10KSB 1 global12312005.txt FORM 10-KSB (12-31-2005) U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For year ended December 31, 2005 Commission File No. 0-28575 GLOBAL AIRCRAFT SOLUTIONS, INC. ------------------------------------------- (Formerly Renegade Venture (NEV) Corporation) (Exact name of small business issuer as specified in its charter) NEVADA 84-1108499 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 6901 South Park Avenue Tucson, Arizona 85706 (520) 294-3481 (Address of Principal Executive Offices) (Issuer's Telephone No.) 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 Check 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. [X] Yes [ ] No Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Yes [ ] No The registrant's revenues for its most recent fiscal year were $41,228,648. At March 22, 2006, a total of 38,728,215 shares of common stock were outstanding, and the aggregate market value of the shares of common stock of the registrant held by non-affiliates on March 22, 2006, was approximately $49,409,538.30 (based on the closing sales price of the common stock (as reported on the OTC Bulletin Board maintained by the NASD on such date, which was $1.62 per share). FORWARD-LOOKING STATEMENTS This report 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), that may affect 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. Should any of the assumptions underlying a forward-looking statement prove incorrect, actual results could differ materially from those anticipated. PART I ITEM 1. 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. At the beginning of 2005, it was decided that in addition to its role as holding company, Global would become active in aircraft trading, replacing HAT in that arena. The only revenue that has been reported prior to this time by Global was revenue derived from a contract with Mesa Airlines, beginning in the third quarter of 2003 and ending in December of 2004. That revenue represented the first revenue produced by the parent Company (Global) since consolidation with HAT. This work was performed by HAT, but revenue and expenses were booked to Global because the customer wanted to contract directly with HAT's parent (Global) rather than with the wholly owned subsidiary (HAT). HAT was organized on April 5, 2002 and World Jet 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 formed on April 5, 2002, and began operations on April 15, 2002. 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, 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. 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. (See Form 8-K/A filed September 9, 2005.) 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. OPERATING SEGMENTS See Note 4 to the Consolidated Financial Statements for certain segment and geographic financial data relating to our business. 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. HAMILTON AEROPSACE TECHNOLOGIES, INC. ("HAT") HAT is an aircraft repair station licensed by the Federal Aviation Administration (FAA) and by the Joint Aviation Authority of the European Economic Community (JAA), 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 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 repair facilities. Second, aircraft require regular inspection and maintenance in accordance with FAA regulations and must regularly visit 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 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. Seventh, HAT's extensive working relationships with aircraft leasing companies, airlines, subcontractors and vendors provides an ideal basis for identifying and evaluating further asset and company acquisitions. 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 time and breadth of services offered. 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. HAT also has extensive engine hush-kit experience including Federal Express and Raisbeck kits for Boeing 727 aircraft, ABX kits for DC9 aircraft, as well as Nordam and Av Aero kits for Boeing 737 aircraft. Below is a brief description of HAT's core services: o Routine minor and major maintenance (phase checks A, B, C and D) o Corrosion control and prevention programs o Structural inspections o Avionic upgrades o Interior reconfiguration and refurbishment o Strip and paint services to operators' livery requirements o Comprehensive systems and structural modifications o Flight test support o Component overhaul Regulatory Oversight Regulation 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. 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. 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 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. 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 allows HAT the following ratings: Instrument, Accessory, Limited Airframe, and Limited Engine for the following aircraft (with certain limitations for each rating and aircraft): RATING MANUFACTURER MAKE/MODEL ------ ------------ ---------- 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 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, JAA Agency No. JAA.5903. Without the JAA 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 such as HAT. As applied to large commercial jets, the term "maintenance" is a broad one that includes regular and routine inspections, heavy maintenance ("C-checks"), scheduled major overhauls ("D-checks"), Airworthiness Directives, Service Bulletins, Structurally Significant Inspection Documents ("SSIDs"), and other aging aircraft requirements to assure the continued integrity of commercial aircraft. All such services are performed under FAA regulations, and only a licensed facility can provide them. 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 such as Jetran International, Pegasus and Falcon Air, 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. HAT is qualified to perform all levels of maintenance service from pre-flight checks up through complete major overhauls ("D" checks). Because of its low overhead structure and the experience of its employees, HAT is widely recognized throughout the industry as a provider of cost-effective, quality maintenance services for Boeing 727 and 737 and DC9/MD80 aircraft. HAT is now building its reputation in the newly entered Boeing 757 market. 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. Component Overhaul In order to better support its aircraft maintenance operations, HAT has been developing its component overhaul capabilities. HAT performs maintenance, repair and overhaul of airframe components, including fairing panels, nacelle systems and exhaust systems, and refurbishes aircraft interior components. Not only do these activities enjoy high profit margins, but existing and potential customers also tend to view extensive component back shop capabilities positively. 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 as well as 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 in 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. We estimate that the worldwide market for MRO services is approximately $40 billion annually. 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 Jets MD Lease (11.8%) and MD Leasego, Ltd. (5.3%), both Daimler Chrysler, division of Aviation, partnerships, Jetran International (9.4%), an aircraft trading and leasing company, Savanna Aviation, LLC (9.6%), a leasing company and a subsidiary of Jetran, Aero California (5.9%), a Mexican airline, Falcon Air Express (5.4%), a 121 United States passenger operator, Pegasus Aviation (4.5%), a large aircraft leasing company and long-time Hamilton Aviation customer, as well as a number of smaller customers. 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: o Distress purchases: Hamilton is able to buy planes and parts at pennies on the dollar, re-certify parts, engines and airframes and resell them at a profit. o Parts Sales: Hamilton generates revenue on all parts it installs in customer aircraft. o Commission Sales: Hamilton buys parts on request for customers that don't maintain parts inventory and charges a commission for that service. o Aircraft storage: Hamilton offers environmentally favorable aircraft storage to aircraft operators and has some 60 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. o Inspection and Certification: Hamilton charges a service to inspect and to re-certify parts, engines and airframes for customers. o Aircraft Sales and Leasing Commissions: Hamilton takes full advantage of its position as a maintenance provider to earn commissions on aircraft sales or leases. o Aircraft Ferry and Flight Crew Services: Hamilton 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. o Labor Contracting: Hamilton provides teams of technicians to understaffed competitors on a contract basis, or as field teams to rescue distressed aircraft in remote locales. 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. ("WORLD JET") ----------------------------------------- Operations and Services ----------------------- 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. World Jet is recognized by the Airline Suppliers Association, ("ASA"), as an ASA-100 (FAA Advisory Circular 00-56) accredited supplier of aircraft parts. This certification, audited annually, is recognized and accepted by the FAA for suppliers of replacement aircraft parts. 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: o Maximize the profitability of the Company by identifying and developing those business opportunities that offer the highest return on investment. o Optimize the Company's debt and capital structure. o Cautiously build Company value through the strategic exploitation of synergistic arbitrage and acquisition opportunities. 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 2005. 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 is one of a limited number of parts brokers who provide 24-hour AOG, (aircraft on ground), coverage to its customers. 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. The marketing strategies described here have kept, and are keeping, HAT fully booked or over booked for the foreseeable future. Accordingly, HAT has no plans to change its marketing approach at this time. Global regularly provides press releases on major jobs and provides interviews for trade journals as a method for maintaining visibility in the industry. HAT also maintains a web site that describes its facilities, personnel and capabilities at 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. Nationally, Hamilton Aerospace 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, Arizona and Lake City, Florida; FlightStar, located in Jacksonville, Florida; Commercial Jet Miami, located at Miami, Florida and Avborne Heavy Maintenance, located at Miami, Florida. Internationally, Hamilton Aerospace competes with Coopesa, located in San Jose, Costa Rica and Aeroman, 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 equity and/or 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. Since HAT and World Jet are profitable, Global can, if necessary, meet its financial requirements internally. However, the equity and/or debt financing currently pursued by Management will greatly accelerate the growth of value in Global. Consequently, while Management is aggressively seeking to secure additional financial resources, it has no interest in entering into overly dilutive equity funding or onerous debt financing. 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 in favor of more aggressively 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 25% to 50% per year over at least the next two years. 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, 2005 a total of approximately 173 employees were employed by HAT, 27 of which performed administrative functions. World Jet has approximately 20 employees consisting of sales staff and administrative personnel. In connection with the acquisition of World Jet by Global, Global retained the entire World Jet staff including key sales and management personnel to maintain customer contacts and relations to assure a smooth and consistent administration of operations. 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 adequately 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. 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 a duration of approximately 10 years peak to peak. The aviation industry appeared by mid-2001 to be headed into a prolonged downturn, and this trend was violently accelerated by the event of September 11th. Since September 11, 2001, at least five major repair stations either ceased doing business or filed for Chapter 11 protection. This factor has restricted the supply of services to the industry and opened up an opportunity for Global. Air carriers such as United Airlines also have filed for Chapter 11 protection. The recession in the aviation industry appears to have bottomed out with some indications of a rebound now appearing on the horizon. We believe that the following trends are currently affecting the aviation industry and our operations in particular: Growth in the Market for Aircraft MRO Services The Boeing 2003 Current Market Outlook Report projects that the average worldwide passenger growth will be 5.1% per year through 2022. Similarly, The Boeing 2003 Current Market Outlook Report projects that the average worldwide cargo traffic growth will be 6.4% per year through 2022. 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 at approximately $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. Emphasis on Quality The FAA and JAA license our MRO facility. We emphasize quality and on-time delivery to our customers. We are focused on meeting and exceeding FAA and JAA 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. RISK FACTORS RELATING TO OUR BUSINESS In addition to the other information contained in or incorporated by reference into this Form 10-KSB, you should carefully consider the following risk factors and other information contained in this report. 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. 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 partial year ended December 31, 2002, our 2 largest continuing customers accounted for approximately 80% of our total revenues, and our largest continuing customer accounted for approximately 43% of total revenues. For the year ended December 31, 2003, our 2 largest continuing customers accounted for 36% of our total revenues and our largest continuing customer accounted for approximately 25% of total revenues. Five customers accounted for 74% of our total 2003 revenue. For the year ended December 31, 2004, our 2 largest continuing customers accounted for 34% of our total revenues and our largest continuing customer accounted for 21% of total revenues. For the year ended December 31, 2005, our largest continuing customer accounted for 8.3% of our revenue. Four customers accounted for 37.6% of our revenue. The broadening of our customer base has spread the risk associated with the failure of a significant customer. 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 its revenue as of the year ending December 31, 2004 are as follows: HAT WORLD JET Percentage of Percentage of Customer Revenue Customer Revenue -------- ------- -------- ------- Jets MD Lease 11% HAT 40% Aircraft LLC 17% Jetran 14% HAT was World Jet's largest customer for the year ended December 31, 2005, accounting for 40% 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. 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"). 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 effect 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 Global conducts more than 73% of its operations through its two wholly owned subsidiaries, HAT and World Jet, at 6901 and 6900 South Park Avenue, Tucson, Arizona respectively. While World Jet serves as HAT's parts supply facility for aircraft parts at 6900 South Park Avenue Tucson, Arizona, and accounts for 17% of Global's total revenue, the repair and maintenance operation of HAT located at 6901 South Park Avenue, Tucson, Arizona comprises approximately 56% of Global's revenue. By having only one location for aircraft repair and maintenance HAT is at risk of temporary or permanent cessation of all operations should HAT encounter an event which renders its facility unusable for any period of time or HAT encounters any issues or problems related to the use of the facility at this location. Although World Jet represents only 17% of Global's operations, World Jet operates out of only one location in Tucson, Arizona and cessation of operation at this location due to events which render the facility unusable for any period of time will correspondingly adversely impact Global's operations and revenue stream. Since World Jet maintains its entire parts inventory at this one location, any damage to or destruction of this facility and/or the inventory will also adversely impact the Company. 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. 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 are currently experiencing financial difficulties, and some or all of them may respond to their financial difficulties 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 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 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. Reports to Security Holders We are subject to the informational requirements of the Securities Exchange Act of 1934 as a "small business" issuer. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports and other information we file at the Securities and Exchange Commission's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Our filings are also available to the public from commercial document retrieval services and the Internet website maintained by the Securities and Exchange Commission at www.sec.gov. ----------- ITEM 2. DESCRIPTION OF PROPERTY The principal executive offices for both Global and Hamilton Aerospace are located at the Hamilton Aerospace 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. ITEM 3. LEGAL PROCEEDINGS 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 in April, 2002 whereby Old Mission Assessment ("OMAC") and others agreed to provide HAT financing and capital for its newly established business. OMAC and its officers Corwin Foster and others, entered into two debentures related agreements on April 15, 2002 whereby OMAC agreed to pay to HAT the sum of $1,500,000.00 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 $3,000,000.00 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 $400,535.00 of the agreed upon $3,000,000.00 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 returned the $400,535 of the original $3,000,000 pursuant to the debenture agreements. This sum was released from escrow and paid to United Pay Phone Workers, 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 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 $1,000,000.00 plus interest and fees; the return of the 1,500,000 shares of common stock; and punitive damages in the amount of $10,000,000.00. Mr. Corwin Foster is now proceeding pro se. This matter is currently pending discovery, which must be completed by June 30, 2006. Dispositive motions must be filed by July 28, 2006 and the parties are required to file their Joint Proposed Pretrial Order by August 25, 2006. On September 13, 2005, HAT, a wholly owned subsidiary of the Company, initiated a lawsuit against Aero Micronesia, d/b/a Asia Pacific, in the Superior Court of Arizona, Pima County, requesting entry of a judgment in the amount of $184,684.64, plus interest, costs and fees for failure of Aero Micronesia to pay the remaining $184,684.64 outstanding balance owed to HAT for aircraft maintenance services rendered pursuant to written contract dated August 19, 2004. This matter is currently pending a potential settlement. On November 10, 2005, a former independent contractor of HAT Mr. Tarus Woodall filed a complaint of sexual harassment and religious discrimination against HAT with the Arizona State Attorney General's Office claiming that he was sexually harassed and his religion mocked by other male employees in violation of the Arizona Civil Rights Act, as amended, and Title VII of the Civil Rights Act of 1964, as amended. On December 28, 2005, HAT filed a Position Statement with the Arizona State Attorney General's Office denying the allegations in the complaint based upon the facts that: (1) Taurus Woodall was not an employee of HAT, he was an independent contractor; (2) Mr. Woodall was not sexually harassed nor was his religion mocked as verified by his supervisor and three other employees who worked with Mr. Woodall; (3) Mr. Woodall never reported any such alleged sexual and/or religious harassment to anyone at HAT or his employer JobAire. HAT and JobAire only became aware of Mr. Woodall's allegations upon receipt of his complaint in November 2005, at least l month after his independent contractor status was terminated; and (4) that Mr. Woodall was released as an independent contractor for absences, tardiness and job performance issues. No claim for any amount of damages is asserted in the complaint by Mr. Woodall. The matter is currently pending. World Jet is not involved in any legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of the year ended December 31, 2005. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock 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 ---- --- 2005 First Quarter $ .94 $ .73 Second Quarter 1.36 .84 Third Quarter 1.94 1.17 Fourth Quarter 1.57 1.30 2004 First Quarter $ .53 $ .23 Second Quarter .86 .19 Third Quarter .72 .52 Fourth Quarter .85 .45 Impact of Being an OTC Bulletin Board Stock Global's common stock is quoted on the OTC Bulletin Board 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 34,198,715 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. Holders Global had approximately 81 shareholders of record as of December 31, 2005, which number does not include shareholders whose shares are held in street or nominee names. We believe there are at least 2000 beneficial holders of our common stock. 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. RECENT SALES OF UNREGISTERED SECURITIES On May 31, 2004, the shareholders authorized the issuance of 9,600,000 shares of common stock pursuant to a private placement to accredited investors, Barron Partners, LP. 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 pursuant to an exemption from registration under Regulation D, Rule 506. 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 as partial compensation in connection with the purchase of World Jet. 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 pursuant to a private placement to accredited investors, Alpha Capital, Stonestreet, Whalehaven and Greenwich. 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 pursuant to an exemption from registration under Regulation D, Rule 506. 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. 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. AS a small business issuer, the volume limitation set forth at (c) (i) above would apply.
