U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE
30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM -
___________ TO ____________.
Commission file number 000-49849
ARIZONA AIRCRAFT SPARES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0483722
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3431 EAST HEMISPHERE LOOP, TUCSON, ARIZONA 85706
(Address of Principal Executive Offices)
Registrant's telephone number: (520) 806-0666
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $ .001 Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ].
As of June 30, 2004 the Registrant had 30,085,401 shares of
common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
ARIZONA AIRCRAFT SPARES, INC.
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending June 30, 2004
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets: June 30, 2004 and
December 31, 2003 (audited)
Condensed Consolidated Statements of Operations: Six Months
Ended June 30, 2004 and 2003
And Three Months Ended June 30, 2004 and 2003
Condensed Consolidated Statement of Stockholders' Equity: As
of June 30, 2004
Condensed Consolidated Statements of Cash Flows: Six Months
Ended June 30, 2004 and 2003
Notes to Condensed Consolidated Financial Statements: As of
June 30, 2004
Item 2. Management Discussion and Analysis
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Item 1. Financial Statements
The following unaudited Condensed Consolidated Financial Statements
as of June 30, 2004 and for the six months and three months ended
June 30, 2004 and 2003 have been prepared by Arizona Aircraft Spares,
Inc. The Condensed Consolidated Balance Sheets as of December 31,
2003 are audited and presented herein for comparative purposes.
ARIZONA AIRCRAFT SPARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31,
2004 2003
Unaudited (Audited)
ASSETS
Current Assets
Cash $ 12,982 $ 545
Accounts receivable, net 240,770 558,514
Prepaid expenses, net - 15,000
Inventory 1,621,854 1,224,871
Total Current Assets 1,875,606 1,798,930
Property and Equipment, Net 7,948 10,779
Total Assets $ 1,883,554 $ 1,809,709
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 256,719 265,993
Long term debt, current portion 104,470 105,200
Note payable - short term 294,688 362,869
Customer deposits 5,392 7,042
Total Current Liabilities 661,269 741,104
Long-Term Liabilities
Long term debt, net of current portion 49,707 156,996
Long term debt, related party, Note B 576,124 576,077
Accounts payable & accrued expenses - long term portion 61,038 123,579
Total Long-Term Debt 686,869 856,652
Total Liabilities 1,348,138 1,597,756
Stockholders' Equity:
Preferred Stock $.001 par value;
Shares authorized:10,000,000
Shares Issued & Outstanding: None - -
Common Stock $.001 Par Value;
Shares authorized:40,000,000
Issued & outstanding: 30,085,401 &
27,228,249 at June 30, 2004 and
December 31, 2003, respectively 30,085 27,228
Subscriptions receivable (782,500) (500,000)
Additional paid in capital 1,522,637 675,304
Accumulated deficit (234,806) 9,421
Total Stockholders' Equity 535,416 211,953
Total Liabilities & Stockholders' Equity 1,883,554 1,809,709
See accompanying footnotes to the unaudited condensed consolidated financial
statements
ARIZONA AIRCRAFT SPARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30 June 30
2004 2003 2004 2003
Revenues $ 78,211 $ 179,047 $ 396,743 $ 256,136
Cost of Goods Sold 34,413 93,869 170,229 145,261
Gross Profit 43,798 85,178 226,514 110,875
Operating expenses:
Selling General & Administrative 268,271 56,633 419,877 102,119
Depreciation 3,100 3,625 6,200 7,250
Total Operating Expenses 271,371 60,258 426,077 109,369
Income (Loss) from Operating Activities (227,573) 24,920 (199,563) 1,506
Interest Expense (28,768) (40,107) (44,664) (46,488)
Net Loss (256,341) (15,187) (244,227) (44,982)
Net Earnings (Loss) Per
Share -Basic & Diluted (0.01) (0.01) (0.01) (0.05)
Weighted Average Number of
Common Shares Used in the
Computation of Earnings or
Loss Per Share 29,565,665 1,000,000 28,786,526 1,000,000
See accompanying footnotes to the unaudited condensed consolidated
financial statements
ARIZONA AIRCRAFT SPARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AS OF JUNE 30, 2004
(UNAUDITED)
Additional Total
Common Stock Paid-In Subscription Accumulated Shareholders'
Shares Amount Capital Receivable Deficit Equity
Balance at
December 31, 2003 27,228,249 $ 27,228 $ 675,304 $ (500,000) $ 9,421 $ 211,953
Shares issued in
exchange for cash,
net of costs 2,206,152 2,206 522,484 - - 524,690
Shares issued in
