Victory Park can request that Global commence the
process to register the warrant shares. If Global is required to register the
warrant shares subsequent to June 20, 2008, Global will be obligated to file a
registration statement within 45 days of such request and cause the registration
statement to become effective within 270 days of filing. In the event Global is
asked to file a registration statement and fails to comply with the filing and
effectiveness deadlines as set forth above, Global will be obligated to pay
Victory Park liquidated damages in the amount of 2% of the total amount of the
Debentures each and every month until Global satisfies the filing and/or
effectiveness requirements.
The Post Closing Agreement allows the Companies to complete certain conditions
of closing within certain time frames subsequent to closing and subjects the
Companies to an event of default should the Companies fail to meet such
conditions within the time frames set forth in the Post Closing Agreement.
63
Upon the occurrence of certain events of default as defined in the Debentures
and the Post Closing Agreement, including events of default under the
transaction documents related to the Debentures, the full principal amount of
the Debentures, together with interest and other amounts owing become
immediately due and payable. Moreover, an event of default also subjects the
assets of the Companies and the equity and membership interests as well as the
Personal Guaranty to foreclosure.
Proceeds of the Debentures were utilized to satisfy and terminate the Company's
existing credit facility ($5,052,336.26) and other existing indebtedness as well
as to pay down certain trade accounts and fund working capital.
Pursuant to the closing of this transaction, the Companies incurred a closing
fee equal to 3% of the Debentures and legal and accounting costs.
M&I Marshall & Ilsley Bank has an outstanding Letter of Credit for $128,000 to
Tucson Airport Authority as part of the lease agreement for the HAT facility.
This Letter of Credit is secured by a certificate of deposit in the amount of
$128,000.
Long-Term Financing
The long-term liabilities of Global primarily consist of $171K due on
capitalized lease obligations.
Possible Cancellations, Reductions or Delays
- --------------------------------------------
A large portion of our operating expenses is relatively fixed; therefore
cancellations, reductions or delays in orders by a customer or group of
customers could materially adversely affect our business, financial condition or
results of operations.
Quarter Ending March 31, 2008
- -----------------------------
Changes in the Company's Balance Sheet for the quarter ended March 31, 2008
reflected several events. Total assets decreased from $29,694,148 at December
31, 2007 to $28,127,085. Significant changes for the period were:
Cash on hand decreased $952,422 due to the use of funding from the
debenture transaction, (see Short-Term Financing below), principally to
pay-down accounts payable.
Accounts receivable increased $1,323,227 largely due to work performed at
our HAT facility.
Total inventory decreased $1,451,932, mainly as a result of Global selling
an aircraft as a glider (retaining the engines in inventory).
Restricted funds increased $175,824 due to a required performance bond
related to a HAT customer.
Prepaid expenses decreased $191,648.
Deposits with vendors decreased $243,181 from the December 31, 2007 amount.
64
During the quarter ended March 31, 2008 total liabilities decreased from
$15,952,315 at December 31, 2007 to $14,233,499 primarily due to:
Notes payable decreased $1,182,612 as a result of payments on the note
related to the debenture agreement, (see Short-Term Financing below), of
$1M plus $183K related to financed insurance premiums and capital lease
obligations.
Notes payable, related party increased $300,000, (see Short-Term Financing
below)
Accounts Payable decreased $1,125,173.
Billings in excess of costs and estimated earnings on contracts in progress
increased $276,331.
Cash
As of March 31, 2008, we had $269,176 in cash on hand and $8,735,347 in accounts
receivable.
During 2007, the Company experienced a major cash deficit. In December of 2007
the Company was able to find the source of funding detailed under Short-Term
Financing below. This funding was used to (i) eliminate the expensive short-term
debt the Company had acquired to provide the cash necessary for day-to-day
operations and (ii) pay off a $5,000,000 loan from M&I Marshall & Ilsley Bank.
The Company believes that it will fully recover from the effects of the cash
shortage, which they experienced for most of 2007. Management bases its
assessment on several factors:
o The Company will continue efforts to sell the aircraft received due to
the termination of its partnership in Jetglobal. Management believes
that a conservative estimate of cash realized from the sale of these
aircraft will be in excess of $8.6 million.
o The Company will continue to aggressively collect on our older
outstanding receivable balances from Avolar and BCI.
o Our HAT operation will increase its marketing effort in order to
secure new customers to fill the void left by our withdrawal from
Jetglobal and our temporary cessation of work for Avolar. HAT is being
successful in securing profitable maintenance contracts with new
customers.
o Our HAT subsidiary has completed and billed over $2 million in work
contracted by BCI on aircraft owned by BCI and still located in
disabled condition on HAT's facility. These aircraft have been
repossessed by GMAC, who plans to place them with another operator.
Management has taken a firm position that all money improvements made
to the aircraft will be received prior to the departure of the
aircraft.
Management believes that anticipated cash flows from the operations of HAT and
World Jet and from the anticipated sale of our aircraft inventory will be
adequate to sufficiently provide working capital and satisfy the requirements of
our short-term debt. We cannot give assurance that financing alternatives will
be available to us in the future to support our working capital requirements
should they be needed.
65
Short-Term Financing
At March 31, 2008, the Company was in compliance with the covenants of the
non-convertible secured debenture financing agreements entered into on December
20, 2007. During the first quarter of 2008, the original $10M balance was
reduced to $9M.
On February 14, 2008, the Company received $300,000 from John Sawyer, the
Company's President. This loan carried no interest and was due and payable on or
before 90 days. The loan was paid in full on April 17, 2008.
Long-Term Financing
The long-term liabilities of Global, consisting primarily of capitalized lease
obligations, were reduced to $152K by the end of the 1st quarter of 2008.
Possible Cancellations, Reductions or Delays
A large portion of our operating expenses is relatively fixed; therefore
cancellations, reductions or delays in orders by a customer or group of
customers could materially adversely affect our business, financial condition or
results of operations.
Quarter Ending June 30, 2008
- ----------------------------
Changes in the Company's Balance Sheet for the 1st and 2nd quarters ended June
30, 2008 reflected several events. Total assets decreased from $29,694,148 at
December 31, 2007 to $25,939,984. Significant changes for the period were:
Cash on hand decreased $575,507 from the balance December 31, 2007 due to
the use of funding from the debenture transaction, (see Short-Term
Financing below), principally to pay-down accounts payable.
Accounts receivable decreased $2,074,396 largely due to Managements
decision to increase the allowance for several large outstanding accounts
as discussed earlier under the discussion of maintenance segment results.
Total inventory decreased $3.5M. The Company bought aircraft and engines
for $2.3 million and sold aircraft and engines valued at $2.8 million.
Additionally, inventory values of aircraft and engines were decreased $3M
to reflect current market values.
Cost and estimated earnings on contracts in progress increased $231,625
Restricted funds increased $250K due to required performance bonds related
to a HAT customer.
Deferred income taxes increased $2,213,018 due to the tax benefit of our
year-to-date loss.
There was a reclassification from other asserts to other current assets of
$320K.
66
During the quarter ended June 30, 2008 total liabilities increased from
$15,952,315 at December 31, 2007 to $16,201,262 primarily due to:
Notes payable decreased $1.133K as a result of payments on the note
related to the debenture agreement of $2.5M plus $1.6M in two notes
issued during the 2nd quarter (see Short-Term Financing below for
details on financings). 200K related to financed insurance premiums and
capital lease obligations was paid during the period. Accounts Payable
decreased $728K.
Customer deposits increased $2.9M reflecting payments made under a
letter of intent for the purchase of two aircraft. Billings in excess
of costs and estimated earnings on contracts in progress decreased
$822,782.
Cash
As of June 30, 2008, we had $646,091 in cash on hand and $5,337,724 in accounts
receivable.
During 2007, the Company experienced a major cash deficit. In December of 2007,
the Company was able to find the source of funding detailed under Short-Term
Financing below. This funding was used to (i) eliminate the expensive short-term
debt the Company had acquired to provide the cash necessary for day-to-day
operations and (ii) pay off a $5,000,000 loan from M&I Marshall & Ilsley Bank.
The Company believes that it will fully recover from the effects of the cash
shortage it experienced for most of 2007. Management bases its assessment on
several factors:
o The Company will continue efforts to sell the aircraft received due to
the termination of its partnership in Jetglobal.
o The Company will continue to aggressively collect on its older
outstanding receivable balances from Avolar and BCI.
o Our HAT operation will increase its marketing effort in order to
secure new customers to fill the void left by our withdrawal from
Jetglobal and our cessation of work for Avolar. HAT is being
successful in securing profitable maintenance contracts with new
customers.
Management believes that anticipated cash flows from the operations of HAT and
World Jet and from the anticipated sale of our aircraft inventory will be
adequate to sufficiently provide working capital and satisfy the requirements of
our short-term debt. We cannot give assurance that financing alternatives will
be available to us in the future to support our working capital requirements
should they be needed.
67
Short-Term Financing
At June 30, 2008, the Company was in compliance with the covenants of the
non-convertible secured debenture financing agreements entered into on December
20, 2007. During the first half of 2008, the original $10M balance was reduced
to $7.5M.
On May 21, 2008, Global entered into a purchase agreement for one MD-83
airframe, N789BV, Serial #49789. The contract calls for $300,000 cash and a note
in the amount of $850,000 to be paid in eight equal monthly installment of
$106,250 plus 6% interest with the first payment due no later than August 1,
2008.
On June 19, 2008, Global and its subsidiaries HAT, World Jet and Hamilton
Aerospace S.A. de C.V. entered into and closed on a Secured Note and Aircraft
Security Agreement, ("MD-83 Note and Security Agreement), with Victory Park
Master Fund, Ltd. The principal amount of the note is $800,000, payable on or
before September 15, 2008 and bears interest at the greater of 15% or Prime
+10%. One MD-83, N9306T, Serial #49567 secures the Note. The holders of the
Debentures described above waived any default or other breach arising out of
this MD-83 Note and Security Agreement. As an inducement for participation in
this transaction, 75,000 shares of the Company's common stock are to be issued
to Victory Park Master Fund, Ltd.
Long-Term Financing
The long-term liabilities of Global, consisting primarily of capitalized lease
obligations, were reduced to $138K by the end of the 1st half of 2008.
Possible Cancellations, Reductions or Delays
A large portion of our operating expenses is relatively fixed; therefore
cancellations, reductions or delays in orders by a customer or group of
customers could materially adversely affect our business, financial condition or
results of operations.
Employment Contracts
- --------------------
Gordon Hamilton, CEO
- --------------------
Mr. Hamilton's employment agreement ("Agreement") is for an initial term of
three (3) years beginning July 28, 2008 and shall automatically renew for
successive one (1) year periods upon each anniversary unless, not later than 60
days prior to any renewal date, either the Company or Mr. Hamilton provides
written notice that it does not intend to renew the Agreement. Pursuant to the
Agreement, Mr. Hamilton will receive a base annual salary of $310,000.00,
subject to annual review. In addition, Mr. Hamilton voluntarily agrees to set
aside and invest, on an after-tax basis, a minimum of Twenty Percent (20%) of
his Base Salary to purchase Company common stock. Said 20% Base Salary set-aside
shall occur progressively as Base Salary payments are received by Mr. Hamilton,
and shall be utilized to purchase shares of Company common stock as soon as
practicable thereafter based upon SEC insider trading regulations and/or the
restrictions and regulations of any FINRA-approved deferred income program in
which Mr. Hamilton may chose to participate. Mr. Hamilton further agrees not to
sell any shares of Company common stock acquired under the terms of this
Voluntary Equity Participation clause until after termination of this Agreement.
68
Pursuant to the Agreement, Mr. Hamilton will also be eligible for discretionary
cash and/or stock bonuses as determined from time to time by the Board of
Directors.
Pursuant to the Agreement, Mr. Hamilton is also eligible to participate in the
Company's health and welfare benefit plans; paid vacation; and participation in
any stock option plan, stock purchase plan or any similar incentive plan based
all or in part on the Company's equity securities.
John Sawyer President of Company and CEO of Wholly Owned Aircraft Trading
Facility
- --------------------------------------------------------------------------------
On July 28, 2008, the Company's Board also authorized the formation of a wholly
owned subsidiary to manage all aircraft trading activities, and appointed
current president of Global Aircraft Solutions, John B. Sawyer as the Chief
Executive Officer of the newly formed aircraft trading subsidiary. Mr. Sawyer
will also maintain his current position as President of Global Aircraft
Solutions. Mr. Sawyer's employment agreement ("Sawyer Agreement") covers both
positions of President of the Company and CEO of the aircraft trading
subsidiary. The Sawyer Agreement is for an initial term of three (3) years
beginning July 28, 2008 and shall automatically renew for successive one (1)
year periods upon each anniversary unless, not later than 60 days prior to any
renewal date, either the Company or Mr. Sawyer provides written notice that it
does not intend to renew the Agreement. Pursuant to the Sawyer Agreement, Mr.
Sawyer will receive a base annual salary of $377,500.00, subject to annual
review. In addition, Mr. Sawyer voluntarily agrees to set aside and invest, on
an after-tax basis, a minimum of Ten Percent (10%) of his Base Salary to
purchase Company common stock. Said 10% Base Salary set-aside shall occur
progressively as Base Salary payments are received by Executive, and shall be
utilized to purchase shares of Company common stock as soon as practicable
thereafter based upon SEC insider trading regulations and/or the restrictions
and regulations of any FINRA-approved deferred income program in which Executive
may chose to participate. Executive further agrees not to sell any shares of
Company common stock acquired under the terms of this Voluntary Equity
Participation clause until after termination of this Agreement.
Pursuant to the Agreement, Mr. Sawyer will also be eligible for discretionary
cash and/or stock bonuses as determined from time to time by the Board of
Directors.
Pursuant to the Agreement, Mr. Sawyer is also eligible to participate in the
Company's health and welfare benefit plans; paid vacation; and participation in
any stock option plan, stock purchase plan or any similar incentive plan based
all or in part on the Company's equity securities.
Each of these employment agreements is terminable by the Company with or without
cause and by the named executive officer upon the occurrence of certain events,
including a change in control of the Company, and a change in the named
executive officer's responsibilities.
69
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the Company's financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60 of the SEC encourages all companies to
include a discussion of critical accounting policies or methods used in the
preparation of the financial statements. Our consolidated financial statements
filed as part of this annual report include a summary of the significant
accounting policies and methods used in the preparation of our consolidated
financial statements.
Use of Estimates: Management's Discussion and Analysis of Financial Condition or
Plan of Operation is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of our financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. Management evaluates these estimates on an
on-going basis, including those related to estimated losses on disposal of
discontinued operations, the allowance to reduce inventory to the lower of cost
or net realizable value, the estimated profit recognized as aircraft
maintenance, design and construction services are performed, the allowance for
doubtful accounts and notes receivable, future cash flows in support of long
lived assets, medical benefit accruals, and the estimated fair values of
facilities under capital leases. Management bases its estimates on historical
experience and on various other assumptions that they believe are reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
Trade Accounts Receivable: Trade accounts receivable represent amounts billed
but uncollected on both completed and in-progress aircraft repair and
maintenance contracts as well as amounts billed but uncollected on parts shipped
to customers.
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. The allowance is
estimated as a percentage of accounts receivable based on a review of accounts
receivable outstanding and the Company's prior history of uncollectible accounts
receivable. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to trade accounts receivable.
Inventory: Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories include new, used parts and parts stripped from aircraft.
These inventory items are initially carried at original cost basis determined on
the pro-rata fair value of the individual parts based on market or catalog
pricing. Inventory items held for over one year are no longer classified as
"inventory, non-current". All aircraft parts inventory are grouped as
"Inventory, net of allowance for slow moving and obsolete inventory" and
accounted under `Current Assets' category. This is based on standard aviation
industry practice of showing all aircraft parts under single line item of
inventory. Aircraft parts typically have more than one year of life. Rotable
parts have the same life as the aircraft. Repairable parts can be repaired
several times over the life of the aircraft and installed on the aircraft. This
is a reclassification to conform with what we now believe is more appropriate.
This change will not impact the current quarter results or past results of the
company. However in the future when the allowance for slow moving and obsolete
inventory is provided for, the allowance will be a considered as an expense for
the company.
70
The Company reviews the market value of inventories whenever events and
circumstances indicate that the carrying value of inventories may not be
recoverable from the estimated future sales price less cost of disposal and
normal gross profit. In cases where the market values are less than the carrying
value, a write down is recognized equal to an amount by which the carrying value
exceeds the market value of inventories.
Property and Equipment: Property and equipment are recorded at cost.
Depreciation is provided for on the straight-line on the straight-line method
over the estimated useful lives of the assets. The estimated useful life of
computer equipment and software is three years at both our HAT and World Jet
subsidiaries; the estimated useful life of all other categories of assets at our
HAT subsidiary is five years. World Jet uses estimated useful lives of 3, 5, and
7 years for its other assets. Amortization of leasehold improvements is computed
using the shorter of the lease term or the expected useful life of the assets.
Maintenance and repairs that neither materially adds to the value of the
property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred.
The Company reviews the carrying value of property, plant and equipment for
impairment whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated future cash flows expected to
result form its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value, an impairment loss
is recognized equal to an amount by which the carrying value exceeds the fair
value of assets. The factors considered by management in performing this
assessment include current operating results, trends, and prospects, as well as
the effects of obsolesce, demand, competition, and other economic factors.
Revenue and Cost Recognition: Revenues from fixed-fee contracts or portions of
contracts for MRO sales are recognized by employing the percentage-of-completion
method, measured by the cost-to-cost method, commencing when progress reaches a
point where experience is sufficient to estimate final results with reasonable
accuracy. The cumulative catch-up method is used to account for changes in
estimates of total revenues, total costs or extent of progress. Each project is
considered complete when the subject aircraft departs, or is cleared to depart,
our facility. Revision in cost and labor hour estimates and recognition of
losses, if any, on these contracts are reflected in the accounting period in
which the facts become known. Revenue from part sales is recognized when parts
are shipped. Revenues from time and material contracts and all other ancillary
services are recognized as the services are performed. Revenue from aircraft
sales is recognized when the customer accepts delivery of the aircraft and/or
when title is transferred.
Value of Share-Based Payments: The value of stock issued as payment is
determined by the closing price of the Company's stock at measurement date. In
connection with the adoption of SFAS 123R, the company values options by
application of the Black Scholes Model.
Stock-Based Compensation
- ------------------------
As permitted under the Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation", the Company accounts for
its stock-based compensation to employees in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees". As such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. Certain pro forma net income and EPS disclosures for employee stock
option grants are also included in the notes to the financial statements as if
the fair value method as defined in SFAS No. 123 had been applied. Transactions
in equity instruments with non-employees for goods or services are accounted for
by the fair value method.
71
DESCRIPTION OF PROPERTY
The principal executive offices for both Global and HAT are located at the HAT
hangar facilities in Tucson, Arizona at Tucson International Airport. This
favorable location provides 360 days of sunshine per year together with
extremely low humidity year round. These facilities are situated on the
northwest ramp on 22 acres of concrete within the airport proper and are
patrolled by the Tucson Airport Authority police force. HAT leases these
facilities at a rental rate of $25,650 per month.
The HAT facility is level and fully paved with concrete sufficient to handle the
largest aircraft on any part of its 22 acres. Two hangars provide the space for
any modification and maintenance work that must be performed indoors. The larger
hanger has 180' clear span and is 185' deep (30,400 sq. ft.), enabling it to
wholly enclose a DC9 and a 727 at the same time. The hangar has been modified to
serve as a paint booth as needed.
The smaller hangar is 100' clear span by 100' deep (10,000 sq. ft.) with 2,000
square feet of office space on the north side and another 4,000 square feet of
enclosed space on the south. Offices for production planning and control are in
this area, as engineering, the welding shop, receiving, materials and purchasing
departments. The two hangars face each other at a distance of approximately 220
feet. Numerous mobile offices have been added to provide additional space for
administrative and customer representative offices.
To the southeast of the large hangar is a 12,000 foot covered building used to
store aircraft components and maintenance equipment. A 9,000 square foot
warehouse on the west side of the facility houses the interior department as
well as additional storage for materials and records. Both main hangars are
equipped with lighting, water, compressed air, and 115/220/440 volt AC
electricity. All office spaces are heated and cooled.
World Jet operates out of a 73,000 square foot facility in Tucson, Arizona. This
facility consists of office space and warehouse space to accommodate the
aircraft parts (Expendables, Rotables and Consumables), airframe components,
engines and engine material inventory maintained by World Jet. This facility is
located directly across the street from HAT which allows HAT immediate access to
aircraft parts, (Expendables, Rotables and Consumables), airframe components,
engines and engine material necessary to perform MRO services without incurring
any costs or delays that may be related to shipping and improves the turn time
of any such services provided. Additionally, World Jet is leasing 59,000 square
feet adjacent to the HAT complex for the purpose of inventory storage.
72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Global
- ------
There were no transactions, or series of transactions, for the years ended
December 31, 2007 and 2006 to which Global was a party, in which the amount
exceeds $120,000, and in which to the knowledge of Global, any director,
executive officer, nominee, five percent or greater shareholder, or any member
of the immediate family of any of the foregoing persons, have or will have any
direct or indirect material interest.
GALP
GALP accounted for 1% of Company revenue during the first three months of 2008.
At March 31, 2008, the Company had receivables in the amount of $1,311,543 from
GALP, which represents 14.3% of the total Company accounts receivable balance.
On February 14, 2008, the Company received $300,000 from John Sawyer, the
Company's President. This loan carried no interest and was due and payable on or
before 90 days. The loan was paid in full on April 17, 2008.
GALP accounted for 1.7% of Company revenue during the first six months of 2008.
At June 30, 2008, the Company had receivables in the amount of $1,496,546, (an
allowance of $656,000 has been established), from GALP, which represents 15.8%,
after allowance, of the Company's net accounts receivable balance.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During the fiscal year ended December 31, 2003 through October 26, 2004, the
National Association of Securities Dealers, Inc, quoted the Common Shares under
symbol "RDVN" on the OTC Bulletin Board maintained. Subsequent to October 26,
2004, as the result of the Company's name change to Global Aircraft Solutions,
Inc. the common shares were quoted under the symbol "GACF" at that same
location. The following information relates to the trading of our common stock,
par value $.001 per share. The high and low last sales prices of our common
stock for each quarter during our two most recent fiscal years, as reported by
the OTC Bulletin Board to date, are set forth below:
HIGH LOW
---- ---
2007
First Quarter $1.15 $0.54
Second Quarter $0.85 $0.54
Third Quarter $0.85 $0.70
Fourth Quarter $0.74 $0.32
2006
First Quarter $1.73 $1.37
Second Quarter 1.66 1.15
Third Quarter 1.41 .98
Fourth Quarter 1.18 .93
73
COMPENSATION DISCUSSION AND ANALYSIS
Objectives. We design our compensation programs to maintain a performance and
achievement-oriented environment throughout our company. We also design our
compensation programs to attract, hire, retain and motivate talented and skilled
individuals at all levels of our company. We have designed our executive
compensation program with these same goals in mind.
Generally, we want to pay our executives compensation that is competitive in the
marketplace. We review the median compensation paid to executives at other
comparable aviation companies. We use this information as a starting point to
set compensation levels for our executives. When setting compensation levels, we
also take into account other factors such as the level of responsibility of the
executive, the performance of the executive, the experience and tenure of the
executive, the compensation of the executive compared to the compensation of
other key salaried employees, and the performance of our company and our
business units. In order to build a viable and commercially competitive company,
our executive officers have historically agreed to accept less than the market
rate for executives at similar companies.
Since our stock is traded on the OTCBB, which does not define director
independence nor provide for corporate governance standards, the Company has
elected to adopt corporate governance and independence standards in accordance
with the standards promulgated by NASDAQ
The Compensation Committee. The Compensation Committee assists our Board of
Directors in fulfilling our Board's oversight responsibilities to administer our
executive compensation program and each member of the Committee is independent
as defined in the corporate governance listing standards of the NASDAQ and our
director independence standards.
The Committee reports to the Board of Directors on all compensation matters
regarding our executives and other key salaried employees. The Committee
annually reviews and approves the compensation (including annual base salary,
annual cash incentive compensation, long-term incentive compensation and other
employee benefits) for our executives and other key salaried employees. You may
learn more about the Committee's responsibilities by reading the Committee's
Charter, which is available in the "Corporate Governance" section of our website
at www.globalaircraftsolutions.com.
Components of Compensation. The major components of our executive compensation
program are the following:
o Competitive base salaries which reflect, in part, individual performance;
o Additional annual cash incentive compensation based on the achievement of
financial and other performance goals;
o Stock-based incentive compensation through the granting of stock options
and performance-based restricted and S-8 stock; and
o Other employee benefits, including perquisites.
The 2006 and 2007 Summary Compensation Table sets forth amounts for these
components that we paid to our Chairman and Chief Executive Officer, our
President, our Chief Financial Officer and our three other highest paid
executives for 2006 and 2007. We refer to these executives as our named
executives.
74
We compensate our executives principally by using a combination of short-term
compensation (salary and annual cash incentive compensation) and long-term
compensation (stock options, restricted stock and S-8 Stock). We determine the
mix of short-term and long-term compensation by using market compensation
information. Accordingly, we do not have a specific policy for the allocation of
compensation between short-term and long-term compensation or cash and equity
compensation. We tie our annual cash incentive compensation and long-term
incentive compensation to the achievement of performance goals or to the value
of our common stock. We believe it is important that a portion of our
executives' incentive compensation is dependent upon the price of our common
stock in order to align the interests of our executives with the interests of
our shareholders. However, since the price of our common stock is subject to
some factors outside of the control of our company and our executives, we
believe it is also important that a portion of an executive's incentive
compensation be tied to performance goals relating to the operations of our
company. We select performance goals that we believe help to drive our business
and create value for our shareholders.