Equity Compensation Plan Information Plan Category Number of securities to be Weighted average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and rights future issuance warrants and rights (a) (b) (c) Equity compensation plans 0 .00 0 approved by security holders Equity compensation plans 1,270,000 .00 2,030,000 not approved by security holders (2) Total 1,270,000 .00 2,030,000
NOTE: The following plans have not been approved by the shareholders however, under our by-laws the directors are empowered to issue options and shares under the plans. The 2002 Compensatory Stock Option Plan permits the issuance of options for compensatory purposes to persons who are employees (as defined in the plan) or directors of the Company, entitling them to purchase common shares of the Company. An aggregate of 3,000,000 shares are available for purchase under the plan. The 2003 Employee Stock Compensation Plan permits the issuance of an aggregate of 5,000,000 common shares of the Company options for compensatory purposes to person who are employees (as defined in the plan) or directors of the Company, excluding shares already issued there under. Details of these plans may be found at Note 8 in the footnotes to the audited financial statements included as part of this report. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PLAN OF OPERATION 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 will enhance future results and our profitability will be sustainable for 2006. 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. 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. 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 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. 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. 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. 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. RESULTS OF OPERATIONS We are a holding company, and the bulk of our day to day operations are currently and were as of December 31, 2005, conducted by our operating subsidiaries, HAT, which was organized on April 5, 2002 and began operations April 15, 2002 and World Jet, which was acquired with a transaction date of January 1, 2004. Our aircraft trading transactions are conducted by Global. 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. Significant events that occurred during 2005 that Management believes will serve to help them optimize return for investors during 2006 and beyond: 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. Management anticipates that the revenue realized over time for this inventory should be in the $10 to $15 million range. On July 27, 2005, 7,200,000 shares of restricted common stock were issued to Barron Partners, L.P. upon their exercise of warrants to purchase same at $.68 per share. The total purchase price of the stock was $4,896,000. These proceeds were used in part to cover some of the cost of the above inventory purchase. On August 12, 2005, HAT entered into a five-year exclusive maintenance contract with the new Mexican airline, Avolar. Potential value of this agreement is linked to the planned growth of Avolar. The business plan calls for a thirty aircraft fleet with the growth rate being about one aircraft per month through mid 2008. On August 26, 2005, Global together with 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. On September 1, Jetglobal entered into an agreement to acquire a fleet of 26 Boeing 737-200 aircraft from Jetran International. Global's share of the 2005 net income of Jetglobal was $1,111,096. A modification of our borrowing agreement with our lender was finalized on December 9, 2005. This new agreement includes an operating credit line of $5 M and a line of $7M solely for the acquisition of aircraft. During 2005, we saw revenues increase to $41,228,648, which is a 33.6% increase over 2004's $30,851,118. (See following paragraph regarding Jetglobal revenue). The Company had $2.3 million in net income, before taxes in 2004 compared with $3.4 million is 2005; and EBITDA increased from $3,108,651 for 2004 to $4,528,655 in 2005. It should be noted that 2004 net income and EBITDA was aided by the inclusion of $1,144,502 in extraordinary items while there were no extraordinary items in 2005. A comparison of the Company's gain from operations illustrates 80.3% growth from 2004's $1,320,770 to 2005's $2,381,579. It should be noted that the required accounting treatment for Jetglobal's results is an entry on the Company's Income Statement for the Company's percentage of the net income of the Jetglobal partnership. In 2005, the revenues of Jetglobal were $7,200,000, 30% of which is $2,060,000. This is an important consideration to keep in mind for 2005 results, and the results of future periods, since Management believes aircraft trading results for our Jetglobal partnership will increase over time. 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 Jetglobals's aircraft trading activities 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 Jetglobal operations. Efforts to take advantage of opportunities, as they arose, to grow our aircraft trading business met with success. Aircraft trading denotes the purchase and resale or lease, for profit, of aircraft, aircraft engines, and /or other aircraft major components. Aircraft trading specifically encompasses the transactions representing approximately 19% of the Company's 2005 annual revenue. This aircraft trading is done directly by the Company without Jetglobal participation. Our 2004 revenue included $7.9 million attributable to aircraft sales compared with $13.6 million in 2005. Gross profit for the fourth quarter of 2005 was $2,307,561 while gross profit for the fourth quarter of 2004 was $1,554,744, also a substantial increase. 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 2004, revenue produced from labor was $14.3 million and was virtually the same in 2005 at $14.3 million. Billable hours for each period are essentially the same. The comparative costs for all direct labor, including work performed by outside contractors, was $8,428,919 in 2004 compared with $9,190,898 in 2005, representing a 9% increase in cost. The relationship between direct labor costs to direct labor revenues rose approximately 5% to about 64% in 2005 as compared with 59% in 2004. 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 31,2005and December 31, 2004 are $326,594 and $476,613, respectively, associated with the award of stock and stock options. In order to compare results from one period to the next it should be remembered that 2005 had no extraordinary gains. There was a reduction in tax expense of $189,816 resulting from the overexpensing of taxes in our World Jet subsidiary during a prior period. There was $1,144,502 in gains reported during 2004 that were the result of several contract renegotiation items. In 2004, our HAT subsidiary experienced a gain of $88,000 on the waiving of rental fees to Hamilton Aviation during contract negotiations. HAT also experienced a gain of $607,194 in 2004 as the result of the acceptance of a payment of $750,000 cash to satisfy all obligations under then existing agreement generated upon the purchase of the Hamilton Aviation assets. For details of the Hamilton Aviation transaction see Note 12, Related Party Transactions, in the footnotes of the Audited Financial Statements included as part of this report. World Jet reported gains of $449,308 in 2004 related to renegotiations of amounts due under various agreements, the predominate items being: $209,708 in commissions was waived, $173,000 of debt was forgiven and $33,700 was the result of the renegotiation of management services fees. Additionally, 2005 results include the Company's share on net income, $1,111,096, from our Jetglobal partnership. Company SG&A expenses were $4,826,519 for 2004 and as a percentage of revenues were 16%. In 2005 SG&A expenses were $7,788,047, which was 19% as a percentage of revenues. During 2004, SG&A expenses included approximately $680,000 due to commissions related to aircraft sales transactions compared with $1,260,000 in 2005. Other notable increases in SG&A expenses included: o An increase in rent expense and facility use fees from 2004 to 2005 of $253,824, mainly attributed to additional warehouse space for inventory storage and annual increases imposed by our landlord, TAA. Hangar space in Tijuana, Mexico to facilitate servicing our Avolar contract was $139,093 and was fully recovered from Avolar. o An increase in insurance from 2004 to 2005 of $192,215 mainly attributed to Global's new D&O policy and new coverage related to aircraft trading, and property coverage on additional space required by inventory additions. o An increase in travel from 2004 to 2005 of $156,418 relating to the Avolar project and also to aircraft trading. Interest expense for 2004 was $329,023 and for 2005 was $386,927. 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, 2004:
----------------------------------------------------------------------------------------------------------------------------- Period Global HAT World Jet * Eliminate Consolidated Stand Alone Stand Alone Stand Alone Intercompany ----------------------------------------------------------------------------------------------------------------------------- 2004 Revenues $ 1,047,680 $ 25,288,888 $ 7,058,464 $(2,543,914) $ 30,851,118 Year End Cost of Sales (456,643) (20,871,009) (5,411,688) 2,543,914 (24,195,426) Results Expenses (1,524,055) (2,873,658) (937,209) (5,334,922) Operating Profit (Loss) (933,018) $ 1,544,221 $ 709,567 $ 1,320,770 * The eliminate column reflects the $ amounts of Inter-Company Sales by World Jet to HAT in 2004. 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, 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 (3,700,204) (1,599,557) (7,789,108) Operating Profit (Loss) 976,854 210,849 1,193,876 2,381,579 It should be noted that the Company elected in 2005 to show aircraft trading revenues under Global as opposed to HAT, which recorded that type of revenue in 2004. In 2004 aircraft trading revenue was 7.9 M and in 2005 was $13.6 M. These numbers, of course, do not include Jetglobal aircraft trading results.
LIQUIDITY AND CAPITAL RESOURCES Liquidity On December 9, 2005, Global Aircraft Solutions, Inc ("Global"), Hamilton Aerospace Technologies, Inc. ("HAT"), a wholly owned subsidiary of Global Aircraft Solutions, Inc. and World Jet Corporation, ("WJ") a wholly owned subsidiary of Global Aircraft Solutions, Inc. (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 $200,000.00. 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. The interest rate on the Guidance Credit is also 3.00% per annum in excess of the applicable LIBOR rate. The interest rate for each Letter of Credit Facility, if drawn upon, shall also be 3.00% per annum in excess of the applicable LIBOR rate. The Line of Credit and any Letter of Credit Facility remains secured by a first priority lien on Global's, HAT's and WJ's personal property. Any advances pursuant to the Guidance Credit shall be secured by a first priority lien on any aircraft purchased with such advance. The term of the Line of Credit; the Guidance Credit and the Letter of Credit Facility all expire on October 31, 2007 and the entire outstanding principal balance, all accrued and unpaid interest, and all other sums due and payable under both the Line of Credit and Guidance Credit shall be due on the expiration date. The interest rate applicable to the Line of Credit on December 31, 2005 was 7.39% per annum. While there is no required monthly repayment obligation of the Line of Credit, the Line of Credit is based upon and limited by a borrowing base equal to the sum of 80% of the outstanding amount of all Eligible Accounts as defined in the Loan Agreement and 50% of the net book value of all Eligible Inventory as defined in the Loan Agreement. While there is no required monthly repayment obligation of the Guidance Credit, the Borrowers are required to repay, from time to time, (i) an amount equal to any amount by which the outstanding principal balance of the Guidance Credit exceeds $7 million, (ii) all amounts received by Borrowers under any aircraft purchase agreement, other than an initial down payment to the extent it does not exceed twenty-five percent (25%) of the purchase price, and (iii) any portion of an advance or readvance not paid within ninety (90) days of the advance or readvance. Borrowers are also responsible to immediately repay to bank the amount of an advance upon any breach of the aircraft purchase agreement. If any Letter of Credit Facility is drawn upon, all principal and accrued and unpaid interest shall be due and payable upon demand. The Borrowers paid total fees and expenses of approximately $37,500.00 in connection with the modification to the Line of Credit and addition of the Guidance Credit and Letter of Credit Facility. The Borrowers will owe a loan fee to the bank equal to 1% of the amount of any requested advance under the Guidance Credit with a cap of $52,500.00 in cumulative fees. The Borrowers will owe the bank a fee for the issuance of any Letter of Credit in the amount of 2% of the amount of the letter of credit. The balance due of the Line of Credit at December 31, 2005 was $2,564,739. The Line of Credit also secures a Letter of Credit for $128,000 which was issued to TAA as part of the lease agreement for the HAT facility. 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, 2005 reflected the several events. Total assets increased from $11,758,012 at December 31, 2004 to $25,054,621. Significant changes for the period were: Cash on hand decreased $181,891. Inventory increased $3,072,843, reflecting the inventory purchases mentioned above. The inventory still on hand from the Company's purchases of WorldJet and the Hamilton Aviation inventory aged over one year and made up most of the increase of $1,974,843 experienced in inventory, non-current. Notes receivable increased $1,822,226 Equity in net assets of and advances to affiliates, a new account in 2005, ended the year with a balance of $6,333,690. During the year ended December 31, 2005 total liabilities increased from $5,651,670 at December 31, 2004 to $11,026,222, primarily due to: There were no notes payable at the close of 2004. At December 31, 2005 the balance due on notes payable was $2,564,739, which was due on the Company's credit line. Accounts Payable increased $4,536,564, reflecting $5.5 million that Global owed for an aircraft purchased. This indicates that trade accounts payable, less this aircraft transaction, actually decreased during the year about $967,000. Amount due to factor decreased $604,411 and all factoring agreements were closed as the Company elected, as a matter of policy, to discontinue factoring invoices. Billings in excess of costs and estimated earnings on contracts in progress decreased $942,780. Cash As of December 31, 2005 we had $368,013 in cash on hand and approximately $4,993,138 in collectible receivables. Management believes that anticipated cash flows will be adequate to sufficiently provide working capital. 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 No short term financing was in place at December 31, 2005. Long-Term Financing On December 9, 2005, Global , HAT, a wholly owned subsidiary of Global and World Jet, a wholly owned subsidiary of Global (collectively the "Borrowers") closed on a First Modification to the May 5, 2005 Initial Loan Agreement with Global's existing bank. The modification increased the $2.5 million operating line of credit to $5 million, added a Guidance Line of Credit in the amount of $7 million solely for the acquisition of aircraft and Letter of Credit Facilities in combined amounts not to exceed $200,000. The interest rate on the Line of Credit was reduced from 3.5% per annum to 3.00% per annum in excess of the applicable LIBOR rate. The interest rate on the Guidance Credit is also 3.00% per annum in excess of the applicable LIBOR rate. The Line of Credit and any Letter of Credit Facility remain secured by a first priory lien on Global's, HAT's and World Jets personal property. Any advances pursuant to the Guidance Credit shall be secured by a first priority lien on any aircraft purchased with such advance. The Line of Credit, the Guidance Credit and the Letter of Credit Facility all expire 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, Guidance Credit and Letter of Credit Facility shall be due on the expiration date. The interest rate applicable to the Line of Credit on December 31, 2005 was 7.39% per annum. While there is no required monthly repayment obligation of the Line of Credit, the Line of Credit is based upon and limited by a borrowing base equal to the sum of 80% of the outstanding amount of all Eligible Accounts as defined in the Loan Agreement and 50% of the net book value of all Eligible Inventory as defined in the Loan Agreement. While there is no required monthly repayment obligation of the Guidance Credit, the Borrowers are required to repay, from time to time, (i) an amount equal to any amount by which the outstanding principal balance of the Guidance Credit exceeds $7 million, (ii) all amounts received by Borrowers under any aircraft purchase agreement, other than an initial down payment to the extent it does not exceed twenty-five percent (25%) of the purchase price, and (iii) any portion of an advance or readvance not paid within ninety (90) days of the advance or readvance. Borrowers are also responsible to immediately repay to bank the amount of an advance upon any breach of an aircraft purchase agreement. If any Letter of Credit Facility is drawn upon, all principal and accrued and unpaid interest shall be due and payable upon demand. 