exchange for cash
in connection with
exercise of
previously issued
employee stock options 86,000 86 42,914 - - 43,000
Shares subscribed
by consultants and
employees 565,000 565 281,935 (282,500) - -
Net loss for the
six months ended
June 30, 2004 - - - - (244,227) (244,227)
Balance at
June 30, 2004 30,085,401 30,085 1,522,637 (782,500) (234,806) 535,416
See accompanying footnotes to the unaudited condensed consolidated
financial statements
ARIZONA AIRCRAFT SPARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2004 2003
Cash (Used) by Operating Activities $ (313,190) $ (284,809)
Cash ( Used ) in Investing Activities (3,369) -
Cash Provided (Used ) in Financing Activity 328,996 285,094
Net Increase (Decrease) in Cash Balances 12,437 285
Cash Balances at Beginning of Period 545 595
Cash Balance at End of Period 12,982 880
Supplemental Information:
Cash paid during the period for interest 44,664 46,488
Cash paid during the period for taxes - -
See accompanying footnotes to the unaudited condensed consolidated
financial statements
ARIZONA AIRCRAFT SPARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
NOTE A-SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements
follows.
General
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QSB, and
therefore, do not include all the information necessary for a fair
presentation of financial position, results of operations and cash
flows in conformity with accounting principles generally accepted in
the United States of America for a complete set of financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. The results from operations for the three-month period
ended June 30, 2004 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2004. The
unaudited consolidated financial statements should be read in
conjunction with the December 31, 2003 financial statements and
footnotes thereto included in the Company's Securities and Exchange
Commission Form 10-KSB.
Basis of Presentation
Arizona Aircraft Spares, Inc. (the "Company" or "AASI"), formerly
American Market Support Network, Inc., was incorporated under the
laws of the state of Nevada in December, 2000. The Company
specializes in manufacturing military aircraft parts for the US Air
Force, Navy and Army aviation divisions. The Company also distributes
its products to a number of US and foreign private aircraft companies
and friendly foreign governments.
The consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiary, Arizona Aircraft Spares,
Inc., a company formed under the laws of Arizona in 1990. All
significant inter-company transactions have been eliminated in
consolidation.
Stock Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting
Standards No.148 (SFAS No.148), "Accounting for Stock-based
Compensation- Transition and Disclosure-an amendment of SFAS 123 ".
This statement amends SFAS No.123, "Accounting for stock based
Compensation "to provide alternative methods of transition for a
voluntary charge to the fair value based method of accounting for
stock based employee compensation. In addition, this statement amends
the disclosure requirements of SFAS No.123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has chosen
to continue to account for stock based compensation using the
intrinsic value method prescribed in APB Opinion No.25 and related
interpretations. Accordingly, compensation expense for stock options
is measured as excess, if any, of the fair market value of the
Company's stock at the date of the grant over the exercise price of
the related option. The Company has adopted the annual disclosure
provisions of SFAS No.148 in its financial reports for the year ended
December 31, 2003 and the period ended June 30, 2004. As of December
31, 2003 and June 30, 2004, the Company has not issued any options.
Reclassifications
Certain reclassifications have been made in prior year's financial
statements to conform to classifications used in the current year.
NOTE B - DUE TO RELATED PARTY
As of June 30, 2004, the Company was indebted to its President and
principal shareholder for $576,124. No formal repayment terms exist.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following information should be read in conjunction with the
financial statements and the notes thereto, as well as the section
entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" from the Company's merger agreement Report
on Form 8-K for it. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations
and is not intended to serve as a basis for projections of future events.