Our Starting Point. We offer our executives annual base salaries, annual cash
incentive compensation, long-term incentive compensation and other employee
benefits that are intended to be competitive with those offered at similar
aviation repair, maintenance, modification and sales companies. We review
compensation paid at these companies because their business activities make them
most comparable to us. Most of our direct competitors are larger companies, so
we use their executive compensation figures as a starting point and then adjust
downward for size. We also believe these companies likely compete with us for
executive talent. These companies change from time to time. We may also use
general compensation surveys sponsored by nationally recognized compensation
consulting firms to assist us in making compensation decisions.
These peer companies included:
AAR
TIMCO
Tramco
In January 2007, we increased Mr. Sawyer's base salary to $340,000.00. Prior to
setting Mr. Sawyer's new compensation, we compiled additional market
compensation information for presidents of similarly situated companies. We
discovered that the median amount of salary, annual cash incentive compensation,
long-term incentive compensation and total direct compensation paid to
presidents at: (a) the peer companies was in excess of $1,000,000. Using this
information, we established an appropriate compensation package for Mr. Sawyer.
In July 2008 we entered into new employment agreements with (i) Mr. Hamilton as
a consequence of his appointment as the new Chief executive Officer of the
Company; (ii) Mr. Sawyer as a consequence of Mr. Sawyer being appointed to serve
as CEO of the Company's new subsidiary for aircraft trading as well as
maintaining his duties as president of the Company; and (iii) Mr. Herman as a
consequence of Mr. Herman resigning as CEO but agreeing to stay on as an
employee of the Company. A detailed synopsis of both employment agreements for
Mr. Hamilton and Mr. sawyer is set forth below. The compensation packages for
both Mr. Hamilton and Mr. Sawyer were based on compensation information for
persons in similarly situated positions in similar companies in the industry.
75
Use of Total Compensation Evaluations. When approving changes in compensation
for our named executives, we also prepare Total Compensation Evaluations for
each executive. These Evaluations set forth the dollar amounts of all components
of each named executive's current compensation, including salary, annual cash
incentive compensation, long-term incentive compensation, retirement and savings
programs, health and welfare programs and other executive benefits, including
perquisites. These Evaluations allow the Committee and management to review how
a change in the amount of each compensation component affects each named
executive's total compensation and to review each named executive's total
compensation in the aggregate. Based upon the review of the Evaluations, the
Committee determined the total compensation, in the aggregate, for our named
executives to be reasonable and not excessive.
Base Salary. We pay salaries to our employees to provide them with a base
compensation for the day-to-day performance of their job responsibilities. We
assign pay grades to salaried positions at our company. Each pay grade has a
salary range. When assigning a pay grade for an executive position, we review
the salary range against size-adjusted median base salaries at the peer
companies based upon the position and level of responsibility. The Committee
reviews salary grades for our executives annually and makes adjustments to these
grades as deemed necessary or appropriate to maintain competitiveness. Once we
determine a range, we set salary levels within the range based upon other
factors, including the executive's performance, experience and tenure in his
particular position.
Annual salary increases are based on the overall annual salary budget guidelines
for our company and an evaluation of the executive's performance. As part of our
annual budget process, we review our overall salary structure to ensure that it
remains competitive. Each executive undergoes a performance review. The
executive's performance for the prior year is reviewed by his direct supervisor
or, with respect to the performance of the Chairman and Chief Executive Officer,
the President and Chief Financial Officer by the Committee. The Committee
reviews and approves the base salary of each executive annually and at other
times in connection with any promotion or other change in responsibility.
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SUMMARY COMPENSATION TABLE FOR 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Change in
Pension Value
and
Non-qualified
Stock Non-equity Deferred
Name and Principal Salary Bonus Awards Option Incentive Plan Compensation All Other
Position Year $ $ $ Awards $ Compensation $ Earnings $ Compensation $ Total $
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
Ian Herman, 2006 150,967 40,000 5,000 195,967
Chairman & CEO
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
Govindarajan 2006 84,523 20,000 59,375 27,485 191,383
Sankar, CFO*
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
John B Sawyer, 2006 237,500 80,000 25,000 342,500
President & COO
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
Phil Watkins COO @ 2006 117,731 10,000 24,000 151,731
World Jet
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
Alan Abate, Sr. VP 2006 124,077 12,500 136,577
Administration @
HAT
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
David Querio, COO 2006 117,653 12,500 5,000 134,153
Maintenance @ HAT
- -------------------- ------- ----------- --------- ---------- ------------------------------------------- ----------------- --------
*Assumed position June 1, 2006, annual salary $150,000. (Prior to Mr. Sankar, Ian Herman served jointly as CEO and CFO).
77
OPTION/SAR GRANTS IN FISCAL YEAR 2006
Individual Grants
(a) (b) (c) (d) (e)
Name Number of Securities % of Total Exercise or Base Expiration Date
Underlying Options/SAR's Granted Price ($/Sh)
Options/SAR's Granted to Employees in
Fiscal Year
- -------- -------------------------------------------------------------------------------------
Seymour Siegel 10,000 33.3 $1.03 5/27/2011
Alfredo Mason 10,000 33.3 $1.03 5/27/2011
Lawrence Mulcahy 10,000 33.3 $1.03 5/27/2011
AGGREGATED OPTION'SAR EXERCISES IN FISCAL YEAR 2006 and FISCALYEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Name Shares Acquired on Value Realized ($) Exercisable Unexercisable
Exercise
- -------- -----------------------------------------------------------------------------------------
Ian Herman None N/A 133,334 N/A
John B. Sawyer None N/A 766,666 N/A
Seymour Siegel None N/A 10,000 N/A
Alfredo Mason None N/A 10,000 N/A
Lawrence Mulcahy None N/A 10,000 N/A
78
SUMMARY COMPENSATION TABLE FOR 2007
- ------------------------------------------------------------------------------------------------------------------------------------
Change in
Pension Value
and
Non-qualified
Stock Non-equity Deferred
Name and Principal Salary Bonus Awards Option Incentive Plan Compensation All Other
Position Year $ $ $ Awards $ Compensation $ Earnings $ Compensation $ Total $
- -------------------- ------------------------- ---------- ---------- ------------------ ----------------- ----------------- --------
Ian Herman, 2007 165,577 50,000* 3,000 218,577
Chairman & CEO
- -------------------- ------------------------- ---------- ---------- ------------------ ----------------- ----------------- --------
- -------------------- ------------------------- ---------- ---------- ------------------ ----------------- ----------------- --------
John B Sawyer, 2007 339,997 95,000* 22,000 456,997
President & COO
- -------------------- ------------------------- ---------- ---------- ------------------ ----------------- ----------------- --------
- -------------------- ------------------------- ---------- ---------- ------------------ ----------------- ----------------- --------
Alan Abate, Sr. VP 2007 134,991 17,500* 120,000 272,491
Administration @
HAT
- -------------------- ------------------------- ---------- ---------- ------------------ ----------------- ----------------- --------
*Awarded in 2007 for 2006.
OPTION/SAR GRANTS IN 2007 FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
Name Number of Securities % of Total Exercise or Base Expiration Date
Underlying Options/SAR's Price ($/Sh)
Options/SAR's Granted Granted to
Employees in Fiscal
Year
- -------- -------------------------------------------------------------------------------------
Seymour Siegel 10,000 100 $1.05 3/07/2012
79
AGGREGATED OPTION'SAR EXERCISES IN 2007 FISCAL YEAR and FISCALYEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Name Shares Acquired on Value Realized ($) Exercisable Unexercisable
Exercise
- -------- --------------------------------------------------------------------------------
Ian Herman None N/A 133,334 N/A
John B. Sawyer None N/A 766,666 N/A
Seymour Siegel None N/A 20,000 N/A
Alfredo Mason None N/A 10,000 N/A
Lawrence Mulcahy None N/A 10,000 N/A
2002 Compensatory Stock Option Plan
- -----------------------------------
Global has adopted the 2002 Compensatory Stock Option Plan for officers,
employees, directors and advisors (the "2002 CSO Plan"). The shareholders have
not yet approved this plan however, under our by-laws the directors are
empowered to issue options and shares under the plan. Global has reserved a
maximum of 3,000,000 Common Shares to be issued upon the exercise of options
granted under the 2002 CSO Plan. The 2002 CSO Plan will not qualify as an
"incentive stock option" plan under Section 422A of the Internal Revenue Code of
1986, as amended. The Board of Directors or other plan administrator will grant
options under the 2002 CSO Plan at exercise prices to be determined. With
respect to options granted pursuant to the 2002 CSO Plan, optionees will not
recognize taxable income upon the grant of options granted at or in excess of
fair market value. Global will be entitled to a compensating deduction (which it
must expense) in an amount equal to any taxable income realized by an optionee
as a result of exercising the option. The Board of Directors administers the
2002 CSO Plan. Options to purchase an aggregate of 1,035,000 shares of Global
common stock have been granted under the 2002 CSO Plan Options to purchase
930,000 shares were outstanding at December 31, 2006.
2003 Employee Stock Compensation Plan
- -------------------------------------
Global has adopted the 2003 Employee Stock Compensation Plan for officers,
employees, directors and advisors (the "2002 ESC Plan"). The shareholders have
not yet approved this plan however, under our by-laws the directors are
empowered to issue options and shares under the plan. Global has reserved a
maximum of 5,000,000 Common Shares to be issued upon the grant of awards under
the ESC Plan. Employees will recognize taxable income upon the grant of Common
Stock equal to the fair market value of the Common Stock on the date of the
grant and Global will recognize a compensating deduction at such time. The Board
of Directors administers the ESC Plan. 4,657,000 shares of Common Stock
available under the ESC Plan have been awarded and 4,657,500 shares had been
issued at December 31, 2006.
80
Compensation of Directors
- -------------------------
On March 27, 2006, the Compensation Committee agreed that as of the next
ratification of the Board of Directors of the shareholders all outside directors
shall receive uniform compensation. All outside directors shall receive a
one-time award of 10,000 shares plus options for 10,000 shares upon their
election. Thereafter, each shall receive an additional award of 10,000 shares
plus options for 10,000 shares upon successful completion of each year of
service. In addition to the award shares each member shall receive an annual
retainer of $20,000. Each Audit Committee member shall receive an additional
annual retainer of $6,000, while each Compensation Committee member shall
receive an additional annual retainer of $4,000. All Board members shall be paid
a fee of $1,000 for each scheduled meeting attended. Audit committee members
will be paid a fee of $1,000 for each scheduled Audit Committee meeting
attended. Compensation Committee members shall be paid a fee of $500 for each
scheduled Compensation Committee meeting attended.
Employment Agreements
- ---------------------
Gordon Hamilton, CEO
- --------------------
Mr. Hamilton's employment agreement ("Agreement") is for an initial term of
three (3) years beginning July 28, 2008 and shall automatically renew for
successive one (1) year periods upon each anniversary unless, not later than 60
days prior to any renewal date, either the Company or Mr. Hamilton provides
written notice that it does not intend to renew the Agreement. Pursuant to the
Agreement, Mr. Hamilton will receive a base annual salary of $310,000.00,
subject to annual review. In addition, Mr. Hamilton voluntarily agrees to set
aside and invest, on an after-tax basis, a minimum of Twenty Percent (20%) of
his Base Salary to purchase Company common stock. Said 20% Base Salary set-aside
shall occur progressively as Base Salary payments are received by Mr. Hamilton,
and shall be utilized to purchase shares of Company common stock as soon as
practicable thereafter based upon SEC insider trading regulations and/or the
restrictions and regulations of any FINRA-approved deferred income program in
which Mr. Hamilton may chose to participate. Mr. Hamilton further agrees not to
sell any shares of Company common stock acquired under the terms of this
Voluntary Equity Participation clause until after termination of this Agreement.
Pursuant to the Agreement, Mr. Hamilton will also be eligible for discretionary
cash and/or stock bonuses as determined from time to time by the Board of
Directors.
Pursuant to the Agreement, Mr. Hamilton is also eligible to participate in the
Company's health and welfare benefit plans; paid vacation; and participation in
any stock option plan, stock purchase plan or any similar incentive plan based
all or in part on the Company's equity securities.
John Sawyer President of Company and CEO of Wholly Owned Aircraft Trading
Facility
- --------------------------------------------------------------------------------
On July 28, 2008, the Company's Board also authorized the formation of a wholly
owned subsidiary to manage all aircraft trading activities, and appointed
current president of Global Aircraft Solutions, John B. Sawyer as the Chief
Executive Officer of the newly formed aircraft trading subsidiary. Mr. Sawyer
will also maintain his current position as President of Global Aircraft
Solutions.
81
Mr. Sawyer's employment agreement ("Sawyer Agreement") covers both positions of
President of the Company and CEO of the aircraft trading subsidiary. The Sawyer
Agreement is for an initial term of three (3) years beginning July 28, 2008 and
shall automatically renew for successive one (1) year periods upon each
anniversary unless, not later than 60 days prior to any renewal date, either the
Company or Mr. Sawyer provides written notice that it does not intend to renew
the Agreement. Pursuant to the Sawyer Agreement, Mr. Sawyer will receive a base
annual salary of $377,500.00, subject to annual review. In addition, Mr. Sawyer
voluntarily agrees to set aside and invest, on an after-tax basis, a minimum of
Ten Percent (10%) of his Base Salary to purchase Company common stock. Said 10%
Base Salary set-aside shall occur progressively as Base Salary payments are
received by Executive, and shall be utilized to purchase shares of Company
common stock as soon as practicable thereafter based upon SEC insider trading
regulations and/or the restrictions and regulations of any FINRA-approved
deferred income program in which Executive may chose to participate. Executive
further agrees not to sell any shares of Company common stock acquired under the
terms of this Voluntary Equity Participation clause until after termination of
this Agreement.
Pursuant to the Agreement, Mr. Sawyer will also be eligible for discretionary
cash and/or stock bonuses as determined from time to time by the Board of
Directors.
Pursuant to the Agreement, Mr. Sawyer is also eligible to participate in the
Company's health and welfare benefit plans; paid vacation; and participation in
any stock option plan, stock purchase plan or any similar incentive plan based
all or in part on the Company's equity securities.
Each of these employment agreements is terminable by the Company with or without
cause and by the named executive officer upon the occurrence of certain events,
including a change in control of the Company, and a change in the named
executive officer's responsibilities.
FINANCIAL STATEMENTS
The audited consolidated financial statements of Global for the years ended
December 31, 2005, 2006 and 2007 and the unaudited financial statements for the
three and six months ended March 31, 2008 and June 30, 2008 respectively, and
related notes which are included in this offering have been examined by Epstein,
Weber and Conover, Moss Adams, LLP and Daszkal Bolton, LLP and have been so
included in reliance upon the opinion of such accountants given upon their
authority as an expert in auditing and accounting.
82
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
CONTROL AND FINANCIAL DISCLOSURE
On January 9, 2006, the Audit Committee of the Board of Directors of the Company
voted to dismiss Larry O'Donnell, CPA, P.C. as the Company's independent
registered public accountant. Larry O'Donnell, CPA, P.C. was notified of the
dismissal on January 9, 2006. This dismissal followed the Audit Committee's
receipt of proposals from other independent auditors to audit the Company's
consolidated financial statements for the fiscal year ended December 31, 2005.
None of the reports of Larry O'Donnell, CPA, P.C. on the Company's financial
statements for either of the past two years or subsequent interim period
contained an adverse opinion or disclaimer of opinion, or was qualified
ormodified as to uncertainty, audit scope or accounting principles, except that
the reports did contain a going concern paragraph. During the Company's past two
fiscal years and through January 9, 2006 there have been no disagreements with
Larry O'Donnell, CPA, P.C. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Larry O'Donnell, CPA, P.C.
would have caused them to make reference thereto in their reports on the
financial statements of the Company for such years.
On January 9, 2006, the Audit Committee of the Board of Directors of the Company
engaged Epstein, Weber & Conover, PLC ("EWC") as the Company's independent
auditors with respect to the audit of the Company's consolidated financial
statements for the fiscal year ended December 31, 2005. The decision to engage
EWC was made by the Audit Committee of the Board of Directors. Neither the
Company nor someone on behalf of the Company consulted with EWC regarding any of
the items listed in Item 304(a)(2) of Regulation SB.
Effective January 1, 2007, Epstein, Weber & Conover, PLC ("Epstein Weber")
combined its practice with Moss Adams LLP ("Moss Adams") and therefore resigned
as the independent registered public accounting firm for Global Aircraft
Solutions, Inc. (the "Company"). According to information provided to the
Company, all of the partners of Epstein Weber have become partners of Moss
Adams.
The reports of Epstein Weber on the Company's financial statements for the
fiscal year ended December 31, 2005 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with the audits of the
Company's financial statements for the fiscal year ended December 31, 2005, and
in the subsequent interim periods through January 1, 2007, (1) there were no
disagreements with Epstein Weber on any matter of accounting principles or
practices, financial statement disclosure or auditing scope and procedure which,
if not resolved to the satisfaction of Epstein Weber, would have caused Epstein
Weber to make reference to the matter in its report and (2) there were no
"reportable events" as that term is defined in Item 304 of Regulation S-K
promulgated under the Securities Exchange Act of 1934 ("Item 304").
b) Effective January 19, 2007, the Company engaged Moss Adams to act as the
Company's principal independent accountant. The Audit Committee of the Board of
Directors of the Company approved the decision to engage Moss Adams.
During the fiscal year ended December 31, 2005, and during all subsequent
periods through January 19, 2007, the Company did not consult Moss Adams
regarding the application of accounting principles to a specified transaction,
either completed or proposed, the type of audit opinion that might be rendered
on the Company's financial statements or any matter that was the subject of a
disagreement with its former accountants or a reportable event as those terms
are defined in Item 304.
On June 27, 2007 the Audit Committee of the Board of Directors voted to dismiss
Moss Adams, LP as the Company's independent registered public accountant. The
reports of Moss Adams, LP on the Company's financial statements do not contain
any adverse opinion, disclaimer, or qualification, nor has there been any
disagreements with Moss Adams, LP. On June 27, 2007 the Company engaged Daszkal
Bolton as the Company's independent registered public accountant.
83
FOR FURTHER INFORMATION
We have filed with the SEC, under the Securities Act of 1933, as amended (the
"Securities Act"), a registration statement on Form SB-2 and Post Effective
Amendments thereto with respect to the common stock offered by this prospectus.
This prospectus, which constitutes part of the registration statement, does not
contain all the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement, portions of
which are omitted as permitted by the rules and regulations of the SEC.
Statements made in this prospectus regarding the contents of any contract or
other documents are summaries of the material terms of the contract or document.
You should not assume that the information contained in this prospectus is
accurate as of any date other than the date on the front of this document. Our
business, financial condition, results of operations and prospects may have
changed since that date. With respect to each contract or document filed as an
exhibit to the registration statement, reference is made to the corresponding
exhibit.
We are a small business reporting company and file annual, quarterly, and
current reports, proxy statements, and other information with the SEC. You may
read and copy these reports, proxy statements, and other information at the
SEC's public reference rooms at 100 F Street, N.E., Washington, D.C. 20549, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at (800) SEC-0330 for more information about the operation of the public
reference rooms. You may also request copies of these documents by writing to
the SEC and paying a fee for the copying cost. Our SEC filings are also
available at the SEC's web site at "http://www.sec.gov" and at our own web site
at "http://www.globalaircraftsolutions.com".
If you are interested in receiving a copy of any of the Company's filings, we
will provide you, without cost, with a copy of any of these filings on request
made orally or in writing to us at the following addressee:
Global Aircraft Solutions, Inc.
P.O. Box 23009
Tucson, AZ 85734
Attn: Investor Relations
Tel: (520) 294-3481
Fax: (520) 741-1430
84
Global Aircraft Solutions, Inc.
formerly,
Renegade Venture (NEV.) Corporation
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
DECEMBER 31, 2006
DECEMBER 31, 2007
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT F-1, F-2 & F3
CONSOLIDATED BALANCE SHEETS F-4 & F-5
CONSOLIDATED STATEMENT OF OPERATIONS F-6
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY F-7
CONSOLIDATED STATEMENT OF CASH FLOWS F-8 & F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-10 - F-41
85
F-1
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To the Board of Directors and Stockholders
Global Aircraft Solutions, Inc.
We have audited the accompanying balance sheets of Global Aircraft Solutions,
Inc. as of December 31, 2007, and the related statements of operations, changes
in stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our 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, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Aircraft Solutions,
Inc., as of December 31, 2007, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Daszkal Bolton LLP
Boca Raton, Florida
April 14, 2008
86
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Global Aircraft Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Global Aircraft
Solutions, Inc. and subsidiaries (the "Company") as of December 31, 2006, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our 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, we 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. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Global
Aircraft Solutions, Inc. and subsidiaries at December 31, 2006, and the results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
As described in Note 1 to the consolidated financial statements the Company
intends to divest its 30% ownership in Jetglobal, LLC.
As described in Note 2 to the consolidated financial statements, effective
January 1, 2006, the Company changed its method of accounting for share-based
payments to conform to Statement of Financial Accounting Standards No. 123R,
Share-Based Payment.
/s/ Moss Adams LLP
Scottsdale, Arizona
April 16, 2007
87
F-3
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To the Board of Directors and Shareholders
of Global Aircraft Solutions, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Global Aircraft Solutions, Inc. and
subsidiaries for the year ended December 31, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion of these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, results of operations and cash flows of Global Aircraft
Solutions, Inc. and subsidiaries for the year ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States of
America.
/s/EPSTEIN, WEBER & CONOVER, PLC
Scottsdale, Arizona
April 3, 2006
88
F-4
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Balance Sheets
December 31, 2007and 2006
ASSETS
2007 2006
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 1,221,598 $ 104,440
Accounts receivable 7,412,120 7,870,799
Note receivable -- 455,859
Due from equity investee partner 472,000 3,946,414
Inventory 16,429,501 7,852,691
Restricted funds 196,181 65,500
Deferred income taxes 1,682,948 299,508
Other current assets 752,784 191,114
----------- -----------
TOTAL CURRENT ASSETS 28,167,132 20,786,325
Property, plant and equipment 1,024,837 1,521,037
Investments in and advances to affiliates 20,000 6,063,067
Goodwill 38,992
38,992
Deferred income taxes 76,718 --
Other assets 366,469 64,855
----------- -----------
TOTAL ASSETS $29,694,148 $28,474,276
=========== ===========
89
F-5
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Balances Sheet
December 31, 2007and 2006
LIABILITIES AND STOCKHOLDERS' EQUITY
2007 2006
------------- ------------
CURRENT LIABILITIES
Notes payable $ 10,268,091 $ 5,101,568
Accounts payable - trade 3,051,776 5,001,567
Customer deposits 419,076 541,878
Billings in excess of costs and estimated
earnings on contracts in progress 822,782 224,046
Accrued liabilities 484,109 493,404
Income taxes payable 673,453 735,466
Capital lease obligations, current portion 62,038 53,247
------------ ------------
TOTAL CURRENT LIABILITIES 15,781,325 12,151,176
LONG-TERM LIABILITIES
Capitalized lease obligations, net of current portion 170,990 224,867
Deferred Tax Liability -- 344,027
------------ ------------
TOTAL LONG-TERM LIABILITIES 170,990 568,894
------------ ------------
TOTAL LIABILITIES 15,952,315 12,720,070
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $0.001 par value, 100,000,000
shares authorized in 2007 and 2006; 40,181,601 and
39,587,807 shares issued and outstanding in
2007 and 2006 40,181 39,589
Additional paid-in capital 13,755,973 12,723,591
Contributed capital 620,289 620,289
Retained earnings (674,610) 2,370,737
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,741,833 15,754,206
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,694,148 $ 28,474,276
============ ============
90
F-6
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Statements of Operations
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
Sales ------------ ------------ ------------
Sales, maintenance, repair and overhaul $ 14,364,784 $ 24,331,466 $ 19,134,757
Sales, aircraft trading 7,900,000 3,223,000 13,550,500
Sales, parts 2,239,641 4,634,155 6,388,380
Sales, other 239,076 2,353,574 2,155,011
------------ ------------ ------------
Total sales $ 24,743,501 $ 34,542,195 $ 41,228,648
Cost of sales
Cost of sales, maintenance, repair and overhaul $(10,758,759) $(19,776,552) (16,903,015)
Cost of sales, aircraft trading (6,848,254) (3,190,369) (10,019,728)
Cost of sales, parts (693,607) (2,012,101) (3,389,964)
Cost of sales, other (7,353) (769,027) (529,754)
Inventory write down (393,752) (192,775) (215,500)
------------ ------------ ------------
Total cost of sales $(18,701,725) $(25,940,824) (31,057,961)
------------ ------------ ------------
Gross profit $ 6,041,776 $ 8,601,371 10,170,687
Selling, general and administrative expenses (10,908,740) (8,591,738) (7,780,332)
Penalties -- (11,742) (1,061)
------------ ------------ ------------
(Loss) income from operations $ (4,866,964) $ (2,109) $ 2,389,294
Other income (expense):
Interest income $ 386,736 $ 76,414 $ 245,610
Interest expense (1,261,813) (587,183) (386,927)
Loss on asset disposals (17,431)
Miscellaneous expense (111,094) (197,932) (110)
Miscellaneous income 107,712 114,874 130,571
Gain on settlement with equity investee partner 488,441 1,268,970
Equity in earnings of unconsolidated affiliate 214,800 1,808,744 (157,874)
------------ ------------ ------------
Net (loss) income, before income taxes $ (5,059,613) $ 1,212,808 $ 3,489,534
Income tax benefit (expense) 2,014,266 (386,500) (366,178)
------------ ------------ ------------
Net (loss) income
$ (3,045,347) $ 826,308 $ 3,123,356
============ ============ ============
Net (loss) income per share, Basic (2007 39,927,725 shares; 2006
39,118,400 shares; 2005 33,848,722 shares). $ (0.08) $ 0.02 $ 0.09
============ ============ ============
Net (loss) income per share, Fully diluted (2007 39,927,725; 2006
40,375,173 shares; 2005 35,260,671 shares). $ (0.08) $ 0.02 $ 0.09
============ ============ ============
91
F-7
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 2007, 2006 and 2005
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Shares Common Stock Additional Paid Contributed Accumulated Total
in capital capital earnings
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
$ $ $ $ $
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Balance December 31, 2004 30,650,386 31,030 7,033,950 620,289 (1,578,927) 6,106,342
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Shares sold 7,200,000 7,200 4,644,000 4,651,200
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Shares issued under non-cash
warrant provisions 442,829 443 (443) 0
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Options exercised 50,000 50 14,950 15,000
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Shares issued, directors 200,000 200 76,800 77,000
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Shares vested on employment
agreements 75,000 75 55,425 55,500
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Net income 3,123,356 3,123,356
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Balance December 31,2005 38,618,215 38,998 11,824,683 620,289 1,544,429 14,028,399
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Exercise of warrants 387,092 387 95,767 96,154
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Share-based payments to
directors 30,000 30 73,470 73,500
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Stock issued to employees for
compensation 552,500 552 581,214 581,766
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Tax effects of share-based
payments 148,079 148,079
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Net income 826,308 826,308
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Balance December 31, 2006 39,587,807 39,967 12,723,213 620,289 2,370,737 15,754,206
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Exercise of warrants (non-cash) 48,494 48 (48) 0
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Share-based payments to
directors 10,000 10 13,890 13,900
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Stock issued to employees for
compensation 340,000 340 204,670 205,010
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Stock issued to third parties 120,000 120 94,680 94,800
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Stock issued to third parties
(restricted) 75,000 75 29,465 29,540
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Shares vested on employment
agreements 176,843 176,843
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Options issued to a Director 10,546 10,546
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Warrants issued with debentures 581,282 581,282
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Repricing of exiting warrants 69,241 69,241
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Tax effects of share-based
payments (148,188) (148,188)
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Reclasification from common
stock to APIC (379) 379 0
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Net loss (3,045,347) (3,045,347)
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
Balance December 31, 2007 40,181,301 40,181 13,755,973 620,289 (674,610) 13,741,833
- -------------------------------- ------------ ------------- ------------------- ---------------- ------------------ -------------
An additional 1,319,918 shares will be issued on the vesting dates of employment
agreements now in force (See Earnings per Share).