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. CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES 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. REVENUE RECOGNITION. We recognize revenues related to engine overhaul services when we ship the overhauled engine. Revenues from fixed-fee contracts for MRO sales are recognized on 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. Revision in cost and labor hour estimates and recognition of losses on these contracts are reflected in the accounting period in which the facts become known. Revenues from time and material contracts are recognized as the services are performed. Revenues from part sales are recognized when parts are shipped. 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. Item 7. FINANCIAL STATEMENTS The financial information required by Item 7 is included following Part III of this report. Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND FINANCIAL DISCLOSURE On January 9, 2006, the Audit Committee of the Board of Directors of Global voted to dismiss Larry O'Donnell, CPA, P.C. as the Registrant'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 registrant'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 consolidated financial statements for either of the past two years or subsequent interim periods contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that the reports did contain a going concern paragraph. During the Registrant'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 Registrant for such years. On January 9, 2006, the Audit Committee of the Board of Directors of the Registrant engaged Epstein, Weber & Conover, PLC, ("EWC"), as the Registrant's independent auditors with respect to the audit of the Registrant'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 Registrant nor someone on behalf of the Registrant consulted with EWC regarding any of the items listed in Item 304(a)(2) of Regulation SB. (See Form 8-K filed January 11, 2006.) Item 8A. CONTROLS AND PROCEDURES The Company, under the supervision and with the participation of its management, including the Chief Executive Officer/Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's "disclosure controls and procedures"(as defined in rule 13a-15(e) under the Securities Exchange Act) as of the end of the period covered by this report. Based on that valuation, the Chief Executive/Chief Financial Officer concluded that the company's disclosure controls and procedures are effective in timely making known material information relating the Company and the Company's consolidated subsidiaries required to be disclosed in the Company's reports filed or submitted under the Exchange Act. There has been no change in the Company's internal control over financial reporting during the quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART III Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The Directors and Officers of Global, all of those whose one year terms will expire May 2006, or at such a time as their successors shall be elected and qualified are as follows:
Name & Address Age Position Date First Elected/Appointed Term Expires ------------------------------------------------------------------------------------------------------------------ Ian Herman 59 Chairman/CEO/CFO/Director 05/02 05/06 John Sawyer 40 Director & President 05/02 05/06 Gordon Hamilton 52 Director 05/02 05/06 Alfredo Mason 44 Director 05/04 05/06 Lawrence Mulcahy 56 Director 05/04 05/06 Seymour Siegel 63 Director 01/06 05/06
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 next annual meeting of stockholders 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. Mr. Siegel was appointed as a member of the Board of Directors in January of 2006 and his position as a Board Member is subject to ratification at the annual stockholders' meeting in May of 2006. BIOGRAPHICAL INFORMATION The following is a brief account of the business experience during at least the past five years of each person who is a director and executive officer at the time of filing this report, indicating the principal occupation and employment during that period, and the name and principal business of the organization in which such occupation and employment were carried out. 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. 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 $200,000,000.00. 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. Alfredo Alejandro Mason: Director. From 1983 - 1986 Mr. Mason was the Director of Administration and Engineering for Pan Aviation Airlines. From 1986 - 1988 Mr. Mason was the Senior Account Executive for the Aviation and Aerospace Division of Marsh & McLennan. From 1988 - 1990 Mr. Mason was the Director of Aviation and Aerospace for Sedgwick James. From 1990 - Present Mr. Mason was the founder of and currently serves as the President and CEO of Southeast Marine and Aviation Insurance. Mr. Mason attended Embry-Riddle Aeronautical University where he majored in Aeronautical/Aerospace Engineering and also he attended the University of Miami where he studied International Finance and Insurance. Lawrence Mulcahy: Director. Since 1988, Mr. Mulcahy has served as the President of L.L. Industries, d/b/a Davis Kitchens. Davis Kitchens is a wholesale distributor of cabinetry for commercial and residential use. Since 1994, Mr. Mulcahy has served as the President of Becker Specialties and Manufacturing in Tucson, AZ, a manufacturer of plastic laminate countertop blanks. Mr. Mulcahy has also been a partner in Davis Kitchens since 1994. Mr. Mulcahy received his B.S. in Economics from the University of Arizona and was a member of the United States Air Force prior to attending college. 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 650 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 Gales Industries, Inc. Family Relationships There are no family relationships between any directors or executive officers. SIGNIFICANT EMPLOYEES The following persons are considered significant employees of our HAT subsidiary: Ian Herman, Chairman and Chief Executive Officer. Biography above. John B. Sawyer, President. Biography above. Alan R. Abate, Vice President and Senior Corporate Officer. Mr. Abate started his aviation career in 1976 at Hamilton Aviation. During his early years, he earned his FAA Airframe and Power plant certificates and honed his skills in transport category aircraft repair, maintenance and modification. In 1986, Mr. Abate joined the management team at Hamilton Aviation. Working days and going to school at night, he earned an Advanced Certificate and AAS degree, with honors, in Business Administration from Pima College in Tucson, Arizona. Since joining HAT shortly after its inception in April 2002, Mr. Abate has been responsible for contract management and corporate administration including human resources and information systems for Hamilton Aerospace. Patricia Graham, Chief Financial Officer. Since 1995, Patricia Graham has been associated with the aviation industry serving as Divisional Controller for IAC Complete Controls, Inc., as Regional Controller for American Aircarriers Support, Inc., and as Controller and Corporate Officer for Evergreen Air Center, Inc. prior to joining HAT. Ms. Graham graduated Summa Cum Laude from the University of Arizona with a B.S. in Business Administration. Ms. Graham has over 20 years history in accounting, fiscal planning and budgetary operations, as well as 5 years public accounting experience. David T. Querio, Vice President of Operations, Hamilton Aerospace. Mr. Querio joined the Company in May 2004 and brings with him over 21 years of aviation industry maintenance and maintenance management experience. Prior to joining HAT, Mr. Querio was Vice President of Operations for a large FAR145 Repair Station supervising in excess of 450 personnel. Prior to this, Mr. Querio served as Vice President, General Manager of the AMS Goodyear, AZ facility; Vice President, Engineering and Maintenance for Mesa Airlines; Vice President, Maintenance for Mahalo Airlines and Vice President; Customer Support, Planning and Sales for West Virginia Air Center. Mr. Querio also worked for American Airlines for nine years in numerous mechanical and management positions. The following persons are considered significant employees of our World Jet, Inc subsidiary: Ralph Garcia, General Manager, World Jet Corporation. Mr. Garcia established World Jet Corporation in 1996 as a broker in the aircraft parts industry. World Jet Corporation operated an aircraft parts facility in Los Angeles, CA until 2003 when the company relocated it's operations to Tucson, AZ. Mr. Garcia was the owner and managing director of World Jet Corporation for 7 years until January 1, 2004, the effective date of the acquisition of World Jet Corporation by Global Aircraft Solutions, Inc. After the acquisition in January 2004, Mr. Garcia accepted employment as the General Manager of the World Jet Corporation division of Global Aircraft Solutions, Inc. Prior to establishing World Jet Corporation in 1996, Mr. Garcia was self employed as an independent sales and marketing representative and has over 15 years of experience in sales and the aviation industry. Andrew Maxam, Sales. Mr. Maxam started in the aviation business in 1987 as director of sales with American Aerospace, Inc where sales increased from $1,000,000 - $6,000,000 per year within the 4 year period of his employment there. From 1991 - 1996 Mr. Maxam served as President of International Aerotech Inc., an aerospace parts sales company employing 25 in Irvine, CA. Currently, Mr. Maxam is responsible for sales at World Jet Corp, a company that has become one of the world's largest parts sales companies. Ramon P. Curbita, Accountant. Has been with the company since 2000. A professional with 17 years experience in accounting and other related fields. He has extensive knowledge in various industries such as banking, manufacturing, construction, wholesale and retail industry. Graduated college with the a Bachelor of Science Degree in Commerce, major in Accounting and an undergraduate of Master in Business Administration at the Polytechnic University of the Philippines. He held various positions as Finance and Operations Manager for Tan Holdings Group of Companies in Guam and Chief Accountant for Saipan Ice and Water Company in the Commonwealth of the Northern Mariana Islands, U.S. Commonwealth, Pacific. Exclusion of Director Liability Pursuant to the General Corporation Law of Nevada, Global's Certificate of Incorporation excludes personal liability on the part of its directors to Global for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any acts or omissions which involve intentional misconduct, fraud or a knowing violation of law or for improper payment of dividends. This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws. Code of Ethics Global has adopted a code of ethics applicable to its executive officers at this time and that code is posted on its website at www.hamaerotech.com. Audit Committee and Financial Expert Our board of directors has determined that Seymour Siegel is an "audit committee financial expert" as defined in Item 401(e) of Regulation S-B. We have separately designated a standing audit committee. Gordon Hamilton, Laurence Mulcahy and Seymour Siegel are members of our audit committee. Item 10. EXECUTIVE COMPENSATION. Global currently has in place an employee stock compensation plan and two compensatory stock option plans. Global has no long-term incentive plans, as that term is defined in the rules and regulations of the Securities and Exchange Commission. There are no other compensatory or benefit plans, such as retirement or pension plans, in effect or anticipated to be adopted at this time, although in the future the Board of Directors may adopt other plans. Compensation of Officers and Directors and Executive Officers The table below presents information concerning the compensation of the Company's Chairman of the Board, Chief Executive Officer and its other most highly compensated executive officers for the current year. None of such persons were compensated by the Company or by HAT during 2001. Such officers are sometimes collectively referred to below as the "Named Officers."
SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Awards Payouts ------------------------------- ---------------------- -------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Name and Year Salary Bonus Other Restricted Securities, LTIP Other principal position Stock Underlying Payouts Compensation Awards options & SAR's (Shares) Ian Herman 2005 $125,655 $16,000 None None None None None Chairman, CEO 2004 $120,012 $13,000 $8,000 (1) 2003award 133,334 None None vested 2 2003 $109,717 None None 2,500,000 None None None 2002 $ 75,240 None None None $40,000 None None John B. Sawyer 2005 $155,755 $35,000 None None None None None President, COO 2004 $146,546 $26,000 $46,000(1) 2003award 766,666 None None vested 2 2003 $142,159 None None 2,500,000 None None None 2002 $ 88,310 None None 400,000 None None None SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Awards Payouts ------------------------------- ---------------------- -------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Name and Year Salary Bonus Other Restricted Securities, LTIP Other principal position Stock Underlying Payouts Compensation Awards options & SAR's (Shares) Gordon Hamilton, 2005 $ 40,000 None None None None None None Director 2004 $ 46,598 None None None None None None 3 2003 $ 33,518 None None None None None None Ronald J. Clark 2004 None None None None None None None Former President, CEO 2003 $ 28,766 None None None None None None 4 2002 $ 75,240 $15,000 None None None None None Randy J. Sasaki 2004 None None None None None None None Former Director 2003 $0 None None None None None None 5 2002 $0 $22,500 None None None None None John Brasher 2004 None None None None None None None Former Director 2003 $0 None None None None None None 5 2002 $0 None $18,340 None None None None
(1) Represents the amount of compensation from options awarded in May 2004 based up a $.06 discount between the exercise price and the market price at the measurement date. (2) The Restricted stock awards given to Herman and Sawyer in 2003 are pursuant to Employment Agreements filed under form DEF 14C on September 26, 2003. (3) Hamilton became a director September 1, 2003. (4) The bonus amounts payable in 2002 to Clark consist of awards of common stock pursuant to the 1997 Employee Stock Compensation Plan. The restricted stock awards consist of common stock awarded pursuant to the 1997 Employee Stock Compensation Plan. (5) Sasaki and Brasher were directors, and Sasaki was an executive officer of the Company for the years respectively ended December 31, 2001 and 2002. Their service terminated on May 3, 2002. Other compensation payable to Brasher for those years consisted of legal fees. The Company has or intends to implement employee benefits that are or will be generally available to all its employees and its subsidiary employees, including medical, dental and life insurance benefits and a 401(k) retirement savings plan. None of the Named Officers received any form of non-cash compensation from the Company or Hamilton Aerospace in the years ended December 31, 2005, 2004, 2003 or 2002, nor currently receives any such compensation.
OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants (a) (b) (c) (d) (e) Name Number of % of Total Exercise or Base Expiration Date Securities Options/SAR's Price ($/Sh) Underlying Granted to Employees Options/SAR's in Fiscal Year Granted -------- -------------- --------------------- ----------------- ---------------- NONE AGGREGATED OPTION'SAR EXERCISES IN LAST 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
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 2,540,000 shares of Global common stock have been granted under the 2002 CSO Plan Options to purchase 900,000 shares were outstanding at December 31, 2005 and 270,000 shares had not vested and had not been issued under agreements with employees. 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. 3,430,000 shares of Common Stock available under the ESC Plan have been awarded and 3,330,000 shares had been issued at December 31, 2005. Compensation of Directors The Company has employment agreements with Ian Herman and John Sawyer. Each provides for the payment of a base salary with increases in base salary based upon the company's net profit performance and for bonus compensation based on performance. On July 29, 2004 Directors Mason and Mulcahy accepted Engagement Agreements to serve as Directors. The Agreements call for an honorarium payment of $100.00 per hour for every hour reasonably expended in performance of their duties and incentive compensation in the form of 100,000 shares each of common stock, under the 2003 CSOP. On October 29, 2004, Gordon Hamilton resigned his position with HAT and became a compensated Director for the Company at the annual rate of $40,000 plus medical benefits and expenses. Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth, as of December 31, 2005, 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. NAME AND ADDRESS OF AMOUNT OF COMMON STOCK PERCENT OF COMMON STOCK BENEFICIAL OWNER OWEND BENEFICIALLY OUTSTANDING 4 ---------------- ------------------ ------------- Ian M. Herman 2,446,834 1 5.23% John B. Sawyer 2,681,666 2 5.73% Alfredo Mason 100,000 3 .21% Lawrence Mulcahy 100,000 3 .21% All Directors and Executive 5,328,500 11.38% Officers Barron Partners 7,200,000 5 15.38% CRT Capital Group, LLC 2,500,000 5.34% Contrarion fund 4,000,000 8.54% 1 2,500,000 shares originally issued pursuant to Employment Agreement filed under DEF14C on September 26, 2003. Includes 133,334 in options that are exercisable and the disposition of any shares effected during 2005. 2 2,500,000 shares originally issued pursuant to Employment Agreement filed under DEF14C on September 26, 2003. Included 766,666 in options that are exercisable and the disposition of any shares effected during 2005. 3 100,000 shares issued to each Director, as per agreement, in return for one year's service on the Board. 4 Percent of common stock is based on 46,828,215 shares of common stock issued and outstanding on March 22, 2006 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 March 22, 2006. Shares issuable pursuant to the exercise of warrants and the exercise of options are deemed outstanding for computing the percentage of any other person. 5 All shares may be acquired by the exercise of a $1.36 warrant. Item 12. Certain Relationships and Related Transactions. There were no transactions, or series of transactions, for the years ended December 31,2005, 2004 or 2003 to which Global was a party, in which the amount exceeds $60,000, 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. Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are filed with this report, except those indicated as having previously been filed with the Securities and Exchange Commission and incorporated by reference to another report, registration statement or form. As to any shareholder of record requesting a copy of this report, Global will furnish any exhibit indicated in the list below as filed with report upon payment to Global of its expenses in furnishing the information. 2.1 Stock Exchange Agreement and Plan of Reorganization dated April 12, 2002, among the Company, JSC and the shareholders of JSC, incorporated by reference to Exhibit 2.1 to Form 8-K dated May 1, 2003.................................... 1 2.1 Stock Exchange Agreement and Plan of Reorganization dated April 30, 2002, among the Company, HAT and the shareholders of HAT, incorporated by reference to Exhibit 2.1 to Form 8-K dated May 3, 2003.................................... 1 3.1 Articles of Incorporation of Renegade Venture Corporation, incorporated by reference to Exhibit 3.1 to registration statement on Form S-18, file No. 33-30476 dated August 11, 1989 .............................................. 1 3.2 Bylaws of Renegade Venture Corporation, incorporated by reference to Exhibit 3.2 to registration statement on form S-18, file No.33-30476 dated August 11, 1989 ........................................................................ 1 3.5 Amendment to Articles of Incorporation of RenegadeVenture Corporation, incorporated by reference from Exhibit 3.5 to Form 8-K dated August 16, 1996. 1 3.6 Articles and Certificate of Merger dated September 18, 1997, between Renegade Venture Corporation and Renegade Venture (Nev.) Corporation, a Nevada corporation, with Merger Agreement attached thereto as Exhibit A, incorporated by reference to Exhibit 2.1 to Form 8-K dated October 2, 1997. ............... 1 3.7 Certificate of Incorporation of Renegade Venture (Nev.) Corporation, incorporated by reference to Exhibit 3.1 to Form 8-K old-fashioned October 2, 1997......................................................................... 1 3.8 Bylaws of Renegade Venture (Nev.) Corporation, incorporated by reference to Exhibit 3.2 to Form 8-K dated October 2, 1997................................ 1 3.9 Articles of Incorporation of Johnstone SoftMachine Corporation, incorporated by reference to Exhibit 3.1 to Form 8-K dated May 1, 2003.................... 1 3.10 Bylaws of Johnstone SoftMachine Corporation, incorporated by reference to Exhibit 3.2 to Form 8-K dated May 1, 2003.................................... 1 3.11 Articles of Incorporation of Hamilton Aerospace Technologies, Inc., incorporated by reference to Exhibit 3.1 to Form 8-K dated May 3, 2003....... 1 3.12 Bylaws of Hamilton Aerospace Technologies, Inc., incorporated by reference to Exhibit 3.2 to Form 8-K dated May 3, 2003................................. 1 3.13 Amendment to Articles of Incorporation/By-Laws incorporated by reference to Form 8-K dated 12/16/04...................................................... 1 3.14 Amended and Restated Articles of Incorporation of Global dated December 10, 2004 incorporated by reference to the SB-2 registration effective February 8, 2006 4.1 Specimen common stock certificate, incorporated by reference to Exhibit 4.1 to registration statement of Form S-18, file No. 33-30476 dated August 11, 1989......................................................................... 1 4.2 Common stock Purchase Warrants Issued to Barron Partners on May 31, 2005 incorporated by reference to the SB-2 registration effective February 8, 2006. 4.3 Common Stock Purchase Warrants Issued to JG Capital on May 31, 2004 incorporated by reference to the SB-2 registration effective February 8, 2006. 10.1 Common Stock Option granted to Randy J. Sasaki.......................... 1 10.2 Common Stock Option granted to John D. Brasher Jr....................... 1 10.3 Data License Agreement dated April 12, 2002, between LogiCapital Corporation and Johnstone SoftMachine Corporation, incorporated by reference to Exhibit 10.1 to Form 8-K dated May 1, 2003................................... 1 10.4 Sale of Assets Agreement dated April 15, 2002, between Hamilton Aerospace and Hamilton Aviation, Inc., incorporated by reference to Exhibit 10.1 to Form 8-K dated May 3, 2002........................................................ 1 10.5 Acquisition of World Jet Corporation incorporated by reference to Form 8-K filed August 13,2004......................................................... 1 10.6 Subscription agreement private offering incorporated by reference to Form 8-K filed September 8, 2004.................................................. 1 10.7 Consignment agreement incorporated by reference to Form 8-K filed December 8, 2004...................................................................... 1 10.8 Stock Purchase Agreement dated May 31, 2004 with Barron Partners, LP incorporated by reference to the SB-2 registration effective February 8, 2006. 10.9 Property Lease between Hamilton Aerospace technologies, Inc. and Tucson airport Authority incorporated by reference to the SB-2 registration effective February 8, 2006. 10.10 Employment Agreement Dated July 21, 2003 between Ian Herman and Global Aircraft solutions, Inc. incorporated by reference to the SB-2 registration effective February 8, 2006. 10.11 Employment Agreement Dated July 21, 2003 between John Sawyer and Global Aircraft Solutions, Inc. incorporated by reference to the SB-2 registration effective February 8, 2006. 11.1 Statement regarding computation of per share earnings incorporated to notes to the audited financial statements herein................................... 2 14.1 Code of Ethics.......................................................... 1 21.1 Subsidiaries of the Registrant.......................................... 2 22.1 Published report regarding matters submitted to vote.................... 2 31.1 Rule 13a -14/15d -14 (a) Certifications................................. 2 32.1 Section 1350 Certifications............................................. 2 99.1 1997 Compensatory Stock Option Plan, incorporated by reference to Exhibit 10.1 to Form 8-K dated October 2, 1997....................................... 1 99.2 1997 Employee Stock Compensation Plan, incorporated by reference to Exhibit 10.2 to Form 8-K dated October 2, 1997....................................... 1 99.3 2002 Compensatory Stock Option Plan, incorporated by reference to Exhibit 99.1 to Form 8-K dated May 1, 2002........................................... 1 1 - Incorporated by reference to another registration statement, report or document. 2 - Included as part of this Report. (b) Reports on Form 8-K. Filed during 4th Quarter of 2005: November 16, 2005 - covering Item 1.01, Entry into a Material Definitive Agreement. November 17, 2005 - covering Item 7.01. Regulation FD Disclosure Agreement and Item 9.01 Financial Statements and Exhibits. the exhibit was 99.1, Press Release of Global Aircraft Solutions, Inc. issued November 17, 2005. November 21, 2005 - covering Item 1.01, Entry into a Material Definitive Agreement and Item 9.01 Financial statements and Exhibits. The exhibit was 99.1 Aircraft Sale and Purchase Agreement dated November 14, 2005. December 2, 2005 - covering Item 2.02, Results of Operations and Financial Condition and Item 9.01 Financial Statements and Exhibits. The exhibit was 99.1, Transcript of November 16, 2005 Conference Call discussing financial performance and results of operations for fiscal quarter ended September 30, 2005. December 7, 2005 - covering Item 7.01, Regulation FD Disclosure and Item 9.01 Financial Statements and Exhibits. The exhibit was 99.1, Global Aircraft Solutions, Inc. December 6, 2005 investor Presentation. December 14, 2005 - covering Item 1.01 and Item 2.03, Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation of a Registrant, respectively and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Press Release of Global Aircraft Solutions, Inc. dated December 13, 2005 and 99.2, Form of Modificatin to Loan Agreement among Global Aircraft Solutions, Inc., Hamilton Aerospace Technologies, Inc. and World Jet Corporation as borrowers and Bank as lender. Filed in earlier quarters of 2005: January 21, 2005 - covering Item 1.01, Entry into a Material Definitive Agreement and Item 9.01 Financial Statements and Exhibits. The exhibit was a Press release of global aircraft solutions, Inc. issued January 20, 2005. February 8, 2005 - covering Item 2.03 Creation of a direct FinancialObligation of a Registrant. And Item 9.01 Financial Statements and Exhibits. The exhibilts were 99.1, form of Loan Agreement between Hamilton Aerospace Technoloties, Inc. as Borrower and M&I Bank as Lender; 99.2, form of Promissory Note by Hamilton Aerospace Technologies, Inc. in favor M&I Bank as Lender; 99.3, Form of Security Agreement between Hamilton Aerospace Technologies, Inc., as grantors, in favor of M&I Bank as secured creditors; 99.4, form of Guaranty between Global Aircraft Solutions, Inc. ("Registrant") and M&I Bank as Lender. July 14, 2005 - covering Item 1.01 and Item 2.03, Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation of a Registrant, respectively and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Form of Loan Agreement among Global Aircraft Solutions, Inc., Hamilton Aerospace Technolgies, Inc. and World Jet Corporation as borrowers and Bank as lender; 99.2, Form of Promissory Note by Global Solutions, Inc., Hamilton Aeropsace Technologies, Inc. and World Jet Corporation in favor of Bank as Lender; 99.3, Form of Acknowledgement of Closing date of Line of Credit. August 2, 2005 - covering Item 3.02, Unregistered Sales of Equity Securities. August 18, 2005 - covering Item 1.01, Entry into a Material Definitive Agreement and Item 9.01 Financial Statements and Exhibits. The exhibit was Press Release of Global Aircraft Soluions, Inc. issued august 15, 2005. September 1, 2005 - covering Item 1.01, Entry into a Material DefinitiveAgreement and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Operating agreement of Jetglobal, LLC and 99.2, Press Release of Global Aorcraft Solutions, Inc. issued September 1, 2005. September 9, 2005 - covering Item 1.01, Entry into a Material DefinitiveAgreement and Item 9.01 Financial Statements and Exhibits. The exhibits were 99.1, Operating Agreement of Jetglogbal, LLC; 99.2, Press Release of Global Aircraft Solutions, Inc. issued September 1, 2005; 99.3, Aircraft Sale & Purchase Agreement between Jetglobal,LLC and Jetran, LLC. September 13, 2005 - covering 3.02, Unregistered Sales of Equity Securities. Item 14. Principal Accountant Fees and Services The following table represent aggregate fees billed to the Company for the years ended December 31, 2004 and 2005 by Larry O'Donnell, CPA, P.C., the company's principal accounting firm. Year Ended December 31, ----------------------- 2004 2005 -------- -------- Audit Fees $ 9,390 $ 15,850 Audit-related Fees (a) 11,500 4,600 Tax Fees (b) 1,000 All Other Fees (c) 7,140 5,250 Total Fees (d) $28,030 $ 26,700 (a) Primarily audit services for acquisitions and review services (b) Primarily tax returns, advice and planning (c) Primarily advisory services relating to compliance with reporting requirements (d) All fees have been approved by the Audit Committee. All work was performed by the principal accounting firm's full-time permanent employees. The Audit Committee has considered whether performance of services other than audit services is compatible with maintaining the independence of Larry O'Donnell, CPA, P.C. In 2004, the Audit Committee adopted a formal policy concerning approval of audit and non-audit services to be provided by the independent auditor to the Company. The policy requires that all services Larry O'Donnell, CPA, P.C., the Company's independent auditor, may provide to the Company, including audit services and permitted audit-related and non-audit services, be pre-approved by the Committee. SIGNATURES In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-KSB to be signed on its behalf by the undersigned, thereto duly authorized individual. Date: April 5, 2006 GLOBAL AIRCRAFT SOLUTIONS, INC. Formerly Renegade Venture (NEV) Corporation By: /s/ Ian Herman --------------------------------- Ian Herman, Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant and in the capacities and on the dates indicated. Name Date ---- ---- /s/ Ian M. Herman 04/05/2006 ------------------------------------------------ Ian M. Herman Director, Chairman, Chief Executive Officer And Chief Financial Officer (Principal Executive Officer) /s/ John B. Sawyer 04/05/2006 ------------------------------------------------- John B. Sawyer President, Director (Chief Operating Officer) /s/ Patricia Graham 04/05/2006 ------------------------------------------------- Patricia Graham (Principal Financial and Accounting Officer) Larry O'Donnell, CPA, P.C. Telephone (303)745-4545 2228 South Fraser Street Unit 1 Aurora, Colorado 80014 Report of Independent Registered Public Accounting Firm To the Board of Directors Global Aircraft Solutions, Inc. Tucson, Arizona I have audited the accompanying balance sheet of Global Aircraft Solutions, Inc. (formerly Renegade Venture (Nev.) Corporation, as of December 31, 2004, and the related statements of loss, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Aircraft Solutions, Inc. (formerly Renegade Venture (Nev.) Corporation as of December 31, 2004 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Larry O'Donnell, CPA, P.C. March 25, 2005 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 as of December 31, 2005 and the related consolidated statements of operations, shareholders' 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 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, the financial position of Global Aircraft Solutions, Inc. and subsidiaries as of December 31, 2005 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. /s/ EPSTEIN, WEBER & CONOVER, PLC Scottsdale, Arizona April 3, 2006
