UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 20, 2004
FBO AIR, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
333-56046 87-0617649
(Commission File Number) (I.R.S. Employer Identification No.)
9078 East Charter Oak, Scottsdale, AZ 85260
(Address of Principal Executive Offices) (Zip Code)
(480) 634-6565
(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-d(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
The Current Report on Form 8-K of FBO Air, Inc. (the "Company") as filed on
August 27, 2004 (the "Prior Report") is hereby amended to (1) add a new Item
1.01 and (2) amend Item 9.01 to (i) add the audited and the unaudited financial
statements of FBO Air, Inc., formerly an Arizona corporation until its merger
with and into the Company; (ii) indicate the inapplicability of including pro
forma financial statements; and (iii) adding Exhibits 10.4 and 10.5 to Item 9.01
and filing the same. Except as so modified, there were no other changes to the
Prior Report.
Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.
As previously reported in the Prior Report, FBO Air, Inc., an Arizona
corporation ("FBO"), was merged (the "Merger"), effective August 20, 2004, with
and into Shadows Bend Development, Inc., a Nevada corporation which,
simultaneously with the Merger, changed its name to FBO Air, Inc. (the
"Company"). Among the obligations of FBO which the Company assumed as a result
of the Merger, as previously reported in the Prior Report, were FBO's
obligations pursuant to a Convertible Loan Agreement dated April 16, 2004 (the
"Convertible Loan Agreement") by and among FBO and the Investors named in
Schedule A thereto, a copy of which Convertible Loan Agreement having been filed
as Exhibit 10.1 to the Prior Report and being incorporated herein by this
reference. Pursuant to the Convertible Loan Agreement, the Investors were to
purchase $400,000 in principal amount of the Convertible Notes due April 15,
2009 (the "Convertible Notes"). A copy of the form of Convertible Note was filed
as Exhibit 10.3 to the Prior Report and is incorporated herein by this
reference. The Investors advanced $130,000 of the $400,000 in principal amount
of the Convertible Notes to FBO (now the Company) on April 16, 2004 and the
balance of $270,000 (the "Balance") was to be advanced to FBO (now the Company)
upon the occurrence of the later of two specified transactions (the
"Transactions"). Consummation of the Merger as of August 20, 2004 resulted in
one of the two Transactions being effected.
By an Amendatory Agreement dated as of July 26, 2004 (the "Amendment") by
and among FBO and the Investors, a copy of which Amendment is filed as Exhibit
10.4 hereto and which is incorporated herein by this reference, the second
Transaction was changed from just being the acquisition of the assets, rights
and properties of Victory Aviation, L.L.C., which is the operator of an aviation
fixed based operation in Fort Wayne, Indiana, to give FBO (now the Company) the
alternative of acquiring the assets or the capital stock of another operator of
an aviation fixed base operation. The Company also assumed FBO's obligations
under the Amendment pursuant to the Merger. In addition, the Amendment gave FBO
(now the Company) until December 16, 2004 (instead of September 16, 2004 as
provided in the Convertible Loan Agreement) before the failure to consummate the
two Transactions would become an Event of Default under the Convertible Notes
and for the Investor to invest the Balance. During the months of August and
October 2004, the Investors invested an additional $125,000 and $45,000,
respectively, thereby reducing the Balance to be invested to $100,000. The
Amendment also changed the date on which FBO's (now the Company's) obligation to
begin paying interest on the Convertible Notes from July 1, 2004 to December 1,
2004. The Amendment superseded an Amendatory Agreement dated as of July 12, 2004
to the Convertible Loan Agreement, a copy of which was filed as Exhibit 10.2 to
the Prior Report.
The holders of the Convertible Notes had the right to convert their
Convertible Notes initially into an aggregate of 35% of the shares of the
Company's Common Stock, $.001 par value (the "Common Stock"), outstanding as of
the effective date of the Merger (assuming no further issuances of shares of the
Common Stock other than the specified transactions). By a letter agreement dated
October 21, 2004, a copy of which is filed as Exhibit 10.5 hereto and which is
incorporated herein by this reference, the 35% was increased to 40%. This change
would result in the holders initially receiving upon conversion of all of the
Convertible Notes an aggregate of 4,018,375 shares of the Common Stock as
previously reported in the Prior Report.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The audited financial statements of FBO as of December 31, 2003 and
for the period January 17, 2003 (inception) to December 31, 2003 and the
unaudited financial statements as of June 30, 2004 and for the six-month period
ended June 30, 2004, as listed in the index on page 5 of this Report, are filed
herewith.