92
F-8
GLOBAL AIRCRAFT SOLUTIONS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005
2007 2006 2005
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Net (loss) income $(3,045,347) $ 826,308 $ 3,123,356
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of unconsolidated affiliate (214,800) (1,808,745) 157,874
Gain on settlement with equity investee partner (488,441) -- (1,268,970)
Depreciation 564,071 582,710 489,818
Amortization -- 162,377 162,376
Write down of inventory 393,753 192,775 212,500
Customer deposits forfeited (50,000)
Deferred income taxes -- 175,118 6,400
Federal income tax adjustment (2,014,266) -- --
Provision for bad debts 3,610,776 337,508 473,208
Loss on disposal of fixed assets/investments 17,431 50,874 --
Intercompany non-cash transactions 9,205 -- --
Expenses paid with stock 1,234,548 617,459 326,594
----------- ----------- -----------
Net adjustments to reconcile Net Income to net cash 3,062,277 310,076 559,800
Changes in Assets and Liabilities:
Accounts receivable (4,003,930) (2,775,131) (1,568,540
Prepaid expenses (82,147) 190,625 (115,149)
Inventory (320,563) 721,969 (5,260,186)
Restricted funds (130,681) 33,000 (98,500)
Other current assets (110,510) -- 56,384
Other non-current assets -- 127,027 (177,788)
Accounts payable - trade 2,368,573) (2,235,466) 4,535,546
Accounts payable - related parties -- -- (6,219)
Customer deposits 197,462 541,878 (280,537)
Billings in excess of cost and estimated
earnings on contracts in progress 598,736 200,588 (942,780)
Income Taxes Payable -- 49,563 374,722
Accrued liabilities (9,294) (77,320) (272,908)
----------- ----------- -----------
Net cash used by operating activities (3,777,180) (3,315,682) (1,279,390)
Cash flows from investing activities:
Purchase of property, plant and equipment (73,947) (187,261) (499,827)
Payments received on notes receivable 473,098 1,547,010 196,390
Distributions from Jetglobal, LLC -- 300,000 --
Investment in GALP (20,000) -- --
Investment in Jetglobal, LLC 48,973 (867,046) (5,222,594)
----------- ----------- -----------
Net cash provided/(used) by investing activities 428,124 792,703 (5,526,031)
93
F-9
Cash flows from financing activities:
Proceeds from issuance of common stock -- 96,154 4,911,000
Payments related to common stock issued -- -- (244,800)
Proceeds from bank loans 141,994 5,746,247 7,511,373
Repayments of bank loans (4,956,391) (3,419,839) (4,949,634)
Proceeds from Notes Payable 12,535,000 -- --
Proceeds from Note Payable - related party 1,250,000 -- --
Due to factor -- -- (604,409)
Payments on notes payable (3,022,520) (280,496) --
Pyaments on notes payable - related party (1,260,000) -- --
Payments on capital lease obligations (56,442) (25,846) --
Excess tax benefits from stock options (148,188) 148,188 --
exercised
Other financing activities, net (17,239) (5,002) --
------------ ------------ ------------
Net cash provided by financing activities 4,466,214 2,259,406 6,623,530
Net increase (decrease) in cash and cash (263,573) (181,891)
equivalents 1,117,158
Cash and cash equivalents at beginning of period 104,440 368,013 549,904
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,221,598 $ 104,440 $ 368,013
============ ============ ============
1. Interest paid in 2007 was $1,227,001, in 2006 was $558,644 and in 2005
was $375,745.
2. No taxes were paid in 2007, $14,351 was paid in 2006 and $121,473 was
paid in 2005.
Schedule of non-cash investing and financing activities:
o During the 4th quarter of 2005 $1,475,000 in accounts receivable was
transferred to a Note receivable. The Note stipulated weekly payments
of $52,993.76, had an interest rate of 8 % per annum, and was all due
and payable on or before June 9, 2006. The Note was paid.
o During the 4th quarter of 2005, a note receivable in the amount of
$600,000 was issued to Avolar Aero Lineas SA de CV. The principal
balance at December 31, 2007 was $0.
o During 2007, $8,650,000 of aircraft inventory was received as part of
a Settlement Agreement wherein BCI, Global's partner in Jetglobal,
transferred assets to Global in return for Global's interest in
Jetglobal.
Property, plant and equipment increased $11,355 during 2007 as a result of
capital lease agreements. Net asset value of machinery and equipment acquired
under capital leases totaled $235,670 and net asset value of office equipment
acquired under capital leases totaled $77,604 at December 31, 2007. Amortization
of assets under capital leases is included in depreciation expense. The actual
cash payouts for capital lease obligations are reflected in cash flow statement.
The accompanying notes are an integral part of these consolidated financial
statements.
94
F-10
GLOBAL AIRCRAFT SOLUTIONS, INC.
Notes to Financial Statements
December 31, 2007, December 31, 2006 and December 31, 2005
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of Global Aircraft
Solutions, Inc., and its wholly owned subsidiaries, Hamilton Aerospace
Technologies, Inc. ("HAT") and Johnstone Softmachine Corporation ("Johnstone"),
and World Jet Corporation ("World Jet"), collectively, the "Company". HAT and
Johnstone were acquired by Global on May 2, 2002. Johnstone is currently
inactive. All material transactions and accounts with the subsidiaries have been
eliminated from the consolidated financial statements.
2. ORGANIZATIONS AND NATURE OF OPERATIONS
Global Aircraft Solutions, Inc., formerly Renegade Venture (Nev.) Corporation,
formerly Renegade Venture Corporation, was incorporated on February 13, 1989, as
a Delaware corporation. In 1997, the Company was re-domiciled as a Nevada
Corporation through a merger with a newly formed Nevada Corporation, Renegade
Venture (NEV.) Corporation, a wholly owned subsidiary of Renegade Venture
Corporation.
On May 2, 2002, the Company acquired 100% of the common stock of Hamilton
Aerospace Technologies Inc. ("HAT") pursuant to a Stock Exchange Agreement
whereby the former shareholders of HAT received 12,500,000 common shares of
Renegade Venture (NEV.) Corporation, now Global Aircraft Solutions, Inc.
Subsequent to this reverse merger there were 16,200,000 total common shares
outstanding. HAT was formed on April 5, 2002 and commenced operations on April
15, 2002. HAT provides large aircraft maintenance, repair and modification
services to owners and operators of large transport-category commercial jet
aircraft. Services of this nature are required and needed by passenger and cargo
air carriers, aircraft lessors, and governmental entities. HAT provides services
to both domestic and foreign customers.
On April 12, 2002, Renegade Venture (NEV.) Corporation, now Global Aircraft
Solutions, Inc., acquired 100% of the common stock of Johnstone Softmachine
Corporation (Johnstone) pursuant to the Stock Purchase Agreement and Plan of
Reorganization by and between LogiCapital Corporation (the principal shareholder
of Johnstone), an entity controlled by John Brasher, who, at that time, was a
director of Renegade Venture (NEV.) Corporation (he has since resigned) and
Renegade Venture (NEV.) Corporation. Mr. Brasher was also a principal
stockholder of Renegade Venture (NEV.) Corporation prior to the merger. As such,
this transaction represented a transfer between control groups and is reported
on a historical cost basis. Johnstone was formed on May 8, 1996 has had no
substantial operations, and is in the development stage. Johnstone currently
lacks the funding necessary to commence operations.
95
F-11
On July 15, 2004, the Company finalized an agreement to buy 100% of the common
stock of World Jet Corporation, a privately held aircraft parts and brokerage
company for $2.05 million payable as follows: $1,250,000 in cash at closing,
$300,000 in the form of a note maturing January 27, 2005, and 1,000,000 shares
of restricted common stock valued at $0.50 per share for the purposes of this
transaction ($500,000). The effective date of this agreement is January 1, 2004.
The shares were issued in July 2004. As a result of the acquisition, the Company
expected to increase its sales to existing customers as well as those serviced
by World Jet by combining the products and services of the two companies. It
also expected to lower its parts costs through World Jet's purchasing abilities.
During 2006, the Company formed Mexican corporation, Hamilton Aerospace Mexico,
S.A. de C.V. The purpose of the new corporation was to satisfy Mexican
governmental requirements related to the flight line servicing of Mexican
airline, Avolar Aerolineas, S.A. de C.V.
During 2007, Global transferred its ownership interest in Jetglobal, LLC, an
entity in which the Company had a 30% ownership interest, to BCI Aircraft
Leasing, the other partner in Jetglobal, LLC in consideration for aircraft
inventory and trailing interest in certain claims of Jetglobal against third
parties. The Company and BCI executed a final agreement and settlement on April
20, 2007, and revised on June 29, 2007. The terms of the final agreement with
BCI did not result in any impairment to the Company. On September 4, 2007, the
Company and Global Aircraft Leasing Partners, LLC, a Delaware limited liability
company, ("GALP") reached a tentative agreement that Global would assume a 40%
equity interest in GALP. GALP is a start-up aircraft-leasing venture formed to
acquire aircraft, through a combination of debt and equity financing, and lease
these commercial jet aircraft to operators throughout the world. It has been
mutually agreed by the parties that in consideration for a 40% equity
participation in GALP, the company will make a one time capital contribution of
$40,000. As further consideration the Company will provide to GALP ongoing
technical support to facilitate GALP's commercial aircraft purchasing, leasing
and sales activities. All technical services provided to GALP by HAT and World
Jet will be billed at Company-standard rates. The Company had made $20,000 in
capital contribution as of December 31, 2007. A final operating agreement has
not yet been finalized and Global had no equity participation in GALP for the
year ended December 31, 2007. Global will make an additional capital
contribution or $20,000 upon the parties reaching a final operating agreement.
Global will not be required to invest capital in aircraft acquired by GALP, and
all debt assumed by GALP as a result of aircraft acquisitions will be
non-recourse with respect to the Company. Other members of GALP will include
equity funding specialists and aircraft leasing professionals. Global and GALP
have also agreed that Global will have first right of refusal for all aircraft
maintenance, aircraft parts and technical consulting requirements that GALP may
have as a result of its aircraft acquisition and leasing activities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider cash and investments in securities with maturities at the date of
purchase of three months or less to be cash and cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
96
F-12
Reclassifications
Certain amounts in the accompanying financial statements as of December 31, 2006
have been reclassified to conform to the current year presentation, with no
effect on reported net income.
Inventory
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories include new, used parts and parts stripped from aircraft. These
stripped parts inventory items are initially carried at original cost basis
determined on the pro-rata fair value of the individual parts based on market or
catalog pricing. All aircraft parts inventory are grouped as "Inventory" and
accounted under `Current Assets' category. This is based on standard aviation
industry practice of showing all aircraft parts under a single line item of
inventory. Aircraft parts typically have more than one year of life. Rotable
parts have the same life as the aircraft. Repairable parts can be repaired
several times over the life of the aircraft and installed on the aircraft. It
has been and remains our policy to expense any items that we determine to be
obsolete, damaged or unlikely to sell. The Company has an allowance for slow
moving and obsolete parts inventory in the amount of $125,980. This allowance
was expensed during 2007.
The Company reviews the market value of inventories whenever events and
circumstances indicate that the carrying value of inventories may not be
recoverable from the estimated future sales price less cost of disposal and
normal gross profit. In cases where the market values are less than the carrying
value, a write down is recognized equal to an amount by which the carrying value
exceeds the market value of inventories
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided for on the
straight-line on the straight-line method over the estimated useful lives of the
assets. The estimated useful life of computer equipment and software is three
years at both our HAT and World Jet subsidiaries; the estimated useful life of
all other categories of assets at our HAT subsidiary is five years. World Jet
uses estimated useful lives of 3, 5, and 7 years for its other assets.
Amortization of leasehold improvements is computed using the shorter of the
lease term or the expected useful life of the assets. Maintenance and repairs
that neither materially add to the value of the property nor appreciably prolong
its life are charged to expense as incurred. Betterments or renewals are
capitalized when incurred.
The Company reviews the carrying value of property, plant and equipment for
impairment whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated future cash flows expected to
result from its use and eventual disposition. In cases where undiscounted
expected future cash flows are less than the carrying value, an impairment loss
is recognized equal to an amount by which the carrying value exceeds the fair
value of assets. The factors considered by management in performing this
assessment include current operating results, trends, and prospects, as well as
the effects of obsolescence, demand, competition, and other economic factors.
97
F-13
Revenue and Cost Recognition
Revenues from fixed-fee contracts or portions of contracts for MRO sales are
recognized by employing the percentage-of-completion method, measured by the
cost-to-cost method, commencing when progress reaches a point where experience
is sufficient to estimate final results with reasonable accuracy. The cumulative
catch-up method is used to account for changes in estimates of total revenues,
total costs or extent of progress. Each project is considered complete when the
subject aircraft departs, or is cleared to depart, our facility. Revision in
cost and labor hour estimates and recognition of losses, if any, on these
contracts are reflected in the accounting period in which the facts become
known. During the periods covered by these financial statements, no material
prior period revisions were necessary. As of December 31, 2007, there are no
material amounts in excess of the agreed contract price that the Company seeks
to collect from customers or others for customer-caused delays, errors in
specifications or designs, contract termination, change orders in dispute or
unapproved as to both scope and price, or other causes of unanticipated
additional costs.
Revenue from part sales is recognized when parts are shipped. All parts are
shipped FOB shipping point; title passes at time of shipping and the Company has
no further contractual or legal obligation to the customer upon shipping.
Revenues from time and material contracts and all other ancillary services are
recognized as the services are performed. Revenue from aircraft sales is
recognized when the customer accepts delivery of the aircraft and/or when title
is transferred.
Earnings per share
Basic earnings per share includes no dilution and is computed by dividing net
earnings available to common stockholders by the weighted number of common
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution of securities that could share in the Company's earnings.
Reconciliation of EPS for 2007, 2006 and 2005 are as follows:
- --------------------------------------------------- -- ------------------------------------------------------------------------
For the Year Ended 2007
- --------------------------------------------------- -- ------------------------------------------------------------------------
Income (Numerator) Shares (Denominator) Per-Share Amount
- --------------------------------------------------- -- ---------------------- - ------------------------ -- -------------------
Net loss (3,045,347)
Basic and diluted EPS
Income available to common stockholders (3,045,347) 39,927,725 $(0.08)
- --------------------------------------------------- -- ------------------------------------------------------------------------
For the Year Ended 2006
- --------------------------------------------------- -- ------------------------------------------------------------------------
Income (Numerator) Shares (Denominator) Per-Share Amount
- --------------------------------------------------- -- ---------------------- - ------------------------ -- -------------------
Net income $826,308
Basic EPS
Income available to common stockholders $826,308 39,118,400 $0.02
Warrants 414,022
Options 780,491
Unvested employment agreement shares 62,260
Diluted EPS
Income available to common stockholders and $826,308 40,375,173 $0.02
assumed conversions
98
F-14
- -------------------------------------------------------------------------------------------------------------------------------
For the Year Ended 2005
- -------------------------------------------------------------------------------------------------------------------------------
Income (Numerator) Shares (Denominator) Per-Share Amount
- -------------------------------------------------------------------------------------------------------------------------------
Net income $3,123,356
Basic EPS
Income available to common stockholders $3,123,356 33,848,722 $0.09
Warrants 639,449
Options 772,500
Diluted EPS
Income available to common stockholders and $3,123,356 35,260,671 $0.09
assumed conversions
The total weighted average shares outstanding for the diluted earning per share
calculation for the year ended December 31, 2006 was 40,375,173. Total weighted
average shares outstanding for the diluted earning per share calculation for the
year ended December 31, 2005 was 35,260,671.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
99
F-15
--------------------- --------------- -------------- ------------- --------------
Share value Vesting Date Antidilutive
on warrants,
Measurement options,
Date pending
employment
shares at
December 31,
2007
--------------------- --------------- -------------- ------------- --------------
Common Shares
Issued and
Outstanding at
December 31, 2007 40,181,301
--------------------- --------------- -------------- ------------- --------------
Unconverted
Warrants Issued:
@$0.45 $0.65 Vested 2,177,886
@$0.45 $0.41 Vested 1,500,000
@$0.68 $0.50 Vested 300,000
@$1.36 $0.50 Vested 7,740,000 7,740.000
Subtotal 11,717,886
Options Issued:
@$0.17 $0.23 Vested 900,000
@$1.03 $1.03 Vested 30,000 30,000
@$1.05 $1.03 Vested 10,000 10,000
Subtotal 940,000
--------------------- --------------- -------------- ------------- --------------
Awards of stock
pending under
employment
contracts
--------------------- --------------- -------------- ------------- --------------
2007 190,000
2008 454,918
2009 425,000
2010 250,000
Subtotal 1,319,918
Total 54,159,105 7,780,000
--------------------- --------------- -------------- ------------- --------------
100
F-16
Recently Issued Accounting Pronouncements
In June 2006, FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes." This interpretation clarifies the accounting for uncertainty in income
taxes recognized by prescribing 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 Interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. The Interpretation is effective
for fiscal years beginning after December 15, 2006. The Company adopted this
Interpretation for the year ended December 31, 2007. See Note 14 under "Tax
Uncertainties" for the effects of this adoption.
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements." This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP) and expands disclosures about
fair value measurements. The Statement does not require any new fair value
measurements but could change the current practice in measuring current fair
value measurements. The Statement is effective for fiscal years beginning after
November 15, 2007. The Company does not anticipate that the adoption of this
Statement will have a material impact on the Company's consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans. The Company does not
anticipate that the adoption of this Statement will have a material impact on
the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS 159") which permits entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS 159
will be effective for us on January 1, 2008. The Company is currently evaluating
the impact of adopting SFAS 159 on the Company's financial position, cash flows,
and results of operations.
Stock-Based Compensation
During 2007, there were options for 10,000 shares, at an option price of $1.05,
granted. The options expire in five years from date of issuance and were
immediately vested. Using the Black Scholes Model with the monthly stock-prices
as variable from April 2002, the call option value of these options were
calculated to be $1.05. $10,546 was expensed during 2007 relative to these
options. In connection with the adoption of SFAS123R we assessed our valuation
technique and related assumptions. Consistent with the provisions of SFAS 123R,
Staff Accounting Bulletin #107 (SAB 107), we estimated the fair value of stock
option on the date of grant using the Black Scholes Options Valuation Model and
the following assumptions: Risk free interest rate of 4.54%, Expected life of
2.5 years, Dividend rate of 0% and expected volatility of 283.137%.
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment ("SFAS 123R"), which
requires the Company to measure the cost of employee services received in
exchange for all equity awards granted including stock options based on the fair
market value of the award as of the grant date. SFAS 123R supersedes Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") and Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"). The Company has adopted
SFAS 123R using the modified prospective method. Accordingly, prior period
amounts have not been restated. Under the modified prospective method, stock
options awards that are granted, modified or settled after December 31, 2005
will be valued at fair value in accordance with provisions of SFAS 123R and
recognized on a straight line basis over the service period of the entire award.
At December 31, 2005, all outstanding stock options were fully vested.
101
F-17
Prior to January 1, 2006, the Company accounted for stock based compensation
under the recognition and measurement provisions of APB 25 and related
interpretations, as allowed by SFAS 123. The Company had adopted the
disclosure-only provisions of SFAS 123 as amended by SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". Prior to 2006, the
Company accounted for stock-based compensation in accordance with APB 25 using
the intrinsic value method, which did not require compensation cost to be
recognized for the Company's stock options as all options previously granted had
an exercise price equal to the market value of the underlying common stock on
the date of the grant. There were no options granted in the year ended December
31, 2005 nor was there vesting of prior year option grants. Therefore, there was
no pro-forma effect for the year ended December 31, 2005.
4. SEGMENT INFORMATION
The company has divided its operations into the following reportable segments:
(i) Aircraft maintenance, repair, and overhaul; (ii) Aircraft Brokerage; (iii)
and Part sales. Each segment represents distinct product lines, marketing, and
management of its business. Limited other services for each company, which
represent a small percentage of income, have been shown in the aggregate.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies.
Selected information by business segment is presented in the following tables
for the years ended December 31, 2007, December 31, 2006 and December 31, 2005.
(REMAINDER OF INTENTIONALLY LEFT BLANK)
102
F-18
- -------------------------------------------------------------------------------------------------
2007 2006 2005
($millions) ($millions) ($millions)
- -------------------------------------------------------------------------------------------------
Segment sales:
Aircraft maintenance 14.365 24.331 19.135
Aircraft trading 7.900 3.223 13.551
Part sales 5.723 11.216 10.684
Other .239 2.354 2.155
Sub Total 28.227 41.124 45.525
Elimination of intersegment sales -3.483 -6.582 -4.296
Total consolidated sales 24.744 34.542 41.229
Operating income:
Aircraft maintenance 3.606 4.554 2.232
Aircraft trading 1.052 .033 3.531
Part sales 1.152 2.429 2.783
Other .232 1.585 1.625
Sub total 6.042 8.601 10.171
Selling, general, administrative expense -10.909 -8.591 -7.780
Penalties -- -.012 -.001
Other, net -.896 -.584 -.012
Share of Jetglobal net income (aircraft trading) .215 1.809 1.111
Gain on sale of interest in Jetglobal .488
Consolidated earnings/(loss) before taxes -5.060 1.213 3.489
Interest income by segment
Aircraft maintenance .367 .029
Aircraft trading .011
Part sales
Corporate .020 .036 .246
Total interest income .387 .076 .246
Interest expense by segment
Aircraft maintenance .757 .059
Aircraft trading .083
Part sales .008 .005
Corporate .497 .440 .387
Total interest expense 1.262 .587 .387
103
F-19
- ----------------------------------------------------------------------------------------------
2007 2006 2005
- ----------------------------------------------------------------------------------------------
($millions) ($millions) ($millions)
- ----------------------------------------------------------------------------------------------
Depreciation and amortization by segment
Aircraft maintenance .418 .410 .330
Aircraft brokerage
Part sales
Corporate .146 .335 .322
Total .564 .745 .652
Net asset values:
Aircraft maintenance 8.617 8.872 6.986
Aircraft trading 8.989 1.308 1.225
Part sales 6.939 6.822 8.147
Corporate 5.149 11.472 8.697
Total 29.694 28.474 25.055
Capital expenditures:
Aircraft maintenance .036 .320 .345
Aircraft brokerage
Part sales
Corporate .050 .167 .155
Total .086 * .487 * .500
- ----------------------------------------------------------------------------------------------
*Includes $.011 in 2007 and $.300 in 2006 purchased through capital leases
(non-cash).
104
F-20
The Company's facilities and assets are primarily located in the United States.
During 2006, the Company formed a Mexican corporation, Hamilton SA de C.V.