GLOBAL AIRCRAFT SOLUTIONS, INC. Formerly Renegade Venture (Nev.) Corporation Consolidated Balance Sheet December 31, 2004 and 2005 (Audited) ASSETS 2004 2005 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 549,904 $ 368,013 Accounts receivable 4,766,215 4,993,138 Note receivable 175,642 1,997,868 Inventory 3,507,249 6,580,092 Restricted funds -- 98,500 Other current assets 380,932 304,987 ----------- ----------- TOTAL CURRENT ASSETS $ 9,379,942 $14,342,598 Property, plant and equipment 1,632,134 1,642,141 Investments 25,000 25,000 Equity in net assets of and advances to affiliates 6,333,690 Customer list, net 267,771 133,886 Agreement with vendor, net 56,980 28,490 Goodwill 38,992 38,992 Inventory, non current 212,500 2,187,343 Deferred income taxes 130,000 Other assets 144,693 192,481 ----------- ----------- TOTAL ASSETS $11,758,012 $25,054,621 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC. Formerly Renegade Venture (Nev.) Corporation Consolidated Balance Sheet December 31, 2004 and 2005 (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2005 ------------ ------------ CURRENT LIABILITIES Notes payable $ 0 $ 2,564,739 Accounts payable - trade 2,644,593 7,181,397 Due to factor 604,411 0 Customer deposits 280,537 Billings in excess of costs and estimated earnings on contracts in progress 966,238 23,458 Accrued liabilities 844,709 570,724 Income taxes payable 311,182 426,000 Commitments & contingencies 0 0 ------------ ------------ TOTAL CURRENT LIABILITIES $ 5,651,670 $ 11,026,222 TOTAL LIABILITIES $ 5,651,670 $ 11,026,222 STOCKHOLDERS' EQUITY Common stock, $.001 par value, 100,000,000 shares authorized in 2004 and 2005; 31,030,386 and 38,998,215 issued and 30,650,386 and 38,618,215 outstanding in 2004 and 2005 $ 31,030 $ 38,998 Additional paid-in capital 7,033,950 11,904,683 Deferred compensation (80,000) Contributed capital 620,289 620,289 Retained earnings (Accumulated deficit) (1,578,927) 1,544,429 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY $ 6,106,342 $ 14,028,399 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,758,012 $ 25,054,621 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. GLOBAL AIRCRAFT SOLUTIONS, INC. Formerly Renegade Venture (Nev.) Corporation Consolidated Statement of Operations Years ended December 31, 2004 and 2005 (Audited) 2004 2005 ------------ ------------ Net sales $ 30,851,118 $ 41,228,648 Cost of sales (24,195,426) (30,842,461) Inventory write down (212,500) (215,500) ------------ ------------ Gross profit 6,443,192 10,170,687 Selling, general and administrative expenses (4,826,519) (7,788,047) Penalties (295,903) (1,061) ------------ ------------ Gain (loss) from operations 1,320,770 2,381,579 Other income (expense): Interest income 85,521 245,610 Interest expense (329,023) (386,927) Gain on renegotiation of contract 1,144,502 Miscellaneous expense (9,084) (110) Discounts taken 45,438 7,715 Miscellaneous income 31,162 130,571 Equity in income of unconsolidated affiliate income 1,111,096 ------------ ------------ Net profit (loss), before tax $ 2,291,286 $ 3,489,534 Provision for income taxes (366,178) ------------ ------------ Net profit (loss), after taxes $ 2,291,286 $ 3,123,356 ============ ============ Net profit (loss) per share (Basic) $ 0.09 $ 0.09 ============ ============ Net profit (loss) per share (Fully Diluted) $ 0.09 $ 0.09 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. GLOBAL AIRCRAFT SOLUTIONS, INC. Formerly Renegade Venture (NEV.) Corporation Consolidated Statement of Changes in Stockholders' Equity For the Year Ended December 31, 2004 and the Year Ended December 31, 2005 Additional Contributed Deferred Treasury Accumulated Stockholder Paid-in Capital Compensation Stock Earnings/Deficit Equity Capital Shares Amount Amount Amount Amount Amount Amount ----------- ------- ----------- ----------- ----------- --------- ----------- ----------- Balance December 17,480,000 17,860 2,412,373 620,289 (332,000) (3,870,213) (1,151,691) 31, 2003 1st Qtr, 2004 Compensation 12,000 expensed 2ndQtr, 2004 Shares issued to 9,600,000 9,600 3,009,600 Barron partners for a cash consideration of $.34 per share Shares pledged as 1,000,000 1,000 499,000 payment on the purchase of World Jet valued at $.50 (issued 7/27/04) 900,000 options 54,000 granted at $ .06 below market 3rd Qtr, 2004 Shares issued to 2,115,386 2,115 946,832 JG Capital, et al for a cash consideration or $.52 per share Shares issued 55,000 55 17,545 upon exercise of options at $.32 per share and cash payment of $17,600. Shares issued as 400,000 400 91,600 compensation for professional services to be rendered over a two-year period Valued at $92,000 100,000 options 3,000 granted at .03 below market Shares vested 320,000 (Herman & Sawyer employment agreement, 3rd Quarter of 2003) 4th Qtr, 2004 Net Income/Loss 2,291,286 ----------- ------- ----------- ----------- ----------- --------- ----------- ----------- Balance December 30,650,386 31,030 7,033,950 620,289 0 (1,578,927) 6,106,342 31, 2004 1st Qtr, 2005 Shares issued, 50,000 50 14,950 Options exercised 50,000 @ $0.30 2nd Qtr, 2005 No change 3rd Qtr, 2005 Shares issued to 7,200,000 7,200 4,644,000 Barron Partners for a cash consideration of $.68 per share Shares issued 421,812 422 (422) under non-cash provision of warrants 4th Qtr, 2005 Shares issued to 200,000 200 156,800 (80,000) Directors under agreement; price at original measurement date of $.23 price at revised measurement date $0.80, 100,000 shares for 2006; 100,000 shares to be expensed in 2006 Shares issued to 15,000 15 19,485 employee under agreement, price at measurement date of $1.30 Shares issued to 60,000 60 35,940 employees under agreement, price at measurement date of $.60 Shares issued 21,017 21 (21) under non-cash provision of warrants Net Income/Loss 3,123,356 ----------- ------- ----------- ----------- ----------- --------- ----------- ----------- Balance 36,618,215 38,998 11,904,683 620,289 (80,000) 1,544,429 14,028,399 December 31 2005 The accompanying notes are an integral part of these consolidated financial statements. GLOBAL AIRCRAFT SOLUTIONS, INC. Formerly Renegade Venture (Nev.) Corporation Consolidated Statement of Cash Flows Years ended December 31, 2004 and 2005 (Audited) 2004 2005 ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Net Profit/(Loss) $ 2,291,286 $ 3,123,356 Adjustments to reconcile net loss to net cash provided (used) by operating activities: Equity in income of unconsolidated affiliate (1,111,096) Depreciation 325,966 489,818 Amortization 162,376 162,376 Write down of inventory 212,500 212,500 Deferred income taxes 6,400 Allowance for Doubtful Accounts 14,944 473,208 Gain from Renegotiation of Contract (1,144,502) Expenses paid with stock 476,613 326,594 ----------- ----------- Net adjustments to reconcile net Profit(Loss) to net cash 47,897 (559,800) Changes in Assets and Liabilities: Accounts receivable (3,584,402) (2,775,131) Prepaid expenses (75,157) (115,149) Inventory (1,631,494) (5,260,186) Investments (25,000) Restricted funds (409) (98,500) Other current assets 83,906 56,384 Other non-current assets (212,500) (177,788) Accounts payable-trade 2,269,999 4,535,546 Accounts payable-related party 16,173 (6,219) Customer deposits 252,737 (280,537) Billings in excess of cost and estimated earnings on contracts in progress 642,552 (942,780) Income Taxes Payable 208,989 374,722 Accrued liabilities (414,735) (272,908) ----------- ----------- Net cash used by operating activities (130,158) (1,279,390) Cash flows from investing activities: Purchase of property, plant and equipment (1,388,070) (499,827) Purchase of World Jet, net of cash acquired (959,644) Payments on note receivable 196,390 Investment in Jetglobal, LLC (5,222,594) ----------- ----------- Net cash used by investing activities (2,347,714) (5,526,031) Cash flows from financing activities: Proceeds from issuance of common stock 4,381,600 4,911,000 Payments related to common stock issued (395,853) (244,800) Proceeds from bank loans 1,723,686 7,511,373 Repayments of bank loans (1,851,400) (4,949,634) Due to factor (394,391) (604,409) Redemption of shares (400,535) Other financing activities, net (44,011) ----------- ----------- Net cash provided by financing activities 3,019,096 6,623,530 Net increase (decrease) in cash and cash equivalents 541,224 (181,891) Cash and cash equivalents at beginning of period 8,680 549,904 ----------- ----------- Cash and cash equivalents at end of period $ 549,904 $ 368,013 =========== =========== 1. Interest paid in 2004 was $329,023 and in 2005, $375,745 was paid. 2. No income taxes were paid in 2004 and$121,473 was paid in 2005. Schedule of non-cash investing and financing activities: o Common stock issued for World Jet corporation $500,000 in July 2004 o During the 4th quarter of 2005 $1,475,000 in accounts receivable was transferred to a Note receivable. The Note stipulates weekly payments of $52,993.76, has an interest rate of 8% per annum, and is all due and payable on or before June 9, 2006 o During the 4th quarter of 2005, a note receivable in the amount of $600,000 was issued to the Company by Avolar Aero Lineas SA de CV. The note is all due and payable on or before June 30, 2006 and bears interest at 6.5% per annum. The accompanying notes are an integral part of these consolidated financial statements.
GLOBAL AIRCRAFT SOLUTIONS, INC. (Formerly Renegade Venture (NEV) Corporation) Notes to Financial Statements December 31, 2004 and December 31,2005 1. BASIS OF PRESENTATION These consolidated financial statements include the accounts of Global Aircraft Solutions, Inc., formerly Renegade Venture (NEV.) Corporation 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. For accounting purposes, the transaction has been treated as an acquisition of Global, formerly Renegade Venture (NEV.) Corporation by HAT and as a recapitalization of Global, formerly Renegade Venture (NEV.) Corporation. The acquisition of 100% of World Jet, Inc. was finalized on July 15, 2003, with an effective date of January 1, 2003. As such, the financial statements reflect the accounting activity of HAT since its inception date of April 5, 2002 and of World Jet since January 1, 2004. Johnstone is currently inactive. 2. ORGANIZATION 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. 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 expects 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 expects to lower its parts costs through World Jet's purchasing abilities. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents We consider cash and investments in securities with maturities at the 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 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 2005. During 2005, the Company had bad debt expense of $473,000. The Company believes its allowance at December 31, 2005 is adequate based on review of our outstanding accounts receivable. Inventory Inventories are stated at the lower of cost (first-in, first-out) or market. Inventory items held for over one year are classified as "inventory, non current". 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 value s are less that the carrying value, a write down is recognized equal to an amount by which the carrying value exceeds the market value of inventories. Inventories include 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. 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 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, 2005 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. Revenues from time and material contracts and all other ancillary services are recognized as the services are performed. Income (Loss) per share Basic earnings per share includes no dilution and is computed by dividing net earnings (loss) 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 2004 and 2005 are as follows: For the Year Ended 2004 ---------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ---------- ---------- -------- Net Income $2,291,286 Basic EPS Income available to common stockholders $2,291,286 24,443,256 $ 0.09 Warrants 125,656 Options 418,073 Diluted EPS Income available to common stockholders + assumed conversions $2,291,286 24,986,985 $ 0.09 For the Year Ended 2005 ---------------------------------- Income Shares Per-Share (Numerator) (Denominator) 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 + assumed conversions $3,123,356 35,260,671 $ 0.09 Calculation of Weighted Average Shares for 2004: Issues Shares Date Days Weighted shares ------ ------ ---- ---- --------------- 17,480,000 1/01 - 6/01 152 7,259,454 9,600,000 27,080,000 6/01 - 7/07 36 2,663,607 55,000 27,135,000 7/07 - 7/09 2 148,279 400,000 27,535,000 7/09 - 7/27 18 1,354,180 1,000,000 28,535,000 7/27 - 9/02 37 2,884,686 2,115,386 30,650,386 9/02 - 1/01 121 10,133,051 --- ---------- TOTALS 366 24,443,256 Calculation of Dilution for 2004 No. of Proceeds Incremental Date of Days to Weighted shares Difference issue 12/31/2004 Average Dilution ------ -------- ---------- ----- ---------- -------- Warrants @ $.34 720,000 $244,800 210,000 5/26/2004 219 125,656 Options @ $ .17 900,000 $153,000 581,250 5/13/2004 232 368,443 Options @ $ .20 100,000 $ 20,000 58,333 5/13/2004 232 36,976 Options @ $ .30 50,000 $ 15,000 18,750 4/28/2004 247 12,654 ------- Total Dilution 543,728 (Average price $0.48) Calculation of Weighted Average Shares for 2005: Issues Shares Date Days Weighted shares ------ ------ ---- ---- --------------- 30,650,386 1/01 - 1/18 17 1,427,552 50,000 30,700,000 1/18 - 8/03 197 16,569,797 7,200,000 37,900,386 8/03 - 8/30 27 2,803,590 399,000 38,299,386 8/30 - 9/14 15 1,573,947 22,812 38,322,198 9/14 - 11/23 70 7,349,463 275,000 38,597,198 11/23 - 12/27 34 3,595,355 21,017 38,618,215 12/27 - 1/01 5 529,017 --- ---------- TOTALS 365 33,848,722 Calculation of Dilution for 2005 No. of Proceeds Incremental Date of Days to Weighted shares Difference issue 12/31/05 Average Dilution ------ -------- ---------- ----- ---------- -------- Warrants @ $0.34 219,000 $ 74,460 159,650 Prior yrs 365 156,650 Warrants @ $0.52 104,111 $ 54,138 58,996 Prior yrs 365 58,996 Warrants @$0.68 540,000 $ 367,200 234,000 Prior yrs 365 234,000 Warrants @$1.00 1,137,020 $1,137,020 189,503 Prior yrs 365 189,503 Options @ $0 .17 900,000 $ 153,000 772,500 Prior yrs 365 772,500 --------- Total Dilution 1,411,949 (Average price $1.20) The total weighted average share outstanding for the diluted earnings per share calculation for the year ended December 31, 2005 is 35,260,671. Equity in Net Assets and Advances to Affiliates The investment in a 30% interest in JetGobal, LLC is accounted for using the equity method since the Company does not control JetGobal, LLC, but over which it does exert significant influence. Under the equity method, the investment is recorded at cost plus advances and the Company's share of earning less distributions and the Company's share of losses.. The Company considers whether future fair value of it investments has declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary, a write-down should be recorded to estimated fair value. All significant intercompany profits and balances have been eliminated. Intangible Assets The amounts assigned to Customer List and Agreement with Vendor are recorded at the value assigned when they were acquired in a business purchase. The amounts are being amortized over three years using the straight-line method. The Company assesses the ongoing recoverability of intangible assets subject to amortization by determining whether the intangible asset balance can be recovered over the remaining amortization period through projected a undiscounted future cash flows. If projected future cash flows indicate that the unamortized intangible asset balances will not be recovered, an adjustment is made to reduce the net intangible asset to an amount consistent with projected future cash flows discounted at the Company's incremental borrowing rate. The Company's amortizable intangibles consisted of customer lists and vendor agreements. Amortization expense on these totaled $162,376 and $162,376 for the years ended December 31, 2005 and 2004, respectively. Amortization expense related to customer lists and vendor agreements is expected to be as follows for the year ended December 31: 2006 (the final year of amortization) $162,376 ---- -------- $162,376 ======== Goodwill Effective January 1, 2004 the Company acquired 100% of the stock of World Jet. This acquisition of World Jet was recorded as follows: Assets purchased from World Jet: Cash 590,356 Accounts receivable 983,796 Inventories 1,517,461 Other assets 47,235 Customer list 401,657 Agreement with vendor 85,470 Goodwill 38,992 --------- 3,664,967 Liabilities assumed from World Jet: Accounts payable and accrued expenses 870,967 Loans payable - related parties 744,000 ---------- 1,614,967 ---------- Net purchase price $2,050,000 The $38,992 goodwill recorded represents the difference between the price paid of $2,050,000 and the World Jet equity of $2,011,008 at January 1, 2004. The purchase price was payable as follows: $1,250,000 in cash at closing; $300,000 in the form of a note maturing January 27, 2005, with payments of $1,500.00 per month plus interest at 6% per annum, the first payment being due August 27, 2004; 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. The $38,992 goodwill recorded is expected to be deductible for tax purposes. 