General Business Description
Arizona Aircraft Spares, Inc. (AASI) is a subsidiary of a publicly
held Nevada Corporation that specializes in manufacturing military
aircraft parts for the US Air Force, Navy and Army aviation
divisions. Their customers also include a number of US and Foreign
private aircraft companies and friendly foreign governments. Their
products are included in fixed wing and rotary aircraft and the
Company often provides prototype designs, assembly and subassembly
contracting services. AASI has an approved MIL-I-45208A program and
is considered a prime contractor to the US government.
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS FORM 10-QSB ARE FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-
LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, WITHOUT
LIMITATION, THE COMPANY'S DEPENDENCE ON THE TIMELY DEVELOPMENT,
INTRODUCTION AND CUSTOMER ACCEPTANCE OF PRODUCTS, THE IMPACT OF
COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY OF THE
COMPANY TO REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED
CAPITAL, THE EFFECT OF CHANGING ECONOMIC CONDITIONS, RISKS IN
TECHNOLOGY DEVELOPMENT AND THE EFFECTS OF OUTSTANDING LITIGATION.
OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS INCLUDE THE
RISKS AND UNCERTAINTIES DETAILED IN THE COMPANY'S MOST RECENT FORM
10-KSB AND ITS OTHER FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION FROM TIME TO TIME.
Results of Operations
The Company's revenues are difficult to forecast and may vary
significantly from quarter to quarter. In addition the Company's
expense levels for each quarter are, to a significant extent, fixed
in advance based upon the Company's expectation as to the net
revenues to be generated during that quarter. The Company therefore
is generally unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in net revenues. Further as
a result of these factors any delay in product introductions, whether
due to internal delays or delays caused by third party difficulties,
or any significant shortfall in demand in relation to the Company's
expectations, would have an almost immediate adverse impact on the
Company's operating results and on its ability to maintain
profitability in a quarter.
While the Company's expenses are, to a significant extent, fixed in
advance, the Company is making efforts to adjust spending in relation
to net revenues until such time, if any, that new products are
released and such new products and/or current products gain market
acceptance. However, there can be no assurance that new products will
be released by the Company, or if released that such releases will be
on a timely basis; or that any products will achieve any degree of
market acceptance or that such acceptance will be sustained for any
significant period; or that they will be profitable, or that
profitability, if any, can be sustained. Failure to complete new
products on a timely basis, or lack of demand for products upon
completion and distribution, would have a severe material adverse
effect upon the Company.
Comparison of the Six Months Ended June 30, 2004 (the "2004 Period")
with the Six Months Ended June 30, 2003 (the "2003 Period")
Revenues:
During the first six months of 2004 the Company's revenues increased
$140,607 or 55% from $256,136 to $396,743 because of the provision of
working capital to complete a number of contracts with the US
Government. The backlog of approved projects has increased
dramatically to $735,139 in partial and incomplete aviation parts,
but delivery cannot take place on many articles until approved.
The cost of the Company's production during this period is charged to
work in process inventory during this delay period. When an article
is approved, the order can be shipped to the buyer and will then be
added to revenue. Because the Company did not have working capital
prior to the last quarter of 2003, the pipe lines needed to be
restocked before the sales levels could be maintained and increased
significantly. Management feels confident this will occur during the
period ending December 31, 2004. The Government activity in war
related aircraft repair contracts is on the increase and this will
improve the number of contracts available to the Company.
Cost of Sales
For the six months ended June 30, 2004, the Company's gross profit
margin was 57.09% compared to 43.28% for the first six months of
2003.The Company's margins will fluctuate from period to period
because absorbed overhead increases when volume decreases and because
labor ratios are less than optimized in manufacturing processes when
revenues decrease. As revenues increase, cost of goods sold as a
percentage of revenue should become more favorable for the Company.
Selling, General and Administrative
The Company's selling, general and administrative expenses increased $
317,758, or 311.2 %, from $ 102,119 for the six months ended June 30,
2003 to $ 419,877. for the six months ended June 30, 2004. The
increase in selling, general and administrative expenses is a result
of the Company's restructure as a public entity in 2003.