Minimal supplies are secured from local dealers using the foreign currency but
all major revenue and expense transactions are transacted in U.S. dollars. The
Company sells and ships to several foreign countries. All foreign revenues are
collected and recorded in U.S. dollars. Geographic information regarding sales
to foreign countries is presented in the following table:
Year Year Year
Ended Ended Ended
December 31, 2007 December 31, 2006 December 31, 2005
Dollars Dollars Dollars
Afghanistan $ 897,905
Angola 63,524 $ 54,232 $ 62,028
Australia 1,700
Belgium 55,819
Brazil 5,100
Canada 150 75 688
Cambodia 73,041
Columbia 24,904
Costa Rica 3,152
Germany 1,220 28,025
Hong Kong 30
Indonesia 2,450 835
Ireland 224,141
Israel 42,057 25
Italy 158 955 62,357
Jordan 4,629 2,032,460 2,468,915
Kenya 2,320
Korea 154,010
Lebanon 107,344 290,088 264,681
Lithuania 98,473
Malawi 111,000 868,943
Mexico 3,270,844 6,942,499 2,810,753
Nigeria 308,755
Pakistan 285,520 68,000 382,795
Philippines 230,916
Romania 27,000
Scotland 30,969
Singapore 48,973
South Africa 17,345
Spain 32,600 2,200
Ukraine 13,680
United Arab Emirates 66,869 111,848 9,191,462
United Kingdom 4,360 98,383 61,654
Venezuela 39,704
----------- ----------- -----------
TOTALS $ 4,968,257 $10,201,352 $16,884,954
=========== =========== ===========
105
F-21
5. EQUITY IN NET ASSETS AND ADVANCES TO AFFILIATES
On August 26, 2005, the Company together with BCI Aircraft Leasing, ("BCI"),
formed a joint venture, Jetglobal, LLC, a Delaware limited liability company.
This was a special purpose LLC formed to acquire and remarket commercial jet
aircraft. BCI was primarily responsible for the marketing aspects of Jetglobal
while the Company was responsible for the technical, repair and maintenance
aspects associated with remarketing purchased aircraft. The Company invested an
initial amount of $1,125,000 for a 30% membership interest and BCI invested an
initial amount of $2,625,000 for a 70% membership interest in Jetglobal.
Pursuant to the terms of Jetglobal's Operating Agreement, although the Company
had a 30% membership and profit interest, it was only responsible for 25% of the
costs and expenses associated with Jetglobal including any business
transactions. Management has transferred its ownership interest in Jetglobal,
LLC to the other partner, BCI Aircraft Leasing, in consideration for aircraft
inventory and a trailing interest in certain claims of Jetglobal against third
parties. The parties executed a final agreement and settlement on April 20,
2007, which was revised on June 29, 2007. The terms of the final agreement with
BCI did not result in any impairment to the Company. The final agreement calls
for a transfer of 6 aircraft with a total value of $8,650,000 and a trailing
interest of 18% in the Delta Airlines bankruptcy claim originally estimated to
be valued at $2,118,461. (There is also an 18% trailing interest in a lawsuit
against AFG for which no value can be estimated at this time.) The gain on this
transaction, recorded during the second quarter of 2007 was $27,210. During the
third quarter of 2007, BCI, as the appropriately authorized party, began
negotiating an agreement with a third party to cash-out the Delta claim. As a
result of this transaction, the Company's share of the Delta claim is $622,000.
Additionally, during the third quarter of 2007, a reclassification of funds
received from BCI in earlier periods reduced the amount due from investee
partner by $1,957,692. These funds had been applied to BCI's regular account
receivable with HAT rather than to its "due from investee partner" account.
These two events resulted in a revised amount of gain to the Company from the
divestiture of its interest in Jetglobal to $488,441; $466,231 was recorded in
the third quarter of 2007.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
106
F-22
The table below shows the items received by Global as part of the settlement as
well as the calculation of the gain on this transaction.
Items/Cash to Global under settlement:
- --------------------------------------
Aircraft N937AS $1,150,000 2nd Quarter 2007
Aircraft N302DL $1,500,000 2nd Quarter 2007
Aircraft N305DL $1,500,000 2nd Quarter 2007
Aircraft N306DL $1,500,000 2nd Quarter 2007
Aircraft N308DL $1,500,000 2nd Quarter 2007
Aircraft N312DL $1,500,000 4th Quarter 2007
Delta claim $ 622,000*
- -------------------------- ------------------------ ------------------------ ----------
Total $9,272,000 $9,272,000
Application to:
- ---------------
Equity in net assets and $6,428,895*
advances to affiliates
Due from equity investee $2,354,664
partner
- -------------------------- ------------------------ ------------------------ -----------
Total $8,783,559 $8,783,559
- -------------------------- ------------------------ ------------------------ -----------
GAIN $ 488,441
- -------------------------- ------------------------ ------------------------ -----------
*As of December 31, 2007, the only outstanding amount is the amount received by
BCI for the Delta claim. On December 10, 2007, the Company received $150,000.
The remaining $472,000 is to be paid in three installments: two equal
installments of $150,000 and a final installment of $172,000. Installments are
due each 30 days, commencing January 10, 2008.
**See table below for 2007 activity.
107
F-23
Rollforward of investment balance at December 31, 2006 through the date of the
settlement:
December 31, 2006
- ------------------------ ---------------------- --------------------- --------------------- ----------------
Balance Debit Credit Balance
- ------------------------ ---------------------- --------------------- --------------------- ----------------
Equity in net assets
of and advances to
affiliates $6,063,067 $6,063,067
Global's share of
Jetglobal's net
income, 1st Qtr 2007 $214,800 $6,277,867
Investment in Jetglobal $200,000 $6,477,867
Distribution to Global $48,972 $6,428,895
- ------------------------ ---------------------- --------------------- --------------------- ----------------
6. GOODWILL
The Company evaluates the carrying value of goodwill annually and between annual
evaluations if events occur or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its goodwill-carrying
amount. Such circumstances could include but are not limited to:
1. a significant adverse change in legal factors or in business climate
2. unanticipated competition
3. an adverse action or assessment by a regulator
When evaluating whether goodwill is impaired, the Company compares the fair
value of the reporting unit to which the goodwill is assigned to that unit's
carrying amount, including goodwill. If the carrying amount of a reporting unit
exceeds its fair value, then the amount of the impairment loss must be measured.
The total of the implied fair value of all of the other assets and liabilities
of the unit, based on their fair value, less the total amount assigned to those
assets and liabilities is the implied fair value of goodwill. An impairment loss
would be recognized when the carrying amount of goodwill exceeds its implied
fair value.
108
F-24
7. INVENTORY
Inventories include new, used parts and parts stripped from aircraft. These
stripped parts inventory items are initially carried at original cost basis
determined on the pro-rata fair value of the individual parts based on market or
catalog pricing. All aircraft parts inventory are grouped as "Inventory" and
accounted under `Current Assets' category. This is based on standard aviation
industry practice of showing all aircraft parts under a single line item of
inventory. Aircraft parts typically have more than one year of life. Rotable
parts have the same life as the aircraft. Repairable parts can be repaired
several times over the life of the aircraft and installed on the aircraft. It
has been and remains our policy to expense any items that we determine to be
obsolete, damaged or unlikely to sell. The Company has an allowance for slow
moving and obsolete parts inventory in the amount of $125,980. This allowance
was expensed during 2007.
The Company reviews the market value of inventories whenever events and
circumstances indicate that the carrying value of inventories may not be
recoverable from the estimated future sales price less cost of disposal and
normal gross profit. In cases where the market values are less than the carrying
value, a write down is recognized equal to an amount by which the carrying value
exceeds the market value of inventories.
Inventories consisted of the following:
2007 2006
----------- -----------
Maintenance Hardware $ 912,745 $ 1,030,465
Parts for Resale $ 6,527,947 $ 6,554,455
Aircraft & Engine $ 8,988,809 $ 267,771
----------- -----------
$16,429,501 $ 7,852,691
=========== ===========
Management reviews listed inventory items to determine whether there are slow
moving or obsolete items. At December 31, 2006, it was management's
determination that the carrying value of the inventory items is appropriate and
that there were no items requiring an allowance because the carrying value
exceeds net realizable value.
The Significant increase in inventory valve was due to the receipt of aircraft
upon disposal by the Company of it's interest in Jetglobal (see Note 5).
109
F-25
8. PROPERTY AND EQUIPMENT
2007 2006
----------- -----------
Gross Asset Values
Land and improvements 25,094 $ 25,094
Buildings and improvements 208,542 201,080
Vehicles 66,028 78,161
Machinery and equipment 2,082,521 2,058,291
Computers and software 145,602 332,755
Other office equipment 332,155 112,638
Equipment under capital lease 313,274 305,219
---------- ----------
Subtotal 3,173,216 3,113,238
Less accumulated depreciation 2,148,379 1,592,201
---------- ----------
Property and equipment, Net $1,024,837 $1,521,037
========== ==========
During 2007, 2006 and 2005 depreciation expense was $564,071, $582,710 and
$489,818 respectively.
Property, plant and equipment include gross assets acquired under capital leases
of and $305,219 and $316,574 at December 31, 2006 and December 31, 2007,
respectively. Related amortization, which is included in accumulated
depreciation, was $24,385 and $88,055 at December 31, 2006 and December 31,
2007, respectively. Net asset value of machinery and equipment acquired under
capital leases totaled $235,670 and net asset value of office equipment acquired
under capital leases totaled $77,604 at December 31, 2007. Amortization of
assets under capital leases is included in depreciation expense.
9. LEASES AND CAPITAL LEASES
Global's wholly owned subsidiary, HAT, currently conducts operations on leased
property at the Tucson International Airport, ("TIA"). Currently, World Jet is
occupying space under this same lease. The lease is a one-year lease commencing
March 1, 2005 and permits HAT to apply for two additional one-year options. TIA
is implementing a Master Plan for airport development, which precludes issuing a
long-term lease to HAT, but will not affect HAT's facilities for at least five
years. There is also executive office space leased at 6451 South Country Club
under a five-year lease. Below is a table showing the total of lease commitments
at December 31, 2007.
110
F-26
Operating Leases
- ------------------- ------------- -------------- ----------- ------------ ------------ -----------
Min Lease Min Lease Min Lease Min Lease Min Lease TOTALS
Payments Payments Payments Payments Payments
2008 2009 2010 2011 2012
- ------------------- ------------- -------------- ----------- ------------ ------------ -----------
$ $ $ $ $ $
- ------------------- ------------- -------------- ----------- ------------ ------------ -----------
Premises 6901 S. 318,228 53,038 371,266
Park
Office space 6451
S. Country Club 39,628 41,006 42,436 36,385 159,455
Inventory storage
7001 S Park 210,912 35,152 246,064
- ------------------- ------------- -------------- ----------- ------------ ------------ -----------
Total Operating 568,768 129,196 42,436 36,385 776,785
Lease Commitments
The Company has entered into capital lease agreements to facilitate the purchase
of various types of equipment. Below is a table showing the total lease
commitments under those agreements and the present value of those lease
commitments.
Capital Leases
- ------------------- -------------- -------------- ----------- ------------ ----------- -----------
Min Lease Min Lease Min Lease Min Lease Min Lease TOTALS
Payments Payments Payments Payments Payments
2008 2009 2010 2011 2012
- ------------------- -------------- -------------- ----------- ------------ ----------- -----------
$ $ $ $ $ $
- ------------------- -------------- -------------- ----------- ------------ ----------- -----------
Telephone systems 15,699 15,699 15,699 9,367 56,464
Office equipment 7,641 6,557 402 14,600
A/C maintenance
equipment 58,470 58,470 58,470 34,107 209,517
Total Capital
Lease Commitments 81,810 80,726 74,571 43,474 280,581
Present Value of 62,038 67,282 67,366 36,043 232,729
Capital Lease
Commitments
Rent expense paid during the years ended December 31, 2007, 2006 and 2005 was
$598,639, $821,277 and $720,263 respectively.
111
F-27
10. SHAREHOLDERS' EQUITY
On August 3, 2005, warrants were converted to 7,200,000 shares of common stock
at $.68 per share.
On August 30, 2005, warrants were converted to 399,000 shares of common stock
under the non-cash conversion terms of the original agreement of issue. No
expense was recorded relative to this transaction.
On September 14, 2005, outstanding warrants were converted to 22,812 shares of
common stock under the non-cash conversion terms of the original agreement of
issue. No expense was recorded relative to this transaction.
On November 23, 2005, 60,000 shares were issued to employees pursuant to 2004
employment agreements. The shares had been fully expensed at issuance.
In the year ended December 31, 2005 the Company granted 200,000 shares under
restricted stock awards to two directors. The price at measurement date was $.80
per share 100,000 shares were vested in 2005, $80,000 was expensed in 2005 and
100,000 shares were vested in 2006 and $80,000 was expensed at a rate of 1/12
per month during 2006.
On November 23, 2005 15,000 share of common stock were issued to an employee as
a bonus. The price per share at measurement date was $1.30 and the Company has
recorded a $19,500 expense in connection with the transaction.
On December 27, 2005, outstanding warrants were converted to 21,017 shares of
common stock under the non-cash conversion terms of the original agreement of
issue.
During the first quarter of 2006, 10,000 shares of common stock were issued to a
new director as a signing bonus. The price of the stock at measurement date was
$1.39.
On March 9th of 2006, 100,000 shares of common stock were issued pursuant to the
completion of services contracted for under two separate agreements. The expense
under the agreement was $70,000.00.
On April 4, 2006, 96,154 shares of common stock were issued for a consideration
of $96,154. These shares were relative to warrants that had been outstanding at
$1.00 per share.
On April 7, 2006, 100,000 shares of common stock were issued as compensation for
outside consultancy services. The services are to be performed during 2006 and
1/12 of the related expense was taken monthly during 2006. The value of the
shares at measurement date was $153,000.
On May 9, 2006, 165,814 shares of common stock were issued under the non-cash
provisions of warrants @$.34 per share. The non-cash calculation eliminated all
of the availability of 219,000 shares under the warrants.
Under the terms of a new three-year employment contract, which begins June 1,
2006, 75,000 shares of common stock vested on May 31, 2007, 100,000 shares of
common stock will vest on May 31, 2008 and 125,000 shares of common stock will
vest on May 31, 2009. The measurement date for this transaction is May 3, 2006.
112
F-28
Under the terms of a new three-year employment agreement, which begins June 1,
2006, 10,000 shares of common stock vested during the first quarter of 2007 and
10,000 shares will vest on each of two anniversary dates beginning June 1, 2007,
(30,000 shares). The value of the shares at measurement date was $36,900, which
will be expensed in equal monthly amounts over the term of the agreement.
Under the terms of a new employment contract, which began July 1, 2006, 20,000
shares of common stock were issued to an employee on August 28, 2006. The
agreement calls for 20,000 shares to be earned during the second year and issued
July 1, 2007 and 20,000 shares to be earned during the third year and issued
July 1, 2008. The price of the stock at measurement date was $1.20 per share.
Expenses for the stock will be entered into the financial statements on a
monthly basis during the three-year term of the agreement.
On August 8, 2006, 125,124 shares of common stock were issued under the non-cash
provisions of warrants @ $0.68 per share. The non-cash calculation eliminated
all of the availability of 240,000 shares under the warrants. No expense was
recorded relative to this transaction.
On August 28, 2006, 270,000 shares of common stock were issued pursuant to the
vesting of shares granted under employment contracts entered into in 2004. The
price of the shares at measurement date was $0.60 pre share. The appropriate
expense has been entered into the Company's financial statements, on a monthly
basis, during the two-year vesting period.
On September 1, 2006, 20,000 shares of common stock were issued to two
directors, 10,000 shares each, under the terms of the director compensation plan
approved by the shareholders in the annual meeting held May of 2006. The price
of these shares at measurement date was $1.35 per share. Appropriate expenses
have been recorded in the Company's financial statements for the third quarter
of 2006
Under the terms of a new three-year employment agreement, which begins December
1, 2006, 10,000 shares of common stock will vest on each of three anniversary
dates beginning December 1, 2007, (30,000 shares). The value of the shares at
measurement date was $29,100, which will be expensed in equal monthly amounts
over the term of the agreement.
On December 29, 2006, 62,500 shares of common stock were issued under an
employment agreement. The price at measurement date was $.95. The terms of the
employment contract, originally dated June 1, 2006 were amended at this time and
62,500 shares will vest and subsequently be issued each six months during the
contract term for a total of $375,000 shares.
On January 24, 2007, warrants were converted under the non-cash conversion terms
of the original agreement of issue. A warrant for 95,192 shares was reduced to
48,494 shares under the cashless exercise formula and 48,494 shares were issued.
No expense was recorded for this transaction.
On March 29, 2007, 10,000 shares of common stock were issued from the Company's
registered 2003 Employee Stock Compensation Plan under the terms of a Director's
agreement. The value of the shares had been fully expensed when earned.
113
F-29
On May 15, 2007, 210,000 shares of common stock were issued. These shares
included 10,000 shares of common stock that were issued from the Company's
registered 2003 Employee Stock Compensation Plan pursuant to a 2006 employment
agreement. The value of the shares was $1.23 per share resulting in an expense
in the amount of $12,300. The remaining 200,000 shares of common stock were
issued in conjunction with two new employment agreements dated April 9, 2007,
the measurement date. The value of the shares was $.60 each, resulting in
expense in the amount of $120,000 during the second quarter of 2007.
On May 25, 2007, 20,000 shares of common stock were issued from the Company's
registered 2003 Employee Stock Compensation Plan pursuant to an employment
agreement. The value of the stock at measurement date was $1.01 per share. The
Company recorded share-based compensation of $20,200 during the second quarter
of 2007.
On June 4, 2007, the company issued 100,000 shares of common stock from the
Company's registered 2003 Employee Stock Compensation Plan pursuant to a
separation agreement with a former employee. The value of the stock at
measurement date, May 25, 2007, was $.75 per share and a total of $75,000 was
expensed in the second quarter relative to this transaction.
On June 8, 2007, the Company issued 75,000 restricted shares of common stock for
services to be rendered under the terms of an agreement for services. The value
of the stock at measurement date was $80,250, ($1.07 per share), which
Management determined to be the value of the services to be rendered. The
Company is recording the expense over the duration of the agreement.
On June 8, 2007, the Company issued 10,000 shares of common stock from the
Company's registered 2003 Employee Stock Compensation Plan pursuant to vesting
under a 2006 employment agreement. The stock had been expensed fully at
issuance.
On September 14, 2007, The Company issued 120,000 shares of common stock from
the Company's registered 2003 Employee Stock Compensation Plan pursuant to an
agreement with a provider of legal services. The closing price of the stock on
the date of issue was $0.79. The agreement calls for the stock to be issued as a
substitute payment for a portion of existing attorney's fees and costs. The
issuance of the stock reduces the accounts payable account with the legal firm
in the amount of $79,226. The Company recorded an additional $15,574 of expense
in connection with this transaction.
Options
In January 2005, 50,000 options, issued as compensation for outside consultancy
services, were exercised at the option price of $.30 per share.
During 2006, there were options for 30,000 shares at an option price of $1.03
granted. The options are good for a term of five years and were immediately
vested. Using the Black Scholes Model with the monthly stock prices as variable
from April 2002, the call option value of these options were calculated to be
$1.09. $32,600 was expensed during 2006 relative to these options. In connection
with the adoption of SFAS123R we assessed our valuation technique and related
assumptions. Consistent with the provisions of SFAS123R, Staff Accounting
Bulletin #107 (SAB 107), we estimated the fair value of stock options on the
date of grant using the Black Scholes Options Valuation Model and the following
assumptions: Risk free interest rate of 4.76%, Expected Life of 2.5 years,
Dividend rate of 0% and expected volatility of 91.98%.
114
F-30
On March 9, 2007, options for 10,000 shares, at an exercise price of $1.05 per
share, granted to a Director pursuant to a compensation agreement. The options
are exercisable for a term of five years and were immediately vested. Using the
Black Scholes Model, the call option value of these options was calculated to be
$1.05. $10,546 was expensed during 2007 relative to these options. Consistent
with the provisions of SFAS 123R, Staff Accounting Bulletin #107 (SAB 107), we
estimated the fair value of stock option on the date of grant using the
following assumptions: Risk free interest rate of 4.54%, Expected life of 2.5
years, Dividend rate of 0% and Expected volatility of 283.137%.
On December 20, 2007, options for 1,500,000 shares at an exercise price of $0.45
per share were granted as part of a Debenture Agreement discussed in these
financial statements under Note 12, Notes Payable. The options are exercisable
for a term of five years and were immediately vested. . Using the Black Scholes
Model, the call option value of these options was calculated to be $0.39.
$581,282 was expensed during 2007 relative to these options. Consistent with the
provisions of SFAS 123R, Staff Accounting Bulletin #107 (SAB 107), we estimated
the fair value of stock option on the date of grant using the following
assumptions: Risk free interest rate of 3.43%, Expected life of 2.5 years,
Dividend rate of 0% and Expected volatility of 170.247%.
On December 20, 2007, warrants for 1,040,866 shares at an exercise price of
$1.00 per share and warrants for 1,137,020 shares at an exercise price of $1.36
per share were repriced under the terms of the warrants that were triggered by
the issuance discussed above to an exercise price of $0.45 per share. These
options are fully vested and are exercisable until September 2, 2009.
(REMAINDER OF PAGE INTENTIONALLLY LEFT BLANK)
115
F-31
The following table shows the shares issued for non-cash transactions, other
than warrants, and the expense recorded in each of the years 2005, 2006, 2007 as
well as the total recognizable expense of each transaction:
COMMON STOCK - SHARE-BASED PAYMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
Total Fair
Price of Value/ Date of
shares Expense Share/
Shares (measurement to be Measurement Shares Option
granted date) recognized date issued Issuance Amount expensed
- ------------------------------------------------------------------------------------------------------------------------------------
2005 2006 2007
- ------------------------------------------------------------------------------------------------------------------------------------
Third parties,
for services:
- -----------------------------------------------------------------------------------------------------------------------------------
1,200,000 $0.18 $216,000 10/15/2003* 1,200,000 10/23/2003 $69,912 $61,233
- -----------------------------------------------------------------------------------------------------------------------------------
400,000 $0.23 $92,000 07/08/2004* 400,000 07/09/2004 $46,020 $16,692
- -----------------------------------------------------------------------------------------------------------------------------------
100,000 $0.70 $70,000 03/09/2006 100,000 03/09/2006 $70,000
- -----------------------------------------------------------------------------------------------------------------------------------
100,000 $1.53 $153,000 04/04/2006 100,000 04/07/2006 $153,000
- -----------------------------------------------------------------------------------------------------------------------------------
75,000
75,000 $1.07 $80,250 restricted 06/08/2007 $40,865
- -----------------------------------------------------------------------------------------------------------------------------------
Third party
options:
- -----------------------------------------------------------------------------------------------------------------------------------
Repricing of
warrants 69,241 $69,241
- -----------------------------------------------------------------------------------------------------------------------------------
Options
(1,500,000)) 581,282 $581,282
- -----------------------------------------------------------------------------------------------------------------------------------
Employees,
employment
agreements:
- -----------------------------------------------------------------------------------------------------------------------------------
180,000 $0.30 $54,000 12/05/2002* 180,000 08/26/2003
- -----------------------------------------------------------------------------------------------------------------------------------
1,000,000 $0.32 $320,000 10/07/2003* 1,000,000 07/27/2004
- -----------------------------------------------------------------------------------------------------------------------------------
2 issue
330,000 $0.60 $198,000 07/12/2004* dates: $114,162 $46,378
- -----------------------------------------------------------------------------------------------------------------------------------
60,000 11/23/2005
270,000 08/28/2006
- -----------------------------------------------------------------------------------------------------------------------------------
15,000 $1.30 $19,500 10/24/2005 15,000 11/23/2005 $19,500
- -----------------------------------------------------------------------------------------------------------------------------------
375,000 $0.95 $356,250 05/03/2006** 62,500 12/29/2006 $71,751 $(12,376)
- -----------------------------------------------------------------------------------------------------------------------------------
30,000 $1.23 $36,900 06/01/2006 10,000 05/15/2007 $10,781 $18,449
- -----------------------------------------------------------------------------------------------------------------------------------
10,000 06/08/2007
- -----------------------------------------------------------------------------------------------------------------------------------
60,000 $1.20 $72,000 07/01/2006** 20,000 08/28/2006 $33,334 $(8,334)
- -----------------------------------------------------------------------------------------------------------------------------------
40,000 $1.01 $40,400 10/01/2006 20,000 05/25/2007 $40,199
- ------------------------------------------------------------------------------------------------------------------------------------
116
F-32
- ------------------------------------------------------------------------------------------------------------------------------------
30,000 $0.97 $29,100 12/01/2006 --- --- $790 $9,698
- -----------------------------------------------------------------------------------------------------------------------------------
30,000 $0.97 $29,100 12/01/2006 --- --- $10,510
- -----------------------------------------------------------------------------------------------------------------------------------
30,000 $0.97 $29,100 12/01/2006 --- --- $10,510
- -----------------------------------------------------------------------------------------------------------------------------------
30,000 $1.15 $34,500 02/11/2007 --- --- $10,541
- -----------------------------------------------------------------------------------------------------------------------------------
325,000 $0.60 $195,000 04/09/2007 150,000 05/15/2007 $128,104
- -----------------------------------------------------------------------------------------------------------------------------------
200,000 $0.60 $120,000 04/09/2007 50,000 05/15/2007 $51,536
- -----------------------------------------------------------------------------------------------------------------------------------
100,000 $0.67 $67,000 05/04/2007 100,000 06/04/2007 $67,000
- -----------------------------------------------------------------------------------------------------------------------------------
80,000 $0.71 $56,800 08/28/2007 --- --- $19,103
- -----------------------------------------------------------------------------------------------------------------------------------
105,000 $0.71 $74,550 08/28/2007 --- --- $8,041
- -----------------------------------------------------------------------------------------------------------------------------------
Directors,
under
agreements:
- -----------------------------------------------------------------------------------------------------------------------------------
Options $32,600 08/25/2006 Unexercised $32,600
(30,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Options
(10,000) $10,546 Unexercised $10,546
- -----------------------------------------------------------------------------------------------------------------------------------
200,000 $0.80 $160,000 01/21/2005 200,000 11/23/2005 $77,000 $80,000
- -----------------------------------------------------------------------------------------------------------------------------------
10,000 $1.39 $13,900 11/21/2005 10,000 03/09/2006 $13,900
- -----------------------------------------------------------------------------------------------------------------------------------
20,000 $1.35 $27,000 05/13/2006 20,000 09/01/2006 $27,000 $17,545
- -----------------------------------------------------------------------------------------------------------------------------------
10,000 $1.39 $13,900 11/21/2005 10,000 03/29/2007 $13,900
- -----------------------------------------------------------------------------------------------------------------------------------
*Shares granted in years prior to 2005 that were under multi-year agreements and
expensed in year of grant and applicable succeeding years.