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. Recently Issued Accounting Pronouncements: In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." This Statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted materials. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The initial application of SFAS No. 151 had no impact on the Company's financial statements. In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This Statement references the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement also states that the guidance for incidental operations and costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. The initial application of SFAS No. 152 had no impact on the Company's financial statements. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29." This Statement eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The initial application of SFAS No. 153 had no impact on the Company's financial statements. In December 2004, the FASB issued SFAS No. 123 (R), " Share Based Payment." This Statement is a revision of SFAS No. 123, and supersedes APB Opinion No. 25. SFAS No. 123 ( R) requires the recognition of the cost of employee services received in exchange for an award of equity instruments based on the grant date for value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the required service period. In April, the SEC release No. 33-8568 delayed the implementation of SFAS No. 123 (R). The Statement is now effective for the Company beginning in the first quarter of fiscal year 2007. SFAS No. 123 (R) permits public companies to adopt its requirements using one of two methods: (1) A "modified prospective method in which compensation cost is recognized prospectively for both new grants issued subsequent to the date of adoption, and all unvested awards outstanding at the date of adoption. Expense for the outstanding awards must be based on the valuation determined for the pro forma disclosures under SFAS No. 123. (2) A "modified retrospective" method, which includes the requirements of the modified prospective method described above, but also permits entities to restate all prior periods presented based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures. The Company is currently in the process of evaluating the two methods and has not yet determined which method it will use. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error - an amendment of APB Opinion No. 29." This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the usual instance that the pronouncement does not include specific transition provision. When a pronouncement includes specific transition provisions, those provisions should be followed. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific effects of the cumulative effect of the change. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect application of SFAS No. 154 to have a material affect on its financial statements. Stock-Based Compensation Currently, 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. There were no options granted in the year ended December 31, 2005 nor was there vesting of prior year option grants and therefore, 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: Aircraft maintenance, repair, and overhaul; Aircraft Brokerage; 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, 2004 and December 31, 2005. 2004 2005 ($millions) ($millions) ----------- ----------- Segment sales: Aircraft maintenance 17.220 19.135 Aircraft trading 7.941 13.551 Part sales 6.546 10.684 Other 1.002 2.153 Sub Total 32.709 45.223 Elimination of intersegment sales -1.858 -4.294 Total consolidated sales 30.851 41.229 Operating income: Aircraft maintenance 3.270 2.232 Aircraft trading .936 3.531 Part sales 1.703 2.783 Other .534 1.625 Sub total 6.443 10.171 Selling, general, administrative -4.827 -7.834 expense Penalties -.296 -.001 Other, net .971 -.004 2005 share of Jetglobal net income (aircraft trading) 1.111 Consolidated earnings before taxes 2.291 3.489 Interest income by segment Aircraft maintenance Aircraft trading Part sales Corporate 85,521 245,610 Total interest income 85,521 245,610 Interest expense by segment Aircraft maintenance Aircraft trading Part sales Corporate 329,023 286,927 Total interest expense 329,023 286,927 2004 2005 ($) ($) ------- ------- Depreciation and amortization by segment: Aircraft maintenance 411,286 330,334 Aircraft brokerage Part sales Corporate 77,056 321,900 Total 488,342 652,194 Net asset values: Aircraft maintenance 6,633,504 7,154,108 Aircraft trading 1,224,600 Part sales 2,099,485 8,649,250 Corporate 3,025,023 7,918,367 Total 11,758,012 24,946,325 Capital expenditures: Aircraft maintenance 1,080,173 344,824 Aircraft brokerage Part sales Corporate 307,897 155,003 Total 1,388,070 499,827 All of the Company's facilities and assets are 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: Year Year ended ended December 31, 2004 December 31, 2005 ----------------- ----------------- Angola $ 0 $ 62,028 Australia 97,741 1,700 Brazil 5,100 Canada 577 688 Columbia 3,946 24,904 Ecuador 2,207,564 Germany 51,520 28,025 Guam 2,170,778 Hong Kong 890 Indonesia 835 Ireland 224,141 Italy 72,883 62,357 Jordan 4,063,944 2,468,915 Lebanon 264,681 Malawi 868,943 Mexico 1,443,626 2,810,753 Nigeria 308,755 Pakistan 6,510,001 382,795 Peru 19,600 Romania 27,000 Scotland 30,969 South Africa 17,345 Spain 2,200 Tunisia 4,130 UAE 18,600 9,191,462 United Kingdom 55,888 61,654 Venezuela 31,532 39,704 TOTALS $16,753,220 $16,845,250 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, Delaware limited liability company. 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 the Company will be 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 has a 30% membership and profit interest, it is only responsible for 25% of the costs and expenses associated with JetGlobal including any business transactions. As of December 31, 2005, Equity in net assets and advances to affiliates consisted of the following: Initial investment in JetGlobal $1,125,000 Payment of 25% share of purchase of aircraft 3,846,154 Expenses paid on behalf of JetGlobal 251,440 Share of 2005 net income 1,111,096 Balance at December 31, 2005 $6,333,690 Net sales, gross profit and net income within Jetglobal were $7,599,000, $4,154,000 and $3,703,000 for the year ended December 31, 2005. The balance sheet of Jetglobal has assets of $21,715,000 and no liabilities. 6. INVENTORY Inventories consisted of the following: 2004 2005 ---------- ---------- Maintenance Hardware $ 991,206 $ 604,983 Parts for Resale 2,011,269 5,525,109 Aircraft & Engine 514,774 450,000 ---------- ---------- $3,507,249 $6,580,092 Inventory, non-current Inventory that has been held for more than one year is shown under this category. At December 31, 2005, the balance of this account was $2,187,343 and at December 31, 2004, it was $212,500. There were significant inventory purchases during 2004, namely the World Jet and Hamilton Aviation inventories, and most of those inventories were not sold during 2005 resulting in the significant difference in year-end account balances. The Company includes inventory, non-current in any review it does related to the carrying value of inventories. 7. PROPERTY AND EQUIPMENT 2004 2005 ---------- ---------- Gross Asset Values Land and improvements $ 25,094 $ 25,094 Buildings and improvements 183,866 190,479 Vehicles 73,328 79,028 Machinery and equipment 1,568,847 2,023,994 Computer Equipment 289,561 306,164 Other Office Equipment 50,805 59,568 ---------- ---------- 2,191,501 2,684,327 Less accumulated depreciation 559,367 1,042,186 ---------- ---------- Property and equipment, Net $1,632,134 $1,642,141 ========== ========== During 2004 and 2005, depreciation expense was $325,966 and $489,818 respectively. (World Jet had $113,515 in pre-2004 depreciation when acquired.) 8. SHAREHOLDERS' EQUITY Common Stock In 1996, the Company's articles of incorporation were amended, making several changes affecting common stock. A reverse-stock split was approved, whereby each 100 shares of original common stock were exchanged into one share of common stock. This action reduced the outstanding common shares from 3,200,000 to 320,000. The number of authorized common shares was increased after the reverse split from 32,000,000 to 50,000,000. In addition, the amount of authorized preferred stock was changed to 5,000,000 shares. As a result of the re-domiciliation to Nevada, statutory par value of $.001 for both common and preferred stock was established. As discussed in Note 1, the Company went through two acquisitions during the quarter ended June 30, 2002. Under the terms of these mergers, the Company issued 3,000,000 common shares to the stockholders of Johnstone Softmachine Corporation and 12,500,000 shares to the stockholders of Hamilton Aerospace Technologies, Inc. The issuance of these shares is reflected in the accompanying financial statements. On July 21, 2003 the Directors of the Company took the following actions by Unanimous Consent of the Board of Directors in lieu of Special Meeting: The 8,100,000 shares held by OMAC, 1,500,0000 shares held by Seajay Holdings, LLC and 1,500,000 shares held by Joane Corporation were declared void due to failure of consideration for the issuance of such shares. Further the proper officers of the Corporation were authorized and directed to take all action necessary to cause the certificate representing the 8,100,000 shares of common stock held by OMAC to be returned to the Corporation for cancellation in accordance with the terms of the Judgment, discussed in Note 7 below, as entered by the Superior Court of Maricopa County Arizona. The proper officers of the Company were authorized and directed in accordance with said Judgment to open an escrow account and to fund such account in the amount of $400,535.14 within 90 days of the return and cancellation of the OMAC certificate. Further the certificate of Joane Corporation, representing 1,500,000 shares of common stock, shall be canceled. The shares represented by such certificate shall revert to authorized and unissued shares of the Company's capital stock. Further, the proper officers of the Corporation were authorized and directed to take such action as necessary to cause the certificate held by Seajay Holdings, LLC to be returned to the Company for cancellation. On June 29, 2004, the Board, through its attorney, filed suit to recover these 1,500,000 shares. There have been no entries in the accompanying financial statements related to the voiding of the Seajay stock and these shares are included in the total of shares issued and outstanding shown above The Board of Directors determined that it would be in the best interest of the Company to enter into employment agreements with its executive officers, Ian Herman and John B. Sawyer. Included in the terms of each employment agreement is a grant of 2,500,000 shares of common stock each to Messrs. Herman and Sawyer. The shares are subject to vesting. The employment agreements were approved by owners of the majority of the outstanding shares of the Company's common stock as of July 29, 2003. Details of these employment agreements can be found in Form 8-K filed September 11, 2003. On October 15, 2003, the Company was notified that an agreement between LogiCapital Corporation and Perugia Design Corporation, a company controlled by a family member of one of the Company's Directors, had been reached. This agreement calls for the sale of 2,000,000 shares of the 3,000,000 shares held by LogiCapital, discussed earlier. LogiCapital elected to assign the proceeds of $100,000 note they received as payment for stock in this transaction to the Company. The Company has recorded the $100,000 as a note receivable and recorded $100,000 as contributed capital. The stock was transferred in 2004. On May 26, 2004, the Company entered into a private placement agreement with Barron Partners, LP. Under the terms of the private placement, Barron Partners purchased restricted 9,600,000 shares of common stock at a price of $.34 per share, and for each share purchased received .75 warrants to purchase an additional share at $.68 per share plus .75 warrants to purchase an additional share at $1.36 per share. If all of the warrants are exercised at their full purchase price, Barron Partners will acquire a total of 24,000,000 shares of the Company's common stock in exchange for a total of $17,952,000 in equity funding. On May 26, 2004, the Company agreed to issue 720,000 warrants to J G Capital, Inc. to purchase one share for each warrant at a price of $.34 per share plus 540,000 warrants to purchase one share for each warrant at a price of $.68 per share plus 540,000 warrants to purchase one share for each warrant at a price of $1.36 per share in consideration for professional services rendered in securing the private placement discussed above. On July 15, 2004, the Company finalized an agreement to buy 100 percent of the common stock of World Jet Corporation, a privately held aircraft parts, sales and brokerage company for $1.55 million in cash and notes and 1,000,000 shares of restricted common stock valued at $.50 per share for the purposes of this transaction. The effective date of this agreement is January 1, 2004. The shares of stock were issued in July 2004. On July 29, 2004 the Board of Directors of the Company elected to fully vest the 2,000,000 incentive shares that resulted under the Employment Agreements with Messrs. Herman and Sawyer, discussed earlier, that were entered into on July 21, 2003. On September 3, 2004, pursuant to the "safe harbor" private offering exemption provided by Rule 506 of Regulation D under Section 4(2) of the Securities Act of 1933, in exchange for One Million One Hundred Thousand Dollars ($1,100,000.00) the Company sold 2,115,386 shares of the Company's common stock (purchase price of $0.52), class A warrants to purchase 1,057,693 shares of the Company's common stock (exercise price of $1.00 per share), and Class B warrants to purchase 1,057,693 shares of the Company's common stock (exercise price of $1.36 per share).The Company also issued the following warrants as part of the commissions paid in connection with the above offering: (i) warrants to purchase 158,654 shares of the Company's common stock at an exercise price of $0.52 per share; (ii) warrants to purchase 79,327 shares of the Company's common stock at an exercise price of $1.00 per share; (iii) warrants to purchase 79,327 shares of the Company's common stock at an exercise price of $1.36 per share. On October 26, 2004, the Company held its 2003 annual meeting. The stockholders voted to increase the authorized shares of common stock from 50,000,000 to 100,000,000. The Stockholders also ratified an amendment to the Company's Certificate of Incorporation to change the corporate name from Renegade Venture (Nev.) Corporation to Global Aircraft Solutions, Inc. Stock Options During 1996, the Company's shareholders approved the 1994 Compensatory Stock Option Plan. The plan provides for options to purchase up to 2,000,000 shares of common stock, after the reverse stock split discussed above. The options give the right to purchase common stock at "fair market value", as determined by the board of Directors, at the date of issuance