(b) Pro Forma Financial Information.
Not applicable. Prior to the Merger neither the Company nor FBO were
operating companies. The Company does not consider the acquisition of FBO to be
a "significant business combination" and reported the Merger only because of the
Change in Control which it effected.
(c) Exhibits.
Number Description of Exhibit
2 Agreement and Plan of Merger dated as of July 25, 2004 by and between
the Company and FBO (without schedules).
3 Certificate of Amendment to the Company's Certificate of Incorporation
filed on July 30, 2004.
10.1 Convertible Loan Agreement dated April 16, 2004 by and among FBO and
the Investors named in Schedule A thereto.
10.2 Amendatory Agreement dated as of July 12, 2004 to the Convertible Loan
Agreement filed as Exhibit 10.1.
Number Description of Exhibit
10.3 Form of Convertible Note due April 15, 2009 issued pursuant to the
Convertible Loan Agreement filed as of Exhibit 10.1.
10.4 Amendatory Agreement dated as of July 26, 2004 to the Convertible Loan
Agreement filed as Exhibit 10.1.
10.5 Letter Agreement dated October 21, 2004 amending the Convertible
Notes, the form of which is filed as Exhibit 10.2.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to a Report to be signed on its behalf
by the undersigned hereunto duly authorized.
FBO AIR, INC.
(Registrant)
Date: November 3, 2004 By: /s/ Ronald J. Ricciardi
Ronald J. Ricciardi
President and
Chief Executive Officer
FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
CONTENTS
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-1
FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Proprietor's/Stockholders' Deficiency F-4
Statements of Cash Flows F-5
NOTES TO FINANCIAL STATEMENTS F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Proprietor of FBO Air
We have audited the accompanying balance sheet of FBO Air (a development stage
enterprise) as of December 31, 2003 and the related statements of operations,
proprietor's deficiency and cash flows for the period from January 17, 2003
(inception) to December 31, 2003. These financial statements are the
responsibility of the proprietorship'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. 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, the financial position of FBO Air (a development stage
enterprise) at December 31, 2003 and the results of its operations and its cash
flows for the period from January 17, 2003 (inception) through December 31, 2003
in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that FBO Air
will continue as a going concern. As more fully described in Note 2 the
proprietorship has no revenues and has incurred significant operating losses
since inception, which raises substantial doubt about the proprietorship's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of the uncertainty.
October 22, 2004
New York, New York
FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
December 31, June 30,
2003 2004
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ -- $ 26,262
Due from stockholder -- 14,510
----------- ------------
TOTAL ASSETS $ -- $ 40,772
----------- ------------
LIABILITIES AND PROPRIETOR'S/STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 9,575 $ 108,452
Due to affiliates 94,818 --
----------- ------------
Total Current Liabilities 104,393 108,452
LONG-TERM LIABILITIES
Convertible notes -- 130,000
----------- ------------
TOTAL LIABILITIES 104,393 238,452
COMMITMENTS AND CONTINGENCIES
PROPRIETOR'S/STOCKHOLDERS' DEFICIENCY
Common stock - $.001 par value; authorized 1,000
shares; 593 shares issued and outstanding at
June 30, 2004 -- 1
Additional paid-in capital -- 59,651
Deficit accumulated during development stage (104,393) (257,332)
----------- ------------
TOTAL PROPRIETOR'S/STOCKHOLDERS'
DEFICIENCY (104,393) (197,680)
----------- ------------
TOTAL LIABILITIES AND PROPRIETOR'S/
STOCKHOLDERS' DEFICIENCY $ -- $ 40,772
----------- ------------
The accompanying notes are an integral part of these financial statements.
FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For the Period
from Cumulative Period
January 17, 2003 For the Six-Month Period Ended from January 17, 2003
(Inception) to June 30, (Inception) to
------------------------------------------
December 31, 2003 2004 June 30, 2004
2003
------------------ ------------------- ---- ----------------- ---------------------------------
(Unaudited) (Unaudited)
REVENUE $ -- $ -- $ -- $ --
--------- --------- --------- ---------
EXPENSES
General and administrative
expenses 104,393 45,523 185,968 290,361
Compensatory element of stock
issuances
(for general and
administrative expenses) -- -- 69,227 69,227
--------- --------- --------- ----------
TOTAL EXPENSES 104,393 45,523 255,195 359,588
--------- --------- --------- ----------
OPERATING LOSS (104,393) (45,523) (255,195) (359,588)
OTHER EXPENSE
Interest expense -- -- 2,137 2,137
--------- --------- --------- ---------
NET LOSS $ (104,393) $ (45,523) $ (257,332) $ (361,725)
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
STATEMENTS OF PROPRIETOR'S/STOCKHOLDERS' DEFICIENCY
For the Period from January 17, 2003 (Inception) Through June 30, 2004
Deficit
Accumulated Total
Common Stock Additional During Proprietor's/
-------------- Paid-in Development Stockholders'
Shares Amount Capital Stage Deficiency
----------------- --------------- ----------------- ------------------- --------------------
BALANCE - January 17, 2003 -- $ -- $ -- $ -- $ --
Net loss -- -- -- (104,393) (104,393)
--------- --------- --------- --------- ---------
BALANCE - December 31, 2003 -- -- -- (104,393) (104,393)
Capitalization of deficit at time
of incorporation -- -- (104,393) 104,393 --
Conversion of advances from
affiliates into common stock 343 1 94,817 94,818
Common stock issued for services on
June 27, 2004 at $277 per share 250 69,227 -- 69,227
Net loss -- -- (257,332) (257,332)
--------- --------- --------- --------- ---------
BALANCE - June 30, 2004 (Unaudited) 593 $ 1 $ 59,651 $ (257,332) $ (197,680)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Period
from Cumulative Period
January 17, 2003 For the Six-Month Period Ended from January 17, 2003
(Inception) to June 30, (Inception) to
-------------------------------------
December 31, 2003 2003 2004 June 30, 2004
------------------- ------------------ -- --------------- --------------------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (104,393) $ (45,523) $ (257,332) $ (361,725)
Adjustments to reconcile net loss --------- --------- --------- ---------
to net cash used in operating
activities:
Compensatory element of stock
issuances -- -- 69,227 69,227
Changes in operating assets and
liabilities:
Due from stockholder
-- -- (14,510) (14,510)
Accounts payable and accrued
liabilities 9,575 -- 98,877 108,452
--------- --------- --------- ---------
TOTAL ADJUSTMENTS 9,575 -- 153,594 163,169
--------- --------- --------- ---------
NET CASH USED IN OPERATING
ACTIVITIES (94,818) (45,523) (103,738) (198,556)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of convertible
notes -- -- 130,000 130,000
Advances from affiliates 94,818 45,523 -- 94,818
--------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 94,818 45,523 130,000 224,818
--------- --------- --------- ---------
NET INCREASE IN CASH -- 26,262 26,262
CASH - Beginning -- -- -- --
--------- --------- --------- ---------
CASH - Ending -- -- 26,262 26,262
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
FBO AIR, INC.
And FBO AIR (FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(continued)
For the Period
from Cumulative Period
January 17, 2003 For the Six-Month Period Ended from January 17, 2003
(Inception) to June 30, (Inception) to
-------------------------------------
December 31, 2003 2003 2004 June 30, 2004
------------------- ------------------ -- --------------- --------------------------------
(Unaudited) (Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $ -- $ -- $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Income taxes $ -- $ -- $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-cash investing and financing
activities:
Advances from affiliates converted
to equity $ -- $ -- $ 94,818 $ 94,818
--------- --------- --------- ---------
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
FBO AIR, INC.