**Underlying contract voided and a new agreement reached due to change in
employment circumstances.
Expense of share-based payment transactions is calculated by multiplying the
number of shares granted by the closing price of our stock on the measurement
date related to the particular transaction.
SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS
TOTAL SHARES ISSUED AVAILABLE
PLAN NAME
2002 Compensatory Stock Option Plan 3,000,000 1,045,000 1,955,000
2003 Employee Stock Compensation Plan 5,000,000 4,987,500 12,500
117
F-33
The following table shows the activity of the outstanding warrants during the
years ended December 31, 2007 and 2006:
- ------------------------------------------------------------------------------------------------------------------------------------
Warrant holder Exercise Shares Repriced December Exercise Exercised Shares Expiration
Price underlying, 24, 2007 date issued
beginning of
year 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Barron Partners $0.68 7,200,000 08/03/05 7,200,000 7,200,000 --
$1.36 7,200,000 05/30/09
- ------------------------------------------------------------------------------------------------------------------------------------
J G Capital $0.34 720,000 08/26/05* 501,000 399,000 05/30/09
05/08/06* 219,000 219,000 --
$0.68 540,000 08/08/06 240,000 125,124 05/30/09
$1.36 540,000 05/30/09
- ------------------------------------------------------------------------------------------------------------------------------------
Alpha Capital $1.00 625,000 625,000 --
$1.36 625,000 625,000 --
$0.45 625,000 09/02/09
$.045 625,000 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
Greenwich Growth $1.00 96,154 03/30/06 96,154 96,154 09/02/09
$1.36 96,154 96,154 --
$0.45 96,154 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
Grushki & Mittman, $0.52 31,731 09/14/05* 31,731 22,812
PC
$1.00 15,865 15,865 --
$1.36 15,865 15,865 --
$0.45 15,865 09/02/09
$0.45 15,865 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
Heza Holding $0.52 31,731 12/27/05* 31,731 21,017
$1.00 15,865 15,865 --
$1.36 15,865 15,865 --
$0.45 15,865 09/02/09
$0.45 15,865 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
J G Capital $0.52 95,192 01/23/07* 95,192 48,494 09/02/09
$1.00 47,597 47,597 --
$1.36 47,597 47,597 --
$0.45 47,597 09/02/09
$0.45 47,597 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
Stonestreet $1.00 192,308 192,308 --
$1.36 192,308 192,308 --
$0.45 192,308 09/02/09
$0.45 192,308 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
Whalehaven $1.00 144,231 144,231 --
$1.36 144,231 144,231 --
$0.45 144,231 09/02/09
$0.45 144,231 09/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
Victory Park $0.45 1,500,000 12/19/12
- ------------------------------------------------------------------------------------------------------------------------------------
* Denotes cashless exercise
118
F-34
The following table shows options granted during the years ended December 31, 2007 and 2006:
Option date Underlying Option price Expensed under: Per share Amount expensed
Shares expense
--------------- ------------ -------------- ------------------ ----------- -------------------
3/09/2007 10,000 $1.05 Black Scholes $1.05 $10,546
8/25/2006 30,000 $1.03 Black Scholes $1.09 $32,600
Stock-based Compensation Disclosure
Stock issued under plans to employees was issued at the value of the stock at
the measurement date. All options issued were immediately exercisable. Until
2004, options issued were immediately exercised. Those options issued to
employees that were not immediately exercised remained outstanding at December
31, 2007 and are summarized below:
2007
- ------------------------- ---------------------------------------------------------------------
Weighted Average
Exercise Price
- ------------------------- ---------------------- ----------------------- ---------------------
Options outstanding at 930,000 $0.198 Exercisable on grant
beginning of year date
- ------------------------- ---------------------- ----------------------- ----------------------
Granted during year 10,000 $1.05 Exercisable on grant
date
- ------------------------- ---------------------- ----------------------- ----------------------
Exercised year None
- ------------------------- ---------------------- ----------------------- ----------------------
Forfeited year None
- ------------------------- ---------------------- ----------------------- ----------------------
Outstanding at 940,000 $0.207 Exercisable on grant
12/31/2007 date
- ------------------------- ---------------------- ----------------------- ----------------------
Options exercisable at 940,000 $0.207
year end
- ------------------------- ---------------------- ----------------------- ----------------------
Weighted average fair $1.05
value of options
granted during the year
- ------------------------- ---------------------- ----------------------- ----------------------
The aggregate remaining contractual lives in years for the 900,000, 30,000 and
10,000 options outstanding and exercisable on December 31, 2007 was 2.47 and
4.85, respectively. Aggregate intrinsic value represents total pretax intrinsic
value (the difference between Global's closing stock price on December 31, 2006
and the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders executed
their options on December 31, 2007. This amount changes based on the fair market
value of Global's stock. The total intrinsic value of options outstanding as of
December 31, 2007 was $783,300. The total intrinsic value of options exercisable
on December 31, 2007 was $783,300. There were no options exercised during the
year ended December 31, 2007. The Company issues new shares of common stock upon
the exercise of stock options.
119
F-35
The 900,000 options issued in 2004 were issued at $0.06 below the share price on
the measurement date. Expense in the amount of $54,000 was included in selling,
general and administrative expenses for 2004. Because the options were
immediately available the intrinsic value and the fair value of the options is
calculated at the same $.23 per share.
2006
- ------------------------- ---------------------------------------------------------------------
Weighted Average
Exercise Price
- ------------------------- ---------------------- ----------------------- ----------------------
Options outstanding at 900,000 $0.17 Exercisable on grant
beginning of year date
- ------------------------- ---------------------- ----------------------- ----------------------
Granted during year 30,000 $1.03 Exercisable on grant
date
- ------------------------- ---------------------- ----------------------- ----------------------
Exercised during year None
- ------------------------- ---------------------- ----------------------- ----------------------
Forfeited during year None
- ------------------------- ---------------------- ----------------------- ----------------------
Outstanding at 930,000 $0.198 Exercisable on grant
12/31/2006 date
- ------------------------- ---------------------- ----------------------- ----------------------
Options exercisable at 930,000 $0.198
year-end
- ------------------------- ---------------------- ----------------------- ----------------------
Weighted average fair $1.09
value of options
granted during the year
- ------------------------- ---------------------- ----------------------- ----------------------
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable, notes
receivable and accounts payable and notes payable approximate fair values due to
the short-term maturities of these instruments. The fair value of notes payable
approximates the carrying value because of the current market value interest
rates applied to those obligations. The fair value of capital leases
approximates the carrying value of these instruments because the terms are
similar to those in the marketplace under which they could be replaced.
12. NOTES PAYABLE
On December 20, 2007, Global and its subsidiaries HAT, World Jet and Hamilton
Aerospace S.A. de C.V. ("HATMEX") (collectively the "Companies") entered into
and closed on three non-convertible secured debenture financing agreements with
two accredited institutional investors ("Holders") in the total amount of $10
million (collectively the "Debentures"). These Debentures consist of (i) one
non-convertible senior secured debenture in the amount of $5 million; (ii) one
non-convertible senior secured debenture in the amount of $3 million; and (iii)
one non-convertible junior secured debenture in the amount of $2 million. The
Debentures accrue interest at the rate of 15% per annum which is payable
quarterly in arrears beginning April 1, 2008. The Debentures also provide for a
cash flow recapture to the Holders equal to 60% of any proceeds related to the
sale of Global's aircraft inventory. The Debentures mature on December 19, 2008.
120
F-36
In connection with the Debentures, the Companies and Holders executed a Pledge
and Security Agreement, Aircraft Security Agreements, Securities Purchase
Agreement, Registration Rights Agreement, and a Post Closing Agreement.
Additionally, Global issued a Warrant (as defined and detailed below) to one
Holder as an inducement to purchase a Debenture. Mr. John B. Sawyer, President
of the Companies, also executed a personal guaranty for $2 million of the
Debentures ("Personal Guaranty"). These transaction documents are attached
hereto as Exhibits to this Form 8-K. Mr. Ian Herman, CEO of the Companies,
executed an identical personal guaranty to Mr. Sawyer for $1 million of the
Personal Guaranty.
Pursuant to the Pledge and Security Agreement and Aircraft Security Agreements,
the Debentures are secured by (a) a first lien on all the current and future
assets of the Companies including any owned aircraft; (b) the equity interests
currently held by Global in HAT, WJ and HATMEX; and (c) the 40% membership
interest of Global in Global Aircraft Leasing Partners, LLC. However, in the
event of default, foreclosure of the foregoing equity and membership interests
held by Global can only be enforced if the foreclosure on all other assets of
the Companies is insufficient to satisfy repayment of the Debentures.
Similar to the foreclosure conditions set forth in the preceding paragraph,
enforcement of the Personal Guaranty cannot occur until and unless the
foreclosure on all other assets of the Companies is insufficient to satisfy
repayment of the Debentures. As an inducement for Holder Victory Park Master
Fund, Ltd. ("Victory Park") to purchase a Debenture, Global issued Victory Park
a 5-year warrant exercisable into 1,500,000 shares of Global common stock
("Common Stock") at an exercise price of $0.45 per share ("Warrant"). However,
if Victory Park should choose to exercise the Warrant then it would receive a
reduced number of Common Stock shares based upon the cashless exercise formula
contained therein.
The Warrant also contains a contingent obligation which shall be determined
pursuant to a one-time value test on December 20, 2008 ("Test Date"). In the
event that the difference between the Common Stock VWAP (for the 20 trading days
prior to such Test Date) and the exercise price multiplied by the number of
Warrant shares is not at least equal to $750,000 ("Target Value"), then Global
will be obligated to issue an additional warrant to Victory Park. If Global is
obligated to issue an additional warrant (such warrant will contain identical
terms and provisions as the Warrant set forth above), that warrant shall be
exercisable into that number of Common Stock shares that would cause the
additional warrant and the Warrant combined to equal the Target Value, but in no
event shall the additional warrant be exercisable into more than 500,000 warrant
shares.
Under the Registration Rights Agreement, Victory Park cannot request Global to
register the underlying warrant shares for at least six months after the closing
date. After June 20, 2008, Victory Park can request that Global commence the
process to register the warrant shares. If Global is required to register the
warrant shares subsequent to June 20, 2008, Global will be obligated to file a
registration statement within 45 days of such request and cause the registration
statement to become effective within 270 days of filing. In the event Global is
asked to file a registration statement and fails to comply with the filing and
effectiveness deadlines as set forth above, Global will be obligated to pay
Victory Park liquidated damages in the amount of 2% of the total amount of the
Debentures each and every month until Global satisfies the filing and/or
effectiveness requirements.
The Post Closing Agreement allows the Companies to complete certain conditions
of closing within certain time frames subsequent to closing and subjects the
Companies to an event of default should the Companies fail to meet such
conditions within the time frames set forth in the Post Closing Agreement.
121
F-37
Upon the occurrence of certain events of default as defined in the Debentures
and the Post Closing Agreement, including events of default under the
transaction documents related to the Debentures, the full principal amount of
the Debentures, together with interest and other amounts owing become
immediately due and payable. Moreover, an event of default also subjects the
assets of the Companies and the equity and membership interests as well as the
Personal Guaranty to foreclosure.
Proceeds of the Debentures will be utilized to satisfy and terminate the
Companies' existing credit facility ($5,052,336) and other existing indebtedness
as well as to pay down certain trade accounts and fund working capital.
Pursuant to the closing of this transaction, the Companies incurred a closing
fee equal to 3% of the Debentures and legal and accounting costs.
M&I Marshall & Ilsley Bank has an outstanding Letter of Credit for $128,000 to
TAA as part of the lease agreement for the HAT facility. This Letter of Credit
is secured by a certificate of deposit in the amount of $128,000.
13. RELATED PARTY TRANSACTIONS
BCI Aircraft Leasing, Inc.
BCI Aircraft Leasing, Inc., Global's former partner in Jetglobal, see Note 5,
accounted for 17.4% of Company revenue during 2007 and 16.6% during 2006. The
account receivable from BCI at December 31, 2007 was $3,895,149 and at December
31, 2006 was $1,827,482. The Company had no revenue from Jetglobal in 2007.
Jetglobal, LLC accounted for 7.2% of the Company's revenue in 2006. The total
amount due to the Company from Jetglobal was $1,093,316 at December 31, 2006.
Jetglobal had no accounts receivable balance at December 31, 2007.
New customer GALP accounted for 46.5% of the Company's revenue in 2007, which
included a $7,850,000 aircraft purchase, representing about 32% of revenues.
14. CONTRACTS IN PROGRESS
At December 31, 2007 and December 31, 2006, costs and estimated earnings in
excess of billings and billings in excess of costs and estimated earnings on
uncompleted contracts consist of the following:
2007 2006
----------- -----------
Costs incurred on uncompleted $ 1,670,556 $ 1,486,387
contracts
Profit earned to date 1,630,873 521,378
----------- -----------
$ 3,301,329 $ 2,007,765
Less: Billings to date (4,124,191) (2,314,710)
----------- -----------
$ (822,762) $ (306,945)
122
F-38
Included in the accompanying balance sheet at December 31, 2007 and 2006 under
the following caption: Billings in excess of costs and estimated earnings on
uncompleted contracts
2007 2006
--------- ---------
Billings in excess from above $(822,762) $(306,945)
Time and material earnings unbilled 82,899
--------- ---------
Net $(822,762) $(224,046)
========= =========
Billings in excess are the result of amounts due from customers under
contractual terms, which can be, in some cases, in advance of actual work
performed.
15. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable represent amounts billed but uncollected on both
completed and in-progress aircraft repair and maintenance contracts as well as
amounts billed but uncollected on parts shipped to customers. Accounts
receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. The allowance is
estimated as a percentage of accounts receivable based on a review of accounts
receivable outstanding and the Company's prior history of uncollectible accounts
receivable. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to trade accounts receivable. Changes in the valuation
allowance were material to the financial statements in 2007 and 2006. During
2007, the Company had bad debt expense of $3,610,776. During 2006, the Company
had bad debt expense of $338,000. The Company believes its allowance at December
31, 2007 is adequate based upon review of our outstanding accounts receivable at
December 31, 2007.
As of December 31, 2007 and December 31, 2006, trade accounts receivable consist
of the following:
2007 2006
------------ ------------
Contracts in progress $ 2,393,224 $ 1,158,998
Completed contracts $ 7,789,974 $ 7,185,118
------------ ------------
$ 10,183,198 $ 8,344,116
Less: allowance for doubtful accounts (2,771,078) (473,317)
------------ ------------
$ 7,412,120 $ 7,870,799
============ ============
123
F-39
The amounts charged to the allowance for doubtful accounts are as follows for
the years ended December 31:
Year Balance at the Charged to Deductions Balance at the
Beginning of Year Expense End of Year
- -----------------------------------------------------------------------------------------------------------
2005 $ 53,149 $ 473,208 $ (233,850) $ 292,507
2006 $ 292,507 $ 337,508 $ (156,697) $ 473,318
2007 $ 473,318 $ 3,610,776 $(1,313,016) $ 2,771,078
Deductions represent recovery of previously reserved amounts.
16. INCOME TAXES
The following table summarized components of income tax expense for the years
ended December 31, 2007, 2006 and 2005:
2007 2006 2005
----------- ----------- -----------
Current provision/(benefit) $ (476,480) $ 211,382 $ 372,578
Deferred provision/(benefit) (1,537,786) 175,118 (6,400)
----------- ----------- -----------
$(2,014,266) $ 386,500 $ 366,178
=========== =========== ===========
Below is a reconciliation of the differences between the effective and statutory
rates as follows for the years ended December 31, 2007, 2006 and 2005:
2007 2006 2005
----------- ----------- -----------
Federal income tax expense (benefit) at statutory rate (34%) $(1,736,804) $ 412,355 $ 1,186,442
State income tax expense (benefit) net of federal tax effect (145,734) 84,654 174,476
Benefit of net operating loss carryover (951,200)
Other (180,074) (57,000)
Permanent differences 48,345 31,145 (43,540)
Tax credits (84,654)
----------- ----------- -----------
Net income tax expense $(2,014,266) $ 386,500 $ 366,178
=========== =========== ===========
124
F-40
The components of deferred taxes at December 31, 2007 and 2006 in the
accompanying balance sheet is summarized below:
2007 2006
---------- -----------
Deferred tax assets
Allowance for bad debts $1,127,829 $ 186,802
Amortization of intangibles 155,149 164,069
Accrued vacation and compensation 33,113 85,413
Inventory reserve 51,274
Fixed asset basis 120,748
Stock compensation 215,804
Other 55,749 27,293
---------- ----------
Deferred tax assets $1,759,666 $ 463,577
Deferred tax liabilities
Depreciation 139,911
Investment in affiliate 368,185
---------- ----------
Deferred tax liabilities 0 508,096
Valuation allowance 0 0
---------- ----------
Deferred tax assets (liabilities), net $1,759,666 $ (44,519)
========== ==========
During 2007, the Company was notified of an Internal Revenue Service, ("IRS"),
examination for the 2005 tax year
The income tax payable reflects liabilities related to the 2005 and 2006 tax
years including preliminary adjustments resulting from the 2005 IRS audit. The
income tax payable also includes the tax benefit related to the 2-year carryback
of the 2007 tax net operating loss, ("NOL"). The Company expects to realize the
benefit of the 2007 NOL carryback in conjunction with the settlement of
adjustments resulting from the IRS audit. The Company's current taxes payable
also includes $81,208 and $63,192 of interest related to the 2005 and 2006 tax
years respectively, and includes amounts resulting from the preliminary
adjustments related to the 2005 audit.
125
F-41
17. CONCENTRATIONS
Revenues
The Company's top four customers accounted for 80.5% of sales during the year
ended December 31, 2007. The Company's top four customers accounted for 52.4% of
sales during the year ended December 31, 2006 and 37.6% during the same period
in 2005. Three customers accounted for 63.8% of the Company's accounts
receivable at December 31, 2006. Five customers accounted for 45% of the
Company's accounts receivable at December 31, 2005. The broadening of our
customer base will spread the risk associated with a potential failure of a
significant customer. Efforts are continually being made to broaden our customer
base. While the relative significance of customers varies period to period, the
loss of, or significant curtailments of purchase of our services by, one or more
or our significant customers at any time could adversely affect our revenue and
cash flow. The top four customers reference above for 2007, 2006 and 2005 are
listed in the table below:
2007-Top Four 2007- % Of 2006-Top Four 2006- % Of 2005-Top Four 2005- % Of
Customers Revenues Customers Revenues Customers Revenues
- ------------------------ ------------------- ---------------------- ------------------ ---------------------- ---------------
Customer I 46.5 Customer E 18.4 Customer A 16.7
Customer F 17.4 Customer F 20.3 Customer B 8.3
Customer E 13.9 Customer G 7.2 Customer C 6.6
Customer J 3.6 Customer H 6.5 Customer D 6.0
Top Four-2007 Total % 80.5 Top Four-2006 52.4 Top Four-2005 37.6
Total % Total %
Cash
We are potentially subjected to concentration of credit risks through our cash
and cash equivalents and accounts receivable. Cash and cash equivalents are
deposited or managed by major financial institutions and at times are in excess
of FDIC insurance limits. At December 31, 2007 and 2006 cash and cash
equivalents held in excess of FDIC insurance limits were approximately $900,000
and $0, respectively.
18. SUBSEQUENT EVENTS
A settlement agreement was reached in HAT's suit against Admiral Merchants Motor
Freight, Inc. in February 2008. On April 9, 2008, the Company received $149,258,
representing payment in full, less legal fees.
During February 2008, HAT reached a settlement agreement related to the
complaint filed by Petro Energy Corporation in June of 2007. HAT paid $179,278
on March 28, 2008 for full and final settlement of the fuel claim and the $17.5
million claim for fuel services provided to Avolar was withdrawn and dismissed
with prejudice.
126
F-42
JETGLOBAL
FINANCIAL STATEMENTS
DECEMBER 31, 2005
DECEMBER 31, 2006
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT F-43
BALANCE SHEETS F-44 & F-45
STATEMENT OF OPERATIONS F-46
STATEMENT OF STOCKHOLDER'S EQUITY F-47
STATEMENT OF CASH FLOWS F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-49 - F-54
127
F-43
Report of Independent Accountants
---------------------------------
To the Members
of Jetglobal, LLC:
We have audited the accompanying balance sheets of Jetglobal, LLC (the
"Company") as of December 31, 2006 and 2005, and the related statements of
operations and members' equity and cash flows for the year ended December 31,
2006 and for the period from inception (August 26, 2005) to December 31, 2005.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with accordance with generally accepted
auditing standards of the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
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, we 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position JETGLOBAL, LLC as of December 31,
2006 and 2005, and the results of its operations and its cash flows for the year
ended December 31, 2006 and for the period from inception (August 26, 2005) to
December 31, 2005 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Moss Adams LLP
------------------
April 17, 2007
Scottsdale, Arizona
128
F-44
JETGLOBAL, LLC
BALANCE SHEET
December 31, 2006 and December 31, 2005
ASSETS
2006 2005
----------- -----------
CURRENT ASSETS
Accounts receivable $ 830,445 $
Inventory 16,234,615 9,578,842
Deposits 350,000 5,488,468
Prepaid insurance 103,950
----------- -----------
TOTAL CURRENT ASSETS $17,519,010 $15,067,310
----------- -----------
TOTAL ASSETS $17,519,010 $15,067,310
=========== ===========
129
F-45
JETGLOBAL, LLC
BALANCE SHEET
December 31, 2006 and December 31, 2005
LIABILITIES AND MEMBERS' EQUITY
2006 2005
------------ ------------
CURRENT LIABILITIES
Notes payable - short term $ 1,427,189 $
Accounts payable - trade 800,434 76,055
Due to related parties 1,091,316
Commitments and contingencies
------------ ------------
TOTAL CURRENT LIABILITIES $ 3,318,939 $ 76,055
------------ ------------
TOTAL LIABILITIES $ 3,318,939 $ 76,055
MEMBERS' EQUITY
BCI Aircraft Leasing 3,596,247 11,156,444
Global Aircraft Solutions 5,100,918 4,361,056
BCI Aircraft Leasing Retained Earnings (Loss) 3,852,034 (368,372)
Global Aircraft Solutions Retained Earnings (Loss) 1,650,872 (157,873)
------------ ------------
TOTAL MEMBERS' EQUITY $ 14,200,071 $ 14,991,255
------------ ------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 17,519,010 $ 15,067,310
============ ============
The accompanying notes are an integral part of these financial statements.
130
F-46
JETGLOBAL, LLC
STATEMENT OF OPERATIONS
For the Years ended December 31, 2006 and the Period from Inception
(August 26, 2005) to December 31, 2005
From Inception
(August 26, 2005)
To
December 31,
2006 2005
------------ ------------
Revenue
Net aircraft sales $ 12,429,860 $
Net aircraft leases 1,893,232
------------ ------------
Total revenue $ 14,323,092
Cost of sales (7,150,356)
------------ ------------
Gross profit 7,172,736
Selling, general and administrative expense (1,012,979) (526,245
------------ ------------
Gain /(loss) from operations 6,159,757
Other income (expense):
Interest expense (130,606)
------------ ------------
Net income/(loss) $ 6,029,151 $ (526,245)
============ ============
The accompanying notes are an integral part of these financial statements.
131
F-47
JETGLOBAL, LLC
STATEMENT OF MEMBERS' EQUITY
For the year ended December 31, 2006 and the Period from Inception (August 26, 2005)
To December 31, 2005
BCI GLOBAL TOTAL
------------ ------------ ------------
Members' equity August 26, 2005 0 0 0
Capital contributions $ 15,423,750 $ 4,576,440 $ 20,000,190
Distributions (3,621,152) (861,538) (4,482,690)
Other payments (646,154) 646,154
Net loss (368,372) (157,873) (526,245)
------------ ------------ ------------
Members' Equity, December 31, 2005 $ 10,788,072 $ 4,203,183 $ 14,991,255
Capital contributions 4,287,451 2,258,612 6,546,063
Distributions (11,066,398) (300,000) (11,366,398)
Other payments (781,250) 781,250
------------ ------------ ------------
Net profit 4,220,406 1,808,745 6,029,151
------------ ------------ ------------
Members' Equity, December 31, 2006 $ 7,448,281 $ 6,751,790 $ 14,200,071
============ ============ ============
The accompanying notes are an integral part of these financial statements.