Administrative expenses for consultants, legal costs, audits and
accounting services have all increased during this 2004 period over
the 2003 period. In addition, there are further increases expected in
the coming months. Although the Company's general and administrative
expenses are, to a significant extent, fixed in advance, the Company
is making efforts to adjust spending in relation to the expected net
revenues. The Company has yet to complete all increased expense items
relating to its public company status. Until these expense
categories have gone full cycle, the administrative expenses will
continue to rise but will become more controlled in relation to sales
revenue as the Company becomes well funded and revenues increase.
As the Company continues to expand, it will incur additional costs for
personnel. In order for the Company to attract and retain quality
personnel, management anticipates it will continue to offer
competitive salaries, issue common stock to employees, and grant
Company stock options to current and future employees.
Financing Expenses
The Company incurred interest expense of $ 44,664 in 2004 as compared
to $ 46,488 in 2003, a decrease of $ 1,824, or 3.9 %. The decrease
is a result of reduction of total debt in 2004 as compared to the
similar period in 2003. As a result of the Company's anticipated
growth and resulting continued need for financing, interest costs are
likely to increase in the future.
Comparison of the Three Months Ended June 30, 2004 (the "2004
Period") with the Three Months Ended June 30, 2003 (the "2003 Period")
Revenues
Revenues decreased $100,836 or 56% from $179,047 to $78,211 for the
quarter ended June 30, 2004 as compared to the quarter ended June 30,
2003 because of the time scheduled for approval of first article
submissions to the government.
Cost of Sales
Cost of revenues consists of direct manufacturing costs and applied
overhead expenses for the Company's aircraft repair and replacement
part business. Cost of sales as a percentage of net revenues
decreased from 52.4% to 44.0.% in the three months ended June 30,
2004 and 2003. The cost of goods sold percentage will fluctuate from
quarter to quarter because absorbed overhead increases when volume
decreases and because labor ratios are less than optimized in
manufacturing processes when revenues decrease. As revenues
increase, cost of goods sold as a percentage of revenue should become
more favorable for the Company. The overall increase in the cost of
goods sold during the first half of 2004 is directly attributable to
the increase in net revenues.
Selling, General and Administrative
The Company's selling, general and administrative expenses increased $
211,638, or 373.7% to $268,271 during the three months ended June 30
2004, from $ 56,633 during the quarter ended June 30, 2003. The
increase in selling , general and administrative expenses is a result
of the Company's restructure as a public entity in 2003.
As the Company continues to expand, it will incur additional costs for
personnel. In order for the Company to attract and retain quality
personnel, management anticipates it will continue to offer
competitive salaries and grant stock options to current and future
employees.
Financing Expenses
The Company incurred interest expense of $ 28,768 in 2004 as compared
to $ 40,107 in 2003, a decrease of $ 11,339, or 28.3 %. The decrease
is a result of reduction of debt in 2004 as compared to the similar
period in 2003. As a result of the Company's anticipated growth and
resulting continued need for financing, it likely that interest costs
will increase in the future.
Liquidity and Capital Resources
As of June 30, 2004, the Company had current assets of $1,875,606 and
current liabilities of $661,269 which resulted in a working capital
position of $ 1,214,337. As a result of our net loss of $ 244,227,
increase in inventories of $396,983 and a $ 317,774 decrease in
accounts receivable, our cash flow deficit from operations was $
313,190 during the six months ended June 30, 2004. We used $ 3,369 of
cash to acquire new property and equipment during the period. We met
our cash requirements during the period through the private placement
of $ 567,690 of our common stock.
The Company has a short term loan in the amount of $210,188 that is
due and payable on September 30, 2004 and for which it is currently
renegotiating the terms of the agreement to extend the payment date.
The Company is also pursuing other financial resources to augment its
cash requirements for retirement of debt, expansion of operations and
acquisition of suitable companies and products. The restricted stock
placement to sophisticated investors is an example of cash infusion
that will provide the Company with much needed working capital to
continue its expansion and sales growth into international and
domestic markets.