And FBO AIR (Predecessor to FBO Air, Inc.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Information Related to June 30, 2004 and 2003 is unaudited)
NOTE 1 - Nature of Operations and Basis of Presentation
Nature of Operations FBO Air (the "Company") was formed on January 17, 2003
(date of inception) as a proprietorship to acquire and operate fixed base
operations ("FBO"). FBO operators are the primary providers of services to
general aviation aircraft operators. The Company's business strategy is to
purchase and consolidate FBO operators in the secondary and tertiary
markets located within the United States.
The Company is in the development stage and its efforts to date have been
principally devoted to the organizational activities of raising capital,
recruiting and hiring of key personnel, and identifying and screening of
potential FBO acquisitions.
Basis of Presentation
On January 2, 2004, the Company was incorporated in the State of Arizona.
The balance sheet as of December 31, 2003 and the related statements of
operations, proprietor's deficiency and cash flows for the period from
January 17, 2003 (date of inception) through December 31, 2003 represent
the activity of the proprietorship. The balance sheet of the Company as of
June 30, 2004, and the related statements of operations, stockholders'
deficiency and cash flows for the six months ended June 30, 2004 have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial statements. Accordingly,
they do not contain all the information and footnotes required by
accounting principles generally accepted in the United States of America
for annual financial statements. In the opinion of the Company's
management, the accompanying unaudited financial statements contain all the
adjustments necessary (consisting only of normal recurring accruals) to
make the financial position of the Company as of June 30, 2004 and the
results of its operations and cash flows for the six months ended June 30,
2004 not misleading.
NOTE 2 - Going Concern and Management's Plans
The Company's primary source of operating funds since inception has been
provided by the proprietor and his affiliates. The Company intends to raise
additional capital through private debt and equity investors. However,
there is no assurance that these funds, if raised, will be sufficient to
enable the Company to fully complete its development activities, attain
profitable operations or continue as a going concern. The accompanying
financial statements have been prepared assuming that the Company will
continue as a going concern. As of December 31, 2003, the proprietorship
had no working capital and had no revenues and incurred operating losses
during the period from January 17, 2003 (date of inception) through
December 31, 2003.
NOTE 2 - Going Concern and Management's Plans, continued
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
reflect the possible effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result
from the outcome of this uncertainty.
NOTE 3 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and the
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.
Income Taxes
The proprietorship itself is not a taxpaying entity for purposes of Federal
and State income taxes. Federal and state income taxes of the
proprietorship are computed on its total income from all sources.
Accordingly, no provision for income taxes is made for the period from
January 17, 2003 (date of inception) through December 31, 2003. As of
January 2, 2004 (date of incorporation), the Company accounts for income
taxes using the liability method as required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
Under this method, deferred tax assets and liabilities are determined based
on differences between their financial reporting and tax basis of assets
and liabilities. The Company was not required to provide for a provision
for income taxes for the six months ended June 30, 2004 as a result of net
operating losses incurred during the period. As of June 30, 2004, the
Company had available approximately $257,000 of net operating losses
("NOL") available for income tax purposes that may be carried forward to
offset future taxable income, if any. These carryforwards expire in various
years through 2024. At June 30, 2004, the Company has a deferred tax asset
of approximately $103,000, which consists primarily of temporary
differences relating to net operating losses. The Company's deferred tax
asset has been fully reserved by a valuation allowance because realization
of its benefit is uncertain. The difference between the statutory tax rate
of 35% and the Company's effective tax rate of 0% is due to the increase in
the valuation allowance of approximately $103,000. The Company's ability to
utilize its carryforwards may be subject to an annual limitation in future
periods pursuant to Section 382 of the Internal Revenue Code of 1986, as
amended.
NOTE 3 - Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
The reported amounts of our financial instruments, including accounts
payable and accrued liabilities, approximate their fair value due to their
short maturities. The carrying amounts of debt approximate fair value since
the debt agreements provide for interest rates that approximate market.
Stock Options
During 2003, the Company adopted SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure". This statement amended SFAS No.
123, "Accounting for Stock-Based Compensation". As permitted under SFAS No.
123, the Company continues to apply Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees". Presentation of
pro forma information under SFAS No. 148 is not presented, as the Company
did not have options granted or outstanding during the periods presented.