132
F-48
JETGLOBAL, LLC
Consolidated Statement of Cash Flows
For the Years ended December 31, 2006 and the Period from Inception (August 26, 2005) to
December 31, 2005
From Inception
(August 26, 2005) to
2006 December 31, 2005
------------ -----------------
Cash flows from operating activities:
Net income (loss) $ 6,029,151 $ (526,245)
Adjustments to reconcile net profit to net cash 0 0
provided (used) by operating activities:
Changes in Assets and Liabilities:
Accounts receivable (830,445)
Prepaid expenses (103,950)
Inventory (2,028,843) (13,886,532)
Deposits (350,000) (5,488,468)
Accounts payable-trade 1,815,695 76,055
------------ ------------
Net cash provided by/(used for) operating activities 4,531,608 (19,825,190)
------------ ------------
Cash flows from investing activities:
Net cash used for investing activities 0 0
------------ ------------
Cash flows from financing activities:
Cash in by partners 4,546,064 20,000,190
Cash out by partners (10,504,861) (175,000)
Funds received on notes payable 4,257,000
Payments made on notes payable (2,829,811)
------------ ------------
Net cash provided by (used for) financing activities (4,531,608) 19,825,190
------------ ------------
Net increase in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of period 0 0
Cash and cash equivalents at end of period $ 0 $ 0
Supplemental schedule of non-cash financing activities
Aircraft inventory distributed to members $ 861,538 $ 4,307,690
Interest paid for the year ended December 31, 2006 was $130,606. No interest was
paid for the year ended December 31, 2005.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
133
F-49
JETGLOBAL, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
1. BASIS OF PRESENTATION
Jetglobal, LLC (the "Company") was formed on August 26, 2005 to operate as an
aircraft trading and leasing company. The Company's members are BCI Aircraft
Leasing Company, ("BCI"), which owns 70% and Global Aircraft Solutions, Inc.,
("Global"), which owns 30%. The Company's customers are international second and
third tier airlines and leasing companies, who are located and operate
worldwide. As a limited liability company, the liability of any individual
member for the obligations of the Company is limited to the extent of capital
contributions to the Company by the individual member
The Company operated in a single business segment, aircraft trading. However, as
discussed in Note 5, 12 aircraft acquired remained under lease arrangements with
Delta Airlines. As a result, the Company had residual lease income from those
lease arrangements. As the leases expired during 2006 the lease income ceased.
The Company does not intend to enter into other leasing activity.
Subsequent to December 31, 2006, the two members agreed to wind up the
operations of the Company in 2007. The members are negotiating a settlement to
distribute all of the assets of the Company to the two members. The distribution
of the net assets to the two members is intended to be based upon the carrying
value of those net assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents We consider cash and investments in securities with
maturities at the date of purchase of three months or less to be cash and cash
equivalents. Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Trade Accounts Receivable
Trade accounts receivable represent amounts billed but uncollected on the sale
of aircraft.
134
F-50
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. The allowance is
estimated as a percentage of accounts receivable based on a review of accounts
receivable outstanding and the Company's prior history of uncollectible accounts
receivable. Balances that are still outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to trade accounts receivable.
Inventory
Inventories are stated at the lower of cost or market. Inventories include used
aircraft purchased for resale that are available for sale as well as aircraft
that have been leased under a short-term operating lease contract.
The Company reviews the market value of inventories whenever events and
circumstances indicate that the carrying value of inventories may not be
recoverable from the estimated future sales price less cost of disposal and
normal gross profit. In cases where the market values are less than the carrying
value, a write down is recognized equal to an amount by which the carrying value
exceeds the market value of inventories.
Revenue and Cost Recognition
Revenues from aircraft sales are recognized upon the customer's acceptance of
the particular aircraft. Rental income for aircraft leased on short-term leases
is recognized monthly in accordance with those lease agreements.
Income Taxes
The Company is a limited liability company and has elected to be taxed as a
partnership under the Internal Revenue Code of 1986. As such, the Company is not
a tax paying entity for U.S. federal and state income tax purposes and
accordingly, the accompanying balance sheets do not reflect any assets or
liabilities for federal or state income taxes. Member's allocable share of
taxable income or loss is reported on the members' tax returns.
Fair Value of Financial Instruments
The carrying values of accounts receivable and accounts payable and notes
payable approximate fair values due to the short-term maturities of these
instruments.
Recently Issued Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments - an amendment of SFAS No. 133 and 140." This Statement
simplifies accounting for certain hybrid financial instruments, eliminates the
interim guidance in Statement 33 Implementation Issue No. D1, "Application of
Statement 133 to Beneficial Interest in Securitized Financial Assets," and
eliminates a restriction of the passive derivative instruments that a qualifying
special-purpose entity may hold. The Statement is effective for fiscal years
beginning after September 15, 2006. The adoption of this Statement is not
anticipated to have a material impact on the Partnership's financial statements.
135
F-51
In June 2006, FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes." This interpretation clarifies the accounting for uncertainty in income
taxes recognized by prescribing 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 Interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. The Interpretation is effective
for fiscal years beginning after December 15, 2006. This Interpretation is not
anticipated to have a material impact on the Partnership's financial statements.
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements." This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP) and expands disclosures about
fair value measurements. The Statement does not require any new fair value
measurements but could change the current practice in measuring current fair
value measurements. The Statement is effective for fiscal years beginning after
November 15, 2007. The Company does not anticipate that the adoption of this
Statement will have a material impact on the Partnership's financial statements.
3. TRADE ACCOUNTS RECEIVABLE
As of December 31, 2006, trade accounts receivable consisted of the amount owed
on a single aircraft sale. The customer is in possession and has the risks and
the rewards of aircraft ownership but the Company is holding title to the
aircraft until payment in full is received.
4. NOTES PAYABLE
On May 18, 2006, Jetglobal, LLC signed a Term Note and Agreement with ComVest
Capital, LLC. This original agreement was amended May 22, 2006. The final terms
of this note included a principal sum of $4,257,000 all due and payable on or
before May 10, 2007. The interest rate is 7% per annum during the original term
of the loan. The interest rate increases to 7% until July 31, to 9.5% thereafter
until October 31, 2006, and to 11.5% for any amounts due after November 1, 2006.
Twelve aircraft that were part of the Omnibus Sale Agreement, mentioned in the
note below on inventory, were conveyed as collateral security to ComVest. All
interest payments were current at December 31, 2006.
136
F-52
5. INVENTORY
Inventories consisted of the following aircraft with associated costs:
December 31, December 31,
2006 2005
----------- -----------
N301DL 737-200 861,538
N302DL 737-200 861,538
N303DL 737-200 861,538
N304DL 737-200 861,538
M305DL 737-200 861,538
N306DL 737-200 861,538
N307DL 737-200 861,538 861,538
N308DL 737-200 861,538
N309DL 737-200 861,538
N314DL 737-200 861,539
N316DL 737-200 861,539 861,538
N317DL 737-200 861,539 861,358
N318DL 737-200 861,539 861,538
N320DL 737-200 861,538
N321DL 737-200 861,538
N322DL 737-200 861,538
N323DL 737-200 775,000 775,000
N326DL 737-200 861,539
N327DL 737-200 861,538
N328DL 737-200 861,538
N329DL 737-200 861,539
N330DL 737-200 861,539
N332DL 737-200 525,000 525,000
N334DL 737-200 525,000
N382DL 737-200
N937AS MD80 1,150,000
---------------- ---------------
$ 16,234,615 $ 9,578,842
================ ===============
The Company acquired 26 aircraft that were all held in separate equipment trusts
administered by Wilmington Trust Company through an Omnibus Sale Agreement. The
aircraft were divided into two categories: one with 14 aircraft and one with 12.
The 14 were conveyed by bill of sale. The 12 were used as collateral security to
ComVest Capital, LLC.
The current inventory also has 2 aircraft that were part of the same fleet
originally but were purchased by the company on the open market from other
parties, as was the one MD80 in the inventory.
137
F-53
Delta Lease
Aircraft N301DL, N302DL, N303DL, N304DL, N305DL, N306DL, N308DL, N309DL, N314DL,
N326DL, N329DL & N330DL were continued to be operated and leased by Delta
Airlines for during most of year 2006. They were returned to Jetglobal during
the 4th quarter of 2006. The total rent paid by Delta Airlines during the tenure
of the lease was $1,893,232. These funds were paid directly to ComVest Capital
and applied as principal and interest payment on the note discussed under Notes
Payable above.
6. MEMBER EQUITY ACCOUNTS
The operating agreement calls for member BCI Aircraft Leasing to be responsible
for 75% of the costs and member Global Aircraft Solutions to be responsible for
25% of the costs for the partnership. However the profits and liquidation are to
be split 70% to BCI and 30% to Global. An analysis of the partnership Cash
In/Out accounts, at December 31, 2006, is presented below:
75%/25% of total Due from/(Due to)
Cash In/ Cash Out Member
---------------------- --------------------- -------------------- --------------
BCI Aircraft Leasing 3,596,247 6,522,874 (2,926,627)
Cash In/Out
Global Aircraft 5,100,918 2,174,291 2,926,627
Solutions Cash In/Out
---------------------- --------------------- -------------------- --------------
Total Cash in/Out 8,697,165
As mentioned earlier, the two members agreed to wind up the operations of the
Company in 2007. The members are negotiating a settlement for the exchange of
consideration for the membership interest held by Global. (See Note 1.)
7. DEPOSITS
At December 31, 2005, the Company had $5.4 million on deposit in escrow related
to the purchase of the 26 aircraft bought under the Omnibus Sales Agreement. At
December 31,2006, these deposits had been used and the purchase of the original
26 aircraft was complete. At December 31, 2006, the Company had $350,000 on
deposit related to supplying DIP financing for bankrupt Falcon Airlines.
Subsequent to December 31, 2006, the presiding judge in the case has ordered the
return of the $350.000.
8. RELATED PARTY TRANSACTIONS
During 2005, Jetglobal had a sale rescinded due to a customer c anceling a sales
agreement. This sale was guaranteed by BCI. In settlemelnt of the guarantee
commitment to Jetglobal, BCI agreed to take the aircraft in a distribution from
Jetglobal and provide Global with a payment equal to the share of lost earnings.
As a result, BCI and Global entered into a settlement agreement for $1,957,692.
This transaction was accounted for as a distribution to BCI in 2005 at the
aircraft carrying value of $2,100,000. BCI settled its guarantee obligation
directly with Global. The payment of $1,957,962 was made by BCI to Global in
January 2006.
138
F-54
9. CONCENTRATION OF REVENUES
During 2006,I sales to Northern Air Cargo comprised for 38% of Company revenue,
Air Philippines comprised 30%, Royal Khmer Airlines comprised 19% and RAVSA
comprised 14%.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
139
Global Aircraft Solutions, Inc.
formerly,
Renegade Venture (NEV.) Corporation
CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ending March 31, 2008
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS F-55 & 56
CONSOLIDATED STATEMENT OF OPERATIONS F-57
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY F-58
CONSOLIDATED STATEMENT OF CASH FLOWS F-59 & F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-61 - F-70
140
F-55
ITEM 1. FINANCIAL STATEMENTS.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
March 31, 2008 and December 31, 2007
(unaudited)
ASSETS
March 31, 2008 December 31, 2007
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 269,176 $ 1,221,598
Accounts receivable, net 8,735,347 7,412,120
Due from equity investee partner 347,000 472,000
Inventory 14,977,569 16,429,501
Restricted funds 372,005 196,181
Deferred income taxes 1,682,948 1,682,948
Other current assets 561,136 752,784
----------- -----------
TOTAL CURRENT ASSETS 26,945,181 28,167,132
Property, plant and equipment, net 922,906 1,024,837
Investments in and advances to affiliates 20,000 20,000
Goodwill 38,992 38,992
Deferred taxes 76,718 76,718
Other assets 123,288 366,469
----------- -----------
TOTAL ASSETS $28,127,085 $29,694,148
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
141
F-56
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
March 31, 2008 and December 31, 2007
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2008 December 31, 2007
-------------- -----------------
CURRENT LIABILITIES
Notes payable $ 9,085,479 $ 10,268,091
Notes payable, related party 300,000 --
Accounts payable - trade 1,926,603 3,051,776
Customer deposits 465,097 419,076
Billings in excess of costs and estimated
earnings on contracts in progress, net 1,099,113 822,782
Accrued liabilities 436,350 484,109
Income taxes payable 702,413 673,453
Current maturities - capital lease obligations 63,540 62,038
------------ ------------
TOTAL CURRENT LIABILITIES 14,078,595 15,781,325
LONG-TERM LIABILITIES
Capitalized lease obligations 154,904 170,990
------------ ------------
TOTAL LONG-TERM LIABILITIES 154,904 170,990
------------ ------------
TOTAL LIABILITIES 14,233,499 15,952,315
============ ============
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized no
shares issued or outstanding 2008 and 2007 -- --
Common stock, $.001 par value, 100,000,000 shares authorized
and 40,181,301 and 39,587,807 shares issued and
outstanding 2008 and 2007 40,181 40,181
Additional paid-in capital 13,853,944 13,755,973
Contributed capital 620,289 620,289
Accumulated deficit (620,828) (674,610)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,893,586 13,741,833
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,127,085 $ 29,694,148
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
142
F-57
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 2008 and March 31, 2007
(unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
2008 2007
----------- -----------
Sales
Sales, maintenance, repair and overhaul $ 3,571,155 $ 5,534,331
Sales, aircraft trading 1,993,750 50,000
Sales, parts 1,106,462 630,669
Sales, other 207,618 14,000
----------- -----------
Total sales 6,878,985 6,229,000
Cost of sales
Cost of sales, maintenance, repair and overhaul (2,306,565) (3,751,280)
Cost of sales, aircraft trading (1,220,131) (234)
Cost of sales, parts (569,645) (374,009)
Cost of sales, other (140,768) (435)
Inventory write-down (37,938) --
----------- -----------
Total cost of sales (4,275,047) (4,125,958)
----------- -----------
Gross profit 2,603,938 2,103,042
Selling, general and administrative expense (2,130,971) (1,599,485)
----------- -----------
Income from operations 472,967 503,557
Other income (expense):
Interest income 4,492 6,443
Interest expense (395,814) (131,600)
Miscellaneous income 2,174 21,999
Miscellaneous expense -- (100,000)
Equity in income of unconsolidated affiliate -- 214,800
----------- -----------
Net income, before taxes 83,819 515,199
Provision for income taxes (30,037) (180,334)
----------- -----------
Net income $ 53,782 $ 334,865
=========== ===========
Net income per share, Basic 2008 1st Qtr 40,181,301 $ 0.00 $ 0.01
shares; 2007 1st Qtr 39,624,241 shares.
Net income per share, Diluted 2008 1st Qtr
42,015,419 shares; 2007 1st Qtr 40,938,253 shares. $ 0.00 $ 0.01
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
143
F-58
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 2007 and the Three Months Ended March 31, 2008
(unaudited)
Additional Contributed Retained Stockholder
Paid-in Capital Earnings Equity
Capital
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Shares
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Balance December 31, 39,587,807 $39,967 $12,723,213 $620,289 $2,370,737 $15,754,206
2006
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Exercise of warrants,
(non-cash) 48,494 48 (48) ---
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Share-based payments
to directors 10,000 10 13,890 13,900
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Stock issued to
employees for
compensation 340,000 340 204,670 205,010
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Stock issued to third
parties 120,000 120 94,680 94,800
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Stock (restricted)
issued to 3rd parties
for current and
future services 75,000 75 29,465 29,540
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Shares vested on
employment agreements 176,843 176,843
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Options issued to a
Director 10,546 10,546
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Warrants issued with
debentures 581,282 581,282
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Repricing of existing
warrants 69,241 69,241
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Tax effects of
share-based payments (148,188) (148,188)
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Reclassification from
commons stock to APIC (379) 379 ---
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Net loss, 2007 (3,045,347) (3,045,347)
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Balance December 31,
2007 40,181,301 $40,181 $13,755,973 $620,289 $(674,610) $13,741,833
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Shares vested on
employment agreements 97,971 97,971
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Net income 53,782 53,782
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
Balance March 31, 2008 40,181,301 $40,181 $13,853,944 $620,289 $(620,828) $13,893,586
- ----------------------- ----------- -------- ------------ ------------ ---------- ------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
144
F-59
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2008 and 2007
(unaudited)
2008 2007
----------- -----------
Cash flow from operating activities:
Net Income $ 53,782 $ 334,865
Adjustments to reconcile net profit to
net cash
used in operating activities:
Depreciation 114,083 150,173
Equity in income of unconsolidated affiliate -- (214,800)
Physical inventory adjustments 37,938 --
Bad debt expense 5,599 --
Customer Deposits-Forfeited -- (50,000)
Stock based compensation expense 107,972 58,408
Intercompany Non-Cash Transactions (10,000) --
Changes in Assets and Liabilities:
Accounts receivable (1,444,509) (1,397,087)
Prepaid expenses 191,648 83,579
Inventory 1,413,992 179,894
Restricted funds (175,824) --
Deposits 18,347 (43,853)
Other non-current assets 74,309 --
Accounts payable-trade (884,490) (718,410)
Customer deposits 196,546 156,108
Billings in excess of cost and estimated
earnings on contracts in progress, net 276,331 1,156,459
Income tax payable 28,960 180,334
Accrued liabilities (47,759) (113,248)
----------- -----------
Net cash used in operating activities (43,075) (237,578)
Cash flows from investing activities:
Purchase of property, plant and equipment (12,152) (9,869)
Notes receivable -- 116,672
----------- -----------
Net cash (used in) provided by investing (12,152) 106,803
activities
Cash flows from financing activities:
Proceeds from bank loans -- 57,603
Repayment of loans (999,990) --
Payments on capital lease obligations (14,583) (16,939)
Proceeds from note payable, related party 300,000 200,000
Payments on notes payable (182,622) (194,768)
145
F-60
-- (4,808)
Other financing activities, net
----------- -----------
Net cash used in provided by financing (897,195) 41,088
activities
Net decrease in cash and cash equivalents (952,422) (89,687)
Cash and cash equivalents at beginning of period 1,221,598 104,440
----------- -----------
Cash and cash equivalents at end of period $ 269,176 $ 14,753
=========== ===========
Interest paid for the three-month periods ended March 31, 2008 and 2007 was
$400,229 and 126,657, respectively.
Taxes paid during the three-month periods ended March 31, 2008 and 2007 were $0.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
146
F-61
GLOBAL AIRCRAFT SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These Condensed Consolidated Financial Statements include the accounts of Global
Aircraft Solutions, Inc., and its wholly owned subsidiaries, Hamilton Aerospace
Technologies, Inc. ("HAT") and Johnstone Softmachine Corporation ("Johnstone"),
and World Jet Corporation ("World Jet"), collectively, the "Company" or
"Global". HAT and Johnstone were acquired by Global on May 2, 2002. Johnstone is
currently inactive.
All material transactions and accounts with the subsidiaries have been
eliminated from the consolidated financial statements.
These Condensed Consolidated Financial Statements have been prepared by the
Company without audit. These Condensed Consolidated Financial Statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the Company,
the accompanying financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the Company for the three months ended, March 31, 2008 and 2007 and
cash flows for the three months ended March 31, 2008 and 2007. However, these
operating results are not necessarily indicative of the results expected for the
full fiscal year. The Condensed Consolidated Financial Statements should be read
in conjunction with the notes to the Condensed Consolidated Financial Statements
contained in our annual report on Form 10-K for the fiscal year ended December
31, 2007.
2. ORGANIZATIONS AND NATURE OF OPERATIONS
On September 4, 2007, the Company and Global Aircraft Leasing Partners, LLC, a
Delaware limited liability company, ("GALP") reached a tentative agreement that
Global would assume a 40% equity interest in GALP. GALP is a start-up
aircraft-leasing venture formed to acquire aircraft, through a combination of
debt and equity financing, and lease these commercial jet aircraft to operators
throughout the world. It has been mutually agreed by the parties that in
consideration for a 40% equity participation in GALP, the company will make a
one time capital contribution of $40,000. As further consideration the Company
will provide to GALP ongoing technical support to facilitate GALP's commercial
aircraft purchasing, leasing and sales activities. All technical services
provided to GALP by HAT and World Jet will be billed at Company-standard rates.
The Company had made $20,000 in capital contribution as of December 31, 2007. A
final operating agreement has not yet been finalized and Global had no equity
participation in GALP for the quarter ended March 31, 2008. Global will make an
additional capital contribution of $20,000 upon the parties reaching a final
operating agreement. Global will not be required to invest capital in aircraft
acquired by GALP, and all debt assumed by GALP as a result of aircraft
acquisitions will be non-recourse with respect to the Company. Other members of
GALP will include equity funding specialists and aircraft leasing professionals.
Global and GALP have also agreed that Global will have first right of refusal
for all aircraft maintenance, aircraft parts and technical consulting
requirements that GALP may have as a result of its aircraft acquisition and
leasing activities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers cash and investments in securities with maturities at the
date of purchase of three months or less to be cash and cash equivalents.
147
F-62
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the accompanying financial statements as of March 31, 2007
have been reclassified to conform to the current year presentation, with no
effect on reported net income.
Revenue and Cost Recognition
Revenues from fixed-fee contracts or portions of contracts for MRO sales are
recognized by employing the percentage-of-completion method, measured by the
cost-to-cost method, commencing when progress reaches a point where experience
is sufficient to estimate final results with reasonable accuracy. The cumulative
catch-up method is used to account for changes in estimates of total revenues,
total costs or extent of progress. Each project is considered complete when the
subject aircraft departs, or is cleared to depart, our facility. Revision in
cost and labor hour estimates and recognition of losses, if any, on these
contracts are reflected in the accounting period in which the facts become
known. During the periods covered by these financial statements, no material
prior period revisions were necessary. As of December 31, 2007 and March 31,
2008 there were no material amounts in excess of the agreed contract price that
the Company seeks to collect from customers or others for customer-caused
delays, errors in specifications or designs, contract termination, change orders
in dispute or unapproved as to both scope and price, or other causes of
unanticipated additional costs.
Revenue from part sales is recognized when parts are shipped. All parts are
shipped FOB shipping point; title passes at time of shipping and the Company has
no further contractual or legal obligation to the customer upon shipping.
Revenues from time and material contracts and all other ancillary services are
recognized as the services are performed. Revenue from aircraft sales is
recognized when the customer accepts delivery of the aircraft and/or when title
is transferred.
Recently Issued Accounting Pronouncements
In September 2006, FASB issued SFAS No. 157, "Fair Value Measurements." This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP) and expands disclosures about
fair value measurements. The Statement does not require any new fair value
measurements but could change the current practice in measuring current fair
value measurements. The Statement is effective for fiscal years beginning after
November 15, 2007. The Company does not anticipate that the adoption of this
Statement will have a material impact on the Company's consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS 159") which permits entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS 159
will be effective for us on January 1, 2008. The Company is currently evaluating
the impact of adopting SFAS 159 on the Company's financial position, cash flows,
and results of operations.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" (SFAS
141(R)). SFAS 141(R) expands the definition of transactions and events that
qualify as business combinations; requires that the acquired assets and
liabilities, including contingencies, be recorded at the fair value determined
on the acquisition date and changes thereafter reflected in revenue, not
goodwill; changes the recognition timing for restructuring costs; and requires
acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is
required for annual periods beginning after December 15, 2008. Early adoption
and retroactive application of SFAS 141(R) to fiscal years preceding the
effective date are not permitted.
148
F-63
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements" (SFAS 160). SFAS 160 re-characterizes
minority interests in consolidated subsidiaries as non-controlling interests and
requires the classification of minority interests as a component of equity.
Under SFAS 160, a change in control will be measured at fair value, with any
gain or loss recognized in earnings. The effective date for SFAS 160 is for
annual periods beginning on or after December 15, 2008. Early adoption and
retroactive application of SFAS 160 to fiscal years preceding the effective date
are not permitted.
Stock-Based Compensation
The Company measures the cost of employee services received in exchange for all
equity awards granted including stock options based on the fair market value of
the award as of the grant date.
Earnings per share
Basic earnings per share includes no dilution and is computed by dividing net
earnings available to stockholders by the weighted number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the Company's earnings.
Reconciliation of EPS for the three-month period ended March 31 of 2008 and 2007
are as follows:
For the Three Months ended March 31, 2008
Income (Numerator) Shares (Denominator) Per-Share Amount
------------------ -------------------- ----------------
Net Income 53,782
Basic EPS
Income available to common stockholders 53,782 40,181,301 $0.00
Warrants ---
Options 517,500
Unvested employment agreement shares 1,316,618
Diluted EPS
Income available to common stockholders and
assumed conversions 53,782 42,015,419 $0.00
For the Three Months ended March 31, 2007
Income (Numerator) Shares (Denominator) Per-Share Amount
------------------ -------------------- ----------------
Net Income $334,865
Basic EPS
Income available to common stockholders $334,865 39,624,241 $0.01
Warrants 148,339
Options 753,173
Unvested employment agreement shares 412,500
Diluted EPS
Income available to common stockholders and
assumed conversions $334,865 40,938,253 $0.01
149
F-64
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable, notes
receivable and accounts payable and notes payable approximate fair values due to
the short-term maturities of these instruments. The fair value of notes payable
approximates the carrying value because of the current market value interest
rates applied to those obligations. The fair value of capital leases
approximates the carrying value of these instruments because the terms are
similar to those in the marketplace under which they could be replaced.
5. TRADE ACCOUNTS RECEIVABLE
As of March 31, 2008 and December 31, 2007, trade accounts receivable consist of
the following:
March 31, 2008 December 31, 2007
-------------- -----------------
Contracts in progress $ 1,822,251 $ 2,393,224
Completed contracts 9,682,839 7,789,974
------------ ------------
$ 11,505,090 $ 10,183,198
Less: allowance for doubtful accounts (2,769,743) (2,771,078)
------------ ------------
$ 8,735,347 $ 7,412,120
============ ============
Bad debt expense during the first three months of 2008 was $5,599.
6. INVENTORY
Inventories consisted of the following:
March 31, 2008 December 31, 2007
-------------- -----------------
Maintenance hardware $ 965,324 $ 912,745
Parts for resale 6,297,938 6,527,947
Aircraft & engines 7,714,307 8,988,809
----------- -----------
$14,977,569 $16,429,501
=========== ===========
Management reviews listed inventory items to determine whether there are slow
moving or obsolete items on an annual basis. At March 31, 2008 it was
Management's determination that the carrying value of the inventory items, after
adjustment for inventory write down, is appropriate and that there were no items
requiring an allowance because the carrying value exceeded net realizable value.