for a period of up to five (5) years. During the 1996, the Company's shareholders also approved the 1994 Employee Stock Compensation Plan. This plan allows for up to 1,000,000 shares of common stock, after the reverse stock split discussed above, to be issued to key employees, officers, directors, and certain other persons affiliated with the Company, as compensation. As part of the 1997 re-domiciliation to Nevada, the 1994 plans described above were adopted and renamed the 1997 Compensatory Stock Option Plan and the 1997 Employee Stock Compensation Plan by the Nevada Corporation. Under the terms of both of these plans, the Company is not permitted to issue options from these plans after April 15, 2004. During the quarter ended June 30, 2002, the Company's directors approved the 2002 Compensatory Stock Option Plan. The plan provides for options to purchase up to 3,000,000 shares of common stock. The options give the right to purchase common stock at "fair market value", as determined by the Board of Directors, at the date of issuance for a period of up to ten (10) years. Under the terms of the plan, the Company is not permitted to issue options from the 2002 Compensatory Plan after April 14, 2012. The plan was filed on October 3, 2003. On May 5, 1999, the Company issued 1,000,000 stock options to two directors under the 1997 Compensatory Stock Option plan. These options had a three (3) year term and an exercise price of $.05 per share. These options were exercised on April 30, 2002, resulting in total proceeds to the Company of $50,000. Subsequently, these two directors resigned and were replaced on the Board after the reverse merger with Hamilton Aerospace. On May 3, 2002, the Company also granted and issued 1,000,000 shares of common stock to various directors, employees, and consultants of the Company under the 1997 Employee Stock Compensation Plan. The Company recorded an expense of $330,000 for the quarter ended June 30, 2002 as a result of this grant, which is included in selling, general and administrative expenses on the Company's 2002 statement of operations. On May 31, 2002, the Company granted and issued 650,000 common shares to an employee and consultants in exchange for options granted on May 3 2002, under the 1997 Compensatory Stock Option Plan for additional services that were rendered. The Company has recorded an expense of $650,000 for the quarter ended June 30, 2002 as a result of this grant, which is included in selling, general and administrative expenses on the Company's 2002 statement of operations. On May 31, 2002, the company also granted 400,000 restricted common shares under the 2002 Compensatory Stock Option Plan to John B. Sawyer, a director and Chief Operating Officer of the Company for services rendered during the quarter ended June 30, 2002. The company recognized an expense of $400,000 (the value of the shares at measurement date) for the quarter ended June 30, 2002 as a result of this grant, which is included in selling, general and administrative expenses on the 2002 statement of operations. Prior to June 30, 2002, 330,000 of the shares previously granted to consultants for services rendered were returned to the Company to reflect a $99,0000 adjustment to the value of the services performed. On November 15, 2002, The Board cancelled 1,180,000 of unexercised options issued under the 2002 Compensatory Stock Option Plan. The options were exercisable by their terms only during the respective optionee's employment or other service with the Company, or during a 30-day grace period following termination without cause of such employment or other service. On November 14, 2002, the Company granted 150,000 shares of common stock to an outside consultant of the Company under the 1997 Compensatory Stock Option Plan. The Company values the services received at $25,000 and recorded an expense in that amount for the quarter ended December 31, 2002. This expense is included in selling, general and administrative expenses on the Company's 2002 statement of operations On December 5, 2002, the Board agreed to grant options to key management personnel of HAT in the amount of 240,000 shares under the 2002 Compensatory Stock Option Plan. Options will be restricted for one year. Due to the loss of one of the key management people, during the restriction period, 60,000 shares were never issued. The expenses for these shares of $54,000 (the value of the shares at measurement date) was recorded on a monthly basis (1/12 each month) and included in selling, general and administrative expenses for the appropriate periods. On March 6, 2003, the Directors of the Company granted and issued 20,000 shares of common stock under the 1997 Compensatory Stock Option Plan to an outside consultant for services rendered to the Company which the Directors valued at $6,000. This expense is included in selling, general and administrative expenses on the accompany statement of operations. On March 6, 2003, the Directors of the Company granted and issued 30,000 shares of common stock under the 2003 Employee Stock Compensation Plan to an outside consultant for services rendered to the Company which the Directors valued at $9,000. This expense is included in selling, general and administrative expenses on the accompany statement of operations. On August 26,2003, the Directors of the Company granted and issued 150,000 shares of common stock under the 2002 Compensatory Stock Option Plan to an outside consultant for services rendered to the Company which the Directors valued at $45,000. This expense is included in selling, general and administrative expenses on the accompanying statement of operations. On August 26,2003, the Directors of the Company granted and issued 100,000 shares of common stock to outside consultants to the Company under the 2002 Compensatory Stock Option Plan. The Company valued these services at $20,000. This expense is included in selling, general and administrative expenses on the accompanying statement of operations. On September 11,2003, the Directors of the Company granted and issued 100,000 shares of common stock to outside consultants to the Company under the 2002 Compensatory Stock Option Plan. The Company valued these services at $20,000. This expense is included in selling, general and administrative expenses on the accompanying statement of operations. On September 26,2003 the Directors of the Company granted and issued 260,000 shares of common stock to outside consultants for services rendered to the Company under the 2002 Compensatory Stock Option Plan. The Company valued these services at $52,000. This expense is included in selling, general and administrative expenses on the accompanying statement of operations. On October 3, 2003, the Company filed The 2002 Compensatory Stock Option Plan registering 3,000,000 shares of common stock ($.001 par value) at a proposed maximum offering price of $0.20 per share. On October 6, 2003, the Company filed The 2003 Employee Stock Compensation Plan registering 5,000,000 shares of common stock ($.001 par value) at a proposed maximum offering price of $.20 per share. On October 7, 2003, the Company awarded 500,000 shares of common stock under the 2003 Employee Stock Compensation Plan of the Company for legal services and 1,100,000 shares of common stock under the 2003 Employee Stock Compensation Plan of the Company for consultant services. The Board of Directors determined that the fair value of these services was $288,000. This expense is included in selling, general and administrative expenses on the accompanying statement of operations. On October 15, 2003, the Company awarded 1,200,000 shares of common stock under the 2003 Employee Stock Compensation Plan of the Company for consultant services to be rendered over a three-year period. The Board of Directors determined that the fair value of these services was $216,000. The resulting prepaid expense is being expensed on a monthly basis during the three-year term of the contract and is included in selling, general and administrative expense on the accompanying statement of operation. On May 13, 2004, the Company's Board of Directors granted 900,000 compensatory stock options under the 2002 Compensatory Stock Option Plan at an option price of $0.17 per share. The value at measurement date for theses shares was $.23 and an expense for the $.06 increment, ($54,000), has been included basis in selling, general and administrative expense on the accompanying statement of operation. On July 29, 2004, the Company's board of Directors awarded options to purchase 50,000 shares each to 2 new Directors as incentive compensation under the 2003 Employee Stock Compensation Plan. The option price is $0.20 per share, as the Company valued these services at $100,000. The value at measurement date for theses shares was $.23 and an expense for the $.03 increment, ($3,000), has been included basis in selling, general and administrative expense on the accompanying statement of operation. During the third quarter of 2004, the Company finalized an agreement to award 400,000 shares of common stock under the 2003 Employee Stock Compensation Plan of the Company for professional services to be provided over a two-year period. The effective date of this transaction was May 13, 2004. The Board of Directors determined that the fair value of these shares on the date of grant was $92,000. The resulting prepaid expense is being expensed on a monthly basis during the two-year term of the contract. and is included in selling, general and administrative expense on the accompanying statement of operation. On July 12, 2004 the Company's Board of Directors approved granting of 330,000 shares of stock to key employees under the 2002 Compensatory Stock Option Plan in conjunction with various employment agreements. The shares will vest after two years according to the terms of the employee agreements. A monthly expense is being charged to selling, general and administrative expense over the two-year period at the rate of 1/24 of $198,000 and is included in selling, general and administrative expense on the accompanying statement of operation. In January 2005, 50,000 options, issued as compensation for outside consultancy services, were exercised at the option price of $.30 per share. 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. 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. On November 23, 2005, 60,000 shares were issued to employees pursuant to 2004 employment agreements. In the year ended December 31, 2005, the Company granted 200,000 shares under restricted stock awards to two directors. The price at measurement was $.80 per share. 100,000 shares vested in 2005. $80,000 was expensed in 2005. 100,000 shares will vest in 2006. $80,000 will be expensed on a monthly basis (1/12 per month) in 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. Share value on Measurement Date Vesting Date ----------- ------------ Common Shares 38,618,215 Issued and Outstanding at December 31, 2005 Unconverted Warrants Issued: @ $0.34 .50 219,000 @ $0.68 .50 540,000 @ $1.36 .50 7,740,000 @ $0.52 .65 104,111 @ $1.00 .65 1,137,020 @ $1.36 .65 1,137,020 Subtotal 10,877,151 Options Issued: @ $0.17 .23 900,000 Subtotal 900,000 Awards of stock pending under employment contracts .60 07/30/2006 270,000 Subtotal 270,000 Total 50,665,366 SUMMARY OF EQUITY COMPENSATION STOCK-OPTION PLANS TOTAL SHARES ISSUED AVAILABLE PLAN NAME 2002 Compensatory Stock Option Plan 3,000,000 2,525,000 475,000 2003 Employee Stock Compensation Plan 5,000,000 3,330,000 1,670,000 Pro-forma Stock-based Compensation Disclosure The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." but applies accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its plans. 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. During 2004 and 2005, those options issued to employees that were not immediately exercised are summarized below: 2004 ------------------------------------------------------ Weighted Average Exercise Price Options outstanding at 150,000 beginning of year Granted during year 900,000 $0.17 Exercisable on grant date in 2004 Exercised during year None Forfeited during year None Outstanding at 1,050,000 $0.179 Exercisable on grant 12/31/2004 date Options exercisable at 1,050,000 $0.179 Exercisable on grant year-end date These options were issued at $0.06 below the share price on the measurement date. Expense in the amount of $54,000 has been included in selling, general and administrative expenses for 2004 in the accompanying statement of operations. Because the options were immediately available the intrinsic value and the fair value of the options is calculated at the same $.23 per share. A summary of the Company's stock option plans as of December 31, 2005 and changes during the year is presented below: 2005 ------------------------------------------------------- Weighted Average Exercise Price Options outstanding at 1,050,000 $0.179 Exercisable on grant beginning of year date Granted during year None Exercised during year 50,000 $0.30 Forfeited during year None Cancelled during year 100,000 $0.20 Outstanding at 900,000 $0.17 Exercisable on grant 12/31/2004 date Options exercisable at 900,000 $0.17 year-end Weighted average fair $0 value of options granted during the year 9. COMMITMENTS AND CONTINGENCIES In June 2003, the Company reached a mediated agreement with a former director, Ronald Clark, wherein Mr. Clark was paid a monetary settlement of $350,000; $100,000 in cash and a $250,000 secured promissory note in exchange for the return by Mr. Clark to the Company of 250,000 shares of common stock and the divestiture of options to receive 1,250,000 shares of common stock of the Company. The cash of $100,000.00 was paid and the $250,000.00 promissory note was paid in full by July 2, 2004. On March 18, 2004, the Company received the certificates for 250,000 shares of common stock that were covered by the Ronald Clark mediated agreement. Additionally the Company received a bill of sale for the consignment inventory that was purchased and paid off during the 3rd Qtr of 2003. On March 1, 2003, Hamilton Aerospace and the Company signed a secured promissory note with American Capital Ventures, L.L.C. as the lender. The principal amount of the note was $675,000. Interest was payable in monthly installments at the rate of l.25% per month, payments beginning April 1,2003. The entire unpaid Principal and any accumulated, accrued or unpaid interest thereon are due and payable on September 1, 2003. Only $300,000 was ever received by HAT and a new agreement adds interest and fees to a restated principal balance of $354,375. The new agreement specifies quarterly interest payments at a rate of 15% interest per annum. The original loan represented the first installment of a bridge loan of up to $2 million. On March 26, 2004, the agreement with American Capital Ventures, LLC was further amended. The agreement calls for the repayment of $354,375 at an interest rate of 1.5% per month on the unpaid balance. The amended agreement calls for principle payments for half of the unpaid balance and a final payment of $176,146.87. The entire amount of the loan plus interest and fees totaling $356,146.87 was paid in full as of July 30, 2004. This agreement was closed on July 30, 2004 and no further borrowings will take place under this agreement. Renegade signed a note with Universal Lease and Finance Corporation on September 3, 2003. This note provided funds to refurbish the small hangar. This note was in the amount of $100,000 and was to be paid by 12 monthly payments of $9,834, which includes interest at 18%. The entire balance was due on August 1, 2004. On December 17, 2003, HAT signed a note with Universal Lease and Finance Corporation for a short-term loan of $237,000, which bore interest at 3% per week and had a maturity date of January 17, 2004. The loan agreements referenced were paid off during 2004. On December 9, 2005, Global Aircraft Solutions, Inc ("Global"), Hamilton Aerospace Technologies, Inc. ("HAT"), a wholly owned subsidiary of Global Aircraft Solutions, Inc. and World Jet Corporation, ("WJ") a wholly owned subsidiary of Global Aircraft Solutions, Inc. (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 $200,000.00. 