Business Concentration
During the six months ended June 30, 2004, the Company recognized
approximately 95 % of its revenues from sales of its products to the
US Government. While the Company's management considers its
relationships with the customers to be satisfactory, given the
concentration of its sales to a few key customers, its continued
relationships may be subject to the policies and practices of the
customers. The Company management continues to concentrate its efforts
on expanding its customer base in order to reduce its reliance on its
current customers.
The Company's success and on-going financial viability is contingent
upon its selling of its products and the related generation of cash
flows. The Company evaluates its liquidity and capital needs on a
continuous basis and based on the Company's requirements and capital
market conditions may, from time to time, raise working capital
through additional debt or equity financing. There is no assurance
that such financing will be available in the future to meet
additional capital needs of the Company, or that any such terms or
conditions of any such financing would be favorable to the Company.
Both the management of the Company's current growth and the expansion
of the Company's current business involve financial risk and require
significant capital investment.
Application of Critical Accounting Policies
On June 30, 2004, the Financial Accounting Standards Board (FASB)
issued a proposed Statement, Share-Based Payment, an amendment of
FASB Statements No. 123 and 95, that would require companies to
account for stock-based compensation to employees using a fair value
method as of the grant date. The proposed statement addresses the
accounting for transactions in which a Company receives employee
services in exchange for equity instruments such as stock options, or
liabilities that are based on the fair value of the Company's equity
instruments or that may be settled through the issuance of such
equity instruments, which includes the accounting for employee stock
purchase plans. This proposed statement would eliminate a Company's
ability to account for share-based awards to employees using APB
Opinion 25, Accounting for Stock Issued to Employees but would not
change the accounting for transactions in which a company issues
equity instruments for services to non-employees or the accounting
for employee stock ownership plans. The proposed statement, if
adopted, would be effective for awards that are granted, modified, or
settled in fiscal years beginning after December 15, 2004. The
Company is in the process of assessing the potential impact of this
proposed statement to the financial statements.
Inventory Valuation Reserves
We provide for inventory obsolescence based upon assumptions
concerning future demand, market conditions and anticipated timing of
the release of products. If actual market conditions or future demand
are less favorable than those projected by management, inventory
write-downs may be required.
Non-GAAP Financial Measures
The financial statements appearing in this quarterly report on Form
10-QSB do not contain any financial measures which are not in
accordance with generally accepted accounting procedures.
New Accounting Pronouncements
In January 2003, the FASB issued interpretation No. 46, Consolidation
of Variable Interest Entities (FIN 46), as revised December 2003.
This interpretation of Accounting Research Bulletin No. 51, Condensed
Consolidated Financial Statements, addresses consolidation by
business enterprises of variable interest entities (VIEs) that
either: (1) do not have sufficient equity investment at risk to
permit the entity to finance its activities without additional
subordinated financial support, or (2) the equity investors lack an
essential characteristic of a controlling financial interest. This
interpretation applies immediately to VIEs created after January 31,
2003. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to VIEs in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The application
of FIN 46 did not have a material effect on our consolidated
financial statements.
Inflation
In the opinion of management, inflation has not had a material effect
on the Company's financial condition or results of its operations
Off-Balance Sheet Arrangements
The Company does not maintain off-balance sheet arrangements nor does
it participate in non-exchange traded contracts requiring fair value
accounting treatment.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant
risks to our business, but we cannot predict whether, or to what
extent, any of such risks may be realized nor can we guarantee that we
have identified all possible risks that might arise. Investors should carefully
consider all of such risk factors before making an investment decision with
respect to our Common Stock.
Cautionary Factors That May Affect Future Results
We provide the following cautionary discussion of risks, uncertainties
and possible inaccurate assumptions relevant to our business and our
products. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors
besides those listed here could adversely affect us.
Potential fluctuations in quarterly operating results
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, most of which are outside
our control, including: the demand for our products; seasonal trends
in purchasing, the amount and timing of capital expenditures and other
costs relating to the development of our products; price competition
or pricing changes in the industry; technical difficulties or system
downtime; general economic conditions, and economic conditions
specific to the consumer lighting industry. Our quarterly results may
also be significantly impacted by the impact of the accounting
treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, such accounting
treatment can have a material impact on the results for any quarter.