7. NOTES PAYABLE
On December 20, 2007, Global and its subsidiaries HAT, World Jet and Hamilton
Aerospace S.A. de C.V. ("HATMEX") (collectively the "Companies") entered into
and closed on three non-convertible secured debenture financing agreements with
two accredited institutional investors ("Holders") in the total amount of $10
million (collectively the "Debentures"). The Debentures accrue interest at the
rate of 15% per annum which is payable quarterly in arrears beginning April 1,
2008. The Debentures also provide for a cash flow recapture to the Holders equal
to 60% of any proceeds related to the sale of Global's aircraft inventory. The
Debentures mature on December 19, 2008.
150
F-65
In connection with the Debentures, the Companies and Holders executed a Pledge
and Security Agreement, Aircraft Security Agreements, Securities Purchase
Agreement, Registration Rights Agreement, and a Post Closing Agreement.
Additionally, Global issued a Warrant (as defined and detailed below) to one
Holder as an inducement to purchase a Debenture. Mr. John B. Sawyer, President
of the Companies, also executed a personal guaranty for $2 million of the
Debentures ("Personal Guaranty"). These transaction documents are attached
hereto as Exhibits to this Form 8-K. Mr. Ian Herman, CEO of the Companies,
executed an identical personal guaranty to Mr. Sawyer for $1 million of the
Personal Guaranty.
Pursuant to the Pledge and Security Agreement and Aircraft Security Agreements,
the Debentures are secured by (a) a first lien on all the current and future
assets of the Companies including any owned aircraft; (b) the equity interests
currently held by Global in HAT, WJ and HATMEX; and (c) the 40% membership
interest of Global in Global Aircraft Leasing Partners, LLC. However, in the
event of default, foreclosure of the foregoing equity and membership interests
held by Global can only be enforced if the foreclosure on all other assets of
the Companies is insufficient to satisfy repayment of the Debentures.
As an inducement for Holder Victory Park Master Fund, Ltd. ("Victory Park") to
purchase a Debenture, Global issued Victory Park a 5-year warrant exercisable
into 1,500,000 shares of Global common stock ("Common Stock") at an exercise
price of $0.45 per share ("Warrant"). However, if Victory Park should choose to
exercise the Warrant then it would receive a reduced number of Common Stock
shares based upon the cashless exercise formula contained therein.
At March 31, 2008, the Company was in compliance with the covenants of these
non-convertible secured debentures. At March 31, 2008, the outstanding balance
was approximately $9M.
See Note 12, Related Party Transactions, below.
8. CONTRACTS IN PROGRESS
At March 31, 2008 and December 31, 2007, costs and estimated earnings in excess
of billings and billings in excess of costs and estimated earnings on
uncompleted contracts consist of the following:
March 31, December 31,
2008 2007
----------- -----------
Costs incurred on uncompleted contracts $ 2,532,748 $ 1,670,556
Profit earned to date 2,116,089 1,630,873
----------- -----------
$ 4,648,837 $ 3,301,429
Less: Billings to date (5,946,216) (4,124,211)
----------- -----------
$(1,297,379) $ (822,782)
=========== ===========
Included in the accompanying balance sheet at March 31, 2008 and December 31,
2007, under the following caption: Billings in excess of costs and estimated
earnings on uncompleted contracts
March 31, December 31,
2008 2007
----------- -----------
Billings in excess from above $(1,297,379) $ (822,782)
Time and material earnings
unbilled 198,266 --
----------- -----------
Net $(1,099,113) $ (822,782)
=========== ===========
Billings in excess are the result of amounts due from customers under
contractual terms, which can be, in some cases, in advance of actual work
performed.
151
F-66
9. SHAREHOLDERS' EQUITY
SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS
PLAN NAME TOTAL SHARES ISSUED AVAILABLE
March 31, 2008
2002 Compensatory Stock Option Plan 3,000,000 1,045,000 1,955,000
2003 Employee Stock Compensation Plan 5,000,000 4,987,500 12,500
Stock-based Compensation Disclosure
Stock issued under plans to employees was issued at the value of the stock at
the measurement date. All outstanding options were exercisable at the grant
date. Those options issued to employees that were not immediately exercised
remained outstanding at March 31, 2008 and are summarized below:
March 31, 2008
------------------------------------------------------
Weighted Average
Exercise Price
--------------
Options outstanding at 940,000 $0.207 Exercisable on grant date
beginning of year
Granted during quarter 1 None
Exercised during quarter 1 None
Forfeited during quarter 1 None
Outstanding at 3/31/2008 940,000 $0.207 Exercisable on grant date
Options exercisable at 3/31/2008 940,000 $0.207 Exercisable on grant date
Weighted average fair
value of options granted
during quarter 1 None
152
F-67
The aggregate remaining contractual lives in years for the 900,000, 30,000 and
10,000 options outstanding and exercisable on March 31, 2008 was 1.022, 3.011
and 3.840, respectively.
March 31, 2007
-----------------------------------------------------
Weighted Average
Exercise Price
--------------
Options outstanding at 930,000 $0.198 Exercisable on grant date
beginning of year
Granted during quarter 1 10,000 $1.05
Exercised during quarter 1 None
Cancelled during quarter1 None
Forfeited during quarter 1 None
Outstanding at 3/31/2007 940,000 $0.207 Exercisable on grant date
Options exercisable at 3/31/2007 940,000 $0.207 Exercisable on grant date
Weighted average fair
value of options granted
during the quarter 1 $1.05
10. SEGMENT INFORMATION
The company has divided its operations into the following reportable segments:
(i) Aircraft maintenance, repair, and overhaul; (ii) Aircraft brokerage; and
(iii) Part sales. Each segment represents distinct product lines, marketing, and
management of its business. Limited other services for each company, which
represent a small percentage of income, have been shown in the aggregate.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies.
153
F-68
Selected information by business segment is presented in the following tables
for the three months ended March 31, 2008 and March 31, 2007.
Three months ended Three months ended
March 31, 2008 March 31, 2007
-------------- --------------
($millions) ($millions)
Segment sales:
Aircraft maintenance 3.571 5.535
Aircraft trading 1.994 .050
Part sales 1.879 2.128
Other .208 .014
Sub Total 7.652 7.727
Elimination of intersegment sales -.773 -1.498
Total consolidated sales 6.879 6.229
Gross profit:
Aircraft maintenance 1.264 1.783
Aircraft trading .774 .049
Part sales .499 .257
Other .067 .014
Sub total 2.604 2.103
Selling, general, administrative expense -2.131 -1.599
Income from operations: .473 .504
Other, net -.389 -.204
Share of Jetglobal net income (aircraft trading) - - - .215
Consolidated earnings (loss) before taxes .084 .515
Interest income by segment
Aircraft maintenance .005 .001
Aircraft trading - - - - - -
Part sales - - - - - -
Corporate - - - .005
Total interest income .005 .006
Interest expense by segment
Aircraft maintenance .023 .025
Aircraft trading - - - - - -
Part sales - - - .001
Corporate .373 .106
Total interest expense .396 .132
154
F-69
Three months ended Three months ended
March 31, 2008 March 31, 2007
-------------- --------------
($millions) ($millions)
Depreciation and amortization by segment
Aircraft maintenance .077 .092
Aircraft brokerage - - - - - -
Part sales - - - - - -
Corporate .037 .058
Total .114 .150
Net asset values:
Aircraft maintenance 10.065 9.590
Aircraft trading 7.714 .750
Part sales 6.652 7.009
Corporate 3.696 11.533
Total 28.127 28.882
Capital expenditures:
Aircraft maintenance .011 - - -
Aircraft brokerage - - - - - -
Part sales - - - - - -
Corporate .001 .021
Total .012 .021
The Company's facilities and assets are primarily located in the United States.
During 2006, the Company formed a Mexican corporation, Hamilton SA de C.V. The
purpose of the new corporation was to satisfy Mexican governmental requirements
related to the flight line servicing of Mexican airline, Avolar Aerolineas, S.A.
de C.V. Minimal supplies are secured from local dealers using the foreign
currency but all major revenue and expense transactions are transacted in U.S.
dollars. The Company sells and ships to several foreign countries. All foreign
revenues are collected and recorded in U.S. dollars. Geographic information
regarding sales to foreign countries is presented in the following table:
Three Months Three Months
Ended Ended
March 31, 2008 March 31, 2007
-------------- --------------
Afghanistan $ 624,755 $
Angola 60,653
Belgium 13,500 20,300
Canada 2,363,271 12,039
France 800
Israel 22,857
Kenya 1,500
Lebanon 13,500 19,844
Mexico 2,397,100 2,703,851
Nigeria 958,393
Pakistan 216,033
South Africa 2,655
UAE 13,500
Ukraine 6,560
United Kingdom 4,000
---------- ----------
TOTALS $6,387,474 $3,067,637
========== ==========
155
F-70
11. CONCENTRATIONS
Revenues
The Company's top four customers accounted for 92.2% and 85.1% of sales during
the 1st three months of 2008 and 2007, respectively. Three customers accounted
for 71.9% of the Company's accounts receivable at March 31, 2008. The broadening
of our customer base will spread the risk associated with a potential failure of
a significant customer. Efforts are continually being made to broaden our
customer base. It should be noted that in any single quarter, due to the length
of the typical repair job, percentages will normally be significantly higher
than on an annual basis. While the relative significance of customers varies
period to period, the loss of, or significant curtailments of purchase of our
services by, one or more or our significant customers at any time could
adversely affect our revenue and cash flow. The top four customers, referenced
above, for the 1st three months of 2008 and 2007 and the year 2007 are listed in
the table below:
1st Three months of 2008 - 1st Three months of 2008 - 1st Three months of 2007 - 1st Three months of 2007 -
Top Four Customers % of Revenues Top Four Customers % of Revenues
Customer G 34.8% Customer C 37.5%
Customer I 34.4% Customer B 31.7%
Customer H 13.9% Customer E 8.5%
Customer D 9.1% Customer F 7.4%
Top Four- 1st Three months of 92.2% Top Four- 1st Three months of 85.1%
2008 Total % 2007 Total %
Cash
We are potentially subjected to concentration of credit risk through our cash
and cash equivalents and accounts receivable. Cash and cash equivalents are
deposited or managed by major financial institutions and at times are in excess
of FDIC insurance limits. At March 31, 2008 and December 31, 2007 cash and cash
equivalents held in excess of FDIC insurance limits were approximately $289,000
and $900,000, respectively.
156
Global Aircraft Solutions, Inc.
formerly,
Renegade Venture (NEV.) Corporation
CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ending June 30, 2008
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS F-71
CONSOLIDATED STATEMENT OF OPERATIONS F-72
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY F-73
CONSOLIDATED STATEMENT OF CASH FLOWS F-74 & F-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-76 - F-88
157
F-71
ITEM 1. FINANCIAL STATEMENTS.
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
June 30, 2008 and December 31, 2007
(unaudited)
ASSETS
June 30, December 31,
2008 2007
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 646,091 $ 1,221,598
Accounts receivable, net 5,337,724 7,412,120
Due from equity investee partner 347,000 472,000
Inventory, net 12,903,662 16,429,501
Costs and estimated earnings on contracts in excess of 231,625
billings on contracts in progress, net
Restricted funds 446,007 196,181
Deferred income taxes 3,895,966 1,682,948
Other current assets 1,075,081 752,784
----------- -----------
TOTAL CURRENT ASSETS 24,883,156 28,167,132
Property, plant and equipment, net 881,167 1,024,837
Investments in and advances to affiliates 20,000 20,000
Goodwill 38,992 38,992
Deferred taxes 76,718 76,718
Other assets 39,951 366,469
----------- -----------
TOTAL ASSETS $25,939,984 $29,694,148
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
158
F-72
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
June 30, 2008 and December 31, 2007
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2008 2007
------------ ------------
CURRENT LIABILITIES
Notes payable $ 9,135,091 $ 10,268,091
Accounts payable - trade 2,323,772 3,051,776
Customer deposits 3,294,674 419,076
Billings in excess of costs and estimated
earnings on contracts in progress, net -- 822,782
Accrued liabilities 647,727 484,109
Income taxes payable 596,874 673,453
Current maturities - capital lease obligations 65,080 62,038
------------ ------------
TOTAL CURRENT LIABILITIES 16,063,218 15,781,325
LONG-TERM LIABILITIES
Capitalized lease obligations 138,044 170,990
------------ ------------
TOTAL LONG-TERM LIABILITIES 138,044 170,990
------------ ------------
TOTAL LIABILITIES 16,201,262 15,952,315
============ ============
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized no
shares issued or outstanding 2008 and 2007 -- --
Common stock, $.001 par value, 100,000,000 shares authorized
and 41,081,301 and 40,181,301 shares issued and
outstanding 2008 and 2007 41,081 40,181
Additional paid-in capital 14,107,524 13,755,973
Contributed capital 620,289 620,289
Subscriptions receivable 154,035
Accumulated deficit (4,876,137) (674,610)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,738,722 13,741,833
============ ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,939,984 $ 29,694,148
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
159
F-73
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
For the Three and Six Months ended June 30, 2008 and June 30, 2007
(unaudited)
Three Months Three Months Six Months Six Months
ended June 30, Ended June 30, ended June 30, ended June 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
Sales
Sales, maintenance, repair and overhaul $ 5,118,194 $ 2,742,659 $ 8,689,349 $ 8,276,990
Sales, aircraft trading 1,556,167 7,850,000 3,549,917 7,900,000
Sales, parts 744,552 594,800 1,851,014 1,225,468
Sales, other 64,050 (13,569) 271,668 432
------------ ------------ ------------ ------------
Total sales 7,482,963 11,173,890 14,361,948 17,402,890
Cost of sales
Cost of sales, maintenance, repair and
overhaul (3,959,445) (2,207,074) (6,266,010) (5,958,354)
Cost of sales, aircraft trading (2,185,599) (6,846,000) (3,405,730) (6,846,234)
Cost of sales, parts (383,225) (193,084) (952,870) (567,093)
Cost of sales, other (57,630) (198,398) (435)
Inventory write-down (3,037,350) (61,741) (3,075,288) (61,741)
------------ ------------ ------------ ------------
Total cost of sales (9,623,249) (9,307,899) (13,898,296) (13,433,857)
------------ ------------ ------------ ------------
Gross profit (2,140,286) 1,865,991 463,652 3,969,033
Selling, general and administrative
expense (4,225,862) (1,528,706) (6,356,833) (3,128,191)
------------ ------------ ------------ ------------
Income from operations (6,366,148) 337,285 (5,893,181) 840,842
Other income (expense):
Interest income 3,074 177,848 7,566 184,291
Interest expense (380,360) (378,889) (776,174) (510,489)
Miscellaneous income 46,304 52,746 48,478 74,745
Legal settlement 200,000 - - - 200,000 (100,000)
Loss on asset disposal (157) - - - (1,234) - - -
Equity in income of unconsolidated
affiliate 214,800
Gain on sale of interest in
unconsolidated affiliate - - - 27,210 - - - 27,210
------------ ------------ ------------ ------------
Net income, before taxes (6,497,287) 216,200 (6,414,545) 731,399
Provision for income taxes 2,241,978 (75,670) 2,213,018 (256,004)
------------ ------------ ------------ ------------
Net income $ (4,255,309) $ 140,530 $ (4,201,527) $ 475,395
============ ============ ============ ============
Net income per share:
Basic $ (0.11) $ 0.00 $ (0.10) $ 0.01
============ ============ ============ ============
Diluted $ (0.11) $ 0.00 $ (0.10) $ 0.01
============ ============ ============ ============
Weighted average number of common
shares outstanding:
Basic 40,369,213 34,779,327 40,275,527 39,719,669
============ ============ ============ ============
Diluted 40,369,213 35,894,478 40,275,527 40,783,188
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
160
F-74
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statement of Changes in Stockholders' Equity
For the Year Ended December 31, 2007 and the Six Months Ended June 30, 2008
(unaudited)
Additional Contributed Subscriptions Retained Stockholder
Paid-in Capital Receivable Earnings Equity
Shares Capital
---------- --------- ---------- ----------- ------------- -------- -----------
Balance December 39,587,807 $39,967 $12,723,213 $ 620,289 $2,370,737 $15,754,206
31, 2006
Exercise of
warrants, (non-cash) 48,494 48 (48) --
Share-based
payments to
directors 10,000 10 13,890 13,900
Stock issued to
employees for
compensation 340,000 340 204,670 205,010
Stock issued to
third parties 120,000 120 94,680 94,800
Stock (restricted)
issued to 3rd
parties for current
and future services 75,000 75 29,465 29,540
Shares vested on
employment
agreements 176,843 176,843
Options issued to a
Director 10,546 10,546
Warrants issued
with debentures 581,282 581,282
Repricing of
existing warrants 69,241 69,241
Tax effects of
share-based payments (148,188) (148,188)
Reclassification
from commons stock
to APIC (379) 379 --
Net loss, 2007 (3,045,347) (3,045,347)
Balance December 40,181,301 $ 40,181 $13,755,973 $ 620,289 -- $ (674,610) $13,741,833
31, 2007
Shares vested on 175,175 175,175
employment
agreements
Options issued to a
Director 2,601 2,601
Options exercised 900,000 900 152,100 (154,035) (1,035)
Stock to be issued
to third parties
pursuant to
financing agreement 21,675 21,675
Net income (4,201,527) (4,201,527)
Balance June 30, 41,081,301 $ 41,081 $14,107,524 $ 620,289 (154,035) $(4,876,137) $ 9,738,722
2008
The accompanying notes are an integral part of these condensed consolidated financial statements.
161
F-75
GLOBAL AIRCRAFT SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 31, 2008 and 2007
(unaudited)
2008 2007
----------- -----------
Cash flow from operating activities:
Net Income $(4,201,527) $ 475,395
Adjustments to reconcile net profit to net cash
used in operating activities:
Depreciation 229,092 292,787
Equity in income of unconsolidated affiliate -- (214,800)
Physical inventory adjustments 2,925,289 --
Bad debt expense 1,820,857 --
Stock based compensation expense 209,451 329,814
Intercompany non-cash transactions (10,000) --
Gain on sale of interest in unconsolidated
affiliate (27,210)
Gain on disposal of fixed assets (50,000)
Changes in Assets and Liabilities:
Accounts receivable 918,134 (1,060,910)
Prepaid expenses 376,973 130,905
Inventory 2,350,550 131,453
Restricted funds (249,826) --
Deposits (606,480) (911)
Other non-current assets 74,309 --
Accounts payable-trade (1,267,600) (2,174,399)
Deferred income taxes (2,213,018) --
Customer deposits 2,974,878 494,939
Billings in excess of cost and
estimated earnings on contracts
in progress, net (1,054,407) (195,281)
Income tax payable (76,579) 256,005
Accrued liabilities 163,618 33,098
----------- -----------
Net cash (used in) provided by operating activities 2,363,714 (1,579,115)
Cash flows from investing activities:
Purchase of property, plant and equipment (85,422) (32,237)
Notes receivable -- 116,672
Non-consolidated affiliate (investment)/receipt 48,973
----------- -----------
Net cash (used in) provided by investing activities (85,422) 133,408
Cash flows from financing activities:
Proceeds from bank loans -- 57,603
Repayment of loans (2,546,990) --
Payments on capital lease obligations (29,903) (27,548)
Proceeds from note payable, related party 300,000 800,000
Payments on notes payable, related party (300,000) --
Proceeds from note payable 1,250,000
Payments on notes payable (275,871) (727,544)
Other financing activities, net (1,035) (9,670)
----------- -----------
Net cash (used in) provided by financing activities (2,853,799) 1,342,841
Net decrease in cash and cash equivalents (575,507) (102,866)
Cash and cash equivalents at beginning of period 1,221,598 104,440
----------- -----------
Cash and cash equivalents at end of period $ 646,091 $ 1,574
=========== ===========
Interest paid for the six-month periods ended June 30, 2008 and 2007 was
$748,360 and $502,238, respectively.
Taxes paid during the six-month periods ended June 30, 2008 and 2007 were
$100,000 and $0, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
162
F-76
GLOBAL AIRCRAFT SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These Condensed Consolidated Financial Statements include the accounts of Global
Aircraft Solutions, Inc., and its wholly owned subsidiaries, Hamilton Aerospace
Technologies, Inc. ("HAT") and Johnstone Softmachine Corporation ("Johnstone"),
and World Jet Corporation ("World Jet"), collectively, the "Company" or
"Global". HAT and Johnstone were acquired by Global on May 2, 2002. Johnstone is
currently inactive.
All material transactions and accounts with the subsidiaries have been
eliminated from the consolidated financial statements.
These Condensed Consolidated Financial Statements have been prepared by the
Company without audit. These Condensed Consolidated Financial Statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the Company,
the accompanying financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the Company for the six months ended, June 30, 2008 and 2007 and
cash flows for the six months ended June 30, 2008 and 2007. However, these
operating results are not necessarily indicative of the results expected for the
full fiscal year. The Condensed Consolidated Financial Statements should be read
in conjunction with the notes to the Condensed Consolidated Financial Statements
contained in our annual report on Form 10-K for the fiscal year ended December
31, 2007.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers cash and investments in securities with maturities at the
date of purchase of three months or less to be cash and cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the accompanying financial statements as of June 30, 2007
have been reclassified to conform to the current year presentation, with no
effect on reported net income.
163
F-77
Revenue and Cost Recognition
Revenues from fixed-fee contracts or portions of contracts for MRO sales are
recognized by employing the percentage-of-completion method, measured by the
cost-to-cost method, commencing when progress reaches a point where experience
is sufficient to estimate final results with reasonable accuracy. The cumulative
catch-up method is used to account for changes in estimates of total revenues,
total costs or extent of progress. Each project is considered complete when the
subject aircraft departs, or is cleared to depart, our facility. Revision in
cost and labor hour estimates and recognition of losses, if any, on these
contracts are reflected in the accounting period in which the facts become
known. During the periods covered by these financial statements, no material
prior period revisions were necessary. As of December 31, 2007 and June 30, 2008
there were no material amounts in excess of the agreed contract price that the
Company seeks to collect from customers or others for customer-caused delays,
errors in specifications or designs, contract termination, change orders in
dispute or unapproved as to both scope and price, or other causes of
unanticipated additional costs.
Revenue from part sales is recognized when parts are shipped. All parts are
shipped FOB shipping point; title passes at time of shipping and the Company has
no further contractual or legal obligation to the customer upon shipping.
Revenues from time and material contracts and all other ancillary services are
recognized as the services are performed. Revenue from aircraft sales is
recognized when the customer accepts delivery of the aircraft and/or when title
is transferred.
Recently Issued Accounting Pronouncements
On May 9, 2008, the FASB issued Statement No. 162, Hierarchy of Generally
Accepted Accounting Principles, which simply moves the requirements related to
which authoritative literature to look to first from the audit standards to
GAAP. SFAS 162 is effective 60 days following the SEC's approval of the PCAOB's
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles.
164
F-78
Earnings per share
Basic earnings per share includes no dilution and is computed by dividing net
earnings available to stockholders by the weighted number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the Company's earnings.
Reconciliation of EPS for the three and six month periods ended June 30 of 2008
and 2007 are as follows:
For the Three Months ended June 30, 2008
Income (Numerator) Shares (Denominator) Per-Share Amount
------------------ -------------------- ----------------
Net Income (4,255,309)
Basic and diluted EPS
Income available to common stockholders (4,255,309) 40,369,213 ($0.11)
For the Six Months ended June 30, 2008
Income (Numerator) Shares (Denominator) Per-Share Amount
------------------ -------------------- ----------------
Net Income $(4,201,527)
Basic EPS and diluted EPS
Income available to common stockholders $(4,201,527) 40,275,257 ($0.10)
For the Three Months ended June 30, 2007
Income (Numerator) Shares (Denominator) Per-Share Amount
------------------ -------------------- ----------------
Net Income $140,530
Basic EPS
Income available to common stockholders $140,530 34,779,327 $0.00
Warrants 10,865
Options 681,429
Unvested employment agreement shares 422,857
Diluted EPS
Income available to common stockholders and $140,530 35,894,478 $0.00
assumed conversions
165
F-79
For the Six Months ended June 30, 2007
Income (Numerator) Shares (Denominator) Per-Share Amount
------------------ -------------------- ----------------
Net Income $475,395
Basic EPS
Income available to common stockholders $475,395 39,719,669 $0.01
Warrants 69,105
Options 724,138
Unvested employment agreement shares 270,276
Diluted EPS
Income available to common stockholders and $475,395 40,783,188 $0.01
assumed conversions
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable, notes
receivable and accounts payable and notes payable approximate fair values due to
the short-term maturities of these instruments. The fair value of notes payable
approximates the carrying value because of the current market value interest
rates applied to those obligations. The fair value of capital leases
approximates the carrying value of these instruments because the terms are
similar to those in the marketplace under which they could be replaced.
5. TRADE ACCOUNTS RECEIVABLE
As of June 30, 2008 and December 31, 2007, trade accounts receivable consist of
the following:
June 30, 2008 December 31, 2007
------------- -----------------
Contracts in progress $ 467,214 $ 2,393,224
Completed contracts 8,584,233 7,789,974
------------ ------------
$ 9,051,447 $ 10,183,198
Less: allowance for doubtful accounts (3,713,723) (2,771,078)
------------ ------------
$ 5,337,724 $ 7,412,120
============ ============
Bad debt expense during the first six months of 2008 was $1,820,856.
166
F-80
6. INVENTORY
Inventories consisted of the following:
June 30, 2008 December 31, 2007
------------- -----------------
Maintenance hardware $ 982,196 $ 912,745
Parts for resale 6,205,897 6,527,947
Aircraft & engines 5,715,569 8,988,809
----------- -----------
$12,903,662 $16,429,501
=========== ===========
Management reviews listed inventory items to determine whether there are slow
moving or obsolete items on an annual basis. It has been and remains our policy
to expense any items that we determine to be obsolete, damaged or unlikely to
sell. The Company has an allowance for slow moving and obsolete parts inventory
in the amount of $125,980.