NOTE 4 - Due from Stockholder
In June 2004, the Company advanced $14,510 as an unsecured loan to its
principal stockholder. This amount was repaid in full by the stockholder in
September 2004.
NOTE 5 - Due to Affiliates
During the period from January 17, 2003 (inception) through December 31,
2003, the Company funded its operations from funds provided by its
proprietor and an investor. These advances were unsecured, non-interest
bearing and due on demand. On January 2, 2004, the balance due to
affiliates, $94,818, was converted into 343 shares of common stock (see
Note 7).
NOTE 6 - Convertible Notes
In April 2004, the Company entered into a convertible loan agreement with a
group of investors to purchase five-year, 8% convertible notes in the
aggregate principal amount of $400,000 as follows: (a) $130,000 upon
signing and (b) $270,000 upon the later to occur of: (1) a reverse merger
transaction and (2) the acquisition of an FBO as defined in the agreement.
The convertible notes mature April 2009, with interest payable quarterly,
beginning with the first interest payment, which is due December 1, 2004.
The Company has the option to pay interest in cash or common stock of the
new company following a reverse merger transaction (see Note 9). For the
NOTE 6 - Convertible Notes, continued
purpose of determining the number of shares to be issued in payment of
interest, such shares shall be valued at the average of their fair market
value during the five trading days preceding the interest payment date. The
notes plus accrued interest are convertible following a reverse merger
transaction through the maturity date, into 40%, as defined in the
agreement, of the new company's outstanding common stock. In addition, the
holders have certain piggyback registration, tag along and other rights as
defined in the agreement. The Company is required to maintain certain
financial and other covenants.
NOTE 7 - Proprietor's/Stockholders' Deficiency
During the period from January 17, 2003 (inception) through December 31,
2003, the Company operated as a proprietorship.
On January 2, 2004, affiliates converted $94,818 of amounts owed to them
into 343 shares of common stock.
As of June 30, 2004, the Company issued 250 shares of common stock as
consideration for services performed by various individuals valued in the
aggregate of $69,227.
NOTE 8 - Commitments and Contingencies
Operating Lease
In May 2004, the Company entered into a non-cancelable operating lease of
an automobile for a company officer expiring in August 3, 2008. Future
minimum lease payments under this operating lease at June 30, 2004 are as
follows:
-------------------------------------- ----------------------
Years Ended June 30: Amount
-------------------------------------- ----------------------
-------------------------------------- ----------------------
2005 $ 5,640
-------------------------------------- ----------------------
-------------------------------------- ----------------------
2006 5,640
-------------------------------------- ----------------------
-------------------------------------- ----------------------
2007 5,640
-------------------------------------- ----------------------
-------------------------------------- ----------------------
2008 470
-------------------------------------- ----------------------
-------------------------------------- ----------------------
-------------------------------------- ----------------------
-------------------------------------- ----------------------
$17,390
-------------------------------------- ----------------------
NOTE 8 - Commitments and Contingencies, continued
NOTE 8 - Commitments and Contingencies Consulting Agreements The Company
entered into a six-month engagement agreement (the "Agreement") with a
financial advisor in April 2004, whereby they will provide advisory
services for financial structuring and planning, bridge financing, special
situation transactional services and private equity financing. The
agreement calls for an initial fee of $15,000 plus $5,000 per month for six
months, payable after the closing of the first FBO acquisition, see below.
In January 2004, the Company entered into a three-year consulting agreement
with a stockholder to provide merger and acquisition advisory services,
effective upon an FBO acquisition. The agreement calls for annual
consulting fees of $125,000, $150,000 and $200,000, respectively. For each
year of the agreement the consultant shall be issued an option to purchase
50,000 shares of common stock of the Company. As of June 30, 2004, the
agreement was not in effect and no options were granted. See Note 9 for
issuance subsequent to June 30, 2004.
Employment Agreement
In January 2004, the Company entered into a three-year employment agreement
with its President and Chief Executive Officer, effective upon an FBO
acquisition, which provides for an annual salary of $125,000, $150,000 and
$200,000, respectively, plus an annual incentive bonus to be determined. In
addition, the executive is entitled to receive options to purchase the
Company's common stock in an amount to be determined by the board of
directors. As of June 30, 2004, the agreement was not in effect and no
options were granted.