Due to the foregoing factors, among others, it is likely that our
operating results will fall below our expectations or those of investors in
some future quarter.
Dependence Upon Management
Our future performance and success are dependant upon the efforts and
abilities of our Management. To a very significant degree, we are
dependent upon the continued services of Vito Peppitoni , our Chief
Executive Officer and Chairman of the Board of Directors and Sylvia
Quintero, our Chief Financial Officer and member of our Board of
Directors. If we lost the services of either Mr. Peppitoni or Ms.
Quintero , or other key employees before we could get qualified
replacements, that loss could materially adversely affect our
business. We do not maintain key man life insurance on any of our
Management.
Lack of Independent Directors
We cannot guarantee that our Board of Directors will have a majority
of independent directors in the future. In the absence of a majority
of independent directors, our executive officers, who are also
principal stockholders and directors, could establish policies and
enter into transactions without independent review and approval
thereof. This could present the potential for a conflict of interest
between the Company and its stockholders generally and the controlling
officers, stockholders or directors.
Limitation of Liability and Indemnification of Officers and Directors
Our officers and directors are required to exercise good faith and
high integrity in our Management affairs. Our Articles of
Incorporation provide, however, that our officers and directors shall
have no liability to our shareholders for losses sustained or
liabilities incurred which arise from any transaction in their
respective managerial capacities unless they violated their duty of
loyalty, did not act in good faith, engaged in intentional misconduct
or knowingly violated the law, approved an improper dividend or stock
repurchase, or derived an improper benefit from the transaction. Our
Articles and By-Laws also provide for the indemnification by us of the
officers and directors against any losses or liabilities they may
incur as a result of the manner in which they operate our business or
conduct the internal affairs, provided that in connection with these
activities they act in good faith and in a manner that they reasonably
believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence,
misconduct or breach of fiduciary obligations. To further implement
the permitted indemnification, we have entered into Indemnity
Agreements with our officers and directors.
Continued Control by Current Officers and Directors
The present officers and directors own the majority of the outstanding
shares of the Company's common stock, and therefore are in a position
to elect all of our Directors and otherwise control the Company,
including, without limitation, authorizing the sale of equity or debt
securities of the Company, the appointment of officers, and the
determination of officers' salaries. Shareholders have no cumulative
voting rights.
Management of Potential Growth
We anticipate rapid growth, which will place a significant strain on
our managerial, operational, and financial systems resources. To
accommodate our current size and manage growth, we must continue to
implement and improve our financial strength and our operational systems, and
expand, train and manage our sales and distribution base. There is no guarantee
that we will be able to effectively manage the expansion of our operations, or
that our facilities, systems, procedures or controls will be adequate to
support our expanded operations. Our inability to effectively manage our future
growth would have a material adverse effect on us.
Limited Market Due To Penny Stock
The Company's stock differs from many stocks, in that it is a "penny
stock." The Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." These rules include, but are not
limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7
under the Securities and Exchange Act of 1934, as amended. Because our
securities probably constitute "penny stock" within the meaning of the
rules, the rules would apply to us and our securities. The rules may
further affect the ability of owners of our stock to sell their
securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors
in penny stock often are unable to sell stock back to the dealer that
sold them the stock. The mark-ups or commissions charged by the
broker-dealers may be greater than any profit a seller may make.
Because of large dealer spreads, investors may be unable to sell the
stock immediately back to the dealer at the same price the dealer sold
the stock to the investor. In some cases, the stock may fall quickly
in value. Investors may be unable to reap any profit from any sale of
the stock, if they can sell it at all. Stockholders should be aware
that, according to the Securities and Exchange Commission Release No.
34- 29093, the market for penny stocks has suffered in recent years
from patterns of fraud and abuse. These patterns include: - Control of
the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; - Manipulation of prices
through prearranged matching of purchases and sales and false and
misleading press releases; - "Boiler room" practices involving high
pressure sales tactics and unrealistic price projections by
inexperienced sales persons; - Excessive and undisclosed bid-ask
differentials and markups by selling broker-dealers; and - The
wholesale dumping of the same securities by promoters and broker-
dealers after prices have been manipulated to a desired level, along
with the inevitable collapse of those prices with consequent investor
losses. Furthermore, the "penny stock" designation may adversely
affect the development of any public market for the Company's shares
of common stock or, if such a market develops, its continuation.