7. NOTES PAYABLE
On December 20, 2007, Global and its subsidiaries HAT, World Jet and Hamilton
Aerospace S.A. de C.V. ("HATMEX") (collectively the "Companies") entered into
and closed on three non-convertible secured debenture financing agreements with
two accredited institutional investors ("Holders") in the total amount of $10
million (collectively the "Debentures"). The Debentures accrue interest at the
rate of 15% per annum, which is payable quarterly in arrears beginning April 1,
2008. The Debentures also provide for a cash flow recapture to the Holders equal
to 60% of any proceeds related to the sale of Global's aircraft inventory. The
Debentures mature on December 19, 2008.
Pursuant to the Pledge and Security Agreement and Aircraft Security Agreements,
the Debentures are secured by (a) a first lien on all the current and future
assets of the Companies including any owned aircraft; (b) the equity interests
currently held by Global in HAT, WJ and HATMEX; and (c) the 40% membership
interest of Global in Global Aircraft Leasing Partners, LLC. However, in the
event of default, foreclosure of the foregoing equity and membership interests
held by Global can only be enforced if the foreclosure on all other assets of
the Companies is insufficient to satisfy repayment of the Debentures.
At June 30, 2008, the Company was in compliance with the covenants of these
debentures. At June 30, 2008, the outstanding balance was approximately $7.453M.
On May 21, 2008, Global entered into a purchase agreement for one MD-83
airframe, N789BV, Serial #49789. The contract calls for $300,000 cash and a note
in the amount of $850,000 to be paid in eight equal monthly installment of
$106,250 plus 6% interest with the first payment due no later than August 1,
2008. (See Note 12, Subsequent Events)
167
F-81
On June 19, 2008, Global and its subsidiaries HAT, World Jet and Hamilton
Aerospace S.A. de C.V. entered into and closed on a Secured Note and Aircraft
Security Agreement, ("MD-83 Note and Security Agreement), with Victory Park
Master Fund, Ltd. The principal amount of the note is $800,000, payable on or
before September 15, 2008 and bears interest at the greater of 15% or Prime
+10%. One MD-83, N9306T, Serial #49567 secures the Note. The holders of the
Debentures described above waived any default or other breach arising out of
this MD-83 Note and Security Agreement. As an inducement for participation in
this transaction, 75,000 shares of the Company's common stock are to be issued
to Victory Park Master Fund, Ltd. (See Note 12, Subsequent Events)
7. CONTRACTS IN PROGRESS
At June 30, 2008 and December 31, 2007, costs and estimated earnings in excess
of billings and billings in excess of costs and estimated earnings on
uncompleted contracts consist of the following:
June 30, December 31,
2008 2007
----------- -----------
Costs incurred on uncompleted contracts $ 1,212,285 $ 1,670,556
Profit earned to date 1,393,606 1,630,873
----------- -----------
$ 2,605,891 $ 3,301,429
Less: Billings to date (2,423,346) (4,124,211)
----------- -----------
$ 182,545 $ (822,782)
=========== ===========
Included in the accompanying balance sheet at June 30, 2008 and December 31,
2007, under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts and
Billings in excess of costs and estimated earnings on uncompleted contracts.
June 30, December 31,
2008 2007
--------- ---------
Billings in excess from above $ 182,545 $(822,782)
Time and material earnings unbilled 49,080 --
--------- ---------
Net $ 231,625 $(822,782)
========= =========
Billings in excess are the result of amounts due from customers under
contractual terms, which can be, in some cases, in advance of actual work
performed.
168
F-82
8. SHAREHOLDERS' EQUITY
Options
On April 24, 2008 options for 10,000 shares, at an exercise price of $0.28, were
granted to a Director pursuant to a compensation agreement. The options are
exercisable for a term of five years and were immediately vested. Using the
Black Scholes Model, the call option value of these options was calculated to be
$.26. $2,601 was expensed during the second quarter of 2008 relative to these
options. Consistent with the provisions of SFAS 123R, Staff Accounting Bulletin
#107 (SAB 107), we estimated the fair value of stock option on the date of grant
using the following assumptions: Risk free interest rate of 3.66%, Expected life
of 2.5 years, Dividend rate of 0% and Expected volatility of 165.23%.
On May 13, 2008 options for 900,000 shares at $0.17 per share were exercised.
The Company received two personal notes in the amounts of $22,667 and $130,333,
respectively. Both notes are payable on or before May 12, 2009, including
interest at 6.5%. The Company is holding the stock certificates until payment is
received on the notes.
Stock
On June 19, 2008, the Company agreed to issue 75,000 shares of restricted common
stock to Victory Park Master Fund, Ltd. as an inducement for granting the
Company an $800,000 Secured Note and Aircraft Security Agreement as described
herein under Note 7, "Notes payable". The value of the stock at measurement date
was $0.29 per share and $21,675 was expensed during the second quarter of 2008.
SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS
PLAN NAME TOTAL SHARES ISSUED AVAILABLE
June 30, 2008
2002 Compensatory Stock Option Plan 3,000,000 1,055,000 1,945,000
2003 Employee Stock Compensation Plan 5,000,000 4,987,500 12,500
169
F-83
Stock-based Compensation Disclosure
Stock issued under plans to employees was issued at the value of the stock at
the measurement date. All outstanding options were exercisable at the grant
date. Those options issued to employees that were not immediately exercised
remained outstanding at June 30, 2008 and are summarized below:
June 30, 2008
------------------------------------------------------------
Weighted Average
Exercise Price
--------------
Options outstanding at 940,000 $0.207 Exercisable on grant date
beginning of year
Granted during quarter 1 None
Granted during quarter 2 10,000
Exercised during quarter 1 None
Exercised during quarter 2 900,000
Forfeited during
quarter 1 & 2 None
Outstanding at 6/30/2008 50,000 $0.28 Exercisable on grant date
Options exercisable at
6/30/2008 50,000 $0.88 Exercisable on grant date
Weighted average fair
value of options granted
during quarter 2 $0.28
170
F-84
The aggregate remaining contractual lives in years for the 30,000, 10,000 and
10,000 options outstanding and exercisable on June 30, 2008 was 3.153, 3.683 and
4.819, respectively.
June 30, 2007
-----------------------------------------------------------
Weighted Average
Exercise Price
--------------
Options outstanding at 930,000 $0.198 Exercisable on grant date
beginning of year
Granted during quarter 1 10,000 $1.05
Exercised during quarter 1 None
Cancelled during quarter1 None
Forfeited during quarter 1 None
Outstanding at 3/31/2007 940,000 $0.207 Exercisable on grant date
Options exercisable at Exercisable on grant date
3/31/2007 940,000 $0.207
Weighted average fair
value of options granted
during quarter 1 $1.05
9. SEGMENT INFORMATION
The company has divided its operations into the following reportable segments:
(i) Aircraft maintenance, repair, and overhaul; (ii) Aircraft brokerage; and
(iii) Part sales. Each segment represents distinct product lines, marketing, and
management of its business. Limited other services for each company, which
represent a small percentage of income, have been shown in the aggregate.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies.
171
F-85
Selected information by business segment is presented in the following tables
for the three and six months ended June 30, 2008 and June 30, 2007.
Three months ended Three months ended Six months ended Six months ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
------------- ------------- ------------- -------------
($millions) ($millions) ($millions) ($millions)
Segment sales:
Aircraft maintenance 5.551 2.743 9.122 8.277
Aircraft trading 1.556 7.850 3.550 7.900
Part sales 2.166 1.385 4.045 3.513
Other .064 (.014) .272 ---
Sub Total 9.337 11.964 16.989 19.690
Elimination of intersegment sales (1.854) (.790) (2.627) (2.287)
Total consolidated sales 7.483 11.174 14.362 17.403
Gross profit:
Aircraft maintenance 1.159 .536 2.423 2.319
Aircraft trading (3.666) 1.004 (2.892) 1.054
Part sales .361 .340 .860 .598
Other .006 (.014) .073 (.002)
Sub total (2.140) 1.866 .464 3.969
Selling, general, administrative (4.226) (1.529) (6.357) (3.128)
expense
Income from operations: (6.366) .337 (5.893) .841
Other, net (.131) (.148) (.521) (.352)
Share of Jetglobal net income (a/c --- --- --- .215
trading)
Gain on sale of interest in --- .027 --- .027
Jetglobal
Consolidated earnings (loss) before (6.497) .216 (6.414) .731
taxes
Interest income by segment
Aircraft maintenance .002 .173 .007 .174
Aircraft trading --- --- --- ---
Part sales --- --- --- ---
Corporate .001 .005 .001 .010
Total interest income .003 .178 .008 .184
Interest expense by segment
Aircraft maintenance .019 .262 .042 .287
Aircraft trading --- --- --- ---
Part sales --- .007 --- .008
Corporate .361 .110 .734 .216
Total interest expense .380 .379 .776 .511
172
F-86
Three months ended Three months ended Six months ended Six months ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
------------- ------------- ------------- -------------
($millions) ($millions) ($millions) ($millions)
Depreciation and amortization by
segment
Aircraft maintenance .105 .104 .182 .215
Aircraft brokerage --- --- --- ---
Part sales --- --- --- ---
Corporate .010 .039 .047 .078
Total .115 .143 .229 .293
Net asset values:
Aircraft maintenance 7.288 7.790 7.288 7.790
Aircraft trading 5.866 9.022 5.866 9.022
Part sales 6.622 6.767 6.622 6.767
Corporate 6.164 5.152 6.164 5.152
Total 25.940 28.731 25.940 28.731
Capital expenditures:
Aircraft maintenance .072 --- .083 ---
Aircraft brokerage --- --- --- ---
Part sales --- --- --- ---
Corporate .001 .021 .002 .043
Total .073 .021 .085 .043
173
F-87
The Company's facilities and assets are primarily located in the United States.
The Company sells and ships to several foreign countries. All foreign revenues
are collected and recorded in U.S. dollars. Geographic information regarding
sales to foreign countries is presented in the following table:
Six Months Six Months
Ended Ended
June 30, 2008 June 30, 2007
------------- -------------
Afghanistan $ 883,292 $
Angola 63,524
Belgium 125,426 21,534
Canada 2,680,127
France 800
Hong Kong 30
Israel 5,500 42,057
Italy 55
Lebanon 13,500 19,845
Lithuania 4,000
Mexico 3,011,360 2,703,851
Nigeria 1,305,195
Pakistan 500 285,020
Singapore 48,973
South Africa 2,655
Turkey 250
UAE 27,800 44,369
Ukraine 188,888 6,560
United Kingdom 29,276 4,260
---------- ----------
TOTALS $8,278,624 $3,240,023
========== ==========
10. CONCENTRATIONS
Revenues
The Company's top four customers accounted for 54.7% and 79.2% of sales during
the 1st six months of 2008 and 2007, respectively. Three customers accounted for
54.5% of the Company's net accounts receivable at June 30, 2008. The broadening
of our customer base will spread the risk associated with a potential failure of
a significant customer. Efforts are continually being made to broaden our
customer base. It should be noted that in any single quarter, due to the length
of the typical repair job, percentages will normally be significantly higher
than on an annual basis. While the relative significance of customers varies
period to period, the loss of, or significant curtailments of purchase of our
services by, one or more or our significant customers at any time could
adversely affect our revenue and cash flow. The top four customers, referenced
above, for the 1st six months of 2008 and 2007 are listed in the table below:
174
F-88
1st Six months of 2008 - 1st Six months of 2008 - 1st Six months of 2007 - 1st Six months of 2007 -
Top Four Customers % of Revenues Top Four Customers % of Revenues
- ------------------ ------------- ------------------ -------------
Customer E 21.0% Customer A 45.5%
Customer F 16.4% Customer B 15.4%
Customer G 9.1% Customer C 14.5%
Customer H 8.2% Customer D 3.8%
Top Four- 1st Six months of 54.7% Top Four- 1st Six months of 79.2%
2008 Total % 2007 Total %
Cash
We are potentially subjected to concentration of credit risk through our cash
and cash equivalents and accounts receivable. Cash and cash equivalents are
deposited or managed by major financial institutions and at times are in excess
of FDIC insurance limits. At June 30, 2008 and December 31, 2007 cash and cash
equivalents held in excess of FDIC insurance limits were approximately $429,000
and $900,000, respectively.
11. RELATED PARTY TRANSACTIONS
GALP
GALP accounted for 1.7% of Company revenue during the first six months of 2008.
At June 30, 2008, the Company had receivables in the amount of $1,496,546, (an
allowance of $656,000 has been established), from GALP, which represents 15.8%,
after allowance, of the Company's net accounts receivable balance.
12. SUBSEQUENT EVENTS
On July 18, 2008 Global entered into a sales agreement with Credi Trade, LLP, as
buyer. Global is selling one MD-83 N9306T Serial #49567 to be equipped with two
JT8D-217C engines. The aircraft was purchased by Global during the second
quarter of 2008. The purchase price to be paid by Credi Trade, LLP is
$5,025,000. The down payment on the aircraft is $1,250,000 and the balance is
payable on a monthly schedule beginning July 1, 2008 and ending September 1,
2009.
On July 18, 2008 Global entered into a sales agreement with Credi Trade, LLP, as
buyer. Global is selling one MD-83 N789BV Serial #49789 to be equipped with two
JT8D-217C engines. The aircraft was purchased by Global during the second
quarter of 2008. The purchase price to be paid by Credit Trade, LLP is
$4,960,000. The down payment on the aircraft is $1,250,000 and the balance is
payable on a monthly schedule beginning June 1, 2008 and ending September 1,
2009.
175
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Global's By-Laws allow for the indemnification of Company Officers and Directors
in regard to their carrying out the duties of their offices. The Board of
Directors will make determination regarding the indemnification of the director,
officer or employee as is proper under the circumstances if he/she has met the
applicable standard of conduct set forth in subsections (a) and (b) of Section
145 of the Nevada General Corporation Law.
Section 78.751 of the Nevada Business Corporation Act provides that each
corporation shall have the following powers:
"1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of any fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a pleas of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had a reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in sections 1 and 2, or in defense of any claim, issue or
matter therein, he must be indemnified by the corporation against expenses,
including attorneys fees, actually and reasonably incurred by him in connection
with the defense.
4. Any indemnification under sections 1 and 2, unless ordered by a court or
advanced pursuant to section 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(A) By the stockholders;
(B) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the act, suit or proceeding;
(C) If a majority vote of a quorum consisting of directors who were
not parties to the act, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or
(D) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
5. The certificate of articles of incorporation, the bylaws or an agreement made
by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this section do not affect any
rights to advancement of expenses to which corporate personnel other than
director or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this section:
(a) Does not include any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in another capacity while
holding his office, except that indemnification, unless ordered by a
court pursuant to section 2 or for the advancement of expenses made
pursuant to section 5, may not be made to or on behalf of any director
or officer if a final adjudication establishes that his acts or
omission involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer
employee or agent and inures to the benefit of the heirs, executors
and administrators of such a person.
(c) The Company's Articles of Incorporation provides that "the Corporation
shall indemnify its officers, directors, employee and agents to the
fullest extent permitted by the General Corporation Law of Nevada, as
amended from time to time."
As to indemnification for liabilities arising under the Securities Act of 1933
for directors, officers or persons controlling the company, we have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and unenforceable. See section entitled
"Disclosure of Commission Position on Indemnification for Securities Act
Liabilities".
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of the offering are denoted below. Please note all amounts
are estimates other than the Commission's registration fee.
SEC Registration Fee - $2,998.26
State of New York Registration Fee - $2,250.00
Accounting Fees: - $2,500.00
Global will pay all expenses of the offering listed above. No portion of these
expenses will be borne by the selling shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
The following represents unregistered sales of securities within the last 3
years:
On May 31, 2004, the shareholders authorized the issuance of 9,600,000 shares of
common stock and 16,200,000 shares of common stock issueable upon the exercise
of warrants pursuant to a private placement to accredited investors, Barron
Partners and JG Capital. The Company relied upon Section 4(2) of Securities Act
of 1933, as amended (the "Act"). The Company issued the 9,600,000 shares of
common stock and 16,200,000 shares of common stock issueable upon the exercise
of warrants pursuant to an exemption from registration under Regulation D, Rule
506. Barron Partners received a warrant for 7,200,000 shares of common stock at
an exercise price of $.68 and a warrant to receive 7,200,000 shares of common
stock at an exercise price of $1.36. JG Capital received a warrant for 720,000
shares of common stock at an exercise price of $.34; 540,000 shares of common
stock at an exercise price of $.68; and 540,000 shares of common stock at an
exercise price of $1.36 On June 15, 2004, the shareholders authorized the
issuance of 1,000,000 shares of common stock pursuant to a private placement to
accredited investor, Ralph Garcia. The Company relied upon Section 4(2) of
Securities Act of 1933, as amended (the "Act"). The Company issued the 1,000,000
shares of common stock pursuant to an exemption from registration under
Regulation D, Rule 506. On August 15, 2004, the shareholders authorized the
issuance of 2,115,386 shares of common stock and 2,432,694 shares of common
stock issueable upon the exercise of warrants pursuant to a private placement to
accredited investors, Alpha Capital, Stonestreet, Whalehaven , Greenwich, JG
Capital, Heza Holdings and Grusko. The Company relied upon Section 4(2) of
Securities Act of 1933, as amended (the "Act"). The Company issued the 2,115,386
shares of common stock and 2,432,694 shares of common stock issueable upon the
exercise of warrants pursuant to an exemption from registration under Regulation
D, Rule 506. Alpha received a warrant for 625,000 shares of common stock at an
exercise price of $1.00 and 625,000 shares of common stock at an exercise price
of $1.36; Stonestreet received a warrant for 192,308 shares of common stock at
an exercise price of $1.00 and 192,308 shares of common stock at an exercise
price of $1.36; Whalehaven received a warrant for 144,231 shares of common stock
at an exercise price of $1.00 and 144,231 shares of common stock at an exercise
price of $1.36; Greenwich received a warrant for 96,154 shares of common stock
at an exercise price of $1.00 and 96,154 shares of common stock at an exercise
price of $1.36; JG Capital received a warrant for 95,192 shares of common stock
at an exercise price of $.52, 47,597 shares of common stock at an exercise price
of $1.00, and 47,597 shares of common stock at an exercise price of $1.36; Heza
Holdings received a warrant for 31,731 shares of common stock at an exercise
price of $.52, 15,865 shares of common stock at an exercise price of $1.00, and
15,865 shares of common stock at an exercise price of $1.36; and Grushko
received a warrant for 31,731 shares of common stock at an exercise price of
$.52, 15,865 shares of common stock at an exercise price of $1.00, and
15,865 shares of common stock at an exercise price of $1.36. On July 27, 2005,
7,200,000 shares of common stock were issued to selling shareholder Barron
Partners upon the exercise of $.68 warrants and the stock issueable upon
exercise of such warrants was issued pursuant to a private placement under Rule
506 of Regulation D of SEC Act of 1933 on May 31, 2004
The Company relied upon Section 4(2) of the Securities Act of1933, as amended
(the "Act"). Each prospective investor was given a private placement memorandum
designed to disclose all material aspects of an investment in the Company,
including the business, management, offering details, risk factors and financial
statements. Each investor also completed a subscription confirmation letter and
private placement subscription agreement whereby the investors certified that
they were purchasing the shares for their own accounts, with investment intent
and that each investor was either "accredited", or were "sophisticated"
purchasers, having prior investment experience or education, and having adequate
and reasonable opportunity and access to any corporate information necessary to
make an informed investment decision. This offering was not accompanied by
general advertisement or general solicitation and the shares were issued with a
Rule 144 restrictive legend.
On December 20, 2007, the Company entered into and closed on three
non-convertible secured debenture financing agreements with two accredited
institutional investors ("Holders") in the total amount of $10 million. As an
inducement for Holder Victory Park Master Fund, Ltd. ("Victory Park") to
purchase a Debenture, Global issued Victory Park a 5-year warrant exercisable
into 1,500,000 shares of Global common stock ("Common Stock") at an exercise
price of $0.45 per share ("Warrant"). However, if Victory Park should choose to
exercise the Warrant on a cashless basis then it would receive a reduced number
of Common Stock shares based upon the cashless exercise formula contained
therein.
The Warrant also contains a contingent obligation which shall be determined
pursuant to a one-time value test on December 20, 2008 ("Test Date"). In the
event that the difference between the Common Stock VWAP (for the 20 trading days
prior to such Test Date) and the exercise price multiplied by the number of
Warrant shares is not at least equal to $750,000 ("Target Value"), then Global
will be obligated to issue an additional warrant to Victory Park. If Global is
obligated to issue an additional warrant (such warrant will contain identical
terms and provisions as the Warrant set forth above), that warrant shall be
exercisable into that number of Common Stock shares that would cause the
additional warrant and the Warrant combined to equal the Target Value, but in no
event shall the additional warrant be exercisable into more than 500,000 warrant
shares.
The issuance of the Debentures, Warrant and Warrant Shares to Victory Park are
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Rule 506 promulgated thereunder. Each investor also completed a private
placement subscription agreement whereby the investors certified that they were
purchasing the shares for their own accounts, with investment intent and that
each investor was either "accredited", or were "sophisticated" purchasers,
having prior investment experience or education, and having adequate and
reasonable opportunity and access to any corporate information necessary to make
an informed investment decision. This offering was not accompanied by general
advertisement or general solicitation.
Under the Securities Act of 1933, all sales of an issuers' securities or by a
shareholder, must either be made (i) pursuant to an effective registration
statement filed with the SEC, or (ii) pursuant to an exemption from the
registration requirements under the 1933 Act.
Rule 144 under the 1933 Act sets forth conditions which if satisfied, permit
persons holding control securities (affiliated shareholders, i.e., officers,
directors or holders of at least ten percent of the outstanding shares) or
restricted securities (non-affiliated shareholders) to sell such securities
publicly without registration. Rule 144 sets forth a holding period for
restricted securities to establish that the holder did not purchase such
securities with a view to distribute. Under Rule 144, several provisions must be
met with respect to the sales of control securities at any time and sales of
restricted securities held between one and two years. The following is a summary
of the provisions of Rule 144: (a) Rule 144 is available only if the issuer is
current in its filings under the Securities an Exchange Act of 1934. Such
filings include, but are not limited to, the issuer's quarterly reports and
annual reports; (b) Rule 144 allows resale of restricted and control securities
after a one year hold period, subjected to certain volume limitations, and
resales by non-affiliates holders without limitations after two years; ( c ) The
sales of securities made under Rule 144 during any three-month period are
limited to the greater of: (i) 1% of the outstanding common stock of the issuer;
or (ii) the average weekly reported trading volume in the outstanding common
stock reported on all securities exchanges during the four calendar weeks
preceding the filing of the required notice of the sale under Rule 144 with the
SEC.
EXHIBITS
(previously filed)
3.1.............Amended and Restated Articles of Incorporation
3.2.............By Laws
4.1.............Stock Purchase Agreement (Barron Partners)
4.2.............2002 Compensatory Stock Option Plan
4.3.............2003 Employee Stock Compensation Plan
4.4.............Common Stock Purchase Warrant Issued May 31, 2004
4.5.............Common Stock Purchase Warrant Issued May 31, 2004
4.6.............Common Stock Purchase Warrant Issued May 31, 2004
4.7.............Form of Subscription Agreement (Alpha, Whalehaven,
Stonestreet, Greenwich)
4.8.............Form of Stock Purchase Agreement (Acquisition of World Jet
Corporation)
4.9.............Loan Agreement American Capital Ventures
4.10............World Jet Factoring Agreement
5.1.............Opinion re: Legality
10.1............Property Lease
10.2............Employment Agreement Dated July 21, 2003 by and between Ian
Herman and Global
10.3............Employment Agreement Dated July 21, 2003 by and between
John B. Sawyer and Global
11.1............Statement re: computation of per share earnings
13.1............2004 Annual report (See also 10KSB & 10QSB Filings)
21.1............Subsidiaries of the registrant
23.1............Consent of experts and counsel (Included in Exhibit 5.1)
99.1............Court Order canceling 8.1 million shares of common stock &
returning the stock to Global
99.2............Lawsuit filed by Global against Corwin Foster, Jane Doe
Foster and Seajay Holdings
99.3............Sale of Assets Agreement between HAT Hamilton Aviation
99.4............Lease/Purchase Agreement between HAT and Hamilton Aviation
99.5............Service Agreement between HAT and Hamilton Aviation
99.6............Settlement Agreement among HAT, Hamilton Aviation and the
Bankruptcy Estate
99.7............Bankruptcy Court Order re: Settlement Agreement
99.8............Lawsuit filed by HAT against Aero Micronesia
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) To deem, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the registered securities which remain unsold at the end of the
offering.
(4) For determining liability of the undersigned registrant under the
Securities Act to any purchaser in the initial distribution of the
securities, to undertake that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii) any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
(iii) the portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe it meets all of
the requirements for filing this registration statement and authorized to be
signed on its behalf by the undersigned, in the city of Tucson, state of
Arizona, on September 29, 2008.
Registrant
/s/ Gordon Hamilton
Gordon Hamilton, CEO/Director
Principal Executive Officer
Date: September 29, 2008
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
/s/ Gordon Hamilton September 29, 2008
Gordon Hamilton, CEO/Director Date
/s/ John B. Sawyer September 29, 2008
John B. Sawyer, President/Director Date
Principal Executive Officer
/s/ Patricia Graham September 29, 2008
Patricia Graham, Chief Financial Officer/ Date
Chief Accounting Officer
/s/ Ian Herman September 29, 2008
Ian Herman, Director Date
/s/ Michael Hanley September 29, 2008
Michael Hanley, Director Date
/s/ Brent Dau September 29, 2008
Brent Dau, Director Date
/s/ Kenneth Raff September 29, 2008
Kenneth Raff, Director Date
/s/ Seymour Siegel September 29, 2008
Seymour Siegel, Director Date
/s/ Timothy Ewing September 29, 2008
Timothy Ewing, Director Date