Proposed FBO Acquisitions
The Company has negotiated and issued letters of intent for three potential
FBO acquisitions: (1) FBO assets located in Garden City, Kansas, requiring
cash at closing of approximately $435,000 and the issuance of a 5% note for
approximately $240,000 to be paid out over 18 months; (2) FBO assets
located in the central south region of the country, requiring cash at
closing of approximately $5,000,000 and the issuance of common stock of the
Company following a reverse merger transaction valued at approximately
$5,000,000, and (3) stock of an FBO located in the northeast region of the
country, requiring a combination of cash and debt totaling approximately
$2,800,000. Completion of these acquisitions is subject to customary
closing conditions including the raising of capital.
NOTE 9 - Subsequent Events
Merger Transaction
On August 20, 2004, 100% of the Company was acquired by Shadows Bend
Development, Inc., a Nevada corporation ("Shadows Bend"), in a reverse
merger transaction, whereby Shadows Bend issued 4,521,625 shares of its
common stock to the Company's stockholders. Following the merger, the
Company's stockholders owned approximately 75% of the outstanding common
stock of Shadows Bend. The transaction has been accounted for as a reverse
merger in which the Company is considered to be the acquirer of Shadows
Bend. Subsequent to the merger, Shadows Bend changed its name to FBO Air,
Inc.
Stock Options On September 30, 2004, the Company granted a stock option to
purchase 25,000 shares of the Company's common stock at a price of $0.01
per share to each of its four independent directors and an option to
purchase 50,000 shares of the Company's common stock to a
consultant/shareholder of the Company. The foregoing options expire in
September 2008 and become exercisable one year from the date of grant. The
Company deemed the value of these options to be immaterial using the Black
Scholes option pricing model.
Convertible Notes
During August 2004 and October 2004, a group of investors waived one
provision under its loan agreement and funded the sale of $125,000 and
$45,000, respectively, in convertible notes (see Note 6).
FBO AIR, INC.
Index to Exhibits Filed With Amendment to Current Report on Form 8-K
Exhibit No. Description of Exhibit Page
10.4 Amendatory Agreement dated as of July 26, 2004 to the Convertible
Loan Agreement filed as Exhibit 10.1 E-2
10.5 Letter Agreement dated October 21, 2004 by and between the
Company and the Representative of the Investors. E-5
Exhibit 10.4
AMENDATORY AGREEMENT entered into as of this 26th day of July, 2004 (this
"Amendment') by and among FBO Air, Inc., an Arizona corporation (the
"Borrower"), and the Investors set forth in Schedule A hereto (the "Investors").
WHEREAS, the Borrower and the Investors have heretofore entered into a
Convertible Loan Agreement dated April 16, 2004 (the "Loan Agreement") pursuant
to which the Investors were to make Loans to the Borrower aggregating $400,000,
of which an aggregate of $130,000 (the "Initial Loans") was advanced to the
Borrower by the Investors on April 16, 2004 and an aggregate of $270,000 (the
"Subsequent Loans") was to be advanced to the Borrower by the Lenders upon the
later to occur of the consummation of two specified transactions (the
"Transactions");
WHEREAS, the Borrower executed a convertible note dated April 16, 2004 (the
"Note") to each of the Investors evidencing the Initial Loans and the Notes
provided that (1) an Event of Default (as defined in the Note) included the
failure by the Borrower to consummate, within 60 days after April 16, 2004, the
Transactions and (2) the first interest installment payment was due July 1,
2004; and
WHEREAS, neither of the Transactions has been consummated as of the date of
this Amendment and the parties desire to modify certain terms of the Loan
Agreement and the Notes so that the Subsequent Loans may be made by the
Investors to the Borrower and that the Borrower not be in default under either
the Loan Agreement or any of the Notes;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is acknowledged by all of the parties hereto, the Borrower and the Investors
agree as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined shall have the meaning ascribed thereto in the Loan Agreement and/or the
Notes.