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 December 31, 2005, the applicable interest rate was 7.39% per annum. The interest rate on the Guidance Credit is also 3.00% per annum in excess of the applicable LIBOR rate. The interest rate for each Letter of Credit Facility, if drawn upon, shall also be 3.00% per annum in excess of the applicable LIBOR rate. The Line of Credit and any Letter of Credit Facility remains secured by a first priority lien on Global's, HAT's and WJ's personal property. Any advances pursuant to the Guidance Credit shall be secured by a first priority lien on any aircraft purchased with such advance. The term of the Line of Credit; the Guidance Credit and the Letter of Credit Facility all expire on October 31, 2007 and the entire outstanding principal balance, all accrued and unpaid interest, and all other sums due and payable under both the Line of Credit and Guidance Credit shall be due on the expiration date. While there is no required monthly repayment obligation of the Line of Credit, the Line of Credit is based upon and limited by a borrowing base equal to the sum of 80% of the outstanding amount of all Eligible Accounts as defined in the Loan Agreement and 50% of the net book value of all Eligible Inventory as defined in the Loan Agreement. While there is no required monthly repayment obligation of the Guidance Credit, the Borrowers are required to repay, from time to time, (i) an amount equal to any amount by which the outstanding principal balance of the Guidance Credit exceeds $7 million, (ii) all amounts received by Borrowers under any aircraft purchase agreement, other than an initial down payment to the extent it does not exceed twenty-five percent (25%) of the purchase price, and (iii) any portion of an advance or readvance not paid within ninety (90) days of the advance or readvance. Borrowers are also responsible to immediately repay to bank the amount of an advance upon any breach of the aircraft purchase agreement. If any Letter of Credit Facility is drawn upon, all principal and accrued and unpaid interest shall be due and payable upon demand. The Borrowers paid total fees and expenses of approximately $37,500.00 in connection with the modification to the Line of Credit and addition of the Guidance Credit and Letter of Credit Facility. The Borrowers will owe a loan fee to the bank equal to 1% of the amount of any requested advance under the Guidance Credit with a cap of $52,500.00 in cumulative fees. The Borrowers will owe the bank a fee for the issuance of any Letter of Credit in the amount of 2% of the amount of the letter of credit. The balance due of the Line of Credit at December 31, 2005 was $2,564,739. The Line of Credit also secures a Letter of Credit for $128,000, which was issued to TAA as part of the lease agreement for the HAT facility. The total available credit facility is $12,000,000 at December 31, 2005 subject to the borrowing base and the Guidance Credit Line provisions that $7,000,000 be used for aircraft purchases only. At December 31, 2005, the Company was not in compliance with the quick ratio (defined as cash, liquid cash equivalents and accounts receivable, divided by current liabilities) covenant to the loan agreement. The ratio is to be at least .90 to 1. At December 31, 2005 the ratio for the Company was .49 to 1. 10. DUE TO FACTOR As of December 31, 2004, the Company's World Jet subsidiary had placed invoices belonging to various customers, in full recourse financing. The debt is secured by the company's accounts receivable due from customers and bears interest at a rate as high as 37.5% per annum. At December 31, 2004, open invoices had accumulated interest at a rate of 32% per annum. Interest is charged on the total face value of invoices placed less the payments made. At December 31, 2005 all factored amounts were paid and there are no plans to reopen factoring agreements in the future. 11. RELATED PARTY TRANSACTIONS BCI Aircraft Leasing, Inc. BCI Aircraaft Leasing, Inc., Global's partner in Jetglobal, see Note 6, accounted for 4% of Company revenue during 2005. The account receivable from BCI at December 31, 2005 was $241,591.86. Hamilton Aviation, Inc. On April 15, 2002, Hamilton Aerospace entered into a Sale of Assets Agreement with Hamilton Aviation, a privately held Arizona corporation. The agreement contemplated the purchase by Hamilton Aerospace of substantially all of Hamilton Aviation's equipment and inventory used in its aircraft maintenance, repair and modification services business. Under the terms of this agreement, the closing date was to be not later than July 15, 2002. Also on April 15, 2002, Hamilton Aerospace entered into a Lease/Purchase Agreement with Hamilton Aviation for the same assets that were included in the Sale of Assets Agreement. Under the Lease/ Purchase Agreement, these assets would be leased for a term of three (3) years or until the Sale of Assets Agreement closed, at which time, all asserts would transfer to Hamilton Aviation. The Lease / Purchase Agreement provided for payments in the amount of $8,000 per month to Hamilton Aviation through April 15, 2005. Provided that the Sale of Assets Agreement did not close by the expiration of Lease /Purchase Agreement, title of all assets covered under the Lease / Purchase Agreement would pass from Hamilton Aviation to Hamilton Aerospace upon expiration of the Lease/Purchase Agreement. On May 9, 2002, Hamilton Aviation filed for protection under Chapter 11 of the United States Bankruptcy Code. Since that time the Sale of Assets Agreement between Hamilton Aviation and Hamilton Aerospace lapsed and accordingly, the Company continued to operate under the Lease/Purchase Agreement. Accordingly, the Company entered into negotiations with the trustee for Hamilton Aviation to re-negotiate the terms of the Lease/Purchase Agreement so as to convert it to an operating lease. A new month-to-month lease was negotiated with payments of $8000 per month. On February 10, 2003, the judge presiding over the Chapter 11 Bankruptcy of Hamilton Aviation approved a Sale of Assets Agreement between Hamilton Aviation and HAT. The agreement was for a purchase price of $1.5 million, with a down payment in the amount of $300,000. The balance was payable monthly at 6-1/2% interest. Because the original agreement to purchase Hamilton Aviation were negotiated prior to Hamilton Aviation's petition for bankruptcy, HAT elected to renegotiate a new agreement that better reflected the scope of the current transaction in light of the current market. The new agreement covers sale of a portion of Hamilton Aviation's physical assets and has a reduced payoff clause, which states that $1 million will be considered full payment, providing HAT satisfies said agreement according to its terms. At December 31, 2003 negotiations on the new agreement were ongoing. During the quarter ended March 31, 2004, the agreement with Hamilton Aviation was renegotiated. The liabilities, which were accrued during the period HAT was operating under, pending approval of the transaction, were not required to be paid. The over accrued liabilities, $88,000 in total, were recognized as a gain during the period ended June 30, 2004. On May 6, 2004, ("the Entry Date"), the presiding judge in the Hamilton Aviation bankruptcy case issued an Order Approving Settlement Agreement relating to the agreement reached between Hamilton Aviation, Inc. and HAT for the purchase of certain of Aviations physical assets. The agreement calls for a down payment of $100,000, $73,365.75 of which had already been paid, and monthly payments of $15,000 plus interest at 6% per annum. An additional lump sum payment is to be made by HAT within 60 days of the Entry date plus $50,000 shall be paid on or before each annual anniversary of the Entry Date. The agreement has a reduced payoff provision stipulating that if all payments have been made in a timely manner by the fifth anniversary date of the entry date $1,000,000 will be considered as payment in full, otherwise the amount is to be $1,500,000. The agreement calls for a five year entry date anniversary profit payment equal to one-half of HAT's net profits in excess of 12%, but limited so as to provide no more than a total of all payments due of $1,500,000 plus interest over the five-year term of the agreement. The Company recorded the cost of the assets at $1,500,000 reflecting the total liability under the agreement. Under the agreement HAT agreed to purchase certain assets and leasehold interests from Hamilton Aviation, Inc., a company in Chapter 11 reorganization that formerly occupied the facilities now occupied by HAT. The Bankruptcy Court approved the purchase as part of the reorganization plan. The purchase includes all the ramp equipment, special tooling, office furnishings and equipment, including phone and computer systems necessary to perform the functions required to operate the FAA-approved aircraft repair station. These assets are located in the HAT facility and are being used daily in HAT's operations. More specifically, the equipment and tooling includes: o Ground equipment consisting of stands, compressors, jacks, tugs, power and hydraulic equipment, etc. o Special tools appropriate to the specific type of aircraft applied for on the FAA Air Agency application, including engine slings, jack pads, hand tools, special fittings, etc. o Computer hardware and software relevant to the inventory purchased and repair logistics management o Machinery including drill presses, lathes, shears, brakes, presses and other machine shop equipment. o General tools used in repair, maintenance and modification of any commercial aircraft. The purchase agreement also includes certain intellectual property assets from Hamilton Aviation as well as the estate of Gordon B. Hamilton (deceased), including all uses of the name "Hamilton," "Hamilton Aviation," "Gordon B. Hamilton," "Gordon D. Hamilton," "Hamilton Brothers," and "Hamilton Aeronautics." The final terms of this purchase agreement were established on May 6, 2004 by the presiding judge in the Hamilton Aviation bankruptcy case. On July 8, 2004, the Estate Administrator, on behalf of Hamilton Aviation, Inc., accepted an offer made by HAT calling for satisfaction of all of its obligations under the May 6, 2004 Settlement Agreement by payment of a lump sum of $750,000 on or before September 6, 2004. HAT made this final lump sum payment to Hamilton Aviation by the September 6, 2004 settlement date. The acceptance of this payment as full and final settlement by the estate administrator and its subsequent payment by HAT resulted in a gain due to the over-accrued liabilities that were based on the ceiling price under the contract of $1,500,000. This gain was recognized in the third quarter of 2004. 12. CONTRACTS IN PROGRESS At December 31, 2004and December 31, 2005, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings on uncompleted contracts consist of the following: 2004 2005 ----------- ----------- Costs incurred on uncompleted contracts $ 1,161,109 $ 1,072,582 Profit earned to date 412,938 1,156,235 ----------- ----------- $ 1,574,047 $ 2,228,817 Less: Billings to date (2,855,203) (2,252,275) ----------- ----------- ($1,281,156) ($ 23,458) =========== =========== Included in the accompanying balance sheet at December 31, 2004 and 2005 under the following caption: Billings in excess of costs and estimated earnings on uncompleted contracts 2004 2004 ----------- ----------- Billings in excess from above $ 1,281,156 $ 23,458 Time and material earnings unbilled (314,918) 0 ----------- ----------- Net $ 966,238 $ 23,458 =========== =========== 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. 13. TRADE ACCOUNTS RECEIVABLE As of December 31, 2004 and December 31, 2005, trade accounts receivable consist of the following: 2004 2005 ----------- ------------ Contracts in progress $ 1,961,319 $ 769,322 Completed contracts 2,858,045 4,516,323 ----------- ----------- $ 4,819,364 $ 5,285,645 Less: allowance for doubtful accounts (53,149) (292,507) ----------- ----------- $ 4,766,215 $ 4,993,138 14. NOTES RECEIVABLE On September 1, 2003 Global was tendered a $100,000 note receivable. The note bears interest at 5% and is all due and payable February 28, 2006. During the 4th quarter of 2005 $1,475,000 in accounts receivable was transferred to a Note receivable. The Note stipulates weekly payments of $52,993.76, has an interest rate of 8% per annum, and is all due and payable on or before June 9, 2006. During the 4th quarter of 2005, a note receivable in the amount of $600,000 was issued to the Company by Avolar Aero Lineas SA de CV. The note is all due and payable on or before June 30, 2006 and bears interest at 6.5% per annum. 15. INCOME TAXES The Company had no current State or Federal income tax expense for the years ended December 31, 2004 and December 31, 2005. 2004 2005 ---------- ----------- Current provision/benefit $ -- $ 372,578 Deferred provision/benefit $ -- (6,400) ----------- ----------- $ -- $ 366,178 =========== =========== 2004 2005 ----------- ----------- Federal income tax expense (benefit) at $ 855,000 $ 1,186,442 statutory rate (34%) State income tax expense (benefit) net of federal tax effect 81,000 174,476 Benefit of new operating loss carryover (936,000) (951,200) Deferred income tax valuation allowance Surtax exemption and other (43,540) ----------- ----------- Net income tax expense $ 0 $ 366,178 Deferred tax assets and liabilities are determined based on the difference between currently enacted tax rates. Deferred tax expense or benefit is the result of the changes in deferred tax assets and liabilities. Deferred income taxes arise principally from the temporary differences between financial statement and income tax recognition of net operating losses. The components of deferred taxes at December 31, 2004 and December 31, 2005 in the accompanying balance sheet is summarized below: 2004 2005 ---------- -------- Deferred tax assets Allowance for bad debts 117,200 Impaired goodwill 46,400 Amortization of intangibles 102,000 Net operating loss carry forward 370,000 Less valuation allowance (370,000) -------- ------- 0 265,600 Deferred tax liabilities Depreciation 78,000 Deferred tax liabilities 78,000 -------- ------- Valuation allowance (57,000) Deferred tax assets, net 130,000 At December 31, 2004, the Company has approximately $1,000,000 of unused Federal net operating loss carry forwards, which was used in 2005. The valuation allowance decreased by $951,200 during the year ended December 31, 2005. 16. CONCENTRATION OF REVENUES The Company's top four customers accounted for 37.1% of sales during the year ended December 31, 2005. The Company's top four customers accounted for 56% of sales during the year ended December 31, 2004. 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 and we expect to further reduce this risk in 2005. 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 2004 & 2005 are listed in the table below: 2004-Top 2004- % Of 2005-Top Four 2005- % Of Four Customers Revenues Customers Revenues -------------- -------- --------- -------- Customer A 21.3 Customer E 16.7 Customer B 13.2 Customer C 8.3 Customer C 11.7 Customer F 6.6 Customer D 9.8 Customer G 6.0 Top Four-2004 Total % 56 Top Four-2005 Total % 37.6 17. GAIN ON RENEGOTATION OF CONTRACTS During the quarter ended March 31, 2004, an agreement between the Company and Hamilton Aviation was negotiated that eliminated an accrued liability for rental payments resulting in a gain of $88,000. During the first and second quarters of 2004 our World Jet, subsidiary successfully negotiated with creditors reductions in some liabilities which resulted in gains totaling $449,338. On July 8, 2004, the Estate Administrator, on behalf of Hamilton Aviation, Inc., accepted an offer by HAT calling for satisfaction of all of its obligations under the May 6, 2004 Settlement Agreement by payment of a lump sum of $750,000 on or before September 6, 2004. HAT made this final lump sum payment and the resulting elimination of accrued liabilities resulted in a gain of $607,194 recorded during the quarter ended September 30, 2004. Summarized below are the $ amounts recognized on renegotiation of contracts by quarter and by operating unit: Global Hamilton World Quarter Ended: Aircraft Aerospace Jet Consolidated -------------- -------- --------- --- ------------ March 31, 2004 $ 88,000 $ 224,654 $ 312,654 June 30, 2004 $ 224,654 $ 224,654 September 30, 2004 $ 607,194 $ 607,194 December 31, 2004 $ -0- Totals for Year -0- $ 695,194 $ 449,308 $ 1,144,502 18. SUBSEQUENT EVENTS On February 20, 2006, the Company executed an amendment to the lease with Tucson Airport Authority, Inc. for the rent of the HAT facility extending the term for one year until February 28, 2007 and stipulating a rental amount of $318,228.37 per year, payable monthly, commencing March 1, 2006. On February 20, 2006, the Company executed an amendment to the lease with Tucson Airport Authority, Inc. for the World Jet inventory storage facility extending the term for one year until February 28, 2007 and stipulating a rental amount of $210,911.59 per year, payable monthly, commencing March 1, 2006.