Broker-dealers are required to personally determine whether an
investment in "penny stock" is suitable for customers. Penny stocks
are securities (i) with a price of less than five dollars per share;
(ii) that are not traded on a "recognized" national exchange; (iii)
whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet requirement (i) above); or (iv)
of an issuer with net tangible assets less than $2,000,000 (if the
issuer has been in continuous operation for at least three years) or
$5,000,000 (if in continuous operation for less than three years), or with
average annual revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act, and Rule 15g-2 of the Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor's account. Potential investors in the Company's
common stock are urged to obtain and read such disclosure carefully before
purchasing any shares that are deemed to be "penny stock." Rule 15g-9
of the Commission requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning
his or her financial situation, investment experience and investment
objectives; (ii) reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and that
the investor has sufficient knowledge and experience as to be
reasonably capable of evaluating the risks of penny stock
transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the
determination in (ii) above; and (iv) receive a signed and dated copy
of such statement from the investor, confirming that it accurately
reflects the investor's financial situation, investment experience and
investment objectives. Compliance with these requirements may make it
more difficult for the Company's stockholders to resell their shares
to third parties or to otherwise dispose of them.
Item 3. CONTROLS AND PROCEDURES
As of June 30, 2004, under the supervision and with the participation
of management, including the chief executive officer and the chief
financial officer, the Company has evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. Based
on our evaluation, our chief executive officer and our chief
financial officer concluded that these controls and procedures are
effective in alerting them in a timely manner to material information
required to be disclosed in the reports that we file with the SEC.
There have been no significant changes in our internal controls or in
other factors that could significantly affect those controls
subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2 - Changes in Securities
(a) None.
(b) None.
(c) During the six months ended June 30, 2004, the Company
issued a total of 2,206,152 shares of our common stock in
exchange for $524,690, net of costs. The issuance is
considered exempt from registration by reason of the Section
4(2) of the Securities Act of 1933. The Company also issued
86,000 shares of common stock under its employee stock option
plan and received proceeds in the amount of $43,000. Common
stock subscriptions outstanding for 1,565,000 shares will
provide $782,500 to the Company when collected.
(d) None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a). Exhibits
Exhibit (31) Rule 13a-14(a)/15d-14(a) Certifications
(1) Certification by Vito A. Peppitoni
(2) Certification by Sylvia Quintero
Exhibit (32) Section 1350 Certifications
(1) Certification by Sylvia Quintero
(2) Certification by Vito A. Peppitoni
(b). Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
ARIZONA AIRCRAFT SPARES, INC.
Date: August 11, 2004 By: /s/ Vito A. Peppitoni
President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 11, 2004 By: /s/ Sylvia Quintero
Chief Operating Officer
Principal Accounting and
Financial Officer
Exhibit 31.1
CERTIFICATION
I, Vito A. Peppitoni, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Arizona
Aircraft Spares, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 11, 2004 By: /s/ Vito A. Peppitoni
President and Chief Executive
Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Sylvia Quintero, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Arizona
Aircraft Spares, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 11, 2004 By: /s/ Sylvia Quintero
Chief Operating Officer
(Principal Accounting and
Financial Officer)
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT
I, Sylvia Quintero, Chief Operating Officer, of Arizona Aircraft
Spares, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section
1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) the Quarterly Report on Form 10-QSB of the Company for the
period ended June 30, 2004 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: August 11, 2004 By: /s/ Sylvia Quintero
Chief Operating Officer
(Principal Accounting and
Financial Officer)
Exhibit 32.2
CERTIFICATION OF PERIODIC REPORT
I, Vito A. Peppitoni, Chief Executive Officer, of Arizona Aircraft
Spares, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section
1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) the Quarterly Report on Form 10-QSB of the Company for the
period ended June 30, 2004 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Date: August 11, 2004 By: /s/ Vito A. Peppitoni
President and Chief Executive Officer
(Principal Executive Officer)