2. The first sentence of Section 1 of the Loan Agreement is hereby
amended to read as follows:
"The Investors hereby agree to make the Loans to the Borrower as
follows: (a) $130,000 under execution of this letter agreement (this
"Agreement") and (b) $270,000 upon the later to occur of (i) the merger of the
Borrower with and into Shadows Bend Development, Inc., a Nevada corporation
("Newco"), and (ii) the Borrower's acquisition of either (A) the assets, rights
and properties of Victory Aviation, L.L.C., an Indiana limited liability company
("Victory"), which is the operator of an aviation fixed base operation in Fort
Wayne, Indiana, or (B) the acquisition of the assets, rights and properties, or
of all of the capital stock, of another operator of an aviation fixed base
operation (the "Other FBO Company")."
3. Section 3(b) of the Loan Agreement is hereby amended to read as
follows:
The Borrower may not, without the Investors' prior written approval,
enter into (i) any acquisition of the assets or securities of any person or
entity (other than the transaction with Victory and/or the Other FBO Company);
(ii) any financing transaction, whether for indebtedness or equity securities of
the Borrower or any subsidiary thereof; or (iii) any transaction involving the
prospective expenditure by the Borrower of more than $25,000."
4. The first paragraph of each of the Notes is hereby amended to
provide that the payment of interest commences on December 1, 2004 and not July
1, 2004.
5. Subclause (2) of the definition of the term "Newco Outstanding
Shares" in each of the Notes is hereby amended to read as follows:
"(2) the shares to be issued either to the sole member of Victory, or
to the shareholders or members of the Other FBO Company, in an amount not to
exceed eight (8%) percent of the outstanding shares of the Newco Common Stock
(including any shares that may be issued after the Merger pursuant to a market
adjustment formula);".
6. Subclause (2) of the definitions of "Event of Default" in each of
the Notes is hereby amended to read as follows:
"(2) the failure by the Borrower to consummate, on or before December
16, 2004, the Merger and either the asset purchase from Victory Aviation, L.L.C.
or the asset or stock purchase from the Other FBO Company;".
7. Except as modified in this Amendment, the terms and considerations
of the Loan Agreement and each of the Notes shall remain in full force and
effect.
8. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first mentioned.
FBO AIR, INC.
By: __________________________
Name: Ronald Ricciardi
Title: President
THE INVESTORS, as per separate signature
pages attached hereto
Agreed and accepted as of the date hereof:
Investor Signature
Theodore V. Fowler
Sands Brothers Venture Capital, LLC
Sands Brothers Venture Capital II, LLC
Sands Brothers Venture Capital III, LLC
Sands Brothers Venture Capital IV, LLC
Katie & Adam Bridge Partners, LLC
Bonanza Trust
Andrew Zaro
KWG Trust
280 Ventures, LLC
Exhibit 10.5
FBO Air, Inc.
9087 E. Charter Oak
Scottsdale, AZ 85260
Phone: (480) 634-6565
Fax: (480) 634-6566
October 21, 2004
Mr. Ted Fowler
Sands Brothers International, Ltd
90 Park Avenue
New York, NY 10016
RE: FBO Air, Inc. Convertible Note
Dear Ted,
Our auditors, Marcum & Kliegman, LLP, have raised a question regarding the
documentation associated with the investment made by Sands Brothers and
affiliates in FBO Air, Inc. in the form of a convertible note.
It seems that in our conversations leading to the final agreement, as we agreed
to increase the collective amount of the note to $400,000, we evidently
neglected to increase the corresponding percentage ownership into which the
note-holders may convert.
It is our understanding that, with the increase in funding from $350,000 to the
final $400,000 the note holders do in fact have the right to convert to a 40%
ownership position in FBO Air, Inc.
In speaking with our auditors, it may be acceptable to have you and I recognize
this commitment as such with a simple letter.
By execution below, I am confirming the intention of FBO Air that, upon
conversion, the collective holders of the convertible note shall be eligible to
convert to a 40% ownership position in FBO Air, Inc.
By execution below, you are representing this as the understanding of Sands
Brothers and affiliate investors as well.
On behalf of:
FBO Air, Inc. Sands Brothers and affiliate note holders
Ron Ricciardi